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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, 1996
FIRST VIRGINIA BANKS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0497561
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 703/241-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, Par Value $1.00 New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Convertible Preferred Stock, Par Value $10.00
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes __X__ No_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the common stock of the registrant held by
nonaffiliates as of February 18, 1997, was approximately $1,748,301,000. The
registrant's voting preferred stock is not actively traded and the market
value of such stock is not readily determinable.
On February 28, 1997, there were 32,415,056 shares of common stock
outstanding.
INDEX
Page
----
Part I
Item 1. Business 3
Competitive Factors 4
Regulation 4
Employees 4
Lines of Business 4
Statistical Disclosure By Bank Holding Companies 5
Executive Officers of the Registrant 5/8
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Selected Financial Data 10/11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11/44
Item 8. Financial Statements and Supplementary Data 45/77
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 78
Part III
Item 10. Directors and Executive Officers of the Registrant 78/83
Item 11. Executive Compensation 83/95
Item 12. Security Ownership of Certain Beneficial Owners
and Management 95
Item 13. Certain Relationships and Related Transactions 95
Part IV Page
----
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 96/97
Signatures 98/99
Financial Statements 45/75
Exhibits:
Exhibit 3(i). Articles of Incorporation and Bylaws
Exhibit 3(ii). Bylaws
Exhibit 10. Second Amendment to Supplemental Compensation
Agreement and Employment Agreements regarding
Change of Control.
Exhibit 11. Statement RE: Computation of per share earnings
Exhibit 12. Statement RE: Computation of ratios
Exhibit 13. First Virginia Banks, Inc., 1996 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 that was incorporated under the laws of the Commonwealth of
Virginia in October 1949. Since its formation in 1949, the corporation has
acquired control of 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-eight (48) 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, 1996, the corporation owned all of the outstanding stock of 18
commercial banks (the "banking companies") with combined assets of $7.980
billion. On that date, the banking companies operated 274 offices throughout
the State of Virginia, 56 offices in Maryland and 25 offices in Tennessee.
In addition to the 18 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 $8.236 billion as of
December 31, 1996.
Competitive Factors
- -------------------
Other banking organizations have been active in opening new banking
offices through acquisition and control of existing banks, mergers, branching
and formation of new banks and in acquiring or forming bank-related
subsidiaries in areas where the corporation's banking companies compete.
Accordingly, each banking company faces strong competition. Savings and loan
associations and credit unions actively compete for deposits. Such
institutions, as well as consumer finance companies, mortgage companies, loan
production offices of out-of-state banks, factors, insurance companies and
pension trusts are important competitors for various types of loans. The
bank-related member companies also operate in highly competitive fields.
At midyear 1996, the service area of the 11 banking companies in
Virginia, with 274 offices, reached approximately 85% of Virginia's
population. In Maryland, the service area of the 5 banking companies, with 56
offices, reached approximately 68% of Maryland's population, and in
Tennessee, the service area of the 2 banking companies, with 25 offices,
reached approximately 41% of East Tennessee's population.
Regulation
- ----------
The corporation and its subsidiaries are subject to the supervision and
examination of the Federal Reserve Board, the Federal Deposit Insurance
Corporation and the state regulators of Virginia, Maryland and Tennessee
which have jurisdiction over financial institutions and have obtained
regulatory approval for their various activities to the extent required.
Employees
- ---------
As of December 31, 1996, the corporation and its subsidiaries employed
5,439 individuals (4,895 full-time equivalent).
Lines of Business
- -----------------
All of the corporation's income is derived from banking or bank-related
activities. While each of the member companies is engaged in bank-related
activities, several of them conduct lines of business not expressly permitted
for banks under applicable regulations. During the last three years, the
results of their operations have not been material in relation to the
consolidated operating results of the corporation.
Statistical Disclosure by Bank Holding Companies
- ------------------------------------------------
The following statistical information appears in this Form 10-K on the
page indicated:
Page
----
Return on equity and assets, dividend payout
ratio and equity to assets ratio 11
Average balance sheets and interest rates on
earning assets and interest-bearing liabilities 14/19
Average book value of investment securities 14/19
Average demand, savings and time deposits 14/19
Effect of rate-volume changes on net interest income 20/21
Type of loans 29
Maturity ranges of time certificates of
deposit of $100,000 or more 31
Risk elements - loan portfolio 34
Summary of loan loss experience 37
Loan maturities and sensitivity to changes in
interest rates 39
Executive Officers of the Registrant
- ------------------------------------
There are no arrangements or understandings between the named executive
officers and any other person pursuant to which they were selected as an
officer.
There are no family relationships among the executive officers. All
positions and ages are as of December 31, 1996.
Messrs. Cash and Hicks have held their present positions with the
corporation for more than five years.
BARRY J. FITZPATRICK
Chairman of the Board, President and Chief Executive Officer since July 1,
1995, and Chairman of the Board and Chief Executive Officer, January 1, 1995
through June 30,1995; 26 years of service; BBA, University of Notre Dame;
MBA, American University, and graduate of The Stonier Graduate School of
Banking. Has held several officer positions with First Virginia
organizations, including Executive Vice President of the corporation,
responsible for banking companies, from 1992 to December 31, 1994; Senior
Vice President and Regional Executive Officer, Eastern Region, from 1982 to
1992; and President and CEO of member banks in the Roanoke Valley from 1972
to 1982. Mr. Fitzpatrick is 56.
SHIRLEY C. BEAVERS, JR.
Executive Vice President since April 1992; President and Chief Executive
Officer of First Virginia Services, Inc., since May 1986; 26 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 51.
RAYMOND E. BRANN, JR.
Executive Vice President of the corporation since January 1, 1995. Senior
Vice President and Regional Executive Officer, Eastern Region, from April
1992 to January 1995; 31 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 56.
RICHARD F. BOWMAN
Senior Vice President, Treasurer and Chief Financial Officer since 1994; 20
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 44.
MICHAEL G. ANZILOTTI
Senior Vice President and Regional Executive Officer, Northern Region, since
April 1995; President and Chief Executive Officer of First Virginia Bank
since April 1995; Executive Vice President and Chief Administrative Officer,
First Virginia Bank from 1986 to April 1995; 21 years of service; BS,
Virginia Polytechnic Institute; MBA, George Mason University and graduate of
The Stonier Graduate School of Banking. Mr. Anzilotti is 47.
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; 32 years of service; graduate certificate,
American Institute of Banking. Has held several executive officer positions
with banks in the Shenandoah Valley area that have, through merger, become
First Virginia Bank-Shenandoah Valley. Mr. Cash retired as of December 31,
1996 and he is 67.
DOUGLAS M. CHURCH, JR.
Senior Vice President since August 1996; Senior Vice President and Regional
Executive Officer, Maryland Region, from December 1994 to August 1996; Senior
Vice President, Marketing from October 1990 to December 1994. 22 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 45.
HENRY HOWARD HICKS, JR.
Senior Vice President and Regional Executive Officer, Southwest Region, since
1982; 42 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 61.
THOMAS P. JENNINGS
Senior Vice President, General Counsel and Secretary since December 1995 and
Vice President, General Counsel and Secretary from January 1993 to December
1995; 18 years of service; BA, Wake Forest University; JD, University of
Virginia. Employed as Assistant Counsel; appointed Associate Counsel in 1979,
General Counsel in 1980, and Vice President and General Counsel from March
1986 to January 1993. Mr. Jennings is 49.
WILLIAM H. McFADDIN
Senior Vice President and Regional Executive Officer, Eastern Region, since
December 1995. President and Chief Executive Officer, First Virginia Bank -
Colonial from 1986 to December 1995. 23 years of service. BS, Presbyterian
College and graduate of the Graduate School of Banking of the South. Mr.
McFaddin is 50.
DAVID F. RITCHIE
Senior Vice President and Regional Executive Officer, Maryland Region, since
August 1996. President and Chief Executive Officer of Farmers Bank of
Maryland from September 1996 to the present and President and Chief Executive
Officer of First Virginia Bank - Central Maryland since January, 1990; 31
years of service; BS, American University and graduate of the Banking School
of the South at Louisiana State University. Mr. Ritchie is 51.
CHARLES L. ROBBINS, III
Senior Vice President and Regional Executive Officer, Tennessee-Western
Virginia Region, since April 1992; President and CEO, Tri-City Bank and Trust
Company, Tennessee, since April 1992; 22 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 44.
JOHN P. SALOP
Senior Vice President of the corporation since April 1996; Senior Vice
President of First Virginia Bank since February 1994 and Vice President,
Commercial Credit, First Virginia Bank from 1988 to February 1994; 22 years
of service; BA, The College of William and Mary, and graduate of the Banking
School of the South at Louisiana State University. Mr. Salop is 45.
MELODYE MAYES TOMLIN
Senior Vice President and General Auditor since December 1995; Vice President
and General Auditor from 1986 to December 1995; 17 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.
EDWARD S. YATES, III
Senior Vice President and Regional Executive Officer, Shenandoah Valley
Region, since January 1, 1997; President and Chief Executive Officer of First
Virginia Bank - Blue Ridge since June 1996 and President and Chief Executive
Officer of First Virginia Bank - Central from January 1987 to June 1996; 25
years of service; BS, University of Virginia; MBA, Virginia Commonwealth
University and graduate of the Banking School of the South at Louisiana State
University. Mr. Yates is 48.
ITEM 2. PROPERTIES
----------
The banking subsidiaries operated a total of 355 banking offices on
December 31, 1996. Of these offices, 208 were owned by the banks, one is
owned by the corporation and leased to a bank, two are owned by affiliated
companies and leased to affiliated banks, and 144 were leased from others.
The corporation owns other properties, including the two corporate
headquarters buildings that house personnel of the corporation and its
subsidiaries. On December 31, 1996, the net book value of all real estate
and the unamortized cost of improvements to leased premises totaled
$123,029,000. The corporation currently has no mortgage indebtedness.
As of December 31, 1996, a total annual base rental of approximately
$14,418,000 was being paid on leased premises, of which approximately
$6,506,000 was being paid to affiliated companies and which was eliminated in
consolidation. As of December 31, 1996, total lease commitments having a
remaining term in excess of one year to persons other than affiliates were
approximately $42,424,000.
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 1996.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The common stock of the corporation is listed for trading on the New York
Stock Exchange (Trading Symbol: FVB). The dividends paid per share and the
high and low sales price for common shares traded on the New York Stock
Exchange were:
Sales Price
------------------------------
Dividends
1996 1995 Per Share
-------------- -------------- ------------
High Low High Low 1996 1995
------ ------ ------ ------ ----- -----
1st Quarter...... $42.00 $38.25 $35.75 $32.00 $.35 $.33
2nd Quarter...... 41.63 39.13 38.50 33.00 .35 .33
3rd Quarter ..... 45.88 39.25 43.00 37.25 .36 .34
4th Quarter...... 49.00 43.13 44.00 39.88 .36 .34
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, 1996, there were 19,934 holders of
record of the corporation's voting securities, of which 19,156 were holders
of common stock.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
A five-year summary of selected financial data follows:
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(Dollar amounts in thousands, except per-share data)
Balance Sheet Data
Cash.................. $ 378,171 $ 397,858 $ 420,742 $ 326,136 $ 381,384
Money market
investments.......... 323,620 235,000 30,000 235,000 235,000
Mortgage loans
held for sale........ 12,771 19,216 13,291 69,173 60,105
Other earning assets.. 19,672 11,528 8,987 6,263 6,184
Investment securities:
Available for sale... - 64,546 - - -
Held to maturity..... 1,820,949 2,128,220 2,086,030 2,169,771 2,159,043
Loans, net............ 5,302,026 4,980,154 4,938,334 3,967,218 3,732,928
Other assets.......... 378,847 385,014 367,998 263,322 265,903
---------- ---------- ---------- ---------- ----------
Total Assets......... $8,236,056 $8,221,536 $7,865,382 $7,036,883 $6,840,547
========== ========== ========== ========== ==========
Deposits ............. $7,042,650 $7,056,107 $6,815,841 $6,136,389 $6,013,746
Short-term borrowings. 234,488 209,719 179,409 151,859 150,681
Long-term indebtedness 3,876 2,710 3,814 1,008 5,227
Other liabilities .... 83,765 83,353 59,430 56,126 63,494
Shareholders' Equity.. 871,277 869,647 806,888 691,501 607,399
---------- ---------- ---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $8,236,056 $8,221,536 $7,865,382 $7,036,883 $6,840,547
========== ========== ========== ========== ==========
Operating Results
Interest income ...... $ 587,216 $ 573,599 $ 503,642 $ 504,782 $ 525,270
Interest expense ..... 212,298 215,502 161,639 164,959 204,826
---------- ---------- ---------- ---------- ----------
Net interest income..... 374,918 358,097 342,003 339,823 320,444
Provision for loan loss. 17,734 8,341 6,463 6,450 17,355
Noninterest income...... 98,450 89,906 84,700 82,540 77,087
Noninterest expenses.... 279,310 271,384 252,459 245,767 238,891
---------- ---------- ---------- ---------- ----------
Income before income tax 176,324 168,278 167,781 170,146 141,285
Provision for income tax 59,983 56,679 54,560 54,122 43,812
---------- ---------- ---------- ---------- ----------
Net income ............$ 116,341 $ 111,599 $ 113,221 $ 116,024 $ 97,473
========== ========== ========== ========== ==========
Dividends declared:
Preferred ............$ 44 $ 47 $ 51 $ 54 $ 61
Common................ 47,861 46,205 42,108 36,519 31,830
Per Share of Common Stock
Net income ............ 3.50 3.28 3.51 3.57 3.02
Dividends declared..... 1.44 1/2 1.36 1.28 1.13 .99
Shareholders' equity... 26.86 25.59 23.68 21.29 18.85
Market price at year-end 47.88 41.75 32.00 32.75 36.63
A five-year summary of selected financial data (Continued):
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Ratios
- ------
Earnings:
Return on average assets 1.43% 1.41% 1.58% 1.68% 1.50%
Return on average equity 13.38 13.34 15.76 17.81 17.03
Net interest margin..... 5.06 5.00 5.28 5.46 5.46
Risk-based capital:
Tier 1.................. 13.57 15.42 14.76 16.84 15.52
Total capital........... 14.66 16.57 15.96 18.09 16.77
Capital strength:
Tier 1 leverage......... 9.69 9.63 10.25 9.67 8.91
Ratio of average equity
to average assets...... 10.68 10.53 10.04 9.45 8.80
Dividends declared as a
percentage of net
income (per share, not
restated for poolings
of interests).......... 41.29 41.46 36.47 31.65 32.78
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 was up 4% in 1996, reaching a record level of
$116.341 million compared to the $111.599 million earned in 1995. As a result
of the corporation's share repurchase program, begun in 1994, the lower
number of average shares outstanding caused the earnings per share to
increase at an even greater rate of 7% to $3.50, compared to the $3.28 earned
in 1995. Over the past five years, First Virginia's compound annual growth
rate in earnings per share was 10.02%. The corporation's return on average
assets rose two basis points to 1.43% and, once again, exceeded the averages
of its local and national peer groups, making it one of the top performing
banks in the country.
The primary reason for the increase in net income was a $16.8 million
increase in net interest income as the net interest margin widened by six
basis points to 5.06%. The corporation has achieved a net interest margin of
5.00% or better every year since 1978. The margin increase in 1996 was caused
by an 11 basis point decline in the cost of funds to 3.56%, which exceeded
the seven basis point decline in the yield on earning assets to 7.88%.
Contributing to the lower rate of decline in the yield on earning assets was
a shift in the mix of earning assets toward relatively higher yielding loans.
During 1996, average loans comprised 68.8% of earning assets compared to
68.0% in 1995, and by year-end, loans comprised 71.1% of earning assets. Also
impacting net income favorably in 1996 was a continued reduction in FDIC
insurance expense, which declined 75.9% to $1.948 million. This included a
mandated one-time payment of $1.061 million to the FDIC to recapitalize the
Savings Association Insurance Fund.
The increase in net income produced an increase in the return on average
shareholders' equity of four basis points in 1996 to 13.38%, compared to the
13.34% earned in 1995. During the year the corporation repurchased and
retired 1,587,300 shares of stock at a cost of $65.962 million. As a result,
total shareholders' equity was up nominally to $871.277 million from the
$869.647 million balance at the end of 1995. Because total assets were also
up nominally for the year, the ratio of total shareholders' equity to total
assets at year-end was unchanged at 10.58%. The corporation traditionally
maintains a higher capital position than its peer group of banks and has one
of the highest capital to assets ratios among the 100 largest banks in the
country. This is a direct result of the corporation's strict adherence to its
principles of safety, income and growth, in that order. This policy ensures
that the corporation has ample capital to provide a cushion in times of
adversity and flexibility to take advantage of expansion opportunities. It
has also permitted the corporation to increase the dividend on a regular
basis. During 1996, the Board of Directors increased the dividend for the
20th consecutive year. It was also the 15th consecutive year in which the
dividend was increased at least twice during the year.
Total assets at year-end increased slightly to $8.236 billion although
average assets were up at a greater 3% pace to $8.146 billion. During 1996,
the corporation purchased two in-store banking offices with total deposits of
$64 million in the Tri-City area of East Tennessee, marking the corporation's
first venture into "supermarket banking." By the end of the year, an
additional two in-store banking offices were opened, and the corporation had
commitments to open four additional in-store locations in 1997. In 1995,
several acquisitions caused the 11% increase in average assets over 1994: the
acquisition of two banks in mid- to late-1994 and the acquisition of $220
million in deposits from a thrift in Richmond, Virginia.
Average loans increased 4% to $5.172 billion, while actual loans at year-
end increased at a greater 6% pace to $5.365 billion. Loans to consumers
secured by automobiles and originated through dealers increased 20.7% and
comprised approximately 36.1% of the loan portfolio at the end of 1996.
During 1996, the corporation received the full benefit of loan production
offices opened in the last two years and, coupled with some enhancements in
product offerings, increased indirect automobile loan production by 38%.
Commercial loan activity began increasing late in the year, following a weak
performance in 1995, as businesses in the corporation's market area expanded
and government-contractor activity resumed the pace it lost in 1995 following
the series of temporary shutdowns in the federal government.
Deposits increased on average by 2% during 1996 to $6.982 billion,
although the balance at the end of 1996 of $7.043 billion declined slightly
from the $7.056 billion balance at the end of 1995. Generally lower interest
rates and all-time high levels in the stock market meant the increased
competition for funds from nonbanking areas such as mutual funds and stock
brokers continued through 1996.
Year Ended December 31
96vs95 95vs94 94vs93
----- ----- -----
Earnings per share - prior period................. $3.28 $3.51 $3.57
----- ----- -----
Net change during the year:
Taxable interest income......................... .28 1.34 .04
Tax-exempt interest income...................... (.01) .01 (.06)
Interest expense ............................... .06 (1.03) .07
Provision for loan losses....................... (.18) (.04) .00
Gain on sale of mortgage servicing rights....... (.01) .02 .03
Noninterest income.............................. .18 .08 .02
FDIC expense.................................... .12 .11 (.01)
Noninterest expense, excluding FDIC expense..... (.28) (.47) (.13)
Income taxes.................................... (.02) (.06) (.04)
Decrease (increase) in common shares outstanding .08 (.19) .02
----- ----- -----
Net increase (decrease) during the period..... .22 (.23) (.06)
----- ----- -----
Earnings per share - current period............... $3.50 $3.28 $3.51
===== ===== =====
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1996
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
ASSETS (Dollars in thousands)
Interest-earning assets:
U.S. Government securities-
available for sale $ 15,343 $ 1,152 7.51%
Investment securities-held to maturity:
U.S. Government & its agencies 1,809,771 109,152 6.04
State and municipal obligations(1) 170,331 11,567 6.79
Other(1) 1,491 126 8.45
---------- --------
Total investment securities 1,996,936 121,997 6.10
---------- --------
Loans, net of unearned income:(2)
Installment 3,456,630 299,542 8.67
Real estate 962,892 84,785 8.81
Other(1) 752,135 67,061 8.92
---------- --------
Total loans 5,171,657 451,388 8.73
---------- --------
Mortgage loans held for sale 14,140 1,209 8.55
Money market investments 323,348 17,195 5.32
Other earning assets 15,327 1,019 6.64
---------- --------
Total earning assets and
interest income 7,521,408 592,808 7.88
--------
Noninterest-earning assets:
Cash and due from banks 313,409
Premises and equipment, net 148,623
Other assets 222,103
Less allowance for loan losses (59,580)
----------
Total Assets $8,145,963
==========
(1) Income from tax-exempt securities and loans is included in interest
income on a taxable-equivalent basis. Interest income has been divided by a
factor comprised of the complement of the incremental tax rate of 35% and
adjusted for the partial disallowance of interest costs incurred to carry the
tax-exempt investments.
(2) Nonaccruing loans are included in their respective categories.
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1996
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in thousands)
Interest-bearing liabilities:
Interest checking/savings plan $1,307,087 $ 24,208 1.85%
Money market accounts 726,790 21,847 3.01
Savings deposits 1,159,475 26,487 2.28
Certificates of deposit:
Consumer 2,233,654 113,565 5.08
Large denomination 321,656 16,263 5.06
---------- --------
Total interest-bearing deposits 5,748,662 202,370 3.52
Short-term borrowings 210,910 9,712 4.60
Long-term indebtedness 2,194 216 9.85
---------- --------
Total interest-bearing liabilities
and interest expense 5,961,766 212,298 3.56
--------
Noninterest-bearing liabilities:
Demand deposits 1,233,132
Other 81,274
Common shareholders' equity (memo only) 869,120
Shareholders' equity 869,791
----------
Total liabilities and
shareholders' equity $8,145,963
==========
Net interest income and
net interest margin $380,510 5.06%
========
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1995
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
ASSETS (Dollars in thousands)
Interest-earning assets:
Investment securities-held to maturity:
U.S. Government & its agencies $1,755,077 $105,580 6.02%
State and municipal obligations(1) 233,267 16,269 6.97
Other(1) 6,565 387 5.89
---------- --------
Total investment securities 1,994,909 122,236 6.13
---------- --------
Loans, net of unearned income:(2)
Installment 3,292,393 285,446 8.67
Real estate 924,763 82,337 8.90
Other(1) 738,337 69,814 9.46
---------- --------
Total loans 4,955,493 437,597 8.83
---------- --------
Mortgage loans held for sale 15,273 1,229 8.05
Federal funds sold and securities
purchased under agreements to resell 316,601 18,994 6.00
Other earning assets 9,264 588 6.34
---------- --------
Total earning assets and
interest income 7,291,540 580,644 7.95
--------
Noninterest-earning assets:
Cash and due from banks 344,540
Premises and equipment, net 154,047
Other assets 208,742
Less allowance for loan losses (57,645)
----------
Total Assets $7,941,224
==========
(1) Income from tax-exempt securities and loans is included in interest
income on a taxable-equivalent basis. Interest income has been divided by a
factor comprised of the complement of the incremental tax rate of 35% and
adjusted for the partial disallowance of interest costs incurred to carry the
tax-exempt investments.
(2) Nonaccruing loans are included in their respective categories.
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1995
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in thousands)
Interest-bearing liabilities:
Interest checking $1,312,782 $ 27,350 2.08%
Money market accounts 716,903 22,005 3.07
Savings deposits 1,253,129 32,910 2.63
Certificates of deposit:
Consumer 2,091,515 107,760 5.15
Large denomination 286,324 14,408 5.03
---------- --------
Total interest-bearing deposits 5,660,653 204,433 3.61
Short-term borrowings 203,735 10,742 5.27
Long-term indebtedness 3,261 327 10.03
---------- --------
Total interest-bearing liabilities
and interest expense 5,867,649 215,502 3.67
--------
Noninterest-bearing liabilities:
Demand deposits 1,168,574
Other 68,614
Common shareholders' equity (memo only) 835,669
Shareholders' equity 836,387
----------
Total liabilities and
shareholders' equity $7,941,224
==========
Net interest income and
net interest margin $365,142 5.00%
========
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 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% and
adjusted for the partial disallowance of interest costs incurred to carry the
tax-exempt investments.
(2) Nonaccruing loans are included in their respective categories.
AVERAGE BALANCE SHEETS AND INTEREST RATES ON
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
1994
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY (Dollars in thousands)
Interest-bearing liabilities:
Interest checking $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
Common shareholders' equity (memo only) 717,662
Shareholders' equity 718,442
----------
Total liabilities and
shareholders' equity $7,157,784
==========
Net interest income and
net interest margin $349,469 5.28%
========
EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME
1996 Compared to 1995
Increase (Decrease)
Due to Change in
------------------------------
Total
Average Average Increase
Volume Rate (Decrease)
-------- -------- --------
Interest income (In thousands)
- ---------------
Investment securities:
U.S. Government and
its agencies $ 4,213 $ 511 $ 4,724
State and municipal obligations* (4,389) (313) (4,702)
Other* (299) 38 (261)
-------- -------- --------
Total investment securities (475) 236 (239)
-------- -------- --------
Loans:
Installment 14,239 (143) 14,096
Real estate 3,395 (947) 2,448
Other* 1,305 (4,058) (2,753)
-------- -------- --------
Total loans 18,939 (5,148) 13,791
-------- -------- --------
Mortgage loans held for sale (91) 71 (20)
Money market investments 405 (2,204) (1,799)
Other earning assets* 385 46 431
-------- -------- --------
Total interest income 19,163 (6,999) 12,164
-------- -------- --------
Interest expense
- ----------------
Interest checking/savings plan (119) (3,023) (3,142)
Money market accounts 303 (461) (158)
Savings deposits (2,460) (3,963) (6,423)
Certificates of deposit:
Consumer 7,323 (1,518) 5,805
Large denomination 1,778 77 1,855
-------- -------- --------
Total interest-bearing deposits 6,825 (8,888) (2,063)
Short-term borrowings 378 (1,408) (1,030)
Long-term indebtedness (107) (4) (111)
-------- -------- --------
Total interest expense 7,096 (10,300) (3,204)
-------- -------- --------
Net interest income $ 12,067 $ 3,301 $ 15,368
======== ======== ========
*Fully taxable-equivalent basis
The increase or decrease due to a change in average volume has been
determined by multiplying the change in average volume by the average rate
during the preceding period, and the increase or decrease due to a change in
average rate has been determined by multiplying the current average volume by
the change in average rate.
EFFECT OF RATE-VOLUME CHANGES ON NET INTEREST INCOME
1995 Compared to 1994
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 $ (1,343) $ 2,222 $ 879
State and municipal obligations* (528) (491) (1,019)
Other* 316 (82) 234
-------- -------- --------
Total investment securities (1,555) 1,649 94
-------- -------- --------
Loans:
Installment 17,432 3,219 20,651
Real estate 22,830 309 23,139
Other* 9,316 5,898 15,214
-------- -------- --------
Total loans 49,578 9,426 59,004
-------- -------- --------
Mortgage loans held for sale (806) 142 (664)
Federal funds sold and securities
purchased under agreements
to resell 6,228 4,682 10,910
Other earning assets 161 31 192
-------- -------- --------
Total interest income 53,606 15,930 69,536
-------- -------- --------
Interest expense
- ----------------
Interest checking 501 (1,466) (965)
Money market accounts (166) 3,167 3,001
Savings deposits (2,018) (1,319) (3,337)
Certificates of deposit:
Consumer 18,710 25,711 44,421
Large denomination 4,239 2,977 7,216
-------- -------- --------
Total interest-bearing deposits 21,266 29,070 50,336
Short-term borrowings 1,011 2,630 3,641
Long-term indebtedness (96) (18) (114)
-------- -------- --------
Total interest expense 22,181 31,682 53,863
-------- -------- --------
Net interest income $ 31,425 $(15,752) $ 15,673
======== ======== ========
*Fully taxable-equivalent basis
The increase or decrease due to a change in average volume has been
determined by multiplying the change in average volume by the average rate
during the preceding period, and the increase or decrease due to a change in
average rate has been determined by multiplying the current average volume by
the change in average rate.
STATEMENT OF INCOME
- -------------------
NET INTEREST INCOME
The tables on pages 14 through 19 detail the increase in earning assets,
interest-bearing liabilities and demand deposits for the last three years,
along with the related levels of fully taxable-equivalent interest income and
expense. The variance in interest income and expense caused by differences in
average balances and rates is shown on pages 20 and 21.
The gradual and modest decline in interest rates begun in 1995 continued
into the first half of 1996 and then slowed as the economy continued to
perform well and inflation was held under control. As a consequence, the
Federal Reserve did not feel compelled to change rates during the last half
of the year, and 1996 was characterized as a year of relative stability in
interest rates. The economy did not grow as rapidly in 1996 as it had in
1995, which meant commercial and consumer loan demand moderated from the very
strong levels of 1995.
In 1995, despite general rate decreases, the competition for funds meant
First Virginia's deposit costs did not decline as rapidly as the yield on
earning assets. In contrast, in 1996, First Virginia's cost of funds declined
at a faster pace than its yield on earning assets due to the continued
decline in interest rates and the more modest growth rate in loans. As a
consequence, the net interest margin increased six basis points in 1996 to
5.06%, after dropping to its lowest level in 1995 since 1978. The cost of
funds declined 11 basis points to 3.56%, while the yield on earning assets
only declined seven basis points to 7.88%. The corporation's interest-bearing
liabilities are fully cycled at the end of 1996, and further reductions in
the cost of funds are not likely unless rates drop further. The yield on
loans should increase slightly during 1997 as lower yielding loans originated
in previous years mature and are replaced at higher rates. As a result, the
corporation expects a modest increase in the net interest margin in 1997.
Net Interest Margin
(the higher, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1996 5.06% 4.43% 4.58%
1995 5.00% 4.46% 4.51%
1994 5.28% 4.45% 4.50%
1993 5.46% 4.69% 4.62%
1992 5.46% 4.64% 4.69%
Southern Regionals: Banking companies with assets over $2 billion (35 in
1996)
National Peer Group: Banking companies with assets of
between $5 and $10 billion (23 in 1996)
Source: Keefe, Bruyette & Woods
Net taxable-equivalent interest income increased 4.2% over 1995. This was
caused by an increase in the net interest margin as a higher proportion of
the corporation's earning assets were invested in loans. Interest income from
loans increased 3.2%, despite a 10 basis point reduction in yield stemming
from an increase in average loans outstanding. Interest income on securities
declined slightly, despite an increase in average outstandings, as the
general decline in rates caused the yield to drop three basis points. The
corporation maintains a highly liquid, short-term-oriented investment
securities portfolio that moves quickly with changes in market rates of
interest.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased 112.6% in 1996 to $17.734 million
compared to the $8.341 million recorded in 1995, continuing its steady
increase from a low of $6.450 million in 1993. Several factors contributed to
the increase in the provision for loan losses in 1996, primarily the increase
in outstanding loans. However, net actual charge-offs also increased 39.0%
after hitting an unsustainable cyclical low in 1994 when net charge-offs
totaled just .11% of outstanding loans. In 1996, the net charge-off rate rose
six basis points over 1995 to .25%, but it was still below the 10-year
average of .26%. Also impacting the provision for loan losses was an increase
in the allowance for loan losses of two basis points to 1.17% recognizing the
increases in net charge-offs and modest increases in delinquency rates on
consumer loans. The allowance for loan losses covered net charge-offs 4.9
times at the end of 1996, compared to 6.2 times at the end of 1995, and
covered nonperforming loans by 307%. Nonperforming assets represented .48% of
outstanding loans at the end of 1996, down nine basis points from the .57% at
the end of 1995, its lowest level in over 20 years.
The corporation has a lower risk exposure to charge-offs than many banks
because most of its loans are made for small amounts to consumers and are
generally well secured by assets such as automobiles or real estate. These
loans also have regular monthly repayment schedules, and their average
duration is substantially less than their stated lives. Credit card loans are
made primarily to the banks' customers located in the corporation's trade
area and contain a lesser degree of risk and delinquency than many
competitors' nationally solicited accounts. The balance of the corporation's
loans are made primarily to small- and medium-sized businesses in the
corporation's trade area and are well secured. Less than 3% of the
corporation's loans are for land development and construction and much of
that 3% is for residential or owner-occupied facilities. The corporation does
not have any international, national or highly leveraged credits, nor does it
have any concentration of credit in any one industry that exposes the loan
portfolio to adverse risk. While approximately 43% of the corporation's loan
portfolio is comprised of automobile sector loans, the loans are for
relatively small amounts to consumers with regular monthly payment schedules,
and they are of the highest quality, with very limited risk.
