FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission file number 1-6580
September 30, 1999
FIRST VIRGINIA BANKS, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0497561
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code
(703) 241-4000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No_____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
On October 31, 1999, there were 49,688,784 shares of common
stock outstanding.
This report contains a total of 24 pages.
1
INDEX
Page
---------
PART I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30,
1999 and 1998, and December 31, 1998 (Unaudited) 3/ 4
Condensed Consolidated Statements of Income - Three
months and nine months ended September 30, 1999
and 1998 (Unaudited) 5/ 6
Condensed Consolidated Statements of Shareholders'
Equity - Nine months ended September 30, 1999
and 1998 (Unaudited) 7/ 8
Condensed Consolidated Statements of Cash Flows - Nine
months ended September 30, 1999 and 1998 (Unaudited) 9
Notes to Condensed Consolidated Financial
Statements (Unaudited) 10/13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13/21
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 22
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 23
Exhibit 27 - Financial Data Schedule 24
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
Sept.30 December 31 Sept.30
1999 1998 1998
---------- ---------- ----------
(In thousands)
ASSETS
Cash and due from banks $ 326,758 $ 377,374 $ 349,051
Money market investments 80,052 265,557 166,844
---------- ---------- ----------
Total cash and cash equivalents 406,810 642,931 515,895
---------- ---------- ----------
Loans held for sale 6,686 14,737 65,595
Investment securities - available for sale 112,870 20,580 22,551
Investment securities - held to maturity
(fair values of $1,996,659, $2,316,922
and $2,207,194) 2,024,813 2,302,472 2,184,424
Loans, net of unearned income 6,351,946 6,093,215 6,009,999
Allowance for loan losses (69,605) (70,312) (69,346)
---------- ---------- ----------
Net loans 6,282,341 6,022,903 5,940,653
---------- ---------- ----------
Other earning assets 23,124 22,427 22,414
Premises and equipment 156,645 160,781 161,230
Intangible assets 173,952 184,695 188,431
Accrued income and other assets 205,419 193,170 188,523
---------- ---------- ----------
Total Assets $9,392,660 $9,564,696 $9,289,716
========