NONINTEREST INCOME
Noninterest income increased 9.5% in 1996 after rising 6.1% in 1995. First
Virginia's objective is to increase noninterest income at a faster pace than
noninterest expense, and this objective was met in both 1996 and 1995. The
corporation has traditionally been more dependent on net interest income than
other banking companies its size and has been actively seeking new sources of
noninterest income in order to decrease this historic dependence.
Income from trust services increased 12.2% in 1996, following an even
larger 32.8% increase in 1995 as the corporation continued to strengthen its
presence in this area. Increased fees and changes in product mix have
resulted in higher trust revenues with marginal increases in expense.
Enhanced marketing development plans and additional product lines should help
this area sustain above-average growth over the next several years.
In 1995, the corporation introduced an automobile leasing product through
its network of automobile dealers. Income from this source more than doubled
in 1996, meeting the corporation's goals, and the product continues to be
offered through more outlets. Under this product, leases are originated for a
fee for a third party that assumes all credit, servicing and residual risk so
that the corporation's exposure is limited.
Also added as a new product in 1995 was real property title insurance,
offered through the corporation's insurance agency. Originally available on
consumer residential loans, the corporation extended this offering to
commercial properties and in 1996 increased commission income from title
insurance by 148.7%. While income from this source continues to increase,
total insurance income in 1996 declined 2.1% after remaining stable in 1995.
Income from credit life insurance continued to decline as a result of legally
mandated rate reductions and lower volumes of home equity loan origination.
Service charges on deposits increased 2.5% after rising 7.7% in 1995.
Income in 1995 rose due to the acquisition of Farmers National Bancorp in
late 1994, while 1996 income increased as a result of increased commercial
account fees. The corporation has been successful over the past several years
in increasing the number of large national accounts with multiple locations
to its servicing base. Higher volumes of consumer demand accounts caused
return check and overdraft fees to increase 6.0% in 1996 and 11.0% in 1995.
Credit card fees declined slightly with a decrease in the number of
accounts being charged an annual fee. The corporation promotes a no annual
fee card to respond to a more competitive market and to retain existing
accounts. This attractive product has enabled the corporation to increase its
outstanding credit card loans and increase interest income, as well as
generate higher interchange fees on cardholder activity.
Income from electronic banking service fees, primarily interchange income
from automated teller machines (ATMs), increased 54.6% in 1996 to $7.390
million. Rule changes in 1996 at a number of ATM networks now permit the
corporation to charge a fee to noncustomers who use the corporation's ATMs.
In addition to increasing income from these machines, the changes have made
the economics of placing ATMs in nonbranch locations more feasible. As a
result, the corporation has begun placing ATMs in high traffic, nonbranch
locations such as convenience stores, shopping malls and public facilities.
The corporation currently has 225 ATMs installed in its network. Income from
point of sale terminals increased 73.7% in 1996 and continues to grow as
consumers accept electronic payment alternatives.
The corporation's policy is to hold all of its fixed income securities to
maturity and, accordingly, there were no security sales producing gains or
losses in 1995. At the end of 1995, the corporation transferred $65 million
in securities to the available for sale portfolio with the intention to sell
these securities in 1996 in order to take advantage of certain tax loss
carry-forwards and other benefits. These securities were sold in early 1996
as planned and contributed to a gain of $1.789 million for the year.
Other noninterest income includes gains of $1.5 million in 1996 and $2.5
million in 1995 from the sale of mortgage servicing rights. The corporation
realizes a higher total profit in selling a package of servicing rights each
year rather than selling individual loans with servicing released. Also
included in other income in 1996 are gains of $1.522 million on the sale of
foreclosed real estate compared to a gain of $.067 million in 1995.
NONINTEREST EXPENSE
First Virginia's noninterest expense rose 2.9% in 1996, approximately the
rate of inflation in the economy, after declining 1% in 1995 (excluding the
acquisition of Farmers National Bancorp at the end of 1994). The corporation
achieved an efficiency ratio of 57.0% in 1996 compared to 58.2% in 1995 and
has consistently had an efficiency ratio better than its national and
regional peer groups. By strictly managing its expenses in good times and
bad, the corporation has avoided the layoffs and restructuring charges common
in many corporations today. The low efficiency ratio is all the more
remarkable at First Virginia because of the extensive branch network the
corporation maintains. While more expensive to maintain, the branches
generate a large portion of the low-cost transaction-oriented deposit
accounts.
As income and sales targets were achieved in 1996, the resulting
performance and profit sharing payments caused salaries and employee benefits
expense to increase at a slightly higher than inflation rate of 3.3%. Pension
plan benefit-related expense increased 24.6%, due primarily to a decline in
the discount rate assumption of 125 basis points to 7.25%, caused by the
decline in interest rates at the end of 1995. Health-care costs moderated as
the corporation installed a new managed care health plan and, as a result,
health-care costs rose less than 1%, after rising 15% in 1995. Despite an
increase in the stock price during the year, expense from stock appreciation
rights declined $977 thousand as more officers elected to exercise their
rights as options and the previously recorded expense was reversed.
Occupancy expense increased 5.8% in 1996 primarily as a result of
increases in rent expense for existing locations that contain rent escalation
clauses. Occupancy expense in 1995 increased 12.8%, almost exclusively as a
result of the acquisition of Farmers National Bancorp at the end of 1994.
Updating the branch automation system to the current generation of hardware
and software caused an 11.7% increase in equipment expense. This update will
significantly enhance the corporation's service delivery capabilities. At the
end of 1996, the corporation upgraded its mainframe computer, increasing
capacity 150% and lowering cost.
Full capitalization of the Bank Insurance Fund in mid-1995 eliminated the
FDIC premium rate on banks in 1996. This caused a 75.9% decline in FDIC
insurance expense in 1996, following a 41.3% drop in 1995. In 1996, the
corporation paid deposit insurance on some deposits purchased in prior years
from savings and loans. In the third quarter, a special one-time assessment
was made to all Savings Association Insurance Fund (SAIF) deposits that fully
capitalized that fund. As a consequence, the corporation paid a one-time fee
of $1.061 million but will benefit in the future from reduced SAIF premiums
now that the fund is fully capitalized. The reduction in premiums should
reduce expense enough to fully recapture the one-time assessment within
approximately 2 1/2 years.
Efficiency Ratio
(the lower, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1996 57.0% 59.3% 59.2%
1995 58.2% 61.0% 59.3%
1994 58.5% 63.4% 63.2%
1993 56.9% 62.6% 62.6%
1992 58.4% 61.8% 60.0%
Southern Regionals: Banking companies with assets over $2 billion (35 in
1996)
National Peer Group: Banking companies with assets of
between $5 and $10 billion (23 in 1996)
Source: Keefe, Bruyette & Woods
Amortization of intangibles increased $.317 million in 1996 due to the
purchase of deposits at a premium for two in-store banking offices in 1996
and four offices acquired from a savings and loan in 1995. Intangible
amortization increased $4.909 million in 1995 as a result of the acquisition
of two banks in 1994 accounted for as purchases.
The 10.2% rise in other operating expense in 1996 was caused by a $1.770
million increase in miscellaneous charge-offs and a 17.3% increase in
Virginia bank franchise taxes due to greater capital levels.
PROVISION FOR INCOME TAXES
Income tax expense increased $3.304 million in 1996, slightly greater than
the rate of increase in pretax income. A lesser portion of the corporation's
interest income came from nontaxable municipal securities as income from this
source continues to decline. The increase in income taxes in 1995 of $2.119
million resulted mostly from increases in state income taxes in the state of
Maryland, a direct result of the acquisition of Farmers National Bancorp in
late 1994.
The corporation's effective tax rate increased .3% to 34.0% in 1996, due
to the decline in tax-exempt municipal interest income. The effective tax
rate in 1995 increased 1.2% to 33.7% because of the increase in state income
taxes in the state of Maryland. Since 1982, various changes in tax laws have
reduced the availability and attractiveness of tax-exempt securities for
banks.
BALANCE SHEET
- -------------
First Virginia's lending portfolio is its primary earning asset,
generating over 65% of its gross income and funded mostly from the deposits
of its customers, which are almost entirely "core" deposits. Most of the
corporation's short-term borrowings are related to the commercial account
cash management activities and are functionally equivalent to deposits. The
corporation does not rely upon "purchased" deposits or nondeposit funding
sources, nor does it sell or securitize its loan assets. The corporation's
objective is to invest 70-80% of its total deposits and short-term borrowings
in loans. In 1996, the loan to funding liabilities rate was 71.9%, an
increase over the 70.5% ratio in 1995 and the 68.8% ratio in 1994. Average
loans increased 4.4% in 1996 compared to 1995, following a 13.0% increase in
1995. However, the apparent 13% increase was a result of acquisitions
accounted for as purchases in 1994 and a carryover into 1995 of strong loan
growth in 1994, so loan growth in 1995 was weaker than indicated and was
actually flat compared to 1994.
Total assets increased nominally to $8.236 billion, compared to $8.222
billion at the end of 1995, as total deposits declined slightly.
Shareholders' equity remained stable as a consequence of dividends paid to
shareholders and the repurchase of $65.962 million in common stock under the
corporation's share repurchase program.
The table on the following page shows the average balances of the various
categories of earning assets as a percentage of total earning assets for the
years indicated.
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Loans .................. 68.76% 67.96% 66.27% 61.53% 60.13%
Securities.............. 26.55 27.36 30.53 33.51 34.89
Mortgage loans held for sale .19 .21 .40 .61 .56
Other earning assets.... .20 .13 .10 .10 .10
Overnight investments... 4.30 4.34 2.70 4.25 4.32
------ ------ ------ ------ ------
100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
LOANS
Period-end loans advanced 6.5% in 1996 to $5.365 billion, following a more
modest 1.0% advance in 1995.
The largest component of First Virginia's loan portfolio is in automobile-
related loans, particularly loans originated through automobile dealerships.
The corporation is a full-service provider to the automobile dealership
community and makes loans to consumers to finance their purchase of
automobiles, loans to dealers to finance their inventory of automobiles
(called floor plan loans) and, to a lesser extent, the dealer's physical
plant and facilities. Approximately 43% of the corporation's loan portfolio
is automobile-related.
Loans to consumers for automobiles expanded 18% in 1996, after a 6%
expansion in 1995 and 20% in 1994. Gross production increased 38% in 1996 as
the full impact of new loan production offices, opened in 1995 in Tennessee
and the Carolinas, was achieved. In addition, the corporation enhanced its
product offerings in Virginia and Tennessee to be more competitive, which
also contributed to the increase in loan production. In the past, the
corporation marketed its loans through dealers primarily in the areas served
by its member banks. However, in 1993, it began opening loan production
offices in other areas, and based on the success of this strategy, it intends
to continue expanding this activity in the future.
First Virginia concentrates on the highest quality of automobile loans,
primarily "A" and "B" credits. Most of these loans are made to consumers and
are secured by new cars with a maximum life of the loan of five years. The
loan portfolio's high quality means net charge-offs are significantly below
industry averages and servicing costs are low. Each loan in First Virginia's
portfolio is individually reviewed by an experienced loan underwriter, and
credit-scoring models are not used. This allows the corporation to give
highly personal service and quick approval to the dealer originating the
loan. The portfolio contains an almost equal distribution between domestic
and foreign automobiles, with no concentration in any particular make of car.
The corporation also makes loans directly to dealers to finance their
sales inventory, which are fully secured by specific automobiles. Average
floor plan loans in 1996 declined 12% after increasing 15% in 1995, as sales
volume increased and dealers moved to lower their inventory balances. In
early 1995, a leasing product was introduced for consumers that is offered
through the corporation's extensive dealer network, and income from this
source increased 104% in 1996. First Virginia offers its leasing product in
conjunction with an outside third party that assumes all of the financing and
residual risk. First Virginia is committed to the automobile market,
regardless of the economic cycle, and it devotes its primary lending
resources to this area.
Home equity loans declined 9.6% in 1996 and 8.9% in 1995, after advancing
11.7% in 1994. At the end of 1996, home equity loans comprised 18.4% of the
loan portfolio, making them the second largest component of the portfolio. As
it does with automobile loans, First Virginia pursues the highest quality
home equity loans, with high underwriting standards that enable the
corporation to show a nominal net charge-off rate. For example, the
corporation typically requires a maximum loan to equity ratio of no more than
80%. These loans are originated through the banks' branches and through First
General Mortgage Company, a home equity mortgage loan company that operates
in areas outside the corporation's banking markets.
A weakness in the economy of the corporation's primary market, the
metropolitan Washington, D.C. area, in late 1995 and early 1996, led to
corresponding weak lending volume. Faced with strong competition, new home
equity loan volumes remained weak at the end of 1996. Some competitors
offered loans containing extremely low-interest teaser rates and terms, with
loan to equity ratios exceeding 100%.
Residential real estate loans advanced 7.2%, after declining 6.7% in 1995,
and comprise approximately 9.4% of the loan portfolio. The corporation's
consumer real estate portfolio is mostly composed of 15-year fixed-rate
mortgages and longer-term mortgages with interest rates that adjust every
three to five years. These types of loans are more stable, with rates that
equal market rates of interest and without the same level of prepayment risk.
Revolving credit loans, primarily credit cards, increased 3.2% over the
end of 1995 after advancing at the more rapid rates of 9.4% and 17.4%,
respectively, in 1995 and 1994. Growth slowed in 1996 as fewer new account
solicitations were mailed out. First Virginia promotes its card by offering
one of the best low fixed-rate, no annual fee card products in its market and
generally has eschewed low "teaser" rates. The corporation limits its
solicitation efforts primarily to the geographic area of its member banks.
These practices have resulted in a more stable cardholder base, an increased
penetration rate in acquiring new accounts and accounts that have a much
lower charge-off rate than national averages.
Commercial loans declined 5.8% at December 31, 1996, after increasing 1.8%
in the previous year. The primary reason for the decline was the previously
mentioned 14.4% decline in floor plan loans to dealers that comprise 28.9% of
commercial loans. Loan activity was weak in 1995 due to the increased
competition for high-quality commercial loans, but it began strengthening in
late 1996 as economic activity in the corporation's market area increased.
The corporation makes its loans to small- and medium-sized businesses in the
communities served by its member banks, including loans to government
contractors, high-tech companies, hospitals, churches and country clubs.
These loans are typically in amounts between $1 to $5 million, generally up
to a maximum amount of $15 million.
Construction and land development loans increased 15.5% at the end of 1996
after declining 20.2% in 1995. After several years of relatively little
activity in this area, a consequence of the overbuilding in the late 1980s,
occupancy rates for commercial properties rose and home sales increased,
leading to a rise in development activities in 1996. Commercial real estate
loans increased 7.0%, following a 5.0% rise in 1995, and loans to tax-exempt
and industrial development authorities increased 29.1%. These loans, made for
owner-use properties, carry primarily floating or adjustable interest rates
and reflect an increase in confidence and increased economic activity in the
corporation's market area.
LOANS
December 31
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(In thousands)
Consumer:
Automobile...........$2,167,802 $1,836,603 $1,725,928 $1,429,750 $1,209,832
Home equity, fixed-
and variable-rate... 987,514 1,091,858 1,198,087 1,072,379 999,877
Revolving credit loans,
including credit cards 214,615 207,931 190,103 161,995 163,711
Other................ 317,764 300,157 260,989 152,793 164,208
Real estate:
Construction and
land development.... 113,211 97,974 122,737 90,823 109,378
Commercial mortgage.. 523,251 489,225 465,943 301,315 284,579
Residential mortgage. 504,962 470,994 504,823 424,580 468,909
Other, including
Industrial Development
Authority loans..... 88,378 68,431 61,876 63,082 69,898
Commercial............ 447,290 474,903 466,708 321,428 311,876
---------- ---------- ---------- ---------- ----------
Loans, net of
unearned income $5,364,787 $5,038,076 $4,997,194 $4,018,145 $3,782,268
========== ========== ========== ========== ==========
Loans and other assets that are not performing in accordance with their
original terms are discussed on pages 32 to 37.
INVESTMENT SECURITIES
The average outstanding held to maturity investment portfolio decreased
nominally in 1996 to $1.982 billion compared to $1.995 billion during 1995.
By year-end, the portfolio had declined 14.4% to $1.821 billion from the
previous year-end balance of $2.128 billion. Increases in loan growth
exceeded deposit growth and the investment portfolio was permitted to mature
to fund the loan growth. The corporation has constructed its portfolio in a
"laddered" approach so an approximately equal amount matures each month.
The corporation has classified virtually 100% of its investment portfolio
as held to maturity because it has both the ability and the intention to hold
these securities to their stated maturity. At the end of 1995, approximately
$65 million in securities were reclassified out of the held to maturity
category and into the available for sale category as permitted by a
transition provision of SFAS 115. This was done for various tax purposes with
the intention to sell the securities in 1996. Consequently these securities
were sold in the second quarter of 1996 and a $1.771 million gain was
realized. The reclassification was not a change in the corporation's policy
to hold all securities to maturity but simply a one-time event enabling the
corporation to take advantage of available tax incentives.
The corporation places primary importance on safety and liquidity in its
investment portfolio. Accordingly, the majority of the portfolio is invested
in U.S. Government and agency securities with a maximum life of approximately
five years. At the end of 1996 and 1995, the average life of the portfolio
was 25 months and 24 months, respectively. At December 31, 1996, U.S.
Government and agency securities comprised 92% of the securities portfolio.
This percentage has been gradually increasing since 1982 when changes in
federal income tax laws reduced the tax benefits derived by banks for
investments in municipal securities. The limited availability of bank-
qualified municipal securities and the reduction in yield caused by the loss
of tax benefits has generally made municipal securities less attractive to
the corporation. First Virginia has generally limited its investments in
municipal securities to publicly issued municipal securities with a rating of
A1 or better or to unrated, general obligation securities of municipalities
in its market areas with which it is familiar.
In 1995 and 1996, the corporation placed a higher portion of its portfolio
in U.S. Government agency securities. At the end of 1996, approximately 25%
of the investment portfolio was comprised of agency securities compared to 5%
at the end of 1994, and the corporation intends to maintain them at
approximately that level. The majority of the securities were in callable
securities with stated lives of approximately five years, although their
actual lives are generally shorter. These securities give the corporation a
higher but more variable yield and a higher level of potential liquidity. The
corporation generally does not invest in mortgage-backed securities,
collateralized mortgage obligations, structured notes or other types of
derivative securities.
MONEY MARKET INVESTMENTS
Money market investments, consisting primarily of federal funds sold and
securities repurchase agreements, are generally governed by the size of
normally anticipated deposit swings and loan demand. In 1995, average money
market investments increased 77% to $317 million after a temporary decline in
1994 to fund loan growth. Average money market investments were relatively
unchanged in 1996, rising 2% to $323 million.
DEPOSITS
As in 1995, deposit growth was modest, with average deposits increasing
only 2.2%. Interest rates declined modestly throughout 1996, and interest
rates paid on deposits declined after increasing in 1995. The competition for
funds was most acute from nonbanking areas, as the stock market's record-high
advances in both 1996 and 1995 sparked strong growth in mutual fund sales.
The decline in rates reduced the corporation's overall cost of funds by 11
basis points to 3.56%.
Average Deposits
(Millions of Dollars)
1996 1995 1994
-------- -------- --------
Noninterest Bearing $1,233.1 $1,168.6 $1,063.0
Interest Checking 1,307.1 1,312.8 1,290.0
Savings 1,159.4 1,253.1 1,327.0
Money Market 726.8 716.9 723.2
Consumer CDs 2,233.7 2,091.5 1,614.5
Large Denomination CDs 321.7 286.3 180.1
-------- -------- --------
$6,981.8 $6,829.2 $6,197.8
======== ======== ========
There was a movement out of lower-yielding categories of deposits such as
consumer savings, and into the relatively higher-cost certificates of
deposit. Average consumer savings declined 7.5% in 1996, after dropping 5.6%
in 1995, and have been in a steady decline since peaking in 1994. Money
market accounts increased 1.4% in 1996, but they too have generally been in a
decline since peaking in 1992. In contrast, certificates of deposit advanced
6.8% in 1996, with most of the growth coming in the more liquid categories
with 13 month or less maturities. Large denomination certificates of deposit
increased 12.3% in 1996 and 58.9% in 1995 and are comprised primarily of
certificates from high net worth consumers and bear rates comparable to the
corporation's smaller denomination certificates of deposit. The corporation
does not purchase brokered deposits nor does it solicit deposits outside of
its primary market areas.
Average demand deposits increased 5.5% in 1996, while interest checking
plans declined a modest .4%. The 1995 increase in demand deposits of 9.9% was
a direct result of the December 1994 acquisition of Farmers National Bancorp.
With First Virginia's stress on service and convenience, supported by an
extensive network of convenient neighborhood branches, its deposits tend to
be less susceptible to changes in interest rates. During 1996, the
corporation opened four in-store banking offices, a low-cost alternative to
full-size branches. These locations have higher sales potential and deposit
growth as they offer further convenience to consumers. The corporation has
traditionally obtained a higher proportion of its deposits from low-cost
transaction accounts compared to its peers, and in 1996, demand deposits and
interest checking plans comprised 36.4% of total average deposits, while
consumer savings and money market accounts comprised 27.0%.
Maturity ranges for certificates of deposit with balances of $100,000 or
more on December 31, 1996, are as follows (in thousands):
One month or less.............................................. $ 30,896
After one month through three months........................... 68,294
After three through six months ................................ 81,408
After six through twelve months ............................... 102,463
Over twelve months............................................. 67,070
--------
$350,131
========
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 their
cash management activities. Average short-term borrowings from these sources
increased 3.5% in 1996 and 14.2% in 1995, and reflect the increase in the
number of commercial customers using cash management services.
Long-term debt is comprised of capitalized lease obligations on branch
office facilities that are not subject to prepayment and on 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 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 has historically been one of the most highly capitalized
banking companies in the nation, a reflection of its principles of safety,
income and growth, in that order. At the end of 1996, the ratio of
shareholders' equity to total assets was unchanged from the 10.58% at the end
of the previous year and compared favorably to the 8.83% maintained by
similar banks in the corporation's peer group of $5- to $10-billion asset-
sized banks. The Tier 1 leverage ratio increased by six basis points to 9.69%
due to a reduced level of intangible assets. Each of the corporation's
individual banks maintains capital ratios well in excess of regulatory
minimums, and all qualify as "well capitalized" banks, allowing them the
lowest FDIC premium rate and freedom to operate without restrictions from
regulatory bodies.
The Board of Directors has approved several plans to repurchase the
corporation's common stock since 1994. In 1996, the corporation completed a
2.7 million program initially approved by the Board in 1994. The Board
approved a new program in 1996 to purchase 2.5 million shares, which was
later increased to 4 million shares in connection with the announced
acquisition of Premier Bankshares Corporation. During 1996, the corporation
purchased 1,587,300 shares under these programs and retired $65.962 million
in equity. First Virginia and its subsidiary banks are required to comply
with capital adequacy standards established by the Federal Reserve and the
FDIC. The corporation exceeded the regulatory risk-based capital requirements
by wide margins, due in part to the high level of capital and the
conservative nature of the corporation's assets. The Tier 1 risk-based
capital ratio declined 185 basis points to 13.57% during 1996, and the total
risk-based capital ratio declined 191 basis points to 14.66%, primarily as a
result of a shift in risk-based assets into loans and out of investment
securities. Regulatory minimums of 4.0% and 8.0%, respectively, are exceeded
by substantial margins.
Return on Total Average Equity
(the higher, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1996 13.38% 14.93% 14.21%
1995 13.34% 15.00% 14.46%
1994 15.76% 15.26% 14.93%
1993 17.81% 15.66% 15.81%
1992 17.03% 14.27% 14.71%
Southern Regionals: Banking companies with assets over $2 billion (35 in
1996)
National Peer Group: Banking companies with assets of between $5 and $10
billion (23 in 1996)
Source: Keefe, Bruyette & Woods
Asset Quality
- -------------
The corporation has a number of policies, reviewed constantly by senior
management, 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. Each member bank's internal loan monitoring system also provides a
detailed monthly report of production, delinquencies and nonperforming and
potential problem loans. This careful monitoring has resulted in a consistent
record of low delinquencies and charge-offs as well as few nonperforming
loans in relation to the entire loan portfolio.
The corporation has no foreign or highly leveraged transaction loans, and
loans are only made within the trade areas of the member banks or in adjacent
states where the corporation maintains loan production offices generating
high-quality consumer installment loans. Loans are generally not participated
with nor purchased from banks outside of the First Virginia system. In
addition, participations between banks within the First Virginia system must
first be participated with the corporation's lead bank where a second
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 $98
million; however, it generally limits its loans to any one borrower and
related interests to $15 million. In special cases the corporation may exceed
its internal guideline from time to time.
One of the corporation's specialty loan areas is the automobile finance
area, and loans are made to consumers both directly in the branches of the
member banks and indirectly through automobile dealerships. Roughly 40% of
the total loan portfolio is comprised of consumer automobile loans but
because the loan amounts are relatively small and spread across many
individual borrowers, the risk of any major charge-offs is minimized. The
automobile loans produced by the corporation consist primarily of the highest
quality loans, commonly referred to in the industry as "A" and "B" quality
loans. These loans contain substantially less risk characteristics than lower
quality "C" and "D" subprime loans and have lower delinquency, charge-off and
collection costs. During periods of economic weakness, the subprime loan
categories generate very high delinquencies and charge-offs. However, the
high quality loans the corporation specializes in experience only modestly
higher delinquencies and charge-offs in recessions compared to periods of
strong economic growth. The corporation also makes loans directly to high-
quality automobile dealers to finance their inventories.
NONPERFORMING ASSETS
Nonperforming assets declined $3.423 million in 1996 and represented .48%
of total loans, the lowest percentage in over 20 years. After peaking at
1.07% in 1990, the ratio of nonperforming assets has been steadily declining.
It has been consistently below the averages for similar sized banks in its
national and regional peer groups. With the sale of several large properties
in 1996, foreclosed real estate declined 33.1% following a 9.4% decline in
1995. There was no concentration of foreclosed real estate or nonaccruing
loans in any specific geographic location or type of property.
The table on the following page shows the total of nonperforming assets at
the end of the past five years. Experience has shown that actual losses on
nonperforming assets are only a small percentage of such assets. The
corporation expects to recover virtually all of its nonperforming assets,
many with full interest.
Nonperforming Assets
December 31
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(In thousands)
Nonaccruing loans ........ $14,906 $17,066 $15,286 $18,387 $20,453
Restructured loans........ 5,537 4,260 2,478 2,175 1,139
Properties acquired
by foreclosure........... 5,140 7,680 8,478 7,086 11,099
------- ------- ------- ------- -------
Total................... $25,583 $29,006 $26,242 $27,648 $32,691
======= ======= ======= ======= =======
Percentage of total loans and
foreclosed real estate .48% .57% .52% .68% .85%
Loans 90 days past due.... $ 8,919 $ 6,262 $ 4,881 $ 2,752 $ 4,595
======= ======= ======= ======= =======
Percentage of total loans. .17% .12% .10% .07% .12%
Loans past due 90 days or more increased $2.657 million to $8.919 million
and represent .17% of the loan portfolio. This compares to $6.262 million or
.12% of the portfolio at the end of 1995. Loans past due 90 days or more have
been increasing steadily since reaching a low in 1993 and consist primarily
of consumer loans secured by automobiles or home equity loans. This level is
still less than First Virginia's historic averages and considerably below
industry averages. Loans past due 30 days or more declined slightly at the
end of 1996 and represented .64% of total loans compared to .69% at the end
of 1995. These levels of delinquencies are significantly below industry
averages and reflect the high overall quality of the corporation's loan
portfolio.
A loan generally is classified as nonaccrual when full collectibility of
principal or interest is in doubt; when repossession, foreclosure or
bankruptcy proceedings are initiated; or when other legal actions are taken.
In the case of installment loans, a loan is placed in nonaccrual if payments
are delinquent 120 days, and for other loans after payments are delinquent
for 90 days. Credit card loans are charged off if they are 180 days past due.
If collateral on a loan is sufficient to ensure full collection of principal
and interest, an exception to the general policy might be made. Loans may
also be placed in a nonaccruing status at any time prior to that indicated
above if the corporation anticipates that interest or principal will not be
collected.
Nonperforming Asset Ratios
(the lower, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1996 0.48% 0.57% 0.54%
1995 0.57 0.66 0.58
1994 0.52 0.66 0.67
1993 0.68 1.19 0.96
1992 0.85 2.62 1.58
Reserve Coverage Ratios
(the higher, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1996 307% 348% 326%
1995 272 354 326
1994 331 337 321
1993 248 235 256
1992 229 161 204
Net Charge-Offs Ratios
(the lower, the better)
National
First Southern Peer
Virginia Regionals Group
-------- --------- --------
1996 0.25% 0.29% 0.28%
1995 0.19 0.22 0.20
1994 0.11 0.17 0.20
1993 0.13 0.33 0.31
1992 0.35 0.78 0.66
Southern Regionals: Banking companies with assets over $2 billion (35 in
1995)
National Peer Group: Banking companies with assets of between $5 and $10
billion (23 in 1996)
Source: Keefe, Bruyette & Woods
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that management
believes is adequate to absorb potential losses in the loan portfolio.
Management's methodology in determining the adequacy of the allowance
considers specific credit reviews, past loan loss experience, current
economic conditions and trends, and the growth and composition of the loan
portfolio. Every commercial loan is reviewed and rated at least annually, and
trends in the total portfolio are examined for potential deterioration in
overall quality.
The corporation reduced the allowance steadily from the approximate 1.28%
level maintained at the time of the last recession to the current level of
1.17% as credit quality in the portfolio improved and net charge-offs
declined. The allowance increased two basis points in 1996 as a result of a
six basis point increase in net charge-offs to .25% and an increase in loans
past due 90 days or more. Offsetting this was a decline in nonperforming
assets of nine basis points and a decline in loans past due 30 days or more.
The allowance covered net charge-offs 4.87 times at the end of 1996 compared
to 6.24 times at the end of 1995 and covered nonperforming loans by 307%.
Most of the corporation's loan portfolio consists of small, homogeneous loans
to consumers with regular monthly repayment schedules, and accordingly, none
of the allowance has been allocated to specific credits.
The corporation constantly monitors the level of the allowance considering
its long-term experience and short-term individual loan requirements. The
allowance is charged when management determines that the prospect of recovery
of the principal of a loan has significantly diminished. Subsequent
recoveries, if any, are credited to the allowance when collected. If asset
quality and loan charge-offs remain at the current level, the corporation
intends to maintain an allowance for loan losses in the 1.15% to 1.20% range.
Management believes the allowance is adequate to absorb any potential
unidentified losses.
Net charge-offs declined to unsustainably low levels in 1993 and 1994 and
have increased in 1995 and 1996 to near normal levels. An increase in
bankruptcies caused credit card loan net charge-offs to increase 23.4% in
1996 and 43.4% in 1995 to the current 3.75% level. They are still below
national peer group statistics, however, and credit card loans comprise only
3.6% of the total loan portfolio. Losses in the corporation's largest loan
component, indirect auto loans, increased 139.9% in 1996 to $3.944 million,
however, this represents a charge-off rate of only .22% and is below the 10-
year average and significantly below industry averages. The second largest
component of the loan portfolio, home equity loans, had a net charge-off rate
of only .02% in both 1996 and 1995. Commercial loans saw a decrease in the
net charge-off rate of .16% in 1995 to .05% in 1996. This category, while
experiencing relatively few net charge-offs over the years, tends to be more
volatile because of the larger average size of the loans.
An analysis of the activity in the allowance for loan losses for each of
the last five years is presented in the table on the following page.
Allowance for Loan Losses
December 31
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(In thousands)
Balance at beginning of year $57,922 $58,860 $50,927 $49,340 $44,817
Balances of acquired banks - - 6,412 259 -
Provision charged to
operating expense........ 17,734 8,341 6,463 6,450 17,355
------- ------- ------- ------- -------
Total ................ 75,656 67,201 63,802 56,049 62,172
------- ------- ------- ------- -------
Charge-offs:
Consumer:
Credit card............. 7,744 6,326 4,677 4,516 4,852
Indirect automobile..... 5,539 3,288 2,396 2,827 5,139
Other................... 2,287 1,551 1,222 1,464 2,758
Real estate.............. 176 155 98 39 473
Commercial............... 865 1,401 363 365 3,298
------- ------- ------- ------- -------
Total ................ 16,611 12,721 8,756 9,211 16,520
------- ------- ------- ------- -------
Recoveries:
Consumer:
Credit card............. 979 845 856 758 632
Indirect automobile..... 1,595 1,644 1,988 2,102 2,024
Other................... 655 696 730 765 813
Real estate.............. 1 6 3 17 18
Commercial............... 486 251 237 447 201
------- ------- ------- ------- -------
Total ................ 3,716 3,442 3,814 4,089 3,688
------- ------- ------- ------- -------
Net charge-offs deducted.. 12,895 9,279 4,942 5,122 12,832
------- ------- ------- ------- -------
Balance at end of year ... $62,761 $57,922 $58,860 $50,927 $49,340
======= ======= ======= ======= =======
Net Loan Losses (Recoveries) to
Average Loans by Category:
Credit card.............. 3.75% 3.19% 2.61% 2.80% 3.11%
Indirect automobile...... .22 .10 .03 .06 .29
Other consumer........... .11 .06 .03 .05 .16
Real estate.............. .02 .02 .01 - .07
Commercial............... .05 .16 .02 (.01) .50
------- ------- ------- ------- -------
Total Loans............... .25% .19% .11% .13% .35%
======= ======= ======= ======= =======
Percentage of allowance for loan
losses to year-end loans. 1.17% 1.15% 1.18% 1.27% 1.30%
LIQUIDITY AND SENSITIVITY TO INTEREST RATES
- -------------------------------------------
The primary functions of asset/liability management are to ensure adequate
liquidity and maintain an appropriate balance between interest-sensitive
assets and interest-sensitive liabilities. Interest-sensitive assets and
liabilities are those that can be repriced to current market rates within a
relatively short time period. Liquidity management involves the ability to
meet the cash flow requirements of the corporation's loan and deposit
customers. Interest-rate-sensitivity management seeks to avoid fluctuating
net interest margins and to enhance consistent growth of net interest income
through periods of changing interest rates. The corporation does not hedge
its position with swaps, options or futures, but maintains instead a highly
liquid, short-term position in all of its earning assets and interest-bearing
liabilities.
One of the primary ways the corporation meets its liquidity needs is by
scheduling the maturity of its investment securities so that approximately an
equal amount will mature each month. The weighted-average life of the
securities portfolio at the end of 1996 was 25 months, only a slight increase
from the approximately 24 months at the end of 1995. 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
fluctuate significantly as the corporation maintains a constant approach to
its portfolio and invests primarily in U.S. Government and agency securities
with a life generally no greater than five years. Municipal securities are
also generally limited to lives of no more than five years, but availability
and other factors mean they are occasionally purchased in serial issues with
longer lives.
A cash reserve consisting primarily of money market investments is also
maintained by the parent company to meet any contingencies and to provide
additional capital, if needed, to the member banks.
Most of the corporation's loans are fixed-rate installment loans to
consumers and mortgage loans with maturities longer than the deposits by
which they are funded. A degree of interest-rate risk is incurred if the
interest rate on deposits should rise before the loans mature. However, the
substantial liquidity provided by the monthly repayments on these loans can
be reinvested at higher rates that largely reduce the interest-rate risk.
Home equity lines of credit have adjustable rates that are tied to the prime
rate. Many of the loans not in the installment or mortgage categories have
maturities of less than one year or floating rates that may be adjusted
periodically to reflect current market rates. These loans are summarized in
the table on the following page.
Between
1 year 1 and 5 After
or less years 5 years Total
-------- -------- ------- --------
(In thousands)
Maturity ranges:
Commercial, financial and other... $357,215 $159,578 $71,122 $587,915
Construction and land development. 82,797 23,009 7,405 113,211
-------- -------- ------- --------
Total ............................. $440,012 $182,587 $78,527 $701,126
======== ======== ======= ========
Floating-rate loans:
Commercial, financial,
Agricultural and other........... $ 42,401 $20,309 $ 62,710
Construction and land development. 20,467 4,772 25,239
-------- ------- --------
Total ............................. $ 62,868 $25,081 $ 87,949
======== ======= ========
First Virginia's Asset/Liability Committee reviews the corporation's
liquidity requirements and maximizes the corporation's net interest income
consistent with capital requirements, liquidity, interest rate and economic
outlooks, competitive factors and customer needs. Liquidity requirements are
reviewed in detail for each of the corporation's individual banks; however,
overall asset/liability management is performed on a consolidated basis to
achieve a consistent and coordinated approach.
One of the tools the corporation uses to determine its interest-rate risk
is gap analysis. Gap analysis attempts to examine the volume of interest-
rate-sensitive assets minus interest-rate-sensitive liabilities. The
difference between the two is the interest-sensitivity gap, and it indicates
how future changes in interest rates may affect net interest income.
Regardless of whether interest rates are expected to increase or fall, the
objective is to maintain a gap position that will minimize any changes in net
interest income. A negative gap exists when the corporation has more
interest-sensitive liabilities maturing within a certain time period than
interest-sensitive assets. Under this scenario, if interest rates were to
increase it would tend to reduce net interest income.
At December 31, 1996, the corporation was liability sensitive in the short
term (under six months) by approximately 30% of earning assets, which
declined to 23% in 12 months. Technically, the corporation may reprice
interest checking, savings and insured money markets at any time and,
accordingly, they have been classified in the 1-30 day sensitivity category
in the accompanying table. While these accounts have been somewhat more
subject to repricing in the last two years than in prior years, the degree
and frequency of movement is limited, and they are much less sensitive than
contractually possible. The table on pages 40 and 41 shows the corporation's
interest-sensitivity position at December 31, 1996:
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.... $ 866,201 $ 1,201,673 $ 1,624,252
Investment securities............ 28,001 116,294 270,364
Money market investments......... 323,620 323,620 323,620
Other earning assets............. - - -
------------ ------------ ------------
Total earning assets......... 1,217,822 1,641,587 2,218,236
------------ ------------ ------------
Funding sources: (1)
Noninterest bearing
demand deposits................ - - -
Interest checking/savings plan... 1,308,539 1,308,539 1,308,539
Money market accounts............ 712,550 712,550 712,550
Savings deposits................. 1,111,677 1,111,677 1,111,677
Consumer certificates of deposit. 227,191 493,575 948,833
Large denomination certificates
of deposit..................... 30,896 99,190 180,598
Short-term borrowings............ 234,488 234,488 234,488
Long-term indebtedness........... - - -
------------ ------------ ------------
Total funding sources........ 3,625,341 3,960,019 4,496,685
------------ ------------ ------------
Interest-sensitivity gap........... $(2,407,519) $(2,318,432) $(2,278,449)
============ ============ ============
Interest-sensitivity gap as a
percentage of earning assets..... (31.92)% (30.74)% (30.21)%
Ratio of interest-sensitive assets
to interest-sensitive liabilities .34x .41x .49x
(1) Technically, interest checking, money market, and savings accounts can be
repriced at any time; accordingly, all balances have been classified in the
1-30 day sensitivity category although their actual repricing and maturity
experience are much less sensitive.
INTEREST-SENSITIVITY ANALYSIS (Continued)
Beyond One
1 to 365-Day Year or
Sensitivity Nonsensitive Total
------------ ----------- -----------
(Dollars in thousands)
Earning assets:
Loans, net of unearned income.... $2,405,276 $2,972,282 $5,377,558
Investment securities............ 573,411 1,247,538 1,820,949
Money market investments......... 323,620 - 323,620
Other earning assets............. - 19,672 19,672
------------ ----------- -----------
Total earning assets......... 3,302,307 4,239,492 7,541,799
------------ ----------- -----------
Funding sources:
Noninterest-bearing
demand deposits................ 1,303,950 1,303,950
Interest checking/savings plan... 1,308,539 - 1,308,539
Money market accounts............ 712,550 - 712,550
Savings deposits................. 1,111,677 - 1,111,677
Consumer certificates of deposit. 1,418,986 836,817 2,255,803
Large denomination certificates
of deposit..................... 283,061 67,070 350,131
Short-term borrowings............ 234,488 - 234,488
Long-term indebtedness........... 3,876 3,876
------------ ----------- -----------
Total funding sources........ 5,069,301 2,211,713 7,281,014
------------ ----------- -----------
Interest-sensitivity gap........... $(1,766,994) $2,027,779 $ 260,785
============ =========== ===========
Interest-sensitivity gap as a
percentage of earning assets..... (23.43)% 26.89% 3.46%
Ratio of interest-sensitive assets
to interest-sensitive liabilities .65x 1.92x 1.04x
First Virginia also uses simulation analysis to monitor and manage interest-
rate sensitivity. Under this analysis, changes in interest rates and volumes
are used to test the sensitivity of First Virginia's net interest income.
Simulation analysis uses a more detailed version of the information shown in
the table above that includes adjustments for the expected timing and magnitude
of changes in assets and liabilities that takes into account changes in assets
and liabilities that may change at rates different from their contractual
rates. A large part of First Virginia's loans and deposits come from its retail
base, and they do not automatically reprice on a contractual basis in reaction
to changes in interest rate levels. Accordingly, First Virginia has not
experienced the earnings volatility its interest-sensitive gap position
indicates it might. Due to the relatively larger proportion of lower-cost core
deposits, such as demand, interest checking, savings and insured money market
accounts, the corporation will tend to do better in a higher interest-rate
environment than a low one since these deposits can be invested in higher-
yielding loans and investments. However, the corporation has been able to
maintain a net interest margin in excess of 5.00% every year since 1978,
regardless of 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.
Quarterly Results
- -----------------
The results of operations for the first three quarters of 1996 have been
analyzed in quarterly reports to shareholders. The results of operations for
each of the quarters during the two years ended December 31, 1996, are
summarized in the table on pages 43 and 44. The results of operations for the
fourth quarter are highlighted below.
Net income of $30.798 million was up 11.7% compared to the $27.560 million
earned in the prior year's fourth quarter and represented a 7.7% increase
compared to the $28.586 million earned in the third quarter. A 3.7% reduction
in the average number of shares outstanding caused earnings per share to
increase at a greater rate of 16.0% to $.94 in the fourth quarter, compared to
the $.81 earned in 1995.
The net interest margin increased 24 basis points to 5.09% in the fourth
quarter compared to the low of 4.85% registered in the prior year's fourth
quarter. The increase in the net interest margin can be attributed almost
entirely to a reduction in the cost of funds, which dropped 26 basis points to
3.53% as the steady decline in interest rates begun in the fourth quarter of
1995 continued throughout 1996. In contrast, the yield on earning assets
dropped by only one basis point to 7.88% as the yield on investment securities
increased two basis points to 6.12% and a higher proportion of earning assets
was shifted out of investment securities and money market investments to
relatively higher yielding loans.
Noninterest income increased 14.8% compared to the prior year's fourth
quarter, led by a 22.6% increase in income from trust services and a 21.0%
increase in income from other customer services, particularly electronic
banking activity. Other income increased 98.1% to $3.198 million as the
corporation recognized $1.470 million in gains on sale of foreclosed real
estate compared to $.042 million in the prior year's fourth quarter.
Noninterest expenses increased 4.3% compared to the fourth quarter of 1995.
Salaries and benefits expense increased 4.0%. This was slightly in excess of
inflation because incentive-based compensation rose as higher sales and income
targets were met in 1996. Upgrading branch automation equipment to provide an
even higher level of customer service and sales opportunities caused a 14.6%
increase in equipment expense. FDIC insurance declined 99% in the fourth
quarter as bank deposits were not assessed a deposit premium. Also, a rebate
was received for SAIF deposits following the special assessment in the third
quarter that brought the SAIF fund for thrift-related deposits to a full
funding level.
Nonperforming assets declined $3.424 million to $25.583 million and
represented .48% of outstanding loans compared to .57% of loans at the end of
the prior year's fourth quarter. This marked the lowest level as a percentage
of outstanding loans in over 20 years. Net charge-offs increased slightly to
.28% of outstanding loans compared to the .24% in the prior year's fourth
quarter. The provision for loan losses during the fourth quarter was $4.935
million compared to $4.648 million in the third quarter and $3.463 million in
the fourth quarter of 1995. It was up primarily as a result of the increase in
outstanding loans and, to a lesser extent, the increase in net charge-offs. At
the end of the quarter, the allowance for loan losses represented 1.17% of
outstanding loans compared to 1.15% at the end of the prior year's fourth
quarter.
QUARTERLY RESULTS
1996
--------------------------------------
Quarter Ended
--------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
-------- -------- -------- --------
Condensed Statements of Income
(Dollar amounts in thousands, except per-share data)
Interest and fees on loans $114,839 $113,499 $111,327 $109,235
Interest on mortgage loans
held for sale 254 274 344 337
Income from securities-
available for sale - - - 1,152
held to maturity 28,492 29,954 29,191 30,107
Other interest income 4,743 3,477 5,517 4,474
-------- -------- -------- --------
Total interest income 148,328 147,204 146,379 145,305
-------- -------- -------- --------
Interest on deposits 50,257 49,737 50,022 52,354
Interest on borrowed funds 2,782 2,406 2,425 2,315
-------- -------- -------- --------
Total interest expense 53,039 52,143 52,447 54,669
-------- -------- -------- --------
Net interest income 95,289 95,061 93,932 90,636
Provision for loan losses 4,935 4,648 5,861 2,290
Noninterest income 25,984 23,900 25,138 23,428
Noninterest expense 70,312 70,681 69,830 68,487
Provision for income taxes 15,228 15,046 14,805 14,904
-------- -------- -------- --------
Net income $ 30,798 $ 28,586 $ 28,574 $ 28,383
======== ======== ======== ========
Net income per share $ .94 $ .87 $ .85 $ .84
Average Quarterly Balances (in millions):
Securities $ 1,883 $ 1,991 $ 1,991 $ 2,123
Loans 5,325 5,229 5,109 5,021
Total earning assets 7,568 7,489 7,535 7,494
Total assets 8,197 8,106 8,150 8,130
Demand deposits 1,263 1,248 1,233 1,188
Interest-bearing deposits 5,739 5,712 5,753 5,792
Total deposits 7,002 6,960 6,986 6,980
Interest-bearing liabilities 5,975 5,918 5,965 5,989
Total shareholders' equity 872 861 870 874
Key Ratios
Rates earned on assets 7.88% 7.91% 7.84% 7.83%
Rates paid on liabilities 3.53 3.51 3.54 3.67
Net interest margin 5.09 5.14 5.04 4.90
Return on average assets 1.50 1.41 1.40 1.40
Return on average equity 14.12 13.27 13.14 13.00
QUARTERLY RESULTS
1995
--------------------------------------
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 $109,705 $110,001 $108,535 $107,025
Interest on mortgage loans
held for sale 393 314 266 256
Income from securities 31,759 29,219 28,209 28,337
Other interest income 5,321 5,851 5,631 2,777
-------- -------- -------- --------
Total interest income 147,178 145,385 142,641 138,395
-------- -------- -------- --------
Interest on deposits 54,875 52,168 50,816 46,574
Interest on borrowed funds 2,668 3,062 2,911 2,428
-------- -------- -------- --------
Total interest expense 57,543 55,230 53,727 49,002
-------- -------- -------- --------
Net interest income 89,635 90,155 88,914 89,393
Provision for loan losses 3,463 2,462 2,084 332
Noninterest income 22,641 22,242 24,585 20,438
Noninterest expense 67,431 65,662 69,513 68,778
Provision for income taxes 13,822 15,004 14,330 13,523
-------- -------- -------- --------
Net income $ 27,560 $ 29,269 $ 27,572 $ 27,198
======== ======== ======== ========
Net income per share $ .81 $ .86 $ .81 $ .80
Average Quarterly Balances
Average balances (in millions):
Securities $ 2,125 $ 1,970 $ 1,919 $ 1,959
Loans 4,995 4,966 4,922 4,936
Total earning assets 7,502 7,330 7,227 7,097
Total assets 8,164 7,976 7,873 7,743
Demand deposits 1,198 1,190 1,160 1,126
Interest-bearing deposits 5,817 5,657 5,607 5,555
Total deposits 7,015 6,847 6,767 6,681
Interest-bearing liabilities 6,023 5,868 5,825 5,747
Total shareholders' equity 861 843 828 815
Key Ratios
Rates earned on assets 7.89% 7.99% 7.99% 7.93%
Rates paid on liabilities 3.79 3.73 3.70 3.47
Net interest margin 4.85 5.00 5.01 5.12
Return on average assets 1.35 1.47 1.40 1.41
Return on average equity 12.81 13.89 13.33 13.35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31
1996 1995
---------- ----------
(In thousands)
ASSETS
Cash and due from banks....................... $ 378,171 $ 397,858
Money market investments...................... 323,620 235,000
---------- ----------
Total cash and cash equivalents - Note 5 701,791 632,858
---------- ----------
Mortgage loans held for sale.................. 12,771 19,216
Investment securities-available for sale-Note 6 - 64,546
Investment securities-held to maturity (market
value-$1,823,404-1996 and
$2,146,792-1995)- Note 6................... 1,820,949 2,128,220
Loans, net of unearned income - Note 7........ 5,364,787 5,038,076
Allowance for loan losses - Note 8......... (62,761) (57,922)
---------- ----------
Net loans............................... 5,302,026 4,980,154
---------- ----------
Other earning assets.......................... 19,672 11,528
Premises and equipment - Note 9............... 148,187 150,168
Intangible assets - Note 4.................... 94,381 95,271
Other assets.................................. 136,279 139,575
---------- ----------
Total Assets............................... $8,236,056 $8,221,536
========== ==========
CONSOLIDATED BALANCE SHEETS (Continued)
December 31
1996 1995
---------- ----------
(In thousands)
LIABILITIES
Deposits:
Noninterest-bearing........................ $1,303,950 $1,235,396
Interest-bearing:
Interest checking/savings plan........ 1,308,539 1,342,482
Money market accounts................. 712,550 710,114
Savings deposits...................... 1,111,677 1,184,298
Certificates of deposit:
Consumer........................... 2,255,803 2,264,793
Large denomination................. 350,131 319,024
---------- ----------
Total deposits..................... 7,042,650 7,056,107
Interest, taxes and other liabilities......... 83,765 83,353
Short-term borrowings - Note 10............... 234,488 209,719
Long-term indebtedness - Note 10.............. 3,876 2,710
---------- ----------
Total Liabilities.......................... 7,364,779 7,351,889
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock - Note 11..................... 647 695
Common stock - Note 12........................ 32,408 33,951
Capital Surplus............................... 43,531 107,112
Retained Earnings............................. 794,691 726,255
Net unrealized gain on
securities available for sale.............. - 1,634
---------- ----------
Total Shareholders' Equity................. 871,277 869,647
---------- ----------
Total Liabilities and Shareholders' Equity. $8,236,056 $8,221,536
========== ==========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1996 1995 1994
-------- -------- --------
(In thousands, except per share data)
Interest income:
Interest and fees on loans.......... $448,900 $435,266 $376,312
Interest on mortgage loans
held for sale...................... 1,209 1,229 1,893
Income from investment
securities-available for sale...... 1,152 - -
Income from investment
securities-held to maturity........ 117,744 117,524 116,957
Income from money market investments 17,195 18,994 8,084
Income from other earning assets.... 1,016 586 396
-------- -------- --------
Total interest income............ 587,216 573,599 503,642
-------- -------- --------
Interest expense:
Deposits............................ 202,370 204,433 154,097
Short-term borrowings............... 9,712 10,742 7,101
Long-term indebtedness.............. 216 327 441
-------- -------- --------
Total interest expense........... 212,298 215,502 161,639
-------- -------- --------
Net interest income...................... 374,918 358,097 342,003
Provision for loan losses................ 17,734 8,341 6,463
-------- -------- --------
Net interest income after provision
for loan losses......................... 357,184 349,756 335,540
-------- -------- --------
CONSOLIDATED STATEMENTS OF INCOME (Continued)
Year Ended December 31
1996 1995 1994
-------- -------- --------
(In thousands, except per share data)
Net interest income after provision
for loan losses......................... 357,184 349,756 335,540
-------- -------- --------
Noninterest income:
Service charges on deposit accounts.. 39,791 38,823 36,063
Insurance premiums and commissions... 6,573 6,717 6,713
Credit card service charges and fees. 11,576 11,626 11,407
Trust services....................... 7,749 6,908 5,203
Electronic banking service fees...... 7,390 4,779 4,629
Income from other customer services.. 14,125 13,794 12,884
Securities gains before income tax
provisions of $626-1996, $0-1995,
and $343-1994...................... 1,789 - 976
Other................................ 9,457 7,259 6,825
-------- -------- --------
Total noninterest income......... 98,450 89,906 84,700
-------- -------- --------
Noninterest expense:
Salaries and employee benefits...... 158,966 153,843 139,780
Occupancy........................... 23,000 21,738 19,263
Equipment........................... 22,816 20,429 19,919
Advertising......................... 7,476 7,428 6,787
Printing and supplies............... 6,882 6,398 5,550
Credit card processing fees......... 8,299 7,715 7,292
FDIC assessment..................... 1,948 8,087 13,771
Amortization of intangibles......... 8,039 7,722 2,813
Other............................... 41,884 38,024 37,284
-------- -------- --------
Total noninterest expense........ 279,310 271,384 252,459
-------- -------- --------
Income before income taxes............... 176,324 168,278 167,781
Provision for income taxes - Note 17..... 59,983 56,679 54,560
-------- -------- --------
NET INCOME............................... $116,341 $111,599 $113,221
======== ======== ========
Net income per share of common stock..... $ 3.50 $ 3.28 $ 3.51
Average primary shares of
common stock outstanding......... 33,270 34,056 32,281
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unreal-
ized
Gain on
Securi-
ties
Pre- Avail- Total
ferred Common able Share-
Stock Stock Capital Retained for holders'
$10 Par $1 Par Surplus Earnings Sale Equity
------- ------- -------- -------- ------- --------
(Dollars in thousands)
Balance January 1, 1994... 805 32,444 68,406 589,846 - 691,501
Increase attributable
to acquired banks....... - 3,234 102,201 - - 105,435
Net income................ - - - 113,221 - 113,221
Conversion of preferred
to common stock......... (59) 8 51 - - -
Issuance of shares for
stock options and stock
appreciation rights..... - 32 713 - - 745
Common stock purchased
and retired............. - (1,668) (60,187) - - (61,855)
Dividends declared:
Preferred stock......... - - - (51) - (51)
Common stock $1.28 per share - - - (42,108) - (42,108)
------- ------- -------- -------- ------- --------
Balance December 31, 1994. 746 34,050 111,184 660,908 - 806,888
Net income................ - - - 111,599 - 111,599
Conversion of preferred
to common stock......... (51) 7 44 - - -
Issuance of shares for
stock options and stock
appreciation rights..... - 59 1,414 - - 1,473
Common stock purchased
and retired............. - (165) (5,530) - - (5,695)
Dividends declared:
Preferred stock......... - - - (47) - (47)
Common stock $1.36 per share - - - (46,205) - (46,205)
Unrealized gains on
securities available for
sale, net of tax........ - - - - 1,634 1,634
------- ------- -------- -------- ------- --------
Balance December 31, 1995. $ 695 $33,951 $107,112 $726,255 $ 1,634 $869,647
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
Unreal-
ized
Gain on
Securi-
ties
Pre- Avail- Total
ferred Common able Share-
Stock Stock Capital Retained for holders'
$10 Par $1 Par Surplus Earnings Sale Equity
------- ------- -------- -------- ------- --------
Balance December 31, 1995. 695 33,951 107,112 726,255 1,634 869,647
Net income................ - - - 116,341 - 116,341
Conversion of preferred
to common stock......... (48) 7 41 - - -
Issuance of shares for
stock options and stock
appreciation rights..... - 47 1,092 - - 1,139
Common stock purchased
and retired............. - (1,597) (64,714) - - (66,311)
Dividends declared:
Preferred stock......... - - - (44) - (44)
Common stock
$1.44 1/2 per share - - - (47,861) - (47,861)
Unrealized gains on
securities available for
sale, net of tax........ - - - - (1,634) (1,634)
------- ------- -------- -------- ------- --------
Balance December 31, 1996. $ 647 $32,408 $ 43,531 $794,691 $ - $871,277
======= ======= ======== ======== ======= ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
1996 1995 1994
-------- -------- --------
(In thousands)
Operating activities
- --------------------
Net income.................................... $116,341 $111,599 $113,221
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and amortization 13,488 13,462 12,644
Gain on sale of fixed assets............... (1,263) (1,050) (596)
Provision for loan losses.................. 17,734 8,341 6,463
Amortization of investment
securities premiums..................... 9,965 12,275 16,265
Accretion of investment
securities discounts.................... (3,426) (6,112) (661)
Net decrease (increase) in mortgage
loans held for sale...................... 6,445 (5,925) 55,882
Gain on sale of securities................. (1,789) - (976)
Amortization of intangible assets.......... 8,039 7,722 2,813
Deferred income taxes...................... (1,123) (58) (1,976)
Increase in prepaid expenses............... (5,840) (6,126) (2,963)
Decrease (increase) in interest receivable. 11,110 (3,243) (643)
Increase (decrease) in interest payable.... (4,320) 19,554 2,793
Increase in other accrued expenses......... 4,309 4,945 3,421
-------- -------- --------
Net cash provided by operating activities 169,670 155,384 205,687
-------- -------- --------
Investing activities
- --------------------
Proceeds from the sale of available
for sale securities......................... 64,682 - 2,183
Proceeds from the maturity of held
to maturity securities...................... 790,173 669,373 645,092
Purchase of held to maturity securities....... (489,422) (780,448) (255,750)
Net increase in loans......................... (339,606) (50,122) (581,584)
Purchases of premises and equipment........... (14,860) (13,691) (14,339)
Sales of premises and equipment............... 4,506 7,162 1,245
Mortgage servicing rights acquired............ (1,351) (1,190) (495)
Other intangible assets acquired.............. (5,869) (16,469) -
Acquisition of banks, net of cash acquired.... - - (1,785)
Other......................................... (8,774) (7,526) (1,310)
-------- -------- --------
Net cash used for investing activities... (521) (192,911) (206,743)
-------- -------- --------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended December 31
1996 1995 1994
-------- -------- --------
(In thousands)
Financing activities
- --------------------
Net (decrease) increase in deposits........... (13,457) 240,266 (12,234)
Net increase in short-term borrowings......... 24,769 30,310 2,181
Principal payments on long-term borrowings.... (2,097) (1,104) (994)
Proceeds from long-term borrowings............ 3,263 - 3,799
Common stock purchased and retired............ (66,311) (5,695) (61,855)
Cash dividends paid:
Common $1.42 per share-1996, $1.34 per
share-1995 and $1.26 per share-1994........ (47,477) (45,559) (40,928)
Preferred................................... (45) (48) (52)
Cash dividends paid by a bank prior to
its acquisition............................. - - -
Proceeds from issuance of common stock........ 1,139 1,473 745
-------- -------- --------
Net cash (used for) provided
by financing activities................ (100,216) 219,643 (109,338)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents..................... 68,933 182,116 (110,394)
Cash and cash equivalents at
beginning of year...................... 632,858 450,742 561,136
-------- -------- --------
Cash and cash equivalents at end of year. $701,791 $632,858 $450,742
======== ======== ========
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. 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 1996 have been reclassified for comparative purposes.
NATURE OF OPERATIONS
All of the corporation's income is derived from banking operations or
bank-related activities located primarily in Virginia, Maryland and
Tennessee. While each of the corporation's nonbank companies is engaged in
bank-related activities, the results of their operations have not been
material in relation to the operating results of the corporation.
SECURITIES AVAILABLE FOR SALE
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance
sheet date. Securities available for sale are stated at the estimated fair
value, with the unrealized gains and losses, net of tax, reported in a
separate component of shareholders' equity. Quoted market prices are used to
determine the estimated fair value. The adjusted cost basis of a specific
security sold is used to compute gains or losses on the sale of investment
securities.
SECURITIES HELD TO MATURITY
Debt securities are classified as held to maturity when the corporation
has the positive intent and ability to hold the securities to maturity.
Securities held to maturity are carried at amortized cost. The adjusted
carrying value of a specific security sold is used to compute gains or losses
on the sale of investment securities.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale to investors are carried at the lower of cost
(net of discounts) or market, as determined in the aggregate. Market is
determined by investor commitment prices or current auction rates at the date
of the financial statements.
LOANS
Interest on installment loans is recorded as income in amounts that will
provide an approximate level yield over the terms of the loans. Accrual of
interest on other loans is based generally on the daily amount of principal
outstanding. Interest is not accrued on loans if the collection of such
interest is doubtful. Loan fees are amortized over the life of the loans,
using methods that approximate level yields. The corporation is generally
amortizing these amounts over the contractual life.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level considered adequate
to provide for potential losses in the loan portfolio. Management's
evaluation of the adequacy of the allowance is based on a review of
individual loans, past loss experience, current and anticipated economic
conditions, the value of underlying collateral and other factors.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, less accumulated depreciation
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.
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.
INCOME TAXES
The corporation uses the liability method of accounting for income taxes
as required by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under the liability method, deferred-tax
assets and liabilities are determined based on differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities (i.e., temporary differences) and are measured at the enacted
rates that will be in effect when these differences reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), was issued. SFAS 123
requires entities that have followed Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations to either adopt a fair value method of accounting for stock-
based compensation (as described by SFAS 123) or continue to follow APB 25
and provide additional pro forma disclosures in the notes to the financial
statements.
The corporation continues to follow APB 25 in accounting for its stock
options. Under APB 25, when the exercise price of the corporation's employee
stock options equals or exceeds the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
2. ACQUISITIONS
On September 25, 1995, First Virginia Bank-Colonial purchased, from a
savings and loan, $220 million in deposits of four of its Virginia-based
branches. A core deposit premium of $17.105 million was recorded and is being
amortized over 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, Annapolis, Maryland; Atlantic Bank, Ocean
City, Maryland; and The Caroline County Bank, 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 $62.790 million
were recorded and are being amortized over 10 to 25 years.
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 ten years.
The results of operations of the two acquisitions in 1994 are included in
the consolidated statements of income from the date of acquisition through
December 31, 1996. Periods prior to the date of acquisition are not included
in the consolidated statements of income.
3. PROPOSED ACQUISITIONS
The corporation has entered into an agreement with Premier Bankshares
Corporation to acquire that bank holding company in exchange for 3,624,295
common shares of the corporation. On December 31, 1996, the unaudited total
assets of the bank holding company were $761.1 million and shareholders'
equity was $78.6 million. Premier Bankshares Corporation operates three banks
with 36 offices: $240.2 million Premier Bank-South, N.A.; $320.6 million
Premier Bank-Central, N.A. and $199.9 million Premier Bank, N. A.
Consummation of the acquisition is contingent upon the approval of the
shareholders of Premier Bankshares Corporation and various regulatory
agencies.
4. INTANGIBLE ASSETS
Total intangible assets were (in thousands):
December 31
1996 1995
-------- --------
Goodwill ...........................................$ 58,727 $ 62,716
Core deposit premiums............................... 31,854 29,225
Mortgage servicing rights .......................... 2,836 2,048
Lease rights........................................ 740 986
Covenant not to compete and customer lists ......... 224 296
-------- --------
Total intangible assets.............................$ 94,381 $ 95,271
======== ========
Goodwill related to acquisitions prior to 1976 is being amortized on a
straight-line basis over 40 years, and goodwill related to acquisitions after
1975 is being amortized over 10 to 25 years. Core deposit premiums, mortgage
servicing rights and covenants not to compete, along with the customer lists,
are being amortized over 5 to 10 years. Lease rights are being amortized over
15 to 20 years.
5. CASH AND CASH EQUIVALENTS
All securities underlying the money market investments were under the
corporation's control, and the maximum amount of outstanding money market
investments at any month-end during 1996 was $435.743 million.
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 $103.917 million
and $178.594 million as of December 31, 1996 and 1995, respectively.
6. INVESTMENT SECURITIES
On December 31, 1995, pursuant to the transition provisions of the
Financial Accounting Standards Board staff's Special Report on Statement No.
115, the corporation transferred securities with an amortized cost of $62.031
million from the held to maturity category to the available for sale
category. The unrealized gain associated with securities transferred was
$1.634 million (net of $880 thousand of deferred taxes).
Securities available for sale consisted entirely of U.S. Government
obligations that mature after one year through five years at an average yield
of 7.7%. The following reflects the carrying amounts of available for sale
securities and held to maturity securities and the related approximate market
values (in thousands):
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ------- ------ ----------
Investment securities available
for sale:
December 31, 1995:
U.S. Government....................$ 62,032 $ 2,514 $ - $ 64,546
========== ======= ======== ==========
Investment securities held
to maturity:
December 31,1996:
U.S. Government and its agencies...$1,673,069 $ 4,729 $ 4,476 $1,673,322
State and municipal obligations.... 146,872 2,378 191 149,059
Other ............................. 1,008 15 - 1,023
---------- ------- ------- ----------
Total............................$1,820,949 $ 7,122 $ 4,667 $1,823,404
========== ======= ======= ==========
December 31,1995:
U.S. Government and its agencies...$1,920,677 $18,608 $ 3,195 $1,936,090
State and municipal obligations.... 199,080 3,434 330 202,184
Other ............................. 8,463 59 4 8,518
---------- ------- ------- ----------
Total............................$2,128,220 $22,101 $ 3,529 $2,146,792
========== ======= ======= ==========
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
========== ======= ======= ==========
Securities having a carrying value of $488.691 million and $465.908
million at December 31, 1996 and 1995, respectively, were pledged to secure
public deposits and for other purposes required by law. The maturity ranges
of securities, the average yield and fair value by maturity range as of
December 31, 1996, are as follows:
U.S. Government
and its Agencies
-----------------------------
Book Value Fair Value Yield
---------- ---------- -----
One year or less........................$ 550,612 $ 551,677 5.9%
After one year through five years....... 1,005,577 1,005,607 6.0
After five through ten years............ 115,653 114,766 7.0
After ten years......................... 1,227 1,272 8.3
---------- ---------- ----
Total................................$1,673,069 $1,673,322 6.0%
========== ========== ====
Weighted average maturity...............25 months
State and
Municipal
-----------------------------
Book Value Fair Value Yield
---------- ---------- -----
One year or less........................$ 53,506 $ 53,648 4.5%
After one year through five years....... 82,830 84,757 4.6
After five through ten years............ 6,990 7,038 4.7
After ten years......................... 3,546 3,616 6.1
---------- ---------- ----
Total................................$ 146,872 $ 149,059 4.6%
========== ========== ====
Weighted average maturity...............26 months
Other
-----------------------------
Book Value Fair Value Yield
---------- ---------- -----
One year or less........................$ 984 $ 1,000 5.5%
After one year through five years....... 10 9 5.5
After five through ten years............ 14 14 10.0
After ten years......................... - - -
---------- ---------- ----
Total................................$ 1,008 $ 1,023 5.6%
========== ========== ====
7. LOANS
Loans consisted of (in thousands): December 31
1996 1995
---------- ----------
Consumer:
Automobile installment ............................$2,167,802 $1,836,603
Home equity, fixed and variable rate............... 987,514 1,091,858
Revolving credit loans, including credit cards..... 214,615 207,931
Other.............................................. 317,764 300,157
Real estate:
Construction and land development.................. 113,211 97,974
Commercial mortgage................................ 523,251 489,225
Residential mortgage............................... 504,962 470,994
Other, including Industrial Development Authority.. 88,378 68,431
Commercial........................................... 447,290 474,903
---------- ----------
Loans, net of unearned income
of $238,389 and $332,181 5,364,787 5,038,076
Less allowance for loan losses....................... 62,761 57,922
---------- ----------
Net loans .........................................$5,302,026 $4,980,154
========== ==========
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
1996 1995 1994
------- ------- -------
Nonaccruing loans........................ $14,906 $17,066 $15,286
Restructured loans ...................... 5,537 4,260 2,478
------- ------- -------
$20,443 $21,326 $17,764
======= ======= =======
Average balance of nonaccruing loans..... $15,814 $16,379 $16,502
Allocation of the allowance for loan
losses for nonaccruing loans........... - - -
Income recorded.......................... 256 218 109
Income anticipated under
original loan agreements..... 1,504 1,639 1,481
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 dispersed among individuals and industries. On
December 31, 1996, 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, 1996 and 1995,
standby letters of credit totaled $22.296 and $20.889 million, respectively,
and the unfunded amounts of loan commitments were (in thousands):
1996 1995
---------- ----------
Fixed-rate revolving credit lines ...................$ 722,906 $ 874,459
Adjustable-rate loans:
Home equity lines ................................. 388,465 388,266
Commercial loans................................... 485,179 465,415
Construction and land development loans............ 70,787 98,054
Other ............................................. 43,128 46,567
---------- ----------
Total ...........................................$1,710,465 $1,872,761
========== ==========
As of December 31, 1996, the corporation had mortgage loans held for sale
of $12.771 million and additional commitments to fund mortgage loans totaling
$66.463 million, with a corresponding commitment to sell $24.059 million of
mortgage loans to outside investors. The commitments to sell mortgage loans
to outside investors are intended to reduce the corporation's interest rate
exposure.
Mortgage loans being serviced for the benefit of nonaffiliated parties
were $613.568 million, $639.652 million and $689.708 million at December 31,
1996, 1995 and 1994, respectively.
A majority of the commercial, construction and land development
commitments and letters of credit will expire within one year, and all loan
commitments can be terminated by the corporation if the borrower violates any
condition of the commitment agreement.
The credit risk associated with loan commitments and letters of credit is
essentially the same as that involved with loans that are funded and
outstanding. The corporation uses the same credit standards on a case-by-case
basis in evaluating loan commitments and letters of credit as it does when
funding loans, including the determination of the type and amount of
collateral, if required.
8. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was (in thousands):
Year ended December 31
1996 1995 1994
------- ------- -------
Balance January 1...............................$57,922 $58,860 $50,927
Increase attributable to acquired banks ........ - - 6,412
Provision charged to operating expense ......... 17,734 8,341 6,463
------- ------- -------
75,656 67,201 63,802
------- ------- -------
Deduct:
Loans charged off............................. 16,611 12,721 8,756
Less recoveries............................... 3,716 3,442 3,814
------- ------- -------
Net charge-offs............................... 12,895 9,279 4,942
------- ------- -------
Balance December 31.............................$62,761 $57,922 $58,860
======= ======= =======
Most of the corporation's loans are small, homogeneous loans to consumers
with regular monthly repayment schedules, and accordingly, none of the
allowance has been allocated to specific credits.
9. PREMISES, EQUIPMENT AND LEASES
Premises and equipment consisted of (in thousands):
December 31
1996 1995
-------- --------
Land .................................................$ 34,052 $ 33,489
Premises and improvements............................. 150,831 148,471
Furniture and equipment............................... 102,380 100,482
-------- --------
287,263 282,442
Accumulated depreciation and amortization............. 139,076 132,274
-------- --------
Carrying value .....................................$148,187 $150,168
======== ========
The corporation's subsidiaries have entered into lease agreements with
unaffiliated persons for premises, principally banking offices. Many of the
leases have one or more renewal options, generally for five or ten years, and
some contain a provision for increased rent during the renewal period. Leases
containing a provision for contingent payments are not significant in either
number or amount. Portions of a few premises are subleased, and the amount of
rent received is not material. There are no significant restrictions imposed
on the corporation or its subsidiaries by the lease agreements. The
subsidiaries also lease a portion of their computer systems and other
equipment. Leases on five banking offices have been recorded as capital
leases. The effect of capitalizing such leases on net income has not been
material.
Minimum rental payments over the noncancellable term of operating and
capital leases having a remaining term in excess of one year are (in
thousands):
1997..............................................$ 6,830
1998.............................................. 6,527
1999.............................................. 5,579
2000.............................................. 4,467
2001.............................................. 3,425
Thereafter........................................ 15,596
-------
Total minimum lease payments......................$42,424
=======
During 1996, 1995 and 1994, occupancy and equipment expense included the
rent paid on operating leases of $18.118 million, $15.460 million and $14.724
million, respectively, and was reduced by rental income of $1.792 million,
$2.312 million and $2.162 million, respectively, applicable to leases to
unaffiliated persons, generally for a five-to-ten-year duration.
10. INDEBTEDNESS
Short-term borrowings consisted of (in thousands):
December 31
1996 1995
-------- --------
Securities sold under agreements to repurchase .......$198,306 $177,789
Commercial paper (Parent company only) ............... 36,182 31,930
-------- --------
$234,488 $209,719
======== ========
Securities sold under agreements to repurchase generally mature within one
business day from the transaction date. The maximum amount of outstanding
agreements for any month-end during 1996 was $207.021 million, and the
securities underlying the agreements were under the corporation's control.
Commercial paper maturities range from 1 to 270 days. Bank lines of credit
available to the corporation amounted to $50 million at December 31, 1996 and
1995. Such lines were not being used on either of those dates.
Long-term indebtedness consisted of (in thousands):
December 31
1996 1995
------ ------
Capital leases ...................................... 613 755
7.9% note due December 1997.......................... - 1,955
3.12% note due December 1999......................... 3,263 -
------ ------
$3,876 $2,710
====== ======
The capital leases are on properties that had a carrying value of $702
thousand and $809 thousand on December 31, 1996 and 1995, respectively.
The principal maturities of debt, other than short-term borrowings, in
each of the five years after December 31, 1996, will be $1.083 million,
$1.103 million, $1.132 million, $12 thousand and $21 thousand, respectively.
Interest paid on deposits and indebtedness during the years 1996, 1995 and
1994 totaled $216.618 million, $195.948 million and $140.194 million,
respectively.
11. 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 1996 1995
------ ------
A 5% 21,511 23,040
B 7% 5,750 6,000
C 7% 9,836 10,484
D 8% 27,591 29,996
------ ------
64,688 69,520
====== ======
The Series A, Series B and Series D 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. All of the preferred stock may be
redeemed at the option of the corporation for $10.00 per share.
12. COMMON STOCK
There are 60 million shares of common stock, par value $1 per share,
authorized, and 32.408 million shares and 33.951 million shares were
outstanding on December 31, 1996 and 1995, respectively.
On December 31, 1996, options to purchase 304,462 shares of common stock
were outstanding under employee stock option and stock appreciation rights
plans. An additional 166,350 shares are authorized for further granting of
options and rights. Options for 130,012 shares were exercisable on December
31, 1996, at a weighted-average price of $22.81. Additional options becoming
exercisable in subsequent years total 35,508 in 1997 at an average price of
$37.12; 41,958 in 1998 at an average price of $38.84; 41,709 in 1999 at an
average price of $38.88; 23,875 in 2000 at an average price of $43.53; 23,500
in 2001 at an average price of $43.56; and 7,900 in 2002 at an average price
of $46.88.
Options
-----------------------------------------------
Options Unexercised Option Average
Available Or Price Option
To Outstanding Per Price Per
Grant Options Share Share
-------- -------- -------------- --------
Balance, January 1, 1994..... 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
Forfeited.................... 4,100 (4,100) 32.13 32.13
Granted...................... (83,500) 83,500 41.88 41.88
Exercised ................... - (61,410) 14.83 - 32.75 22.95
-------- -------- -------------- --------
Balance, December 31, 1995... 202,100 320,290 14.83 - 41.88 29.24
Forfeited.................... 3,750 (3,750) 32.13 - 41.88 36.68
Granted...................... (39,500) 39,500 46.88 46.88
Exercised ................... - (51,578) 14.83 - 32.13 21.55
-------- -------- -------------- --------
Balance, December 31, 1996... 166,350 304,462 $14.83 - 46.88 $33.61
======== ======== ============== ========
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 1994, 9,014 shares were issued for
31,963 rights. In 1995, 9,155 shares were issued for 20,432 rights and in
1996, 4,455 shares were issued for 8,250 rights. Holders of 62,137 options
outstanding on December 31, 1996, with an average price of $21.85, 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 stock on the measurement date 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.
The exercise price for the options authorized will be the market value of
the corporation's common stock on the date of the grant. The options
generally vest within five years after the grant date and expire ten years
after the grant date.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the corporation had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of the
grant using a Black-Scholes option pricing model with the following weighted
average assumptions for 1996: risk-free interest rate of 6.81% dividend yield
of 3.30%, volatility factors of the expected market price of the
corporation's common stock of .19 and a weighted-average expected life of the
option of 8 years.
The corporation's pro forma net income for 1996 and 1995 was $116.182
million and $111.577 million, respectively, and the pro forma primary
earnings per share for 1996 and 1995 were $3.49 and $3.28, respectively. The
weighted average grant date fair value of options granted during 1996 and
1995 were $11.64 and $10.40, respectively. The weighted average remaining
contractual life is 9.3 years.
The effects of applying SFAS 123 for providing pro forma disclosures are
not likely to be representative of the effects on reported net income for
future years.
At December 31, 1996, 565,519 shares of common stock were reserved: 94,707
for the conversion of preferred stock and 470,812 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.
13. 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, 1996, the corporation's equity in the net
assets of its subsidiaries, after elimination of intercompany deposits and
loans, totaled $679.922 million. Of that amount, $621.064 million was
restricted as to the payment of dividends. Consolidated retained earnings in
the amount of $404.925 million were free of limitations on the payment of
dividends to the corporation's shareholders as of December 31, 1996.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS No. 107),
"Disclosures about Fair Value of Financial Instruments," requires disclosure
of fair value information about financial instruments, whether or not
recognized in the balance sheet. In cases where quoted market prices are not
available, fair values are based on estimates using discounted cash flow
analyses or other valuation techniques. Those techniques involve subjective
judgment and are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. As a result, the
derived fair value estimates cannot be substantiated by comparison to
independent markets, and in many cases, could not be realized in immediate
settlement of the instrument. The following methods and assumptions were used
by the corporation in estimating the fair value of its financial instruments.
All of the corporation's financial instruments were held or issued for
purposes other than trading.
Cash and Cash Equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair value.
Investment Securities: Fair values for investment securities are based on
quoted market prices.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for certain mortgage loans (e.g., one-to-four family
residential) and credit cards are based on quoted market prices of similar
loans sold in conjunction with securitization transactions and adjusted for
differences in loan characteristics. The fair values for other loans were
estimated using discounted cash flow analyses, 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 fair value.
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 partially 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, 1996. 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 summarized below (in thousands):
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
Financial assets:
Cash and cash equivalents $ 701,791 $ 701,791 $ 632,858 $ 632,858
Investment securities.... 1,820,949 1,823,404 2,192,766 2,211,338
Loans, net............... 5,377,558 5,379,826 5,057,292 5,061,305
Other earning assets..... 19,672 19,672 11,528 11,528
Financial liabilities:
Deposits................. 7,042,650 7,060,513 7,056,107 7,073,767
Short-term borrowings.... 234,488 234,488 209,719 209,719
Long-term indebtedness... 3,263 3,263 1,955 1,952
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. The disclosures also do not
include certain intangible assets such as deposit base intangible, mortgage
servicing rights and goodwill. Accordingly, the aggregate fair value amount
presented should not be interpreted as representing the underlying value of
the corporation.
15. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
The corporation and its subsidiaries have a noncontributory, defined-
benefit pension plan covering substantially all of their qualified employees.
The benefits are based on years of service and the employee's compensation
during the last ten years of employment. The corporation's funding policy is
to make annual contributions in amounts necessary to satisfy the Internal
Revenue Service's funding standards to the extent they are deductible against
taxable income. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned in
the future. Contributions to the plan totaled $4.490 million, $4.851 million
and $3.665 million in 1996, 1995 and 1994, respectively. Contributions
include normal costs of the plan and amortization for periods of up to 40
years of unfunded past service cost.
In 1996, the corporation established an unfunded nonqualified plan that
provides retirement benefits to certain officers in accordance with the same
computational terms as the qualified plan when those terms provide benefits
in excess of the amounts payable under the IRS-qualified rules.
Pension expense included the following components (in thousands):
1996
------------------
Unfunded
Funded Supplemental
Plan Plan 1995 1994
------ ------ ------ ------
Service cost -
benefits earned during the period.... $3,803 $ 37 $2,737 $2,739
Interest cost on
projected benefit obligation......... 6,901 88 6,167 4,844
Actual return on plan assets............(10,545) - (15,094) 192
Net amortization and deferral .......... 2,899 102 8,821 (5,972)
------ ------ ------ ------
Net periodic pension cost............. $3,058 $ 227 $2,631 $1,803
====== ====== ====== ======
The following table sets forth the plan's funded and unfunded status and
amounts recognized in the consolidated balance sheets (in thousands):
1996
------------------
Unfunded 1995
Funded Supplemental Funded
Plan Plan Plan
-------- ------- -------
Accumulated benefit obligations:
Vested...................................... $ 70,939 $ 328 $72,950
Nonvested................................... 8,348 37 5,128
-------- ------- -------
Total accumulated benefit obligations.......... $ 79,287 $ 365 $78,078
======== ======= =======
Plan assets at fair value ..................... 102,869 - 91,275
Projected benefit obligation for service
rendered to date............................ 96,547 1,240 96,666
-------- ------- -------
Plan assets in excess of (less than)
projected benefit obligation................ 6,322 (1,240) (5,391)
Unrecognized net loss (gain) from past
experience different from that assumed and
effects of change in assumptions............ 9,116 (103) 19,611
Unamortized prior service cost................. (1,611) 1,116 (1,839)
Unrecognized net obligation at January 1, 1990
being recognized over 15 years ............. 44 - 58
-------- ------- -------
Prepaid pension cost included in other assets.. $ 13,871 $ (227) $12,439
======== ======= =======
The assets of the plan consist of U.S. Treasury securities, 42%; other
debt obligations, 8%; stocks, 42%; and cash and equivalents, 8%. The
weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected
benefit obligation were 7.75% and 4.75%, respectively. The expected long-term
rate of return on plan assets was 9%.
The corporation and its subsidiaries have a thrift plan to which employees
with one year of service may elect to contribute up to 6% of their salary.
The corporation contributes to the plan to the extent of 50% of the
employees' contributions, and an additional 25% contribution is made if a
specified profit objective is met. A 75% employer match was made in each of
the years 1996, 1995 and 1994 when the corporation's contributions to the
plan totaled $3.713 million, $3.582 million and $3.212 million, respectively.
The plan is administered under the provisions of Section 401(k) of the
Internal Revenue Code.
Certain individuals who were participating in any of the corporation's
medical plans at retirement may elect to receive medical benefits similar to
those provided for active employees if they make their elections within 30
days of retirement. Terminated employees may elect to receive such benefits
for a limited period. The corporation sponsors a defined benefit health care
plan that provides postretirement medical benefits to full-time employees who
have worked at least 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.
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
1996 1995
------- -------
Accumulated postretirement benefit obligation:
Retirees ........................................... $ 5,253 $ 5,218
Fully eligible, active plan participants ........... 2,271 3,238
Other active plan participants ..................... 8,231 9,131
------- -------
15,755 17,587
Plan assets at fair value ............................. - -
------- -------
Accumulated postretirement benefit obligation
in excess of plan assets ........................... 15,755 17,587
Unrecognized net gain or (loss) ....................... 1,700 (1,465)
Unrecognized transition obligation .................... 9,768 10,378
------- -------
Accrued postretirement benefit cost ................... $ 7,687 $ 5,744
======= =======
Net periodic postretirement benefit cost includes the following components:
1996 1995 1994
------ ------ ------
Service cost ......................................$ 768 $ 638 $ 971
Interest cost ..................................... 1,120 1,046 1,223
Amortization of transition obligation over 20 years 611 611 611
Net amortization and deferral...................... - (127) 102
------ ------ ------
Net periodic postretirement benefit cost...........$2,499 $2,168 $2,907
====== ====== ======
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits (i.e., health care cost-trend rate) is 10.6% for
1996 and is assumed to decrease gradually to 5.0% for 2004 and to remain at
that level thereafter. The health care cost-trend rate assumption has a
significant effect on the amounts reported. For example, increasing the
assumed health care cost-trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of
December 31, 1996, by $967 thousand, and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for 1996
by $102 thousand. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.75% at December 31, 1996.
The corporation has limited its exposure to increases in health care cost-
trend rates by setting a cap on the maximum amount it will ever pay on any
one retiree and by passing through 100% of the cost of retiree health care to
new employees hired after December 31, 1993.
16. COMMITMENTS AND CONTINGENCIES
The corporation, in the normal course of its business, is the subject of
legal proceedings instituted by customers and others. In the opinion of the
corporation's management, there were no legal matters pending as of
December 31, 1996, that would have a material effect on its financial
statements.
17. INCOME TAXES
Significant components of the corporation's deferred-tax liabilities and
assets are as follows (in thousands):
December 31
1996 1995
------- -------
Deferred-tax liabilities:
Life insurance reserves................................$ 2,671 $ 2,683
Depreciation........................................... 5,693 6,406
Other.................................................. 8,446 6,299
------- -------
Total deferred-tax liabilities ........................ 16,810 15,388
------- -------
Deferred-tax assets:
Installment loan interest and fees..................... 2,519 2,807
Deferred compensation.................................. 6,367 5,952
Allowance for loan losses.............................. 21,772 19,963
Other.................................................. 10,218 9,609
------- -------
Total deferred-tax assets.............................. 40,876 38,331
------- -------
Net deferred-tax assets .................................$24,066 $22,943
======= =======
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
-------------------------
1996 1995 1994
------- ------- -------
Current:
Federal income taxes ..............................$59,529 $54,572 $55,570
State income taxes................................. 1,577 2,165 966
------- ------- -------
Total current...................................... 61,106 56,737 56,536
------- ------- -------
Deferred (benefit):
Federal income taxes .............................. (1,206) 160 (1,910)
State income taxes................................. 83 (218) (66)
------- ------- -------
Total deferred .................................... (1,123) (58) (1,976)
------- ------- -------
Provision for income taxes...........................$59,983 $56,679 $54,560
======= ======= =======
Income taxes paid during the year..................$59,100 $54,612 $56,260
======= ======= =======
The exclusion of certain categories of income and expense from taxable net
income results in an effective tax rate that is lower than the statutory
federal rate. The differences in the rates are as follows (dollars in
thousands):
Year Ended December 31
1996 1995 1994
--------------- --------------- ---------------
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- -------
Statutory rate................$61,713 35.0% $58,897 35.0% $58,723 35.0%
Nontaxable interest on
municipal obligations....... (3,769) (2.1) (4,606) (2.7) (4,874) (2.9)
Other items .................. 2,039 1.1 2,388 1.4 711 .4
------- ------- ------- ------- ------- -------
Effective rate................$59,983 34.0% $56,679 33.7% $54,560 32.5%
======= ======= ======= ======= ======= =======
18. EARNINGS PER SHARE
Earnings per share of common stock, after giving effect to dividends on
preferred stock of $44 thousand in 1996, $47 thousand in 1995 and $51
thousand in 1994, are based on 33.270 million, 34.056 million and 32.281
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.
19. 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, 1996 and 1995, loans to directors and executive
officers of the corporation and its largest subsidiary bank, where the
aggregate of such loans exceeded $60 thousand, totaled $72.361 million and
$79.261 million, respectively. During 1996, $197.609 million of new loans
were made and repayments totaled $204.509 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.
20. REGULATORY CAPITAL ADEQUACY REQUIREMENTS
The corporation and its subsidiary banks are subject to various regulatory
capital requirements administered by the federal banking agencies.
Quantitative measures established by regulation to ensure capital adequacy
require the corporation and its subsidiaries to maintain minimum amounts and
ratios (set forth in the following table) of Total and Tier 1 Capital (as
defined in the regulations) to risk-weighted assets (as defined), and of
Tier 1 Capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1996, that the corporation and its subsidiary
banks meet all capital adequacy requirements to which it is subject.
As of June 30, 1996, the most recent notification from the federal banking
agencies categorized the corporation and its subsidiaries as well capitalized
under the regulatory framework. There are no conditions or events since that
notification that management believes have changed the institution's
category. To be categorized as adequately capitalized the corporation and its
subsidiary banks must maintain minimum Total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. The regulatory
requirement for the Tier 1 leverage ratio is 3% for the highest rated banks
with an additional 100-200 basis points for all other banks.
The actual capital amounts and ratios of the corporation and its largest
subsidiary bank are presented in the following table:
For To Be Well
Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------- -------------- ---------------
Capital Ratio Capital Ratio Capital Ratio
-------- ----- -------- ----- -------- -----
As of December 31, 1996:
Tier 1 leverage ratio:
Consolidated............. $780,695 9.69% $241,661 3.00% $402,769 5.00%
Largest subsidiary bank.. 237,632 7.64 93,311 3.00 155,518 5.00
Tier 1 risk-based capital:
Consolidated............. 780,695 13.57 230,200 4.00 345,300 6.00
Largest subsidiary bank.. 237,632 10.39 91,499 4.00 137,249 6.00
Total risk-based capital:
Consolidated............. 843,456 14.66 460,400 8.00 575,500 10.00
Largest subsidiary bank.. 261,591 11.44 182,999 8.00 228,749 10.00
As of December 31, 1995:
Tier 1 leverage ratio:
Consolidated............. $777,501 9.63% $242,152 3.00% $403,587 5.00%
Largest subsidiary bank.. 224,315 7.26 92,678 3.00 154,461 5.00
Tier 1 risk-based capital:
Consolidated............. 777,501 15.42 201,713 4.00 302,569 6.00
Largest subsidiary bank.. 224,315 11.19 80,149 4.00 120,224 6.00
Total risk-based capital:
Consolidated............. 835,423 16.57 403,426 8.00 504,282 10.00
Largest subsidiary bank.. 245,036 12.23 160,298 8.00 200,373 10.00
Failure to meet minimum capital requirements can initiate certain mandatory,
and possibly discretionary actions by regulators that, if undertaken, could
have a direct material effect on the corporation's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the corporation and its subsidiary banks must meet specific capital
guidelines that involve quantitative measures of assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
21. FIRST VIRGINIA BANKS, INC. (PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION (IN THOUSANDS)
BALANCE SHEETS
December 31
1996 1995
-------- --------
Assets
Cash and noninterest-bearing deposits
principally in affiliated banks.......................$ 3,354 $ 4,350
Securities purchased under agreements to resell......... 84,020 99,080
Investment in affiliates based on the corporation's
equity in their net assets:
Banking companies.................................... 653,644 634,573
Bank-related companies............................... 14,261 14,601
Investment securities, (market value $15,006-1996
and $10,794-1995).................................. 14,917 10,586
Loans (including $10,621-1996 and $16,627-1995
to affiliated companies) .......................... 23,677 25,263
Premises and equipment.................................. 32,448 33,378
Goodwill and core deposit premium....................... 67,154 71,773
Other assets ........................................... 46,473 40,193
-------- --------
Total Assets .........................................$939,948 $933,797
======== ========
Liabilities
Interest, taxes and other liabilities ..................$ 32,489 $ 32,220
Commercial paper ....................................... 36,182 31,930
-------- --------
Total Liabilities .................................... 68,671 64,150
-------- --------
Shareholders' Equity
Preferred stock......................................... 647 695
Common stock............................................ 32,408 33,951
Capital surplus......................................... 43,531 107,112
Retained earnings....................................... 794,691 727,889
-------- --------
Total Shareholders' Equity............................ 871,277 869,647
-------- --------
Total Liabilities and Shareholders' Equity............$939,948 $933,797
======== ========
STATEMENTS OF INCOME
Year Ended December 31
1996 1995 1994
-------- -------- --------
Income
Dividends from affiliates:
Banking companies...............................$108,016 $109,682 $123,024
Bank-related companies ......................... 1,700 325 -
Service fees from affiliates...................... 12,364 13,864 9,017
Rental income:
Affiliates .................................... 5,662 5,937 6,692
Other ......................................... 1,327 1,882 1,975
Interest and dividends on investment securities... 5,884 5,006 3,706
Other income:
Affiliates ..................................... 1,356 1,915 2,339
Other .......................................... 368 387 1,187
-------- -------- --------
Total income.................................. 136,677 138,998 147,940
-------- -------- --------
Expenses
Salaries and employee benefits.................... 15,257 15,406 14,092
Interest ......................................... 1,484 1,383 829
Other expenses:
Paid to affiliates.............................. 674 1,714 1,694
Other .......................................... 13,003 12,904 9,715
-------- -------- --------
Total expense................................. 30,418 31,407 26,330
-------- -------- --------
Income before income taxes and equity in
undistributed income of affiliates .......... 106,259 107,591 121,610
Federal income tax (credits)...................... (492) 124 (706)
-------- -------- --------
Income before equity in
undistributed income of affiliates........... 106,751 107,467 122,316
Equity in undistributed income of affiliates ..... 9,590 4,132 (9,095)
-------- -------- --------
Net income........................................$116,341 $111,599 $113,221
======== ======== ========
STATEMENTS OF CASH FLOWS
Year Ended December 31
1996 1995 1994
-------- -------- --------
Net cash provided by operating activities..........$113,975 $111,810 $125,485
-------- -------- --------
Investing activities:
Proceeds from the sale of
available for sale securities................. - - 1,195
Proceeds from maturity of
held to maturity securities................... 8,525 1,400 20,699
Purchase of investment securities ............... (12,884) (1,977) (4,263)
Net (increase) decrease in loans................. 1,586 (10,142) 38,308
Purchases of premises and equipment ............. (999) (844) (1,749)
Sales of premises and equipment ................. 22 4,985 28
Investment in affiliates......................... (9,140) (25,585) (43,651)
Other............................................ (8,699) 1,601 (6,524)
-------- -------- --------
Net cash (used for)
provided by investing activities........... (21,589) (30,562) 4,043
-------- -------- --------
Financing activities:
Net increase in short-term borrowings............ 4,252 11,563 3,146
Common stock purchased and retired............... (66,311) (5,695) (61,855)
Cash dividends - common.......................... (47,477) (45,559) (40,928)
Cash dividends - preferred....................... (45) (48) (52)
Proceeds from issuance of common stock........... 1,139 1,473 745
-------- -------- --------
Net cash used for financing activities .......(108,442) (38,266) (98,944)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents................... (16,056) 42,982 30,584
Cash and cash equivalents at beginning of year 103,430 60,448 29,864
-------- -------- --------
Cash and cash equivalents at end of year......$ 87,374 $103,430 $ 60,448
======== ======== ========
Net cash provided by operating activities has been
reduced (increased) by the following
cash payments (receipts):
Interest on indebtedness......................... $ 1,431 $ 1,371 $ 823
Income taxes..................................... 705 (990) (467)
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
- ---------------------------------------------------
The management of First Virginia Banks, Inc., has prepared and is
responsible for the accompanying financial statements, together with the
financial data and other information presented in this annual report.
Management believes that the financial statements have been prepared in
conformity with generally accepted accounting principles appropriate under
the circumstances. The financial statements include amounts that are based on
management's best estimates and judgments.
Management maintains and depends upon an internal accounting control
system designed to provide reasonable assurance that transactions are
executed in accordance with management's authorization, that financial
records are reliable as the basis for the preparation of all financial
statements, and that the corporation's assets are safeguarded. The design and
implementation of all systems of internal control are based on judgments
required to evaluate the costs of control in relation to the expected
benefits and to determine the appropriate balance between these costs and
benefits. The corporation maintains a professional internal audit staff to
monitor compliance with the system of internal accounting control.
Operational and special audits are conducted, and internal audit reports are
submitted to appropriate management.
The Audit Committee of the Board of Directors, comprised solely of outside
directors, meets periodically with the independent public accountants,
management and internal auditors to review accounting, auditing and financial
reporting matters. The independent public accountants and internal auditors
have free access to the committee, without management present, to discuss the
results of their audit work and their evaluations of the adequacy of internal
controls and the quality of financial reporting.
The financial statements in this annual report have been audited by the
corporation's independent auditors, Ernst & Young LLP, for the purpose of
determining that the financial statements are presented fairly. Their
independent professional opinion on the corporation's financial statements is
presented on the following page.
/S/ Barry J. Fitzpatrick
________________________
Barry J. Fitzpatrick
Chairman, President and
Chief Executive Officer
/S/ Richard F. Bowman
________________________
Richard F. Bowman
Senior Vice President,
Treasurer and
Chief Financial Officer
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- -------------------------------------------------
To the Shareholders and Board of Directors
First Virginia Banks, Inc.
We have audited the accompanying consolidated balance sheets of First
Virginia Banks, Inc., as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the corporation's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of First
Virginia Banks, Inc., at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Washington, D.C.
January 21, 1997
/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). The
term of office for Class A directors will expire at this Annual Meeting.
Five persons, all of whom are presently on the Board, have been nominated to
serve as Class A directors. If elected, the five nominees for Class A
directors will serve for a term of three years.
Certain information concerning the nominees for election at
this meeting and the Class B and Class C directors who will
continue in office after the meeting is set forth below and on
the following pages.
NOMINEES FOR CLASS A DIRECTORS
Barry J. Fitzpatrick, 56, is Chairman of the Board, President and Chief
Executive Officer of First Virginia. He is Chairman of the Board of First
Virginia Bank in Falls Church and a director of a number of nonbank
affiliated companies including First Virginia Services, Inc., and First
Virginia Credit Services, Inc. He was appointed Chairman of the Board
and Chief Executive Officer of First Virginia effective January 1, 1995, and
President effective July 1, 1995. He was Executive Vice President of First
Virginia from May 1992, until January 1, 1995, and 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 49,472 shares of First Virginia
Common Stock. (1)
Elsie C. Gruver, 70, 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 6,436 shares of Common Stock. (2)
W. Lee Phillips, Jr., 61, is a professional engineer, also involved in real
estate management and home building in Falls Church, Virginia, and southern
Maryland since 1991. Prior to that, he was a professional engineer and land
surveyor (1959-1991) and Chairman of the Board, Walter L. Phillips, Inc.
(1976-1991). 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 8,254 shares of Common Stock. (3)
Josiah P. Rowe, III, 68, has been Co-Publisher and General Manager of The
Free Lance-Star Publishing Co. of Fredericksburg, Virginia, since 1949 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, 62, retired in 1995 as President of the Government
Systems Group of UNISYS Corporation in McLean, Virginia, and as Executive
Vice President of UNISYS Corporation. He has been a director of First
Virginia since 1978. Prior to being President of the Government Systems
Group, he was Vice President of UNISYS (1991-1993) and President of Paramax
Corporation, a subsidiary of UNISYS (1992). He serves on the Executive
Committee and chairs the Management Compensation and Benefits Committee. He
beneficially owns 6,000 shares of Common Stock. (4)
CLASS B DIRECTORS
(Serving until the 1998 Annual Meeting)
Edward L. Breeden, III, 61, has been a partner in the law firm of Breeden,
MacMillan & Green in Norfolk, Virginia, since 1959 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 66,158 shares of Common
Stock. (5)
Gilbert R. Giordano, 68, has been an attorney since 1956 and senior partner
in the law firm of Giordano & Villareale, P.A., in Upper Marlboro, Maryland,
since 1972. He 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 223,043 shares of Common Stock. (6)
Eric C. Kendrick, 50, has been President of Mereck Associates, Inc., a real
estate management and development firm in Arlington, Virginia, since 1989 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 50,973 shares of Common Stock. (7)
John B. Melvin, 72, is the retired Chairman of the Board, Coca-Cola Bottling
Co. of Annapolis, Maryland, and the former Trustee of the Stanley Family
Bottling Company Trust. He is a director of Farmers Bank of Maryland, a
subsidiary bank of First Virginia located in Annapolis, Maryland. He serves
on the Audit Committee. He beneficially owns 19,620 shares of Common
Stock. (8)
Robert H. Zalokar, 69, is the retired Chairman of the Board and Chief
Executive Officer of First Virginia (1984-1994). He has been a director of
First Virginia since 1959. He is also a director of First Virginia Bank in
Falls Church and a director of First Virginia Life Insurance Company and
First Virginia Mortgage Company. He serves as Chairman of the Executive
Committee and the Director Nominating Committee and is a member of the Public
Policy Committee. He beneficially owns 124,301 shares of Common Stock.
CLASS C DIRECTORS
(Serving until the 1999 Annual Meeting)
Paul H. Geithner, Jr., 66, is the retired President and Chief Administrative
Officer of First Virginia (1985-1995) and has been a director of First
Virginia since 1984. He also is a director of First Virginia Life Insurance
Company, a nonbank affiliate. He is a member of the Public Policy Committee
and the Executive Committee. He beneficially owns 39,064 shares of Common
Stock.(9)
L. H. Ginn, III, 63, has been President since 1975 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 12,599
shares of Common Stock. (10)
T. Keister Greer, 75, has been principal of T. Keister Greer, P.C., in Rocky
Mount, Virginia, since 1995 and has been a director of First Virginia since
1976. Prior to that, he was Counsel to Greer & Melesco (1972-1994) and
Counsel to Greer & Greer (1990-1991). During 1996, he was 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 17,100 shares of Common Stock. (11)
Edward M. Holland, 57, has been an attorney in Arlington, Virginia, since
1966 and is a former member of the Virginia General Assembly (Senate)
(1972-1996). 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 57,479 shares of Common Stock. (12)
(1) Includes options to purchase 17,750 shares of Common Stock
that are currently exercisable but does not include options
to purchase 36,000 shares of Common Stock that are not
currently exercisable.
(2) Includes 2,282 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.
(3) Includes 3,000 shares held by a trust of which Mr. Phillips
is a trustee.
(4) All of the shares are held jointly with spouse.
(5) 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, and 38,175 shares held by
two trusts of which Mr. Breeden is trustee.
(6) Includes 271 shares held in a trust for his son, 87 shares
held by his spouse and daughter, 529 shares held by his
spouse and son, 10,819 shares held by the Giordano Family
Foundation, 4,476 shares held by his spouse as custodian for
his son, and 16,133 shares held by his spouse alone.
(7) Includes 7,728 shares held by his spouse and 1,729 shares
held by a corporation of which Mr. Kendrick is a director
and president.
(8) All of the shares are held in a trust.
(9) Includes 31,000 shares held in a revocable trust and 4,220
shares held indirectly through his spouse.
(10) Includes 241 shares held indirectly through his spouse and
1,402 shares held by a trust of which Mr. Ginn is trustee.
(11) Includes 5,400 shares of Common Stock held by a trust in
which Mr. Greer has a beneficial interest.
(12) Includes 34,479 shares held by a corporation of which Mr.
Holland is an officer, director, and owner and 8,000 shares
held in a trust.
As of December 31, 1996, executive officers and directors as a group
beneficially owned 881,490 shares of Common Stock representing approximately
2.7% of those shares outstanding, of which 110,337 shares represent shares
covered by currently exercisable options (or options exercisable within 60
days) and 125 shares of Preferred Stock representing approximately .19% of
those shares outstanding. No officer or director owned as much as 1.0% of
First Virginia Common Stock. Messrs. Breeden, Greer, Holland and Giordano
are members of or are associated with law firms that have been in the last
two years, and are proposed in the future to be, retained by subsidiaries of
First Virginia. Messrs. Breeden, Fitzpatrick, Geithner, Ginn, Giordano,
Greer, Holland, 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 December 31, 1996.
BENEFICIAL OWNERSHIP OF NAMED EXECUTIVE OFFICERS
The following table sets forth certain information regarding the named
executives' beneficial ownership of First Virginia Common Stock as of
December 31, 1996.
Shares of Common Stock of First Virginia
Beneficially Owned
Name of Officer Number * Percent of Class
Barry J. Fitzpatrick 49,472 .1507
Shirley C. Beavers, Jr. 35,714 .1088
Raymond E. Brann, Jr. 29,882 .0910
Richard F. Bowman 18,489 .0563
Michael G. Anzilotti 7,623 .0232
* The amounts shown represent the total shares owned beneficially by such
individuals together with shares that 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. Fitzpatrick, 17,750; Mr. Beavers,
22,750; Mr. Brann, 17,300; Mr. Bowman, 15,137; and Mr. Anzilotti, 6,200.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
First Virginia's Board of Directors has a standing Audit Committee, Director
Nominating Committee, Management Compensation and Benefits Committee, Public
Policy Committee and Executive Committee.
The Audit Committee, comprised of Directors Breeden, Giordano, Gruver, Melvin
and Phillips, held four meetings during 1996. 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 Zalokar,
Brand, Fitzpatrick, Ginn, Giordano, Greer and Rowe, held one meeting in 1996.
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 one
meeting in 1996. 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,
Fitzpatrick, Geithner, Greer, Kendrick, Rowe and Zalokar, met four times
during 1996. This Committee supervises First Virginia's contributions 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,
Fitzpatrick, Geithner, Ginn, Holland and Zettlemoyer, held 12 meetings in
1996. The Committee exercises all of the powers of the Board of Directors
when the Board is not in session, except for those powers reserved for the
Board under state law and by First Virginia's Articles of Incorporation and
Bylaws.
During 1996, there were 12 meetings of the Board of Directors. All
incumbent directors attended more than 75% of the aggregate total number of
meetings of the Board and committees of the Board on which they served.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires First
Virginia's executive officers and directors to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Executive officers and directors are required by SEC
regulation to furnish First Virginia with copies of all Section 16(a) forms
they file.
Based on a review of the forms that were filed and written
representations from the executive officers and directors, First Virginia
believes that during the year 1996 all filing requirements applicable to its
officers and directors were met.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The Summary Compensation Table shows the annual compensation for the
last three fiscal years for First Virginia's Chief Executive Officer and for
the four most highly compensated executive officers other than First
Virginia's Chief Executive Officer:
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
(a) (b) (c) (d) (e) (f) (g)
Other All
Name Annual Options/ Other
and Compen- SARs Compen-
Principal sation Awarded sation
Position Year Salary($)(1) Bonus($)(2) ($)(3) (#) ($) (4)
Barry J. Fitzpatrick 1996 470,000 269,960 3,724 10,000 56,783
Chairman, President 1995 350,000 156,275 3,636 20,000 45,804
and Chief Executive 1994 209,000 125,144 6,135 0 24,691
Officer of
First Virginia
Shirley C. Beavers, Jr. 1996 241,500 108,433 3,748 5,000 31,426
Executive Vice President 1995 230,000 93,362 3,868 5,000 30,818
of First Virginia and 1994 209,000 94,952 6,919 0 25,963
President, First
Virginia
Services, Inc.
Raymond E. Brann, Jr. 1996 194,500 106,803 4,568 5,000 59,339
Executive Vice President 1995 183,821 61,735 66,360 5,000 57,270
of First Virginia 1994 154,348 34,179 2,394 0 55,700
Richard F. Bowman 1996 168,000 106,088 3,263 5,000 15,943
Senior Vice President, 1995 153,000 60,817 2,858 5,000 14,520
Treasurer and Chief 1994 135,408 44,120 2,871 0 11,170
Financial Officer
of First Virginia
Michael G. Anzilotti 1996 188,400 56,550 2,459 0 15,966
Senior Vice President 1995 173,798 46,524 2,250 5,000 15,034
and Regional Executive 1994 149,741 41,588 4,007 0 13,904
Officer of First Virginia
and President 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. In Mr. Brann's
case, it also includes for years 1995 and 1996 the interest benefit to
him of a below-market rate residential mortgage loan made to him as an
inducement to relocate to Northern Virginia. During 1995, Mr. Brann had
perquisites or personal benefits whose value amounted to $56,900. Of that
amount, $32,459 was for country club dues and a country club initiation fee
and $17,287 was for moving expenses.
(4) The All Other Compensation Column (Column (g)) includes the amount
paid by the employer under the First Virginia Banks, Inc., Employees Thrift
Plan that, 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 limitation on pretax contributions imposed by the
Internal Revenue Code. For 1996, these amounts were: for Mr. Fitzpatrick,
$26,382; Mr. Beavers, $8,330; Mr. Brann, $4,791; Mr. Bowman, $3,557 and Mr.
Anzilotti, $3,832. It also includes the premium amounts paid by the employer
under the First Virginia Split Dollar Life Insurance Plan. For 1996, these
amounts were: for Mr. Fitzpatrick, $21,904; Mr. Beavers, $14,579; Mr. Brann,
$44,016; Mr. Bowman, $5,283 and Mr. Anzilotti, $4,246. It also includes the
"above-market" earnings on deferred compensation earned during 1996. These
amounts were: for Mr. Fitzpatrick, $1,747; Mr. Beavers, $1,767; Mr. Brann,
$3,782; Mr. Bowman $353 and Mr. Anzilotti, $1,138.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table shows for each of the named executive officers (1)
the number of options that were granted during 1996, (2) out of the total
number of options granted to all employees, the percent granted to the
named executive officer, (3) the exercise price, (4) the expiration date and
(5) the potential realizable value of the options, assuming that the market
price of the underlying securities appreciates in value from the date of
grant to the end of the option term, at a 5% and 10% annualized rate. No
freestanding SARs were granted in 1996.
Stock Option Grants In 1996
Potential
Realizable
Percent Value at
Number of of Assumed Annual
Securities Total Rates of Stock
Underlying Options Price
Options Granted to Exercise Appreciation
Granted Employees or Base for Option
(# Shs.) in Fiscal Price Expiration Term
Name (1) Year(2) ($/Sh.) Date 5%($) 10%($)
Barry J. 10,000 25.32% 46.875 12/17/2006 294,794 747,067
Fitzpatrick
Shirley C. 5,000 12.66% 46.875 12/17/2006 147,397 373,533
Beavers, Jr.
Raymond E. 5,000 12.66% 46.875 12/17/2006 147,397 373,533
Brann, Jr.
Richard F. 5,000 12.66% 46.875 12/17/2006 147,397 373,533
Bowman
Michael G. 0 --- --- --- --- ---
Anzilotti
(1) Options granted to the named executive officers in 1996 are
exercisable over a five-year period provided certain performance goals are
achieved by First Virginia. All of the options that were granted in 1996
include a provision that would accelerate the vesting of the options upon a
"change in control" of First Virginia. For an explanation of the "change in
control" provision, see "Directors' Compensation, Consulting Arrangements and
Plans Which Include Change in Control Arrangements."
(2) Options to purchase 39,500 shares of First Virginia Common Stock
were granted to employees during 1996. No freestanding SARs were granted in
1996 to employees and none of the options that were granted had any tandem
SARs.
The following table shows for each of the named executive officers the
number of shares of First Virginia Common Stock acquired upon the exercise of
stock options and stock appreciation rights during 1996, the value realized
upon their exercise, the number of unexercised stock options and SARs at the
end of 1996, and the value of unexercised "in-the-money" stock options and
SARs at the end of 1996. Stock options or freestanding SARs are
considered "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the option or SAR. Some of the
stock options that were granted to First Virginia's executive officers
include a provision that would accelerate the vesting of the options upon a
"change in control" of First Virginia. There were no unexercisable or
exercisable freestanding SARs owned by any of the named executive officers
at year end.
Aggregated Options/SAR Exercises in 1996 and
Year-end Options/SAR Values
Value of
Unexercised
Number of In-the-
Unexercised Money Options
Options at at
Name Shares Year-end (#) Year-end($)
Acquired on Value Exercisable/ Exercisable/
Exercise(#) Realized($) Unexercisable Unexercisable
Barry J.
Fitzpatrick 9,500 241,959 17,750/36,000 460,136/220,750
Shirley C.
Beavers, Jr. 3,500 99,167 22,750/16,000 584,094/125,750
Raymond E.
Brann, Jr. 2,007 85,313 17,300/11,200 499,288/53,900
Richard F.
Bowman 1,500 49,000 15,137/14,500 393,808/103,062
Michael G.
Anzilotti 1,300 35,425 6,200/9,500 149,775/98,062
PENSION AND THRIFT PLANS AND SUPPLEMENTAL COMPENSATION ARRANGEMENTS
The following table shows the estimated annual benefit payable upon
retirement (life only) under the First Virginia Pension Trust Plan and under
the First Virginia Supplemental Pension Trust Plan based on specified
remuneration and years of credited service classifications, assuming a
participant retired on December 31, 1996, at age 65. Credited service in
excess of thirty years is also not taken into account in determining benefits
under either plan.
Annual Benefits Under First Virginia's Pension Trust Plan and
the First Virginia Supplemental Pension Trust Plan
Average
Annual Pay 10 Years 15 Years 20 Years 25 Years 30 Years
for Highest of of of of of
Five Years Service Service Service Service Service
$150,000 $22,621 $ 33,932 $ 45,242 $ 56,553 $ 67,864
$200,000 $30,621 $ 45,932 $ 61,242 $ 76,553 $ 91,864
$250,000 $38,621 $ 57,932 $ 77,242 $ 96,553 $115,864
$300,000 $46,621 $ 69,932 $ 93,242 $116,553 $139,864
$350,000 $54,621 $ 81,932 $109,242 $136,553 $163,864
$400,000 $62,621 $ 93,932 $125,242 $156,553 $187,864
$450,000 $70,621 $105,932 $141,242 $176,553 $211,864
$500,000 $78,621 $117,932 $157,242 $196,553 $235,864
Under the First Virginia Pension Trust Plan, a participant retiring at
age 65 with 30 years of credited service under the Plan will receive a
maximum annual pension benefit equal to 1.1% of average annual pay
multiplied by 30 years of credited service plus 0.5% of average annual pay in
excess of covered compensation multiplied by 30 years of credited service.
The calculation of "average annual pay" is based on annual compensation for
the highest five consecutive years out of the participant's final 10 years of
service. "Covered compensation" is calculated by multiplying the annual
average of Social Security taxable wage bases in effect for the 35 years
ending with the last day of the year in which the participant attains Social
Security retirement age. Effective January 1, 1996, First Virginia adopted
the First Virginia Supplemental Pension Trust Plan for certain key employees
to provide for the payment of supplemental pension benefits as a result of
the IRS restrictions on benefits under the First Virginia Pension Trust Plan.
All of the named executive officers (except for Mr. Fitzpatrick who would
receive benefits at retirement under his Supplemental Compensation Agreement)
participate in the Supplemental Pension Trust Plan.
Remuneration on earnings determining pension benefits under both the
Pension Trust Plan and the Supplemental Pension Trust Plan includes salaries
and bonuses (which are listed in the Summary Compensation Table) and any
other taxable compensation. Effective February 1, 1996, compensation
resulting from the exercise of nonqualified options, SARs, and deferred
compensation are excluded from the computation of benefits under both
plans. Credited service under both plans as of December 31, 1996, for each
of the named executives was as follows: Mr. Fitzpatrick, 27.4 years; Mr.
Beavers, 27.3 years; Mr. Brann, 31 years; Mr. Bowman, 21.5 years and Mr.
Anzilotti, 18.2 years. If a participant retired on December 31, 1996 at age
65, the participant would receive the pension benefits as determined by using
the Summary Compensation and Pension Tables shown above in conjunction with
the formula described above.
Mr. Fitzpatrick's Supplemental Compensation Agreement ("Agreement")
provides him with supplemental retirement benefits in addition to those
pension benefits he would receive from the First Virginia Pension Trust Plan.
Under the Agreement, if he resigns, retires or leaves First Virginia for any
reason after reaching the age of 58, he is entitled to receive for the rest
of his life, supplemental compensation equal to sixty percent of the average
of his highest five years of annual salary and bonus, reduced by the amount
he would receive under the First Virginia Pension Trust Plan. Highest annual
salary includes salary and bonus and any profit sharing payments received
under the First Virginia Profit Sharing Plan but does not include any other
form of compensation that is not salary or bonuses, such as compensation
arising from the exercise of SARs and nonqualified options. To avoid a
possible doubling up of benefits from this Agreement and a separate
Employment Agreement (see below), payments to Mr. Fitzpatrick pursuant to his
Agreement would be delayed for three years upon a change of control. Should
Mr. Fitzpatrick die, his wife would be entitled to one-half of his total
annual benefit for the rest of her life. Under his Agreement, once benefits
begin to be paid, Mr. Fitzpatrick is to remain available to provide
consulting and advisory services if he is physically and mentally capable
of doing so. Furthermore, his benefits are forfeitable under certain
circumstances.
On December 31, 1996, Messrs. Fitzpatrick, Beavers, Brann and Bowman
entered into employment agreements with First Virginia that provide for
their continued employment for a three-year period following the date on
which a "change of control" takes place (the "Employment Period"). These
agreements require First Virginia (or any successor corporation) to employ
the executive during the Employment Period following a change of control in a
position with authority, duties and responsibilities at least commensurate to
what the executive had prior to a change of control, and at compensation
levels (including benefits) at least equal to what the executive was making
prior to the change of control. If, during the first year of his Employment
Period, the executive is terminated other than for "cause" or "disability" or
the executive terminates his employment for "good reason" (as those terms
are defined under the employment agreements), then First Virginia (or its
successor) would pay the executive a lump sum equal to 2.99 times the sum of
his annual base salary and bonus. If, during the second or third year of his
Employment Period, the executive is terminated other than for cause or
disability or terminates his employment for good reason, then First
Virginia or its successor would pay the executive a lump sum equal to two
times the sum of his annual base salary and bonus. During a 30 day
period after the first year, the executive could terminate his employment for
any reason and receive two times the sum of his annual base salary and bonus.
Furthermore, if any payments made under the agreements subject the executive
to taxes under Internal Revenue Code Section 4999, such payments would be
"grossed up" to put the executive in the same after-tax position as if
no excise taxes had been imposed.
Executive officers, like other employees of First Virginia, are eligible
to participate in the First Virginia Banks, Inc. Employees' Thrift Plan
("Thrift Plan"). Under the Thrift Plan, employees of First Virginia and its
subsidiaries who have completed one year of service can contribute up to six
percent of their compensation and receive matching employer contributions
equal to 50% of their employee contributions. For the years when First
Virginia meets an earnings test under the Thrift Plan, First Virginia
contributes 75% of employee contributions. The Thrift Plan complies with
Section 401(k) of the Internal Revenue Code so that employee contributions
can be made on a pretax basis. Employees can direct the investment of their
contributions and the matching employer contributions into one or more of
three funds that are administered by the Trust Department of First Virginia
Bank. Reference is made to footnote 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 that provides supplemental retirement benefits for those key officers
who are restricted from receiving further benefits under the Thrift Plan
as a result of the limitation on pretax contributions imposed by the Internal
Revenue Code for 1996. 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 contributions made on behalf of the named executive officers under
the First Virginia Supplemental Benefits Plan.
DIRECTORS' COMPENSATION, CONSULTING ARRANGEMENTS
AND PLANS THAT INCLUDE CHANGE IN CONTROL ARRANGEMENTS
For 1997, directors of First Virginia who are not salaried officers will
be paid an annual retainer of $14,000 per year, a fee of $925 for each
meeting of the Board of Directors attended, and a fee of $725 for each
meeting of a Committee of the Board of Directors attended. Committee
chairmen will receive $875 for each committee meeting they chair. Directors
are reimbursed for out-of-town expenses incurred in connection with Board
and Committee meetings.
During 1996, 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
$152,568 and $120,336, respectively, under supplemental compensation
agreements, in addition to amounts they received from the First Virginia
Pension Trust Plan and, in the case of Mr. Malone, in addition to his
director fees. When requested, both Holland and Malone are required to
provide consulting services under their supplemental compensation agreements.
Also, during 1996, Robert H. Zalokar, former Chairman and Chief
Executive Officer of First Virginia, and Paul H. Geithner, Jr., former
President and Chief Administrative Officer of First Virginia, were paid
$521,316 and $282,527, respectively, under supplemental compensation
agreements, in addition to amounts they received from the First Virginia
Pension Trust Plan and in addition to their director fees. When requested,
both Zalokar and Geithner are required to provide consulting services under
their supplemental compensation agreements.
First Virginia paid Mr. Zalokar's and Mr. Malone's country club
membership fees of $2,760 and $1,445, respectively, during 1996.
During 1996, 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"). 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, 1996, none of the named executive officers of First Virginia
deferred any compensation under the Deferred Compensation Plans.
The 1983 deferred compensation plans include a provision regarding
"change in control." If there is a "change in control" of First Virginia,
and a director is terminated under the directors' plan, or in the case of the
employee plan, an employee is terminated "without cause" or the employee
terminates his/her employment for "good reason," as those terms are defined
under the employee plan, then the director or employee, as the case may be,
becomes entitled to receive his/her benefits under the 1983 Deferred
Compensation Plans at retirement, notwithstanding the fact that his/her
affiliation with First Virginia has terminated.
First Virginia has a Split Dollar Life Insurance Plan ("Split Dollar
Plan") that currently includes all executive employees of First Virginia
including those named in the Summary Compensation Table. Under the Split
Dollar Plan, an executive can purchase ordinary life insurance policies with
coverage of at least two times what is projected to be the executive's base
salary at retirement, up to a limit of $1,000,000. A portion of the premiums
will be loaned to the executives by First Virginia up to the later of ten
years or the executive's retirement date. At the end of this period, if
assumptions about mortality, dividends and other factors are realized, First
Virginia will recover all of its loans for premiums from the cash value of
the policy. The policy will then be transferred to the executive, who will
pay all further premiums, if any, under the policy. Executives who
participate in the Split Dollar Plan forego any insurance coverage over
$50,000 under the First Virginia Group Life Insurance Plan. During 1989, the
Split Dollar Plan was amended so that in the event of a "change in control,"
only the executive would have the right to terminate the policy.
First Virginia's Board of Directors approved in 1992 the establishment
of a trust with Chemical Bank (now The Chase Manhattan Bank) as the trustee
to partially secure the benefits of some of First Virginia's nonqualified
compensation plans, including the Deferred Compensation Plans and the First
Virginia Supplemental Benefits Plan, in case of a change in control. Under
the trust agreement establishing the trust, if a "change in control" takes
place, the trustee would pay the benefits under the covered compensation
plans out of the trust assets that have been contributed to the trust by
First Virginia, if First Virginia refused to pay the benefits. The trust is
considered a "grantor trust" subject to the claims of First Virginia's
general creditors. For accounting purposes, the trust assets are considered
corporate assets and, therefore, no balance sheet impact to First Virginia
will result from the establishment of the trust. The trust agreement does
not include a provision that would accelerate the vesting or payment of any
of the benefits under the covered compensation plans in case of a change in
control. During 1996, First Virginia made a $3,600,000 contribution to the
Trust.
The 1983 deferred compensation plans, the Split Dollar Plan, the
above-described trust agreement with The Chase Manhattan Bank, Mr.
Fitzpatrick's Supplemental Compensation Agreement, certain stock option
agreements and the above-described employment agreements all include change
in control provisions. Under this definition, a change in control means:
(a) an acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more
of either (i) the then outstanding shares of First Virginia Common Stock
or(ii) the combined voting power of the then outstanding voting securities of
First Virginia entitled to vote generally in the election of directors (the
"Outstanding First Virginia Voting Securities"); provided, however, that any
acquisition directly from or by First Virginia or any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by First
Virginia or an affiliated company or any acquisition by a company pursuant to
a transaction that complies with clauses (i), (ii) and (iii) of (c) below
would be excluded; or (b) individuals who, as of the date when the change in
control provisions were adopted, constitute the Board (the "Incumbent Board")
of First Virginia, cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director whose
election, or nomination for election by First Virginia's shareholders, was
approved by vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual was a member of
the Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or (c) consummation of a
reorganization, merger or consolidation or sale or other disposition of all
or substantially all of the assets of First Virginia (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding First Virginia Common
Stock and Outstanding First Virginia Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation, which as a result of such transaction owns First
Virginia or all or substantially all of First Virginia's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the outstanding First Virginia Common Stock and the
outstanding First Virginia Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of First Virginia or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board
at the time of the execution of the initial agreement, or the action of the
Board, providing for such Business Combination; or (d) approval by the
shareholders of First Virginia of a complete liquidation or dissolution of
First Virginia.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of First Virginia's Management Compensation
and Benefits Committee are 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
that 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 1996 that in total
exceeded one million dollars and since no executive is expected to be
compensated in excess of that amount in 1997, 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
that two primary factors should be considered:
(1) the degree of responsibility the executive officer has, his or her
experience, and the number of years he or she has been in office, and
(2) the compensation levels of corresponding positions at other banking
companies of comparable size that compete with and serve the same markets as
First Virginia. This "Local Peer Group" of companies consists of 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 1996, Mr. Fitzpatrick's base salary was $470,000, which was
lower than the median (approximately 80% of 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 shareholders' equity
("ROE"), asset quality and capital strength consistent with First
Virginia's Profit Plan target amounts. Up to 50% of an executive's
salary may be awarded if the corporation achieves an ROA equivalent
to 80% or more of the ROA target amount for the year. For the
chief executive officer, First Virginia would also have to achieve
80% of targeted amounts for ROE, asset quality (as determined by
the ratio of nonperforming assets to total loans (NPA ratio) and
net loan charge-offs (CO ratio)) and capital strength (based on the
average equity to asset ratio (Equity/asset ratio) and the Tier 1
risk based capital ratio); and
(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 "Southern Regional Peer
Group," as compiled by Keefe, Bruyette and Woods, the New York
securities firm that specializes in the banking and thrift
industry; and
(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 for the CEO a target bonus that is based on a
projected return on assets for First Virginia. At the end of the year, the
Committee considers a preliminary bonus after taking into account the target
bonus, First Virginia's actual return on assets for the year and a formula
that is based on a set relationship between the actual versus the projected
return on assets.
The Committee then exercises its judgment in light of the foregoing
parameters and other considerations, including the Committee's view of
individual performance and potential and the recommendations of the CEO for
the executive officers (other than himself), to reach a bonus decision for
each executive officer and for the CEO. The Committee does not use a formula
to determine a final bonus decision. In 1996, the final bonus decision for
the CEO was at variance to the preliminary bonus amount. Among other things,
Mr. Fitzpatrick's bonus reflected First Virginia's success in achieving a
1.43% 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 flexible yet
effective method of motivating First Virginia's management.
Listed below are the annualized ratios for First Virginia and the
Southern Regional Peer Group based on results for the first nine months of
1996, the latest data available to the Committee at the time the incentive
awards were considered.
First Virginia
Profit Plan
or Target KBW Southern
Amount Actual Regional Peer Group
Earnings (Higher is better)
ROA 1.42% 1.40% 1.25%
ROE 12.79% 13.13% 14.81%
Asset Quality (Lower is better)
NPA .60% .49% .62%
CO .20% .24% .26%
Capital (Higher is better)
Equity/Asset Ratio 8.5% 10.60% 8.31%
Tier I Risk Based Capital 10.0% 14.17% 11.20%
First Virginia actual results exceeded the profit plan or target amount
in every category except ROA and CO and exceeded the Regional Peer Group in
every category except ROE. By year-end, First Virginia had also exceeded the
Profit Plan for ROA, achieving a 1.43% ROA. For that reason, the Committee
awarded Mr. Fitzpatrick a bonus of $250,000.
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.
The Committee granted at the end of 1996 options covering a total of
39,500 shares of First Virginia Common Stock at $46.875 per share to the CEO
and to certain executive officers. The size of each option award was not
based on a formula and did not necessarily correlate to the degree by which
First Virginia's results exceed those of its Market Area Major Competitors or
the amount of each executive's current stock-based holdings. Instead, the
size of each award was based on a number of factors, some of which were
subjective, including the performances of the CEO and each executive officer
and the degree of responsibility each executive officer has with First
Virginia. Mr. Fitzpatrick received options covering 10,000 shares. The size
of his grant was primarily based on the performance of First Virginia as
described above.
Each option that was awarded by the Committee will vest over a five-year
period in equal annual installments beginning one year from the date of
grant. However, each installment can only be exercised if the performance
goal for that year is met; otherwise, that portion of the option lapses. The
performance goal in any year is based on whether First Virginia exceeds the
weighted average of the returns reported by the major competitors in its
banking markets (Central Fidelity, Signet, Crestar, First Maryland Bancorp,
Mercantile Bancshares, First Tennessee and First American of Tennessee) for
that year. The performance ratios are weighted as follows: ROA 35%, ROE
25%, five-year cumulative total return to shareholder 15%, Nonperforming
Asset Ratio 15% and Charge-off Ratio 10%.
E. Cabell Brand
Edward M. Holland
Eric C. Kendrick
W. Lee Phillips
Albert F. Zettlemoyer
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
No person is known by management of the Corporation to own beneficially,
directly or indirectly, more than five percent of any class of the
Corporation's voting securities. The number of shares of the Corporation's
voting securities beneficially owned by each of the Corporation's directors
and by all of its directors and officers as a group is shown in Part III,
item 10, on pages 78 through 83 of this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
During the past year, certain of the directors and officers of First
Virginia and their associates had loans outstanding from First Virginia's
banking subsidiaries. Each of these loans was made in the ordinary course of
the lending bank's business. In some cases, where officers of First Virginia
or its subsidiaries had to be relocated, residential mortgage loans were made
by First Virginia at favorable interest rates. During 1995, First Virginia
made a below market rate residential mortgage loan in the amount of $400,000
at 7-5/8% to Raymond E. Brann, Jr., Executive Vice President of First
Virginia, as an inducement for him to relocate to Northern Virginia. The
interest benefit to him of that loan is included in the Summary Compensation
Table. However, none of the other named executive officers had any other
below market rate loans from First Virginia and none of them had any loans
from any of First Virginia's banking subsidiaries at favorable interest
rates. All other loans have been made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable features. As of
December 31, 1996, 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 $5,755,000.
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, 1996 and 1995 45/46
Consolidated Statements of Income - Three Years Ended
December 31, 1996 47/48
Consolidated Statements of Shareholders' Equity - Three Years
Ended December 31, 1996 49/50
Consolidated Statements of Cash Flows - Three Years Ended
December 31, 1996 51/52
Notes to Consolidated Financial Statements 53/76
Report of Ernst & Young LLP, Independent Auditors 77
EXHIBITS:
The following exhibits are filed as a part of this report:
(3)(i) Restated Articles of Incorporation are incorporated by reference
to Exhibit 3 of the 1993 Annual Report on Form 10K.
(3)(ii) Restated Bylaws
(4) Instruments defining the rights of holders of the Corporation's
long-term debt are not filed herein because the total amount of
securities authorized thereunder does not exceed 10% of
consolidated total assets. The corporation hereby agrees to furnish
a copy of such instruments to the Commission upon its request.
(10) Management contract for Mr. Barry J. Fitzpatrick is incorporated by
reference to Exhibit 10 of the 1994 Annual Report on Form 10-K.
Management contracts for Messrs. Ralph A. Beeton, Paul H. Geithner,
Jr., Edwin T. Holland, Thomas K. Malone, Jr. and Robert H. Zalokar
are incorporated by reference to Exhibit 10 of the 1992 Annual
Report on Form 10-K. Also incorporated from that exhibit are: (1)
Key Employee Salary Reduction Deferred Compensation Plans and
Directors' Deferred Compensation Plans for 1983 and 1986 and (2) A
compensatory plan known as the Collateral Assignment Split Dollar
Life Insurance Agreement and Plan. (3) There are also four plans
relating to options and rights. The 1982 Incentive Stock Option
Plan is incorporated by reference to Post-effective Amendment
Number 2 to Registration Statement Number 2-77151 on Form S-8 dated
October 30, 1987. The 1986 Incentive Stock Option Plan,
Nonqualified Stock Option Plan and Stock Appreciation Rights Plan
are incorporated by reference to Registration Statement Number
33-17358 on Form S-8 dated September 28, 1987. The 1991 Incentive
Stock Option Plan, Nonqualified Stock Option Plan and Stock
Appreciation Rights Plan is incorporated by reference to
Registration Statement Number 33-54802 on Form S-8 dated
November 20, 1992.
Also incorporated by reference to Exhibit 10 of the 1995 Annual
Report on Form 10K are Amendments to (1) Paragraph 1(a) of Barry J.
Fitzpatrick's Supplemental Compensation Agreement, which was
included in Exhibit 10 of the 1994 Annual Report on Form 10-K, (2)
Article VI, Section 6.03 of the Key Employee Salary Reduction
Deferred Compensation Plan, which was included in Exhibit 10 of the
1992 Annual Report on Form 10-K, and (3) the third paragraph of
Section 9 of the Collateral Assignment Split Dollar Life Insurance
Agreement and Plan, which was included in Exhibit 10 of the 1992
Annual Report on Form 10-K. These amendments are to include a
uniform "change in control" definition. The new definition of
"change in control" is included in Exhibit 10.
Included as Exhibit 10 is the Second Amendment to the Management
Contract for Mr. Barry J. Fitzpatrick, dated December 17, 1996.
Also incorporated by reference is Mr. Fitzpatrick's Supplemental
Compensation Agreement, which was included in Exhibit 10 of the
1994 Annual Report on Form 10K and an amendment to (1) Paragraph
1(a) which was included in Exhibit 10 of the 1995 Annual Report on
Form 10-K. Also included are employment agreements regarding
"Change of Control" for Mr. Barry J. Fitzpatrick, Shirley C.
Beavers, Jr., Richard F. Bowman, Raymond E. Brann, Jr. and Thomas
P. Jennings.
(11) Statement RE: Computation of Per Share Earnings.
(12) Statement RE: Computation of Ratios.
(13) First Virginia Banks, Inc., 1996 Annual Report to its Shareholders.
(Not included in the electronic filing).
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Auditors.
(27) Financial Data Schedule.
FINANCIAL STATEMENT SCHEDULES:
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
REPORTS ON FORM 8-K:
No reports on Form 8-K were required to be filed during the last quarter of
1996.
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 26, 1997, on its behalf by the undersigned, thereunto duly authorized.
FIRST VIRGINIA BANKS, INC.
/s/ Barry J. Fitzpatrick
___________________________________
Barry J. Fitzpatrick, Chairman, President
and Chief Executive Officer
/s/ Richard F. Bowman
___________________________________
Richard F. Bowman, Senior Vice President,
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons as of March 26, 1997 on
behalf of the registrant and in the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/ Barry J. Fitzpatrick
____________________________ Chairman, President,
Barry J. Fitzpatrick Chief Executive Officer
and Director
/s/ Richard F. Bowman
____________________________ Principal Financial
Richard F. Bowman and Accounting
Officer
____________________________ Director
E. Cabell Brand
/s/ Edward L. Breeden III
____________________________ Director
Edward L. Breeden, III
/s/ Paul H. Geithner, Jr.
____________________________ Director
Paul H. Geithner, Jr.
/s/ L. H. Ginn III
____________________________ Director
L. H. Ginn, III
SIGNATURE TITLE
--------- -----
/s/ Gilbert R. Giordano
____________________________ Director
Gilbert R. Giordano
/s/ T. Keister Greer
____________________________ Director
T. Keister Greer
/s/ Elsie C. Gruver
____________________________ Director
Elsie C. Gruver
/s/ Edward M. Holland
____________________________ Director
Edward M. Holland
/s/ Eric C. Kendrick
____________________________ Director
Eric C. Kendrick
/s/ John B. Melvin
____________________________ Director
John B. Melvin
/s/ W. Lee Phillips, Jr.
____________________________ Director
W. Lee Phillips, Jr.
/s/ Josiah P. Rowe III
____________________________ Director
Josiah P. Rowe, III
/s/ Robert H. Zalokar
____________________________ Director
Robert H. Zalokar
/s/ Albert F. Zettlemoyer
____________________________ Director
Albert F. Zettlemoyer
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1996
ITEM 14
EXHIBITS
The Exhibits filed with this annual report are
included herein.
FIRST VIRGINIA BANKS, INC.
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
Exhibit 3 (ii)
BYLAWS
OF
FIRST VIRGINIA BANKS, INC.
(With Amendments through December 18, 1996)
ARTICLE I
MEETING OF STOCKHOLDERS
Section 1. Annual Meetings. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on such date each year that
shall be established by the board of directors; however, if no such date is
established, then the annual meeting shall be on the fourth Wednesday in
April each year, if not a legal holiday, and if so, then on the next
succeeding business day.
Section 2. Special Meetings. Except as provided in Article II, Section 4
of these bylaws, special meetings of the stockholders shall be called by the
president or secretary only at the written request of a majority of the
directors, provided that, if as of the date of the request for such special
meeting there is a Related Person as defined in Article X of the Articles of
Incorporation, such majority shall include a majority of the Continuing
Directors, as defined in Article X of the Articles of Incorporation or by the
holders of four-fifths (80%) of the voting power of all of the then
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors. The request shall state the purpose
or purposes for which the meeting is to be called. The notice of every
special meeting of stockholders shall state the purpose for which it is
called.
Section 3. Hour and Place of Meeting. All meetings of the stockholders may
be held at such hour and place within or without the State of Virginia as may
be provided in the notice of meeting.
Section 4. Notice of Meetings. Written notice of the annual and of any
special meeting of the stockholders shall be given not less than ten days nor
more than sixty days before the meeting (except as a different time is
specified by law), by or at the direction of the board of directors or the
person calling the meeting, to each holder of record of shares of the
corporation entitled to vote at the meeting, in person or by mail sent to the
address recorded on the stock transfer books of the corporation on the date
mailed, unless otherwise required by law. If any stockholder shall fail or
decline to furnish mailing address, then such notice need not be sent to him
unless required by law. All such notices should state the day, hour, place
and purpose(s) of the meeting, and the matters to be considered.
Section 5. Voting List. A complete list of the stockholders entitled to
vote at any meeting or any adjournment thereof, with the address of and
number of shares held by each on the record date, shall, for a period of ten
days prior to such meeting, be kept on file at the registered office or
principal place of business of the corporation or at the office of the
transfer agent or registrar and shall be subject to inspection by any
stockholder at any time during usual business hours except as such right of
inspection may be subject to limitations prescribed by law. Such list shall
also be produced and kept open at the time and place of the meeting and shall
be open to inspection by any stockholder during the whole time of the
meeting. Whenever the production or exhibition of any voting list, or of the
stock transfer books of the corporation, shall be required by law, the
production of a copy thereof certified correct by the transfer agent shall be
deemed to be substantial compliance with such requirement.
Section 6. Quorum. A majority of the shares entitled to vote, represented
in person or by proxy, shall constitute a quorum at a meeting of
stockholders. Once a quorum has been duly convened, the quorum shall not be
deemed broken by the departure of any stockholder or holder of a proxy. In
the absence of a quorum, the stockholders present in person or by proxy, by
majority vote and without notice other than by announcement at the meeting,
may adjourn the meeting from time to time until a quorum shall be present.
At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which could have been transacted at the meeting as
originally called.
Section 7. Organization. At all meetings of the stockholders, the chairman
of the board, or in his absence the vice chairmen, in the order of their
appointment, or in their absence the president, or in the absence of all of
them a person chosen by a majority of the stockholders represented in person
or by proxy and entitled to vote at the meeting shall preside as chairman of
the meeting. The secretary of the corporation, or in his absence or if he be
appointed chairman of the meeting, an assistant secretary shall act as
secretary at all meetings of the stockholders; but if neither the secretary
nor any assistant secretary be present and able to act as such, the chairman
may appoint any person to act as secretary of the meeting.
Section 8. Conduct of Meetings. Parliamentary rules as formulated by
Cushman, Robert's or Sturgis' Manual shall govern the conduct of all meetings
of the stockholders upon verbal announcement thereof by the chairman, except
that where such rules conflict with the provisions of these bylaws, the
statutes of Virginia, or the Articles of Incorporation, the provisions of the
said bylaws, statutes or Articles shall prevail. The chairman of all
meetings of the stockholders may announce from time to time such rules and
guidelines for the conduct of business as he may determine in his discretion.
Section 9. Voting. Except as otherwise provided by law or by Articles of
Serial Designation with respect to any class or classes of preferred stock
outstanding, each stockholder shall be entitled to one vote for each share of
stock held by him and registered in his name on the books of the corporation
on the date fixed by the resolution of the board of directors as the record
date for the determination of the stockholders entitled to notice of and to
vote at such meeting as more fully set forth elsewhere in these bylaws. Such
vote may be given in person or by proxy appointed by an instrument in writing
executed by a stockholder or his duly authorized attorney, and delivered to
the secretary of the meeting. No proxy shall be valid after eleven months
from its date, unless otherwise provided therein. If a quorum is present,
the affirmative vote of a majority of the shares represented at the meeting
and entitled to vote on the subject matter shall be the act of the stock-
holders, except when a larger vote or a vote by class is required by the
Articles of Incorporation, any other provision of these bylaws or the laws of
the state of Virginia and except that in elections of directors those
receiving the greatest number of votes shall be deemed elected even though
not receiving a majority.
Section 10. Counting of Votes. The chairman shall appoint three tellers to
count the vote respecting the election of directors and any other questions
put to vote, whether such vote is by written ballot or by a show of hands or
by viva voce', and at least two out of three tellers shall certify in writing
the results of any such voting. Written ballots shall not be required unless
first decided upon by the chairman on matters to be brought before the
stockholders and a teller may but need not be, a stockholder of the
corporation.
Section 11. Stockholder Nominations. (a) Nominations of candidates for
election as directors at any annual meeting of stockholders may be made (i)
by, or at the direction of, a majority of the directors (provided that, if as
of the date of the nomination there is a Related Person as defined in Article
XI of the Articles of Incorporation, such majority shall include a majority
of the Continuing Directors, as defined in Article XI of the Articles of
Incorporation (such directors, whether or not they include the Continuing
Directors shall be referred to as the "directors" for the purposes of this
Section 11)) or (ii) by any stockholder of record entitled to vote at such
annual meeting. Only persons nominated in accordance with procedures set
forth in Section 11(b) shall be eligible for election as directors at an
annual meeting. (b) Nominations, other than those made by, or at the
direction of, a majority of the directors, shall be made pursuant to timely
notice in writing to the secretary of the corporation as set forth in this
Section 11(b). To be timely, a stockholder's notice shall be delivered to,
or mailed and received at, the principal executive offices of the Corporation
not less than sixty (60) days nor more than ninety (90) days prior to the
date of the scheduled annual meeting, regardless of postponements, deferrals,
or adjournments of that meeting to a later date; provided, however, that if
less than seventy (70) days' notice or prior public disclosure of the date of
the scheduled annual meeting is given or made, notice by the stockholder to
be timely must be so delivered or received not later than the close of
business on the tenth (10th) day following the earlier of the day on which
such notice of the date of the scheduled annual meeting was mailed or the day
on which such public disclosure was made. Such stockholder's notice shall
set forth (i) as to each person whom the stockholder proposes to nominate for
election as a director (a) the name, age, business address and residence
address of such person, (b) the principal occupation or employment of such
person, (c) the class and number of shares of the Corporation's equity
securities which are beneficially owned (as such term is defined in Rule 13d-
3 or 13d-5 under the Securities Exchange Act of 1934 (the "Exchange Act")) by
such person on the date of such stockholder notice and (d) any other
information relating to such person that would be required to be disclosed
pursuant to Schedule 13D under the Exchange Act in connection with the
acquisition of shares, and pursuant to Regulation 14A under the Exchange Act,
in connection with the solicitation of proxies with respect to nominees for
election as directors, regardless of whether such person is subject to the
provisions of such regulations, including, but not limited to, information
required to be disclosed by Items 4(b) and 6 of Schedule 14A under the
Exchange Act and information which would be required to be filed on Schedule
14B under the Exchange Act with the Securities and Exchange Commission and
(ii) as to the stockholder giving the notice (a) the name and address, as
they appear on the corporation's books, of such stockholder and any other
stockholder who is a record or beneficial owner of any equity securities of
the corporation and who is known by such stockholder to be supporting such
nominee(s) and (b) the class and number of shares of the corporation's equity
securities which are beneficially owned, as defined above, and owned of
record by such stockholder on the date of such stockholder notice and the
number of shares of the corporation's equity securities beneficially owned
and owned of record by any person known by such stockholder to be supporting
such nominee(s) on the date of such stockholder notice. At the request of a
majority of the directors, any person nominated by, or at the direction of,
the Board of Directors for election as a director at an annual meeting shall
furnish to the secretary of the corporation that information required to be
set forth in a stockholder's notice of nomination which pertains to the
nominee.
(c) No person shall be elected as a director of the corporation unless such
person is nominated in accordance with the procedures set forth in Section 11
and is eligible to serve as a director under Article II of these bylaws.
Ballots bearing the names of all the persons who have been nominated for
election as directors at an annual meeting in accordance with the procedures
set forth in Section 11 and are eligible to serve as a director under Article
II of these bylaws shall be provided for use at the annual meeting. (d) A
majority of the directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of Section 11(b). If a
majority of the directors determines that the information provided in a
stockholder's notice does not satisfy the informational requirements of
Section 11(b) in any material respect, the secretary of the corporation shall
promptly notify such stockholder of the deficiency in the notice. The
stockholder shall have an opportunity to cure the deficiency by providing
additional information to the secretary within five (5) days from the date
such deficiency notice is given to the stockholder, or such shorter time as
may be reasonably deemed appropriate by a majority of the directors. If the
deficiency is not cured within such period, or if a majority of the directors
reasonably determines that the additional information provided by the
stockholder, together with the information previously provided, does not
satisfy the requirements of Section 11(b) in any material respect, then the
board of directors may reject such stockholder's nomination. The secretary
of the corporation shall notify a stockholder in writing whether his or her
nomination has been made in accordance with the time and informational
requirements of Section 11(b). Notwithstanding the procedure set forth in
this paragraph, if the majority of the directors does not make a
determination as to the validity of any nominations by a stockholder, the
chairman of the annual meeting shall determine and declare at the annual
meeting whether a nomination was not made in accordance with the terms of
Section 11(b). If the chairman of such meeting determines that a nomination
was not made in accordance with the terms of Section 11(b), he or she shall
so declare at the annual meeting and the defective nomination shall be
disregarded.
Section 12. Business to be Brought Before the Meeting. (a) At an annual
meeting of stockholders, only such business shall be conducted, and only such
proposals shall be acted upon as shall have been brought before the annual
meeting (i) by, or at the direction of, the majority of the directors
(provided that, if as of the date of the nomination there is a Related Person
as defined in Article XI of the Articles of Incorporation, such majority
shall include a majority of the Continuing Directors, as defined in Article
XI of the Articles of Incorporation (such directors, whether or not they
include the Continuing Directors shall be referred to as the "directors" for
the purposes of this Section 12)); or (ii) by any stockholder of the
corporation who complies with the notice procedures set forth in Section
12(b).
(b) For a proposal to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the secretary of the corporation. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive
offices of the corporation not less than sixty (60) days nor more than ninety
(90) days prior to the scheduled annual meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that if less than seventy (70) days' notice or prior
public disclosure of the date of the scheduled annual meeting is given or
made, notice by the stockholder, to be timely, must be so delivered or
received not later than the close of business on the tenth (10th) day
following the earlier of the day on which such notice of the date of the
scheduled annual meeting was mailed or the day on which such public
disclosure was made. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the proposal desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's
books, of the stockholder proposing such business and any other stockholder
who is the record or beneficial owner (as defined in Section 11(a) of these
bylaws) of any equity security of the corporation known by such stockholder
to be supporting such proposal, (iii) the class and number of shares of the
corporation's equity securities which are beneficially owned (as defined in
Section 11(a) of these bylaws) and owned of record by the stockholder giving
the notice on the date of such stockholder notice and by any other record or
beneficial owners of the corporation's equity securities known by such
stockholder to be supporting such proposal on the date of such stockholder
notice, and (iv) any financial or other interest of the stockholder in such
proposal.
(c) A majority of the directors may reject any stockholder proposal not
timely made in accordance with the terms of Section 12(b). If a majority of
the directors determines that the information provided in a stockholder's
notice does not satisfy the informational requirements of Section 12(b) in
any material respect, the secretary of the corporation shall promptly notify
such stockholder of the deficiency in the notice. The stockholder shall have
the opportunity to cure the deficiency by providing additional information to
the secretary within such period of time, not to exceed five (5) days from
the date such deficiency notice is given to the stockholder, as the majority
of the directors shall reasonably determine. If the deficiency is not cured
within such period, or if the majority of the directors determines that the
additional information provided by the stockholder, together with information
previously provided, does not satisfy the requirements of this Section 12(b)
in any material respect, then a majority of the directors may reject such
stockholder's proposal. The secretary of the corporation shall notify a
stockholder in writing whether such person's proposal has been made in
accordance with the time and information requirements of Section 12(b).
Notwithstanding the procedures set forth in this paragraph, if the majority
of the directors does not make a determination as to the validity of any
stockholder proposal, the chairman of the annual meeting shall determine and
declare at the annual meeting whether the stockholder proposal was made in
accordance with the terms of Section 12(b). If the chairman of such meeting
determines that a stockholder proposal was not made in accordance with the
terms of Section 12(b), he or she shall so declare at the annual meeting and
any such proposal shall not be acted upon at the annual meeting.
(d) This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but, in connection with such reports,
no new business shall be acted upon at such annual meeting unless stated,
filed and received as herein provided.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by the board of directors subject to any requirement of
stockholder action.
Section 2. Number. The number of directors shall be fifteen (15).
Section 3. Terms of Directors. A person shall be elected to serve a term
of three years or to fill the unexpired term of the class to which the
directorship position has been assigned. A person appointed by the board to
fill the unexpired term of a directorship position shall stand for election
to that directorship position at the next stockholders' meeting at which
directors are elected. Except as required by law, no person who has reached
the age of 72 years shall be eligible to serve as a director, except that a
director who reaches the age of 72 years may continue to serve the unexpired
portion of the term for the class of the directorship position held by such
person. Notwithstanding the above, any person who has served or may serve as
chairman of the corporation in good standing until retirement and any person
who served as chairman of a subsidiary bank of the corporation on November 1,
1994, shall continue to be eligible to serve as a director for any class of
directorship position whose term shall not expire before such chairman shall
reach the age of 75 years.
Section 4. Vacancies. Any vacancy on the board of directors for any cause,
except a vacancy created by an increase by more than two in the number of
directors, may be filled for the unexpired portion of the term by a majority
vote of all of the remaining directors, though less than a quorum, given at a
regular meeting or at a special meeting called for that purpose. In case the
entire board shall die or resign, any stockholder may call a special meeting
of the stockholders upon notice as hereinbefore provided for meetings of the
stockholders, at which special meeting the directors for the unexpired
portion of the term may be elected.
Section 5. Fees. 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. The board of directors may appoint a
senior advisory board, the eligible members of which shall be such directors
of the corporation who served on the board of directors at the age of 72
years or who shall have resigned from the board because of poor health and
requested a transfer to it. The members of such board shall serve at the
pleasure of the corporation's board of directors until the next annual
meeting of stockholders. At the board meeting following each annual meeting
of stockholders, such member may be reappointed if such member has not then
reached the age of 75 years or, for any member who served as a director until
the age of 75 years, if such member has not then reached the age of 78;
however, under no circumstance shall a member be appointed more than two
times after the initial appointment. Members of the senior advisory board
shall receive notice of and be entitled to attend all regular meetings of the
corporation's board of directors and shall receive the same fees and expenses
as are paid to members, but will not be entitled to vote at such meetings.
Section 7. Stock Ownership of Directors. Every director shall be the owner
of stock of the corporation having a book value of not less than Five
Thousand Dollars ($5,000). Such stock must be unpledged and unencumbered at
the time such director becomes a director and during the whole of his term as
such. Any director violating the provisions of this section shall
immediately vacate his office.
ARTICLE III
DIRECTORS' MEETINGS
Section 1. Regular Meetings. Regular meetings of the board of directors
shall be held without other notice than this bylaw immediately after, and at
the same place as, the annual meeting of stockholders. Additional regular
meetings shall be held at least monthly. The board of directors may provide
by resolution the time and place, either within or without this state, for
the holding of additional regular meetings without other notice than such
resolution.
Section 2. Special Meetings. Special meetings of the board of directors
shall be held whenever called by the chairman of the board, by the president,
or by any two of the directors. Notice of each such meeting shall be mailed
to each director, addressed to his residence or usual place of business, at
least three days before the day on which the meeting is to be held, or shall
be sent to such place by telegraph or mailgram, or be delivered personally or
by telephone, not later than the day before the day on which the meeting is
to be held. Neither the business to be transacted at, nor the purpose of,
any special meeting need be specified in the notice or waiver of notice of
such meeting.
Section 3. Organization. At all meetings of the board of directors, the
chairman, or in his absence the vice chairmen in the order of their
appointment, or in their absence, the president (or in his absence the
executive vice president if a member of the board), or, in the absence of all
of them, any director selected by the board of directors shall act as chair-
man; and the secretary of the corporation, or, in his absence or if he be
elected chairman of the meeting, an assistant secretary, shall act as
secretary; but if neither the secretary nor any assistant secretary be
present and able to act as such, the chairman may appoint any person present
to act as secretary of the meeting.
Section 4. Quorum and Manner of Acting. Unless otherwise provided by law
or the Articles of Incorporation, a majority of the number of directors fixed
by the bylaws at the time of any regular or special meeting shall constitute
a quorum for the transaction of business at such meeting, and the act of a
majority of the directors present at any such meeting at which a quorum is
present shall be the act of the board of directors. In the absence of a
quorum, a majority of those present may adjourn the meeting from time to time
until a quorum be had. Notice of any such adjourned meeting need not be
given.
Section 5. Order of Business. At all meetings of the board of directors
business may be transacted in such order as from time to time the board may
determine.
Section 6. Action Without a Meeting. Any action which is required to be
taken at a meeting of the directors or of a director's committee may be taken
without a meeting if a consent in writing, setting forth the action so to be
taken, shall be signed either before or after such action by all of the
directors or by all of the members of the committee, as the case may be, and
such consent is filed in the minute book of the proceedings of the board or
committee. Such consent shall have the same force and effect as a unanimous
vote.
Section 7. Telephone Meetings. Members of the board of directors or any
committee designated thereby may participate in a meeting of such board or
committee by means of conference telephone or similar communications
equipment whereby all persons participating in the meeting can hear each
other, and a written record can be made of the action taken at the meeting.
ARTICLE IV
COMMITTEES OF THE BOARD
Section 1. Executive Committee. The board of directors, by a resolution
adopted by a majority of the number of directors, may designate three or more
directors, to include the chairman, the vice chairmen, if one or more be
appointed, and the president, to constitute an executive committee. Members
of the executive committee shall serve until removed, until their successors
are designated or until the executive committee is dissolved by the board of
directors. All vacancies which may occur in the executive committee shall be
filled by the board of directors. The executive committee, when the board of
directors is not in session, may exercise all of the powers of the board of
directors except to approve an amendment to the Articles of Incorporation,
these bylaws, a plan of merger or consolidation, a plan of exchange under
which the corporation would be acquired, the sale, lease or exchange, or the
mortgage or pledge for a consideration other than money, of all, or
substantially all, the property and assets of the corporation otherwise than
in the usual and regular course of its business, the voluntary dissolution of
the corporation, or revocation of voluntary dissolution proceedings, and may
authorize the seal of the corporation to be affixed as required. The
executive committee may make its own rules for the holding and conduct of its
meetings (except that at least two members of the committee shall be
necessary to constitute a quorum), the notice thereof required and the
keeping of its records, and shall report all of its actions to the board of
directors.
Section 2. Management Compensation and Benefits Committee. The board of
directors shall, by resolution, appoint a Management Compensation and
Benefits Committee that shall be comprised entirely of "outside directors" as
that term is defined under proposed Item 402(j)(2) of Regulation S-K of the
Securities and Exchange Commission; that is, "directors who do not have
employment or consulting arrangements with the corporation or its affiliates
and who are not employed by an entity that has an employee of the corporation
serving as a member of a committee which establishes that entity's
compensation policy." (If, in the final SEC rules, Item 402(j)(2) of the
SEC's Regulation S-K includes a different definition of "outside directors"
than that described above, then these Bylaws will follow the definition as
stated in the final rules, as amended from time to time.) Such committee
shall fix its own rules and procedures and shall meet at least once each
year. The committee shall have the authority to establish the level of
compensation (including bonuses) and benefits of management of the
corporation. Such committee shall also have all of the authority vested
under any stock option or other equity-based compensation plan of the
corporation including but not limited to the authority to grant stock
options, stock appreciation rights, restricted or phantom stock, etc. to the
corporation's management.
Section 3. Public Policy Committee. The board of directors shall, by
resolution, appoint not less than three nor more than six of its members to
constitute a public policy committee. The board shall likewise designate the
chairman of the committee. In addition, the chairman of the board shall be
an ex-officio member of the public policy committee and shall be entitled to
vote on all matters coming before the committee. The committee shall
recommend to the board of directors the total amount of funds to be allocated
each calendar year for charitable contributions to be made by the
corporation. The committee shall have authority to approve contributions by
the corporation within the dollar limits set by the approved annual budget
and may delegate some or all of its authority for final approval to the chief
executive officer provided that all contributions approved by the chief
executive officer are subsequently reported to the committee for review. The
committee shall exercise general supervision over the corporation's matching
gifts program and shall have authority to add and/or delete those colleges
and universities eligible for inclusion in the program. The committee shall
monitor on an ongoing basis the programs developed for compliance with the
Community Reinvestment Act as well as Title VII of the Civil Rights Act of
1964 (Equal Employment Opportunity) and as a result may make recommendations
to the chief executive officer in respect thereto. The committee shall
perform such other duties and functions as shall be assigned to said
committee from time to time by the board of directors. The chairman of the
committee shall report regularly to the board of directors on the results of
its meetings. The committee shall meet quarterly except that it may
additionally meet on call of its chairman as may be necessary.
Section 4. Audit Committee. The Board of Directors shall appoint an Audit
Committee that shall be comprised entirely of directors who meet the standard
of independence set forth by the New York Stock Exchange for audit committees
of listed companies. Such committee shall be comprised of a minimum of three
members and shall fix its own rules and procedures. The committee shall meet
at least quarterly. The committee shall review the following: (1) with the
independent public accountant and management, the financial statements and
the scope of the corporation's audit; (2) with the independent public
accountant and management, the adequacy of the corporation's system of
internal procedures and controls, including the resolution of material
weaknesses; (3) with the corporation's internal auditors, the activities and
performance of the internal auditors; (4) with management and the independent
accountant, compliance with laws and regulations; (5) with management, the
selection and termination of the independent public accountant and any
significant disagreements between the independent public accountant and
management; and (6) the nonaudit services of the corporation's independent
public accountant. The committee, when so delegated by a member bank, shall
perform such audit committee functions for such bank as are requested by the
bank to fulfill its requirements under Section 36 of the Federal Deposit
Insurance Act and under the regulations and guidelines adopted by the FDIC to
implement Section 36. The committee shall also review any other matters
concerning auditing and accounting as it deems necessary and appropriate.
The committee, at its discretion, may retain counsel without prior permission
of the Board or management.
Section 5. Other Committees. Other committees with limited authority may
be designated by a resolution adopted by a majority of the directors present
at a meeting at which a quorum is present.
ARTICLE V
OFFICERS
Section 1. Number. The officers of the corporation may be a chairman of
the board, a president, one or more vice chairmen (who also may serve as a
consultant and advisor to the board but not as a full-time employee of the
corporation or any of its affiliates), one or more executive vice presidents,
one or more vice presidents (any one or more of whom may be designated as
senior vice presidents), a secretary, and a treasurer. At the discretion of
the board of directors, there may be one or more assistant vice presidents,
assistant secretaries, and assistant treasurers; a general counsel and one or
more assistant general counsel and assistant counsel; a general auditor, one
or more assistant general auditors and audit managers, an electronic data
processing auditor, and a trust auditor; a communications officer; one or
more marketing officers, and such other officer titles designated by the
board from time to time. The chairman of the board, the vice chairmen, and
the president shall be chosen from members of the board of directors. The
same person may hold any two of such offices, except the office of secretary
may not be held by any person holding the office of president.
Section 2. Election, Term of Office and Qualifications. Officers of the
corporation shall be chosen annually by the board of directors at its regular
meeting immediately following the annual meeting of stockholders, and each
officer shall hold office until the next annual meeting of stockholders and
until his successor shall have been chosen and qualified or until he shall
resign or shall have been removed in the manner hereinafter provided.
Section 3. Other Officers, Agents and Employees. The board of directors
may from time to time appoint such other officers as it may deem necessary,
to hold office for such time as may be designated by it or during its
pleasure, and may also appoint, from time to time, such agents and employees
of the corporation as may be deemed proper, or may authorize any officer to
appoint and remove such agents and employees, and may from time to time
prescribe the powers and duties of such officers, agents and employees of the
corporation in the management of its property and affairs, and may authorize
any officer to prescribe the powers and duties of agents and employees.
Section 4. Vacancies. If any vacancy shall occur among the officers of the
corporation, such vacancy shall be filled by the board of directors.
Section 5. Removal of Officers. Any officer or agent of the corporation
may be removed with or without cause at any time by the board of directors or
such officer as may be provided in the bylaws. Any person or agent appointed
or employed by the corporation otherwise than by the board of directors may
be removed with or without cause at any time by any officer having authority
to appoint whenever such officer in his absolute discretion shall consider
that the best interests of the corporation will be served thereby.
Section 6. Chairman of the Board. The chairman of the board shall be the
chief executive officer of the corporation and subject to the control of the
board of directors, shall have general direction of the business affairs and
property of the corporation and shall do and perform such other duties as may
be prescribed in these bylaws or which may be assigned to him from time to
time by the board of directors. The chairman of the board shall preside at
all meetings of the board of directors and at all meetings of the stock-
holders. He shall prescribe the duties and have general supervision over all
other officers, employees and agents of the corporation enumerated in these
bylaws or established by resolution of the board of directors or otherwise,
and shall have the power to appoint, employ, suspend or remove with or
without the advice of the board of directors any such officer, employee or
agent unless otherwise specifically provided in these bylaws, and shall fix
the salaries of all such officers, employees and agents of the corporation
and its subsidiaries within the limits established from time to time by the
board of directors. He shall have power to sign all stock certificates,
deeds, contracts and other instruments authorized by the board of directors
or its executive committee unless other direction is given therefor, and he
shall be a member of all standing committees of the board except the account-
ing and auditing committee and the management compensation and benefits
committee.
Honorary Chairman of the Board. The board of directors may appoint a former
full-time officer who has held the office of chairman of the board of the
corporation to the position of honorary chairman of the board and provide
such person with a reasonable amount of office space as long as desired by
him. If appointed, such person shall act as chairman of the senior advisory
board as such body exists from time to time.
Section 7. Vice Chairmen of the Board. The board of directors may appoint
one or more vice chairmen of the board and, if any such officers are
appointed, may assign such specific duties to any one of them as it deems
necessary and advisable. Such officers may, but need not, be full-time
salaried employees of the corporation. Any such full-time vice chairmen
shall report to the corporation's chief executive officer and shall perform
such duties as such officers may prescribe and assign from time to time.
Section 8. Succession of Duties. The bylaw duties of the chairman of the
board may be exercised and carried out by any vice chairmen when such have
been appointed by the board of directors in the absence or disability of the
chairman of the board in order of their appointment; if no vice chairmen are
so appointed, then the president shall carry out such duties in the absence
of the chairman of the board; and in the absence of the president, the
executive vice president or any vice president in the order of their election
shall carry out all such duties in the absence or disability of the chairman
of the board.
Section 9. President. The president shall be the chief administrative
officer of the corporation and as such shall perform such duties as the
chairman of the board or the board of directors may prescribe from time to
time by resolution or as may be prescribed by these bylaws. He shall
exercise all the powers and discharge all the duties of the chairman of the
board during the latter's absence or inability to act. He shall have
concurrent power with the chairman of the board to sign all deeds, contracts
and instruments authorized by the board of directors or its executive
committee unless the board otherwise directs, and he may be a member of the
standing committees of the board except the accounting and auditing committee
when appointed by the board. He shall report to the chairman of the board in
carrying out his assignments and in conducting the affairs of his office.
Section 10. Executive Vice President. The board of directors may elect one
or more executive vice presidents and any such person so elected to such
office shall perform such duties as the board of directors or the chairman of
the board may assign and prescribe from time to time.
Section 11. Vice Presidents. Each vice president shall have such powers
and perform such duties as the board of directors or the chairman may from
time to time prescribe, and shall perform such other duties as may be
prescribed in these bylaws. Each vice president shall have power to sign all
deeds, contracts and instruments authorized by the board of directors or its
executive committee unless they otherwise direct. In case of the absence or
inability to act of the president, and the executive vice presidents in the
order of their appointments, then such vice president as the board of
directors may designate for the purpose (but in the absence of such
designation then the vice presidents in order of appointment) shall have the
powers and discharge the duties of the president.
Section 12. Secretary. The secretary shall keep the minutes of all
meetings of the stockholders, the board of directors and meetings of
committees of the board as they are held, in a book or books kept for that
purpose. He shall keep in safe custody the seal of the corporation and he
may affix such seal to any instrument duly executed on behalf of the
corporation. The secretary shall have charge of the certificate books and
such other books and papers as the board of directors may direct. He shall
attend to the giving and serving of all notices of the corporation, and shall
also have such other powers and perform such other duties as pertain to his
office, or as from time to time may be assigned to him by the board of
directors or the corporation's chief executive officer.
Section 13. Treasurer. The treasurer shall be the principal financial and
accounting officer of the corporation. He shall have charge of the funds,
securities, receipts and disbursements of the corporation, and shall deposit
all moneys and other valuable effects in the name and to the credit of the
corporation in such banks or other depositaries as the board of directors may
from time to time designate. He shall render to the chairman of the board,
or to the board of directors, or to the president, whenever any of them shall
require him so to do, an account of the financial condition of the
corporation and its affiliates and all of his transactions as treasurer. He
shall keep correct books of account of all its business and transactions. If
required by the board of directors, he shall give a bond in such sum and on
such conditions and with such surety as the board of directors may designate,
for the faithful performance of the duties of his office and the restoration
to the corporation, at the expiration of his term of office, or, in case of
his death, resignation or removal from office, of all books, papers,
vouchers, money or other property of whatever kind in his possession
belonging to the corporation. He shall also have such other powers and
perform such other duties as pertain to his office or as from time to time
may be assigned to him by the board of directors or the president.
Section 14. General Counsel. The general counsel, if one be appointed,
shall have charge of all litigation of the corporation, and shall keep
himself advised of the character and progress of all legal proceedings and
claims by and against the corporation or in which it is interested by reason
of its ownership and control of other corporations. He shall give to the
board of directors reports from time to time on all legal matters affecting
the corporation and, when requested, his opinion upon any question affecting
the interests of the corporation. He may, with the consent of the chief
executive officer, employ on behalf of the corporation special counsel for
the handling of any legal matter pertaining to the business of the
corporation which he deems necessary and advisable. The general counsel may,
but need not be, a full-time salaried officer of the corporation. He shall
from time to time consult with the corporation's legal advisory committee on
legal matters affecting the corporation and its affiliates.
Section 15. General Auditor. The general auditor, if one be appointed,
shall perform such internal auditing and accounting functions with regard to
the member banks and companies as the board of directors or any appropriate
committee thereof may from time to time determine, and shall have such
additional powers and duties as may be prescribed by these bylaws and as the
board of directors or any appropriate committee thereof may from time to time
determine, and shall have additional responsibilities and duties in con-
nection therewith as may be prescribed by these bylaws, applicable laws and
regulations or the board of directors or any appropriate committee thereof.
Except as stated, the general auditor and other auditing staff shall be
subject to day-to-day administrative direction of the chief executive officer
of the corporation and any such officer or employee may be dismissed by the
chief executive officer for reasons as may be applied in dismissing any other
personnel of the corporation, provided that a report of any such dismissal of
internal auditing personnel with the reasons therefor shall be made to the
board of directors or its executive committee at the next succeeding meeting
thereof. All other officers and personnel appointed or assigned to assist in
the internal audit function of the corporation, its member banks and
companies, may be assigned such day-to-day duties and responsibilities as may
be necessary by the general auditor to carry out the responsibilities of the
internal audit function. The office of general auditor may not be held by
any person holding other offices in the corporation or its affiliates except
with the specific approval of the board of directors.
Section 16. Assistant Secretary. In the absence or disability of the
secretary, the assistant secretary (or if more than one, then the assistant
secretary designated by the board of directors or the president for such
purpose) shall perform all the duties of the secretary and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon,
the secretary. Each assistant secretary shall also perform such other duties
as from time to time may be assigned to him by the board of directors, the
chief executive officer or the secretary.
Section 17. Assistant Treasurer. In the absence or disability of the
treasurer, the assistant treasurer (or if more than one, then the assistant
treasurer designated by the board of directors or the chief executive officer
for such purpose) shall perform all the duties of the treasurer and, when so
acting, shall have all the powers of, and be subject to all restrictions
upon, the treasurer. Each assistant treasurer shall also perform such other
duties as from time to time may be assigned to him by the board of directors,
the chief executive officer or the treasurer.
Section 18. Administrative Committees. The Chairman of the Board may
designate administrative committees to assist the Chairman in the day-to-day
operation of the corporation. Each committee shall have such authority of
the Chairman as the Chairman may delegate and shall be comprised of officers
of the corporation. Membership on such committees shall be at the request of
the Chairman of the Board, who shall appoint or remove members with or
without the advice of the board of directors, unless otherwise specifically
provided in these bylaws. The Chairman shall advise the board of directors
annually of the current committees and members thereof.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates. Certificates representing shares of the capital
stock of the corporation shall be in such form as is permitted by law and
prescribed by the board of directors or the chief executive officer and shall
be signed by the persons authorized to sign the same by the bylaws or
specific resolution of the board of directors. Certificates may, but need
not be, sealed with the seal of the corporation or a facsimile thereof. The
signature of the officers upon such certificates may be facsimiles if the
certificate is countersigned by a transfer agent or registered by registrar
other than the corporation itself or an employee of the corporation. In case
any officer who has signed or whose facsimile signature has been placed upon
a stock certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the corporation with the same
effect as if he were such officer at the date of its issue.
Section 2. Issue and Registration of Certificates: Transfer Agents and
Registrars. Transfer agents and/or registrars for the stock of the
corporation may be appointed by the board of directors and may be required to
countersign stock certificates. Certificates of stock shall be issued in
consecutive order and the certificate books shall be kept at an office of the
corporation or at the office of the transfer agent. Certificates shall be
numbered and registered in the order in which they are issued. New
certificates and, in the case of cancellation, old certificates, shall,
before they are delivered, be passed to a registrar if one is appointed by
the board of directors, and such registrar shall register the issue or
transfer of such certificates. Upon the return of the certificates by the
registrar, the new certificates shall be delivered to the person entitled
thereto.
Section 3. Transfer of Stock. The stock of the corporation shall be
transferable or assignable on the books of the corporation by the holders in
person or by attorney on surrender of the certificates for such shares duly
endorsed and, if sought to be transferred by attorney, accompanied by a
written power of attorney to have the same transferred on the books of the
corporation.
Section 4. Lost, Destroyed and Mutilated Certificates. Holders of the
stock of the corporation shall immediately notify the corporation of any
loss, destruction or mutilation of the certificate therefor, and the board of
directors may in its discretion, or any officer of the corporation appointed
by the board of directors for that purpose may in his discretion, cause one
or more new certificates for the same number of shares in the aggregate to be
issued to such stockholder upon the surrender of the mutilated certificate or
upon satisfactory proof of such loss or destruction and the deposit of a bond
in such form and amount and with such surety as the board of directors may
require.
Section 5. Record Date. For the purposes of determining stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of stockholders for any other proper purpose,
the board of directors may fix in advance a date as the record date for any
such determination of stockholders, such date in any case to be not more than
fifty days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If no record date is fixed for
the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the board of directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination
of stockholders. When a determination of stockholders entitled to vote at
any meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
ARTICLE VII
CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS,
SECURITIES, ETC.: AUTHORITY OF OFFICERS
Section 1. Contracts. The board of directors may authorize any officer or
officers, agent or agents to enter any contract or to execute and deliver any
instrument on behalf of the corporation, and such order may be general or
confined to specific instances.
Section 2. Loans. The board of directors may authorize any officer or
officers, agent or agents to effect loans and advances at any time for the
corporation from any bank, trust company, insurance company, or other
institution, or from any person, firm, association, or corporation, and in
connection with such loans and advances to make, execute and deliver
promissory notes or other evidences of indebtedness of the corporation, and,
as security for the payment of any and all loans, advances, indebtedness and
liabilities of the corporation, to pledge, hypothecate or transfer any and
all stocks, securities and other personal property at any time held by the
corporation, and to that end to transfer, endorse, assign and deliver the
same in the name of the corporation. Such authority may be general or
confined to specific instances, except that any pledge, hypothecation or
transfer of the capital stock or assets of any subsidiary corporation shall
be authorized only by a specific resolution of the board of directors.
Section 3. Bank Accounts. All funds of the corporation, not otherwise
employed, shall be deposited from time to time to the credit of the
corporation in such banks or trust companies or other depositaries as the
board of directors may select.
Section 4. Checks, Securities, Etc. All checks, drafts or orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the corporation, all stock powers, endorsements, assignments, or other
instruments for the transfer of securities held by the corporation shall be
executed and delivered by, and all such securities shall be voted and proxies
for the voting thereof shall be executed and delivered by such officer or
officers, agent or agents to whom the board of directors shall delegate the
power, and under such conditions and restrictions as they may impose.
ARTICLE VIII
MISCELLANEOUS
Section 1. Fiscal Year. The fiscal year of the corporation shall begin on
the first day of January and end on the thirty-first day of December in each
year.
Section 2. Dividends. The board of directors may from time to time
declare, and the corporation may pay, dividends on its outstanding shares in
the manner and upon the terms and conditions provided by law and its Articles
of Incorporation.
Section 3. Corporate Seal. The board of directors shall provide a
corporate seal which shall be circular in form and shall have inscribed
thereon the name of the corporation, the state of Virginia, and year of
incorporation and the words, "Corporate Seal".
ARTICLE IX
EMERGENCIES
Section 1. Emergency Bylaws. During any emergency resulting from an attack
on the United States or any nuclear or atomic disaster, which is declared to
be such by an appropriate agency of the state or federal government, these
bylaws shall be modified (but only to the extent required by such emergency)
as follows:
a. A meeting of the board of directors may be called by any officer
or director by giving at least one hour's notice to such of the directors as
it may be feasible to reach at the time and by such means as may be feasible
at the time, including publication or radio.
b. The directors in attendance at the meeting, if not less than
three, shall constitute a quorum. To the extent required to constitute a
quorum at any meeting of the board of directors, the officers of the
corporation who are present shall be deemed, in order of rank and within the
same rank in order of seniority, directors for such meeting. For purposes of
this bylaw, officers shall rank as follows: chairman of the board, vice
chairmen, president, executive vice president, senior vice president, vice
president, secretary, treasurer, assistant vice president, assistant
secretary, and assistant treasurer. Officers holding similar titles shall
rank in the order of their appointment.
Section 2. Termination of Emergency. Except as provided in this article,
the regular bylaws of the corporation shall remain in full force and effect
during any emergency, and upon its termination, these emergency bylaws shall
cease to be operative.
ARTICLE X
AMENDMENTS
The board of directors shall have the power to alter, amend or repeal any
bylaws of the corporation and to adopt new bylaws; but any bylaws made by the
board of directors may be repealed or changed, and new bylaws made, by the
stockholders, who may prescribe that any bylaw made by them shall not be
altered, amended or repealed by the board of directors.
FIRST VIRGINIA BANKS, INC.
BYLAWS
With Amendments through December 18, 1996
FIRST VIRGINIA BANKS, INC.
BYLAWS
Table of Contents
Page
ARTICLE I - MEETING OF STOCKHOLDERS. . .. . . . . . . . . . . . . . . . . .1
Section 1. Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . .1
Section 2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . .1
Section 3. Hour and Place of Meeting. . . . . . . . . . . . . . . . . . .1
Section 4. Notice of Meeting. . . . . . . . . . . . . . . . . . . . . . .1
Section 5. Voting List. . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 7. Organization . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 8. Conduct of Meetings. . . . . . . . . . . . . . . . . . . . . .2
Section 9. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 10. Counting of Votes. . . . . . . . . . . . . . . . . . . . . . .2
Section 11. Stockholder Nominations. . . . . . . . . . . . . . . . . . . .3
Section 12. Business to be Brought Before the Annual Meeting . . . . . . .4
ARTICLE II - BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . .6
Section 1. General Powers . . . . . . . . . . . . . . . . . . . . . . . .6
Section 2. Number . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 3. Terms of Directors . . . . . . . . . . . . . . . . . . . . . .6
Section 4. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 5. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 6. Senior Advisory Board . . . . . . . . . . . . . . . . . . . .6
Section 7. Stock Ownership of Directors . . . . . . . . . . . . . . . . .6
ARTICLE III - DIRECTORS' MEETINGS . . . . . . . . . . . . . . . . . . . . .7
Section 1. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . .7
Section 2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . .7
Section 3. Organization . . . . . . . . . . . . . . . . . . . . . . . . .7
Section 4. Quorum and Manner of Acting. . . . . . . . . . . . . . . . . .7
Section 5. Order of Business. . . . . . . . . . . . . . . . . . . . . . .7
Section 6. Action Without a Meeting . . . . . . . . . . . . . . . . . . .7
Section 7. Telephone Meetings . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE IV - COMMITTEES OF THE BOARD . . . . . . . . . . . . . . . . . . .8
Section 1. Executive Committee. . . . . . . . . . . . . . . . . . . . . .8
Section 2. Management Compensation and
Benefits Committee. . . . . . . . . . . . . . . . . . . .8
Section 3. Public Policy Committee. . . . . . . . . . . . . . . . . . . .8
Section 4. Audit Committee. . . . . . . . . . . . . . . . . . . . . . . .9
Section 5. Other Committees . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE V - OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 1. Number . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 2. Election, Term of Office, and Qualifications . . . . . . . . 10
Section 3. Other Officers, Agents, and Employees. . . . . . . . . . . . 10
Section 4. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5. Removal of Officers. . . . . . . . . . . . . . . . . . . . . 10
Section 6. Chairman of the Board . . . . . . . . . . . . . . . . . . . 10
Honorary Chairman of the Board. . . . . . . . . . . . . . . 10
Section 7. Vice Chairmen of the Board . . . . . . . . . . . . . . . . . 11
Section 8. Succession of Duties . . . . . . . . . . . . . . . . . . . . 11
Section 9. President . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 10. Executive Vice President . . . . . . . . . . . . . . . . . . 11
Section 11. Vice Presidents . . . . . . . . . . . . . . . . . . . . . . 11
Section 12. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 13. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 14. General Counsel . . . . . . . . . . . . . . . . . . . . . . 12
Section 15. General Auditor . . . . . . . . . . . . . . . . . . . . . . 12
Section 16. Assistant Secretary . . . . . . . . . . . . . . . . . . . . 12
Section 17. Assistant Treasurer . . . . . . . . . . . . . . . . . . . . 13
Section 18. Administrative Committees . . . . . . . . . . . . . . . . . 13
ARTICLE VI - CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1. Certificates . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2. Issue and Registration of Certificates:
Transfer Agents and Registrars . . . . . . . . . . . . 13
Section 3. Transfer of Stock . . . . . . . . . . . . . . . . . . . . . 13
Section 4. Lost, Destroyed, or Mutilated Certificates . . . . . . . . . 13
Section 5. Record Date . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VII - CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS,
SECURITIES, ETC.: AUTHORITY OF OFFICERS . . . . . . . . . 14
Section 1. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4. Checks, Securities, Etc. . . . . . . . . . . . . . . . . 14
ARTICLE VIII - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 15
Section 1. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IX - EMERGENCIES . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1. Emergency Bylaws . . . . . . . . . . . . . . . . . . . . . . 15
Section 2. Termination of Emergency . . . . . . . . . . . . . . . . . . 15
ARTICLE X - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBIT 10
SECOND AMENDMENT
to
SUPPLEMENTAL COMPENSATION AGREEMENT
between
FIRST VIRGINIA BANKS, INC.
and
BARRY J. FITZPATRICK
THIS AGREEMENT OF AMENDMENT, made this 17th day of December,
1996, and effective for all purposes as of this date, by and between
FIRST VIRGINIA BANKS, INC.
a Virginia corporation with principal offices located at One First
Virginia Plaza, 6400 Arlington Boulevard, Falls Church, Virginia
22046, hereinafter referred to as the "Corporation," and
BARRY J. FITZPATRICK
hereinafter referred to as the "Employee,"
W I T N E S S E T H:
WHEREAS, the Corporation and the Employee entered into a Supplemental
Compensation Agreement dated January 25, 1995, which agreement superseded any
previous Supplemental Compensation Agreements; and
WHEREAS, said Supplemental Compensation Agreement may be amended by
mutual consent of both the Corporation and the Employee, the First Amendment
having been made as of September 27, 1995; and
WHEREAS, the Corporation and the Employee are agreed that said
Supplemental Compensation Agreement be further amended;
NOW, THEREFORE, in consideration of the mutual covenants herein and the
benefits to be derived herefrom, the Corporation and the Employee do hereby
agree, each with the other, that said Supplemental Compensation
Agreement be amended as follows:
1. Paragraph 1. (a) is amended by deleting in its entirety the
paragraph as amended and inserting the following language:
If the Employee resigns, retires, or leaves the Corporation for any
reason after reaching the age of 58, he shall be entitled to receive annually
for life an amount determined under paragraph 2 hereinbelow (hereinafter
referred to as "Compensation").
Section 1(b) is amended by deleting in its entirety the paragraph and
inserting the following:
(b) If Employee becomes disabled while employed by the Corporation and
is eligible (or would have been eligible if the Plan was in effect) to
receive long term disability benefits under the Long Term Disability Plan
for Employees of First Virginia Banks, Inc. (hereinafter referred to as the
"LTD Plan"), then Employee shall be entitled to receive sixty percent of his
"Earnings" as that term is defined under the LTD Plan in effect as of
December 31, 1996 determined without regard to the maximum limitation under
Section 4.4 of that Plan benefits (minus any benefit he receives from the LTD
Plan or any successor plan if the LTD Plan isn't in effect until the earlier
of (a) the date he is or would have been no longer eligible to receive long
term disability benefits under the LTD Plan, or (b) the date he becomes
entitled to receive Compensation pursuant to some provision of this
Agreement. If Employee is "dismissed or requested to leave his 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. Paragraph 2 (c) is amended by deleting the following sentence:
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.
and inserting in its place the following sentence:
Said annual Compensation shall be divided by twelve and one-twelfth shall be
paid each month beginning with (x) the first full month after the occurrence
of both the date that Employee is entitled to payment under this Agreement
and the conclusion of the Employment Period as defined in a separate
Employment Agreement between the Corporation and Employee dated as of
December 17, 1996, if Employee is still an employee of the Corporation on the
Effective Date as defined in said Employment Agreement; or (y) the first full
month after Employee is entitled to payment under this Agreement, if such
date occurs before the Effective Date as defined in said Employment
Agreement.
Section 4 is amended by deleting in its entirety the
paragraph and inserting the following:
It is further agreed that if said Employee dies while holding the
position of Chairman and Chief Executive Officer or other assigned position
for the Corporation, Pamela Fitzpatrick (if she as his widow survives the
Employee) shall receive one-half (1/2) of his Compensation determined as of
the date of his death regardless of whether Employee was or was not fully
entitled to his Compensation as of that date.
Section 5 is amended by deleting 5(a)(i) in its entirety and
incorporating 5(a)(ii) as part of 5(a) without that section being separately
numbered.
3. Paragraph 7 is amended by deleting the phrase "age of 62" and
inserting in its place the phrase "age of 58."
CONCLUSION
IN WITNESS WHEREOF, the Corporation has caused this Agreement of
Amendment to be executed on its behalf by its proper officers hereunto duly
authorized, and the Employee has duly executed this Agreement all on the date
first written in this Agreement.
ATTEST: FIRST VIRGINIA BANKS, INC.
/s/ Barbara J. Chapman By: /s/ Thomas P. Jennings
- ---------------------- ----------------------
Thomas P. Jennings
Senior Vice President,
(Seal) General Counsel and
Secretary
WITNESS: EMPLOYEE
/s/ Barbara J. Chapman /s/ Barry J. Fitzpatrick
- ---------------------- ------------------------
Barry J. Fitzpatrick
EXHIBIT 10
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Virginia Banks, Inc., a
Virginia corporation (the "Company") and Barry J. Fitzpatrick (the
"Executive"), dated as of the 31st day of December, 1996.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to
assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks created by a pending or threatened Change of
Control and to encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will not be uncertain and that the
compensation and benefits will be competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board
has caused the Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the above-stated premise and
other good and valuable consideration, including the Executive's continued
employment with the Company, the receipt and adequacy of which are hereby
acknowledged, it is hereby agreed as follows:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change of Control occurs
and if the Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at
the request of a third party who has taken steps reasonably calculated to
effect a Change of Control or (ii) otherwise arose in connection with or in
anticipation of a Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of
such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the
date hereof, and on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended.
2. Change of Control. For the purposes of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
or more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be,
of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of
the action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During
the Employment Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct
of such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid at a monthly rate, at least equal to twelve
times the highest monthly base salary paid or payable, including any base
salary which has been earned but deferred, to the Executive by the Company
and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During
the Employment Period, the Annual Base Salary shall be reviewed no more than
12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Effective on the date
of each review, the Executive's Annual Base Salary shall be increased within
the range of percentage increases in annual base salary as in effect
generally at that time with respect to other peer executives of the Company
and its affiliated companies. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus under the Company's Employee Profit Sharing Plan
and executive bonus practice, or any comparable bonus under any predecessor
or successor plans and practices, for the last three full fiscal years prior
to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Recent
Annual Bonus"). Each such Annual Bonus shall be paid no later than the end
of the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer
the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with incentive opportunities (measured
with respect to both regular and special incentive opportunities, to the
extent, if any, that such distinction is applicable), savings opportunities
and retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices, policies
and programs as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally to other peer executives of the Company
and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies. The Executive shall follow the
Company's procedures for seeking reimbursement that are in effect at the time
reimbursement is sought or, if none, the procedures of the Company in effect
during the 120-day period immediately preceding the Effective Date.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of
an automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-
day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its affiliated
companies as in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may
give to the Executive written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, "Disability" shall
mean the absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice is
provided to the Executive and the Executive is given an opportunity, together
with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
(vi) Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 30-day period
immediately following the first anniversary of the Effective Date shall be
deemed to be a termination for Good Reason for all purposes of this
Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section
12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or
Disability.
If, at any time commencing on the Effective Date and ending on the
first anniversary of such date, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and
(3) shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) 2.99 and (2) the sum of (x)
Executive's Annual Base Salary and (y) the Executive's Highest Annual Bonus.
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
three years after the Date of Termination and to have retired on the last day
of such period; and
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
If, at any time during the Employment Period other than the time
commencing on the Effective Date and ending on the first anniversary of such
date, the Company shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate employment for Good
Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"highest Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and
(3) shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum of (x)
the Executive's Annual Base Salary and (y) the Executive's Highest Annual
Bonus.
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
three years after the Date of Termination and to have retired on the last day
of such period; and
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the
Company and affiliated companies to the estates and beneficiaries of peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death with respect
to other peer executives of the Company and its affiliated companies and
their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision
of Other Benefits. Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and
its affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer
executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligations to pay to the Executive (x) his Annual Base Salary
through the Date of Termination, (y) the amount of any compensation
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, subject to
Section 12(f), shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or
any of its affiliated companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any
of its affiliated companies at or subsequent to the Date of Termination shall
be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus
in each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f) (2)(A) of the Internal Revenue Code of 1986,
as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including
any interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the
Payments and the Gross-Up Payment, would not receive a net after-tax benefit
of at least $10,000 (taking into account both income taxes and any Excise
Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments,
in the aggregate, to an amount (the "Reduced Amount") such that the receipt
of Payments would not give rise to any Excise Tax, then no Gross-Up Payment
shall be made to the Executive and the Payments, in the aggregate, shall be
reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-
Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been
a Payment, or such earlier time as is requested by the Company. In the event
that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law
or legal process, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it. After
termination of the Executive's employment with the Company, the Executive
shall return to the Company all of Company's files, documents and papers,
whether in hard copy or on computer tape or disc, in the Executive's
possession. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State Commonwealth of Virginia,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Barry J. Fitzpatrick
10003 Park Royal Drive
Great Falls, Virginia 22066
If to the Company:
First Virginia Banks, Inc.
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this Agreement. This
Agreement shall not supersede and shall be in addition to that certain
Supplemental Compensation Agreement by and between the Company and the
Executive dated January 25, 1995, as it may be amended from time to time.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and seal and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed and sealed in its name
on its behalf, all as of the day and year first above written.
EXECUTIVE
/s/ Barry J. Fitzpatrick
------------------------- (SEAL)
Barry J. Fitzpatrick
Attest: FIRST VIRGINIA BANKS, INC.
/s/ Barbara J. Chapman By: /s/ Thomas P. Jennings
- ---------------------- ----------------------
Barbara J. Chapman Thomas P. Jennings
Senior Vice President, General
Counsel and Secretary
(SEAL)
EXHIBIT 10
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Virginia Banks, Inc., a Virginia
corporation (the "Company") and Shirley C. Beavers, Jr. (the "Executive"),
dated as of the 31st day of December, 1996.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to
assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks created by a pending or threatened Change of
Control and to encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will not be uncertain and that the
compensation and benefits will be competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board
has caused the Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the above-stated premise and
other good and valuable consideration, including the Executive's continued
employment with the Company, the receipt and adequacy of which are hereby
acknowledged, it is hereby agreed as follows:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change of Control occurs
and if the Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at
the request of a third party who has taken steps reasonably calculated to
effect a Change of Control or (ii) otherwise arose in connection with or in
anticipation of a Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of
such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the
date hereof, and on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended.
2. Change of Control. For the purposes of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
or more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be,
of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of
the action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During
the Employment Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct
of such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid at a monthly rate, at least equal to twelve
times the highest monthly base salary paid or payable, including any base
salary which has been earned but deferred, to the Executive by the Company
and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During
the Employment Period, the Annual Base Salary shall be reviewed no more than
12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Effective on the date
of each review, the Executive's Annual Base Salary shall be increased within
the range of percentage increases in annual base salary as in effect
generally at that time with respect to other peer executives of the Company
and its affiliated companies. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus under the Company's Employee Profit Sharing Plan
and executive bonus practice, or any comparable bonus under any predecessor
or successor plans and practices, for the last three full fiscal years prior
to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Recent
Annual Bonus"). Each such Annual Bonus shall be paid no later than the end
of the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer
the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with incentive opportunities (measured
with respect to both regular and special incentive opportunities, to the
extent, if any, that such distinction is applicable), savings opportunities
and retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices, policies
and programs as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally to other peer executives of the Company
and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies. The Executive shall follow the
Company's procedures for seeking reimbursement that are in effect at the time
reimbursement is sought or, if none, the procedures of the Company in effect
during the 120-day period immediately preceding the Effective Date.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of
an automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-
day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its affiliated
companies as in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may
give to the Executive written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, "Disability" shall
mean the absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice is
provided to the Executive and the Executive is given an opportunity, together
with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
(vi) Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 30-day period
immediately following the first anniversary of the Effective Date shall be
deemed to be a termination for Good Reason for all purposes of this
Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section
12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or
Disability.
If, at any time commencing on the Effective Date and ending on the
first anniversary of such date, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and
(3) shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) 2.99 and (2) the sum of (x)
Executive's Annual Base Salary and (y) the Executive's Highest Annual Bonus.
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
three years after the Date of Termination and to have retired on the last day
of such period; and
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
If, at any time during the Employment Period other than the time
commencing on the Effective Date and ending on the first anniversary of such
date, the Company shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate employment for Good
Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"highest Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and
(3) shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum of (x)
the Executive's Annual Base Salary and (y) the Executive's Highest Annual
Bonus.
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
three years after the Date of Termination and to have retired on the last day
of such period; and
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the
Company and affiliated companies to the estates and beneficiaries of peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death with respect
to other peer executives of the Company and its affiliated companies and
their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision
of Other Benefits. Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and
its affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer
executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligations to pay to the Executive (x) his Annual Base Salary
through the Date of Termination, (y) the amount of any compensation
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, subject to
Section 12(f), shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or
any of its affiliated companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any
of its affiliated companies at or subsequent to the Date of Termination shall
be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus
in each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f) (2)(A) of the Internal Revenue Code of 1986,
as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including
any interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the
Payments and the Gross-Up Payment, would not receive a net after-tax benefit
of at least $10,000 (taking into account both income taxes and any Excise
Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments,
in the aggregate, to an amount (the "Reduced Amount") such that the receipt
of Payments would not give rise to any Excise Tax, then no Gross-Up Payment
shall be made to the Executive and the Payments, in the aggregate, shall be
reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-
Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been
a Payment, or such earlier time as is requested by the Company. In the event
that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law
or legal process, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it. After
termination of the Executive's employment with the Company, the Executive
shall return to the Company all of Company's files, documents and papers,
whether in hard copy or on computer tape or disc, in the Executive's
possession. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State Commonwealth of Virginia,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Shirley C. Beavers, Jr.
911 Warwickshire Court
Great Falls, Virginia 22066
If to the Company:
First Virginia Banks, Inc.
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and seal and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed and sealed in its name
on its behalf, all as of the day and year first above written.
EXECUTIVE
/s/ Shirley C. Beavers, Jr.
---------------------------(SEAL)
Shirley C. Beavers, Jr.
Attest: FIRST VIRGINIA BANKS, INC.
/s/ Barbara J. Chapman By: /s/ Barry J. Fitzpatrick
- ---------------------- ------------------------
Barbara J. Chapman Barry J. Fitzpatrick
Chairman of the Board, President
and Chief Executive Officer
(SEAL)
EXHIBIT 10
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Virginia Banks, Inc., a Virginia
corporation (the "Company") and Richard F. Bowman (the "Executive"), dated as
of the 31st day of December, 1996.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to
assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks created by a pending or threatened Change of
Control and to encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will not be uncertain and that the
compensation and benefits will be competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board
has caused the Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the above-stated premise and
other good and valuable consideration, including the Executive's continued
employment with the Company, the receipt and adequacy of which are hereby
acknowledged, it is hereby agreed as follows:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change of Control occurs
and if the Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at
the request of a third party who has taken steps reasonably calculated to
effect a Change of Control or (ii) otherwise arose in connection with or in
anticipation of a Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of
such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the
date hereof, and on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended.
2. Change of Control. For the purposes of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
or more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be,
of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of
the action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During
the Employment Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct
of such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid at a monthly rate, at least equal to twelve
times the highest monthly base salary paid or payable, including any base
salary which has been earned but deferred, to the Executive by the Company
and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During
the Employment Period, the Annual Base Salary shall be reviewed no more than
12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Effective on the date
of each review, the Executive's Annual Base Salary shall be increased within
the range of percentage increases in annual base salary as in effect
generally at that time with respect to other peer executives of the Company
and its affiliated companies. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus under the Company's Employee Profit Sharing Plan
and executive bonus practice, or any comparable bonus under any predecessor
or successor plans and practices, for the last three full fiscal years prior
to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Recent
Annual Bonus"). Each such Annual Bonus shall be paid no later than the end
of the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer
the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with incentive opportunities (measured
with respect to both regular and special incentive opportunities, to the
extent, if any, that such distinction is applicable), savings opportunities
and retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices, policies
and programs as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally to other peer executives of the Company
and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies. The Executive shall follow the
Company's procedures for seeking reimbursement that are in effect at the time
reimbursement is sought or, if none, the procedures of the Company in effect
during the 120-day period immediately preceding the Effective Date.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of
an automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-
day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its affiliated
companies as in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may
give to the Executive written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, "Disability" shall
mean the absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice is
provided to the Executive and the Executive is given an opportunity, together
with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based
at any office or location other than as provided in Section 4(a)(i)(B) hereof
or the Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
(vi) Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 30-day period
immediately following the first anniversary of the Effective Date shall be
deemed to be a termination for Good Reason for all purposes of this
Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section
12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability.
If, at any time commencing on the Effective Date and ending on the
first anniversary of such date, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and
(3) shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) 2.99 and (2) the sum of (x)
Executive's Annual Base Salary and (y) the Executive's Highest Annual Bonus.
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
three years after the Date of Termination and to have retired on the last day
of such period; and
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
If, at any time during the Employment Period other than the time
commencing on the Effective Date and ending on the first anniversary of such
date, the Company shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate employment for Good
Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"highest Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and
(3) shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum of (x)
the Executive's Annual Base Salary and (y) the Executive's Highest Annual
Bonus.
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
three years after the Date of Termination and to have retired on the last day
of such period; and
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the
Company and affiliated companies to the estates and beneficiaries of peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death with respect
to other peer executives of the Company and its affiliated companies and
their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision
of Other Benefits. Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and
its affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer
executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligations to pay to the Executive (x) his Annual Base Salary
through the Date of Termination, (y) the amount of any compensation
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, subject to
Section 12(f), shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or
any of its affiliated companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any
of its affiliated companies at or subsequent to the Date of Termination shall
be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. In no event shall the Executive be
obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether or
not the Executive obtains other employment. The Company agrees to pay as
incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others
of the validity or enforceability of, or liability under, any provision of
this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to
this Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f) (2)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including
any interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the
Payments and the Gross-Up Payment, would not receive a net after-tax benefit
of at least $10,000 (taking into account both income taxes and any Excise
Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments,
in the aggregate, to an amount (the "Reduced Amount") such that the receipt
of Payments would not give rise to any Excise Tax, then no Gross-Up Payment
shall be made to the Executive and the Payments, in the aggregate, shall be
reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-
Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been
a Payment, or such earlier time as is requested by the Company. In the event
that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law
or legal process, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it. After
termination of the Executive's employment with the Company, the Executive
shall return to the Company all of Company's files, documents and papers,
whether in hard copy or on computer tape or disc, in the Executive's
possession. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State Commonwealth of Virginia,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Richard F. Bowman
2710 Oak Valley Drive
Vienna, Virginia 22181
If to the Company:
First Virginia Banks, Inc.
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and seal and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed and sealed in its name
on its behalf, all as of the day and year first above written.
EXECUTIVE
/s/ Richard F. Bowman
---------------------- (SEAL)
Richard F. Bowman
Attest: FIRST VIRGINIA BANKS, INC.
/s/ Barbara J. Chapman By: /s/ Barry J. Fitzpatrick
- ---------------------- ------------------------
Barbara J. Chapman Barry J. Fitzpatrick
Chairman of the Board, President
and Chief Executive Officer
(SEAL)
EXHIBIT 10
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Virginia Banks, Inc., a Virginia
corporation (the "Company") and Raymond E. Brann, Jr. (the "Executive"),
dated as of the 31st day of December, 1996.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to
assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks created by a pending or threatened Change of
Control and to encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will not be uncertain and that the
compensation and benefits will be competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board
has caused the Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the above-stated premise and
other good and valuable consideration, including the Executive's continued
employment with the Company, the receipt and adequacy of which are hereby
acknowledged, it is hereby agreed as follows:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change of Control occurs
and if the Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at
the request of a third party who has taken steps reasonably calculated to
effect a Change of Control or (ii) otherwise arose in connection with or in
anticipation of a Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of
such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the
date hereof, and on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended.
2. Change of Control. For the purposes of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
or more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be,
of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of
the action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During
the Employment Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct
of such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid at a monthly rate, at least equal to twelve
times the highest monthly base salary paid or payable, including any base
salary which has been earned but deferred, to the Executive by the Company
and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During
the Employment Period, the Annual Base Salary shall be reviewed no more than
12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Effective on the date
of each review, the Executive's Annual Base Salary shall be increased within
the range of percentage increases in annual base salary as in effect
generally at that time with respect to other peer executives of the Company
and its affiliated companies. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus under the Company's Employee Profit Sharing Plan
and executive bonus practice, or any comparable bonus under any predecessor
or successor plans and practices, for the last three full fiscal years prior
to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Recent
Annual Bonus"). Each such Annual Bonus shall be paid no later than the end
of the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer
the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with incentive opportunities (measured
with respect to both regular and special incentive opportunities, to the
extent, if any, that such distinction is applicable), savings opportunities
and retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices, policies
and programs as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally to other peer executives of the Company
and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies. The Executive shall follow the
Company's procedures for seeking reimbursement that are in effect at the time
reimbursement is sought or, if none, the procedures of the Company in effect
during the 120-day period immediately preceding the Effective Date.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of
an automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-
day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its affiliated
companies as in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may
give to the Executive written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, "Disability" shall
mean the absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice is
provided to the Executive and the Executive is given an opportunity, together
with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
(vi) Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 30-day period
immediately following the first anniversary of the Effective Date shall be
deemed to be a termination for Good Reason for all purposes of this
Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section
12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or
Disability.
If, at any time commencing on the Effective Date and ending on the
first anniversary of such date, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and
(3) shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) 2.99 and (2) the sum of (x)
Executive's Annual Base Salary and (y) the Executive's Highest Annual Bonus.
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
three years after the Date of Termination and to have retired on the last day
of such period; and
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
If, at any time during the Employment Period other than the time
commencing on the Effective Date and ending on the first anniversary of such
date, the Company shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate employment for Good
Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"highest Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and
(3) shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum of (x)
the Executive's Annual Base Salary and (y) the Executive's Highest Annual
Bonus.
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
three years after the Date of Termination and to have retired on the last day
of such period; and
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated
by reason of the Executive's death during the Employment Period, this
Agreement shall terminate without further obligations to the Executive's
legal representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the
Company and affiliated companies to the estates and beneficiaries of peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death with respect
to other peer executives of the Company and its affiliated companies and
their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision
of Other Benefits. Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and
its affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer
executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligations to pay to the Executive (x) his Annual Base Salary
through the Date of Termination, (y) the amount of any compensation
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, subject to
Section 12(f), shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or
any of its affiliated companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any
of its affiliated companies at or subsequent to the Date of Termination shall
be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus
in each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f) (2)(A) of the Internal Revenue Code of 1986,
as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including
any interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the
Payments and the Gross-Up Payment, would not receive a net after-tax benefit
of at least $10,000 (taking into account both income taxes and any Excise
Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments,
in the aggregate, to an amount (the "Reduced Amount") such that the receipt
of Payments would not give rise to any Excise Tax, then no Gross-Up Payment
shall be made to the Executive and the Payments, in the aggregate, shall be
reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-
Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been
a Payment, or such earlier time as is requested by the Company. In the event
that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law
or legal process, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it. After
termination of the Executive's employment with the Company, the Executive
shall return to the Company all of Company's files, documents and papers,
whether in hard copy or on computer tape or disc, in the Executive's
possession. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State Commonwealth of Virginia,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Raymond E. Brann, Jr.
4601 N. 35th Street
Arlington, Virginia 22207
If to the Company:
First Virginia Banks, Inc.
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and seal and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed and sealed in its name
on its behalf, all as of the day and year first above written.
EXECUTIVE
/s/ Raymond E. Brann, Jr.
------------------------- (SEAL)
Raymond E. Brann, Jr.
Attest: FIRST VIRGINIA BANKS, INC.
/s/ Barbara J. Chapman By: /s/ Barry J. Fitzpatrick
- ---------------------- ------------------------
Barbara J. Chapman Barry J. Fitzpatrick
Chairman of the Board, President
and Chief Executive Officer
(SEAL)
EXHIBIT 10
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Virginia Banks, Inc., a Virginia
corporation (the "Company") and Thomas P. Jennings (the "Executive"), dated
as of the 31st day of December, 1996.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to
assure that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the
personal uncertainties and risks created by a pending or threatened Change of
Control and to encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will not be uncertain and that the
compensation and benefits will be competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board
has caused the Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the above-stated premise and
other good and valuable consideration, including the Executive's continued
employment with the Company, the receipt and adequacy of which are hereby
acknowledged, it is hereby agreed as follows:
1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b))
on which a Change of Control (as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change of Control occurs
and if the Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment (i) was at
the request of a third party who has taken steps reasonably calculated to
effect a Change of Control or (ii) otherwise arose in connection with or in
anticipation of a Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of
such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of the date
hereof; provided, however, that commencing on the date one year after the
date hereof, and on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended.
2. Change of Control. For the purposes of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20%
or more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption
of office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be,
of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of
the action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During
the Employment Period, (A) the Executive's position (including status,
offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or
location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and efficiently
such responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued conduct
of such activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities to the
Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary"), which shall be paid at a monthly rate, at least equal to twelve
times the highest monthly base salary paid or payable, including any base
salary which has been earned but deferred, to the Executive by the Company
and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During
the Employment Period, the Annual Base Salary shall be reviewed no more than
12 months after the last salary increase awarded to the Executive prior to
the Effective Date and thereafter at least annually. Effective on the date
of each review, the Executive's Annual Base Salary shall be increased within
the range of percentage increases in annual base salary as in effect
generally at that time with respect to other peer executives of the Company
and its affiliated companies. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling
or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus under the Company's Employee Profit Sharing Plan
and executive bonus practice, or any comparable bonus under any predecessor
or successor plans and practices, for the last three full fiscal years prior
to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Recent
Annual Bonus"). Each such Annual Bonus shall be paid no later than the end
of the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer
the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with incentive opportunities (measured
with respect to both regular and special incentive opportunities, to the
extent, if any, that such distinction is applicable), savings opportunities
and retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices, policies
and programs as in effect at any time during the 120-day period immediately
preceding the Effective Date or if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally to other peer executives of the Company
and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives
of the Company and its affiliated companies. The Executive shall follow the
Company's procedures for seeking reimbursement that are in effect at the time
reimbursement is sought or, if none, the procedures of the Company in effect
during the 120-day period immediately preceding the Effective Date.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of
an automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-
day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its affiliated
companies as in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may
give to the Executive written notice in accordance with Section 12(b) of this
Agreement of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of
the Executive's duties. For purposes of this Agreement, "Disability" shall
mean the absence of the Executive from the Executive's duties with the
Company on a full-time basis for 180 consecutive business days as a result of
incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice is
provided to the Executive and the Executive is given an opportunity, together
with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.
(vi) Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 30-day period
immediately following the first anniversary of the Effective Date shall be
deemed to be a termination for Good Reason for all purposes of this
Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section
12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or
Disability.
If, at any time commencing on the Effective Date and ending on the
first anniversary of such date, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall
terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and
(3) shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) 2.99 and (2) the sum of (x)
Executive's Annual Base Salary and (y) the Executive's Highest Annual Bonus.
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
three years after the Date of Termination and to have retired on the last day
of such period; and
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
If, at any time during the Employment Period other than the time
commencing on the Effective Date and ending on the first anniversary of such
date, the Company shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate employment for Good
Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"highest Annual Bonus") and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2), and
(3) shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) two and (2) the sum of (x)
the Executive's Annual Base Salary and (y) the Executive's Highest Annual
Bonus.
(ii) for three years after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
three years after the Date of Termination and to have retired on the last day
of such period; and
(iii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive,
benefits at least equal to the most favorable benefits provided by the
Company and affiliated companies to the estates and beneficiaries of peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death with respect
to other peer executives of the Company and its affiliated companies and
their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision
of Other Benefits. Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect to
the provision of Other Benefits, the term Other Benefits as utilized in this
Section 6(c) shall include, and the Executive shall be entitled after the
Disability Effective Date to receive, disability and other benefits at least
equal to the most favorable of those generally provided by the Company and
its affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer
executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time thereafter
generally with respect to other peer executives of the Company and its
affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligations to pay to the Executive (x) his Annual Base Salary
through the Date of Termination, (y) the amount of any compensation
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, subject to
Section 12(f), shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company or
any of its affiliated companies. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any
of its affiliated companies at or subsequent to the Date of Termination shall
be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against
the Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Executive
obtains other employment. The Company agrees to pay as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus
in each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f) (2)(A) of the Internal Revenue Code of 1986,
as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest
or penalties are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in
an amount such that after payment by the Executive of all taxes (including
any interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the
Payments and the Gross-Up Payment, would not receive a net after-tax benefit
of at least $10,000 (taking into account both income taxes and any Excise
Tax) as compared to the net after-tax proceeds to the Executive resulting
from an elimination of the Gross-Up Payment and a reduction of the Payments,
in the aggregate, to an amount (the "Reduced Amount") such that the receipt
of Payments would not give rise to any Excise Tax, then no Gross-Up Payment
shall be made to the Executive and the Payments, in the aggregate, shall be
reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-
Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been
a Payment, or such earlier time as is requested by the Company. In the event
that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax claimed and sue
for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly
pay to the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law
or legal process, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it. After
termination of the Executive's employment with the Company, the Executive
shall return to the Company all of Company's files, documents and papers,
whether in hard copy or on computer tape or disc, in the Executive's
possession. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State Commonwealth of Virginia,
without reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Thomas P. Jennings
3869 N. Rixey Street
Arlington, Virginia 22207-4621
If to the Company:
First Virginia Banks, Inc.
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good
Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and seal and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed and sealed in its name
on its behalf, all as of the day and year first above written.
EXECUTIVE
/s/ Thomas P. Jennings
----------------------- (SEAL)
Thomas P. Jennings
Attest: FIRST VIRGINIA BANKS, INC.
/s/ Barbara J. Chapman By: /s/ Barry J. Fitzpatrick
- ---------------------- ------------------------
Barbara J. Chapman Barry J. Fitzpatrick
Chairman of the Board, President
and Chief Executive Officer
(SEAL)
EXHIBIT 11
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Year Ended December 31
1996 1995 1994
-------- ------- -------
(In thousands, except per share data)
PRIMARY:
Average common shares outstanding 33,192 33,976 32,190
Dilutive effect of stock options 78 80 91
-------- -------- --------
Total average common shares 33,270 34,056 32,281
======== ======== ========
Net income $116,341 $111,599 $113,221
Provision for preferred dividends (44) (47) (51)
-------- -------- --------
Net income applicable to common
stock $116,297 $111,552 $113,170
======== ======== ========
Net income per share of common
stock $3.50 $3.28 $3.51
======== ======== ========
FULLY DILUTED:
Average common shares outstanding 33,192 33,976 32,190
Dilutive effect of stock options 79 83 91
Conversion of preferred stock 97 104 112
-------- -------- --------
Total average common shares 33,368 34,163 32,393
======== ======== ========
Net income $116,341 $111,599 $113,221
======== ======== ========
Net income per share of common
stock $3.49 $3.27 $3.50
======== ======== ========
EXHIBIT 12
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF RATIOS
Year Ended December 31
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data and ratios)
Ratios - Page 10
- ----------------
Book Value Per Share:
Total shareholders'
equity $ 871,277 $ 869,647 $ 806,888 $ 691,501 $ 607,399
Preferred stock 647 695 746 805 825
---------- ---------- ---------- ---------- ----------
Common shareholders'
equity 870,630 868,952 806,142 690,696 606,574
Common shares
outstanding 32,408 33,951 34,050 32,444 32,185
Book value per share $ 26.86 $ 25.59 $ 23.68 $ 21.29 $ 18.85
========== ========== ========== ========== ==========
Ratios - Page 11
- ----------------
Return on Average Assets:
Net income $ 116,341 $ 111,599 $ 113,221 $ 116,024 $ 97,473
Average assets 8,145,963 7,941,224 7,157,784 6,890,738 6,503,428
Return on average
assets ratio 1.43% 1.41% 1.58% 1.68% 1.50%
========== ========== ========== ========== ==========
Return on Average Equity:
Net income $ 116,341 $ 111,599 $ 113,221 $ 116,024 $ 97,473
Average shareholders'
equity 869,791 836,387 718,442 651,461 572,273
Return on average
equity ratio 13.38% 13.34% 15.76% 17.81% 17.03%
========== ========== ========== ========== ==========
Net Interest Margin:
Net interest income
(taxable equivalent) $ 380,510 $ 365,142 $ 349,469 $ 347,946 $ 329,165
Total average
earning assets 7,521,408 7,291,540 6,619,785 6,369,351 6,031,125
Net interest margin
ratio 5.06% 5.00% 5.28% 5.46% 5.46%
========== ========== ========== ========== ==========
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF RATIOS (Continued)
Year Ended December 31
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(in thousands, except ratios)
Risk-Based Capital:
Tier 1:
Tier 1 risk-based
capital $ 780,695 $ 777,501 $ 725,258 $ 678,139 $ 595,218
Risk weighted assets 5,754,997 5,042,824 4,912,312 4,026,386 3,834,252
Tier 1 risk-based
capital ratio 13.57% 15.42% 14.76% 16.84% 15.52%
========== ========== ========== ========== ==========
Total Capital:
Total risk-based
capital $ 843,456 $ 835,423 $ 784,118 $ 728,481 $ 643,146
Risk weighted assets 5,754,997 5,042,824 4,912,312 4,026,386 3,834,252
Total risk-based
capital ratio 14.66% 16.57% 15.96% 18.09% 16.77%
========== ========== ========== ========== ==========
Tier 1 Leverage Ratio:
Tier 1 risk-based
capital $ 780,695 $ 777,501 $ 725,258 $ 678,139 $ 595,218
Total quarterly
average assets 8,055,381 8,071,746 7,078,376 7,007,511 6,681,798
Tier 1 leverage ratio 9.69% 9.63% 10.25% 9.67% 8.91%
========== ========== ========== ========== ==========
Capital Strength:
Average shareholders'
equity 869,791 836,387 718,442 651,461 572,273
Average assets 8,145,963 7,941,224 7,157,784 6,890,738 6,503,428
Capital strength ratio 10.68% 10.53% 10.04% 9.45% 8.80%
========== ========== ========== ========== ==========
Dividends Declared:
Common dividends
declared, per share 1.445 1.36 1.28 1.13 0.99
Net income, per share 3.50 3.28 3.51 3.57 3.02
Dividends as percent
of net income 41.29% 41.46% 36.47% 31.65% 32.78%
========== ========== ========== ========== ==========
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF RATIOS (Continued)
Year Ended December 31
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(in thousands, except ratios)
Ratios - Page 37
- ----------------
Net Loan Losses to Average Loans:
Net charge-offs:
Credit card $ 6,765 $ 5,481 $ 3,821 $ 3,758 $ 4,220
Indirect automobile 3,944 1,644 408 725 3,115
Other 1,632 855 492 699 1,945
Real estate 175 149 95 22 455
Commercial 379 1,150 126 (82) 3,097
---------- ---------- ---------- ---------- ----------
Net charge-offs $ 12,895 $ 9,279 $ 4,942 $ 5,122 $ 12,832
---------- ---------- ---------- ---------- ----------
Average loans:
Credit card $ 180,577 $ 171,585 $ 146,429 $ 134,102 $ 135,700
Indirect automobile 1,812,105 1,666,029 1,493,932 1,241,906 1,088,753
Other 1,463,948 1,454,779 1,448,672 1,293,455 1,206,646
Real estate 962,891 924,763 667,382 691,048 610,223
Commercial 752,135 738,337 630,724 597,811 618,784
---------- ---------- ---------- ---------- ----------
Average loans $5,171,656 $4,955,493 $4,387,139 $3,958,322 $3,660,106
---------- ---------- ---------- ---------- ----------
Ratios by category:
Credit card 3.75% 3.19% 2.61% 2.80% 3.11%
Indirect automobile 0.22 0.10 0.03 0.06 0.29
Other 0.11 0.06 0.03 0.05 0.16
Real estate 0.02 0.02 0.01 - 0.07
Commercial 0.05 0.16 0.02 (0.01) 0.50
---------- ---------- ---------- ---------- ----------
Total net charge-offs
to average loans 0.25% 0.19% $ 0.11% 0.13% 0.35%
========== ========== ========== ========== ==========
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF RATIOS (Continued)
1996
----------------------------------------------
Quarter Ended
----------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
---------- ---------- ---------- ----------
(in thousands, except ratios)
Ratios - Page 43
- ----------------
Rates Earned on Assets:
Interest income
(taxable equivalent) $ 149,691 $ 148,595 $ 147,765 $ 146,748
Total earning assets 7,567,637 7,489,403 7,534,770 7,493,629
Rates earned on assets 7.88% 7.91% 7.84% 7.83%
========== ========== ========== ==========
Rates Paid on Liabilities:
Interest expense $ 53,039 $ 52,143 $ 52,447 $ 54,669
Total interest-bearing
liabilities 5,975,347 5,917,509 5,965,463 5,989,060
Rates paid on liabilities 3.53% 3.51% 3.54% 3.67%
========== ========== ========== ==========
Net Interest Margin:
Net interest income
(taxable equivalent) $ 96,652 $ 96,452 $ 95,318 $ 92,079
Total average
earning assets 7,567,637 7,489,403 7,534,770 7,493,629
Net interest margin ratio 5.09% 5.14% 5.04% 4.90%
========== ========== ========== ==========
Return on Average Assets:
Net income $ 30,798 $ 28,586 $ 28,574 $ 28,383
Average assets 8,197,088 8,105,571 8,150,046 8,130,426
Return on average
assets ratio 1.50% 1.41% 1.40% 1.40%
========== ========== ========== ==========
Return on Average Equity:
Net income $ 30,798 $ 28,586 $ 28,574 $ 28,383
Average shareholders'
equity 872,293 861,434 869,872 873,662
Return on average
equity ratio 14.12% 13.27% 13.14% 13.00%
========== ========== ========== ==========
FIRST VIRGINIA BANKS, INC.
STATEMENT RE: COMPUTATION OF RATIOS (Continued)
1995
----------------------------------------------
Quarter Ended
----------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31
---------- ---------- ---------- ----------
(in thousands, except ratios)
Ratios - Page 44
- ----------------
Rates Earned on Assets:
Interest income
(taxable equivalent) $ 148,700 $ 147,080 $ 144,481 $ 140,398
Total earning assets 7,502,315 7,329,912 7,227,162 7,097,333
Rates earned on assets 7.89% 7.99% 7.99% 7.93%
========== ========== ========== ==========
Rates Paid on Liabilities:
Interest expense $ 57,543 $ 55,230 $ 53,727 $ 49,002
Total interest-bearing
liabilities 6,022,843 5,867,889 5,825,308 5,747,250
Rates paid on liabilities 3.79% 3.73% 3.70% 3.47%
========== ========== ========== ==========
Net Interest Margin:
Net interest income
(taxable equivalent) $ 91,157 $ 91,850 $ 90,754 $ 91,396
Total average
earning assets 7,502,315 7,329,912 7,227,162 7,097,333
Net interest margin ratio 4.85% 5.00% 5.01% 5.12%
========== ========== ========== ==========
Return on Average Assets:
Net income $ 27,560 $ 29,269 $ 27,572 $ 27,198
Average assets 8,163,892 7,975,500 7,873,367 7,742,540
Return on average
assets ratio 1.35% 1.47% 1.40% 1.41%
========== ========== ========== ==========
Return on Average Equity:
Net income $ 27,560 $ 29,269 $ 27,572 $ 27,198
Average shareholders'
equity 860,638 842,660 827,522 814,917
Return on average
equity ratio 12.81% 13.89% 13.33% 13.35%
========== ========== ========== ==========
SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21
December 31, 1996
State of Incorporation and
Headquarters Location
---------------------------
First Virginia Banks, Inc. Falls Church, Virginia
Banking Subsidiaries:
Northern Region:
First Virginia Bank Falls Church, Virginia
First General Mortgage Company Falls Church, Virginia
First Virginia Mortgage Company Falls Church, Virginia
First Virginia Commercial Corporation Falls Church, Virginia
First Virginia Card Services, Inc. Falls Church, Virginia
First Virginia Credit Services, Inc. Falls Church, Virginia
Maryland Region:
First Virginia Bank-Central Maryland Bel Air, Maryland
C.B. Properties, Inc. Bel Air, Maryland
C.B. Properties II, Inc. Bel Air, Maryland
First Virginia Bank-Maryland Upper Marlboro, Maryland
Farmers Bank of Maryland Annapolis, Maryland
Colonial Securities Corporation Wilmington, Delaware
Atlantic Bank Ocean City, Maryland
The Caroline County Bank Greensboro, Maryland
Eastern Region:
First Virginia Bank of Tidewater Norfolk, Virginia
First Virginia Bank-Colonial Richmond, Virginia
First Virginia Bank-Commonwealth Grafton, Virginia
Southwest Region:
First Virginia Bank-Southwest Roanoke, Virginia
First Virginia Bank-Franklin County Rocky Mount, Virginia
First Virginia Bank-Highlands Covington, Virginia
First Virginia Bank-Piedmont Lynchburg, Virginia
First Virginia Bank-Clinch Valley Richlands, Virginia
Shenandoah Valley Region:
First Virginia Bank-Blue Ridge Staunton, Virginia
Tennessee-Western Virginia Region:
First Virginia Bank-Mountain Empire Damascus, Virginia
Tri-City Bank and Trust Company Blountville, Tennessee
First Vantage Bank-Tennessee Knoxville, Tennessee
Nonbanking Subsidiaries
First Virginia Insurance Services, Inc. Falls Church, Virginia
First Virginia Insurance Services of
Maryland, Inc. Falls Church, Virginia
First Virginia Services, Inc. Falls Church, Virginia
First Virginia Life Insurance Company Falls Church, Virginia
Springdale Advertising Agency, Inc. Falls Church, Virginia
Northern Operations Center, Inc. Falls Church, Virginia
Southwest Operations Center, Inc. Falls Church, Virginia
Eastern Operations Center, Inc. Falls Church, Virginia
United Land Corporation Upper Marlboro, Maryland
Springdale Temporary Services, Inc. Falls Church, Virginia
First General Leasing Company Falls Church, Virginia
Farmers National Land Corporation Annapolis, Maryland
Maryland Operations, Center, Inc. Annapolis, Maryland
All of the organizations listed above are 100% owned by First Virginia Banks,
Inc., or one of its subsidiary banks.
Exhibit 23
Consent of Independent Auditors
Board of Directors
First Virginia Banks, Inc.
We consent to the incorporation by reference into Post-effective Amendment
No. 1 to Registration Statement Number 33-38024 on Form S-8 dated January 10,
1994, Registration Statement Number 33-51587 on Form S-3 dated December 20,
1993, Registration Statement Number 33-54802 on Form S-8 dated November 20,
1992, Registration Statement Number 33-31890 on form S-3 dated November 1,
1989, Post-effective Amendment Number 2 to Registration Statement Number
2-77151 on Form S-8 dated October 30, 1987, Registration Statement Number
33-17358 on Form S-8 dated September 28, 1987, and Registration Statement
Number 33-15360 on Form S-3 dated June 26, 1987, of our report dated
January 21, 1997, 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, 1996.
Washington, D.C.
March 26, 1997
/s/ Ernst & Young LLP
_____________________
Exhibit 27
[ARTICLE] 9
[CIK] 0000037032
[NAME] FIRST VIRGINIA BANKS, INC.
[MULTIPLIER] 1000
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[CASH] 378,171
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 323,620
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 0
[INVESTMENTS-CARRYING] 1,820,949
[INVESTMENTS-MARKET] 1,823,404
[LOANS] 5,364,787
[ALLOWANCE] 62,761
[TOTAL-ASSETS] 8,236,056
[DEPOSITS] 7,042,650
[SHORT-TERM] 234,488
[LIABILITIES-OTHER] 83,765
[LONG-TERM] 3,876
[COMMON] 32,408
[PREFERRED-MANDATORY] 0
[PREFERRED] 647
[OTHER-SE] 838,222
[TOTAL-LIABILITIES-AND-EQUITY] 8,236,056
[INTEREST-LOAN] 450,109
[INTEREST-INVEST] 118,896
[INTEREST-OTHER] 18,211
[INTEREST-TOTAL] 587,216
[INTEREST-DEPOSIT] 202,370
[INTEREST-EXPENSE] 9,928
[INTEREST-INCOME-NET] 374,918
[LOAN-LOSSES] 17,734
[SECURITIES-GAINS] 1,789
[EXPENSE-OTHER] 279,310
[INCOME-PRETAX] 176,324
[INCOME-PRE-EXTRAORDINARY] 176,324
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 116,341
[EPS-PRIMARY] 3.50
[EPS-DILUTED] 3.49
[YIELD-ACTUAL] 7.88
[LOANS-NON] 14,906
[LOANS-PAST] 8,919
[LOANS-TROUBLED] 5,537
[LOANS-PROBLEM] 5,140
[ALLOWANCE-OPEN] 57,922
[CHARGE-OFFS] 16,611
[RECOVERIES] 3,716
[ALLOWANCE-CLOSE] 62,761
[ALLOWANCE-DOMESTIC] 62,761
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 62,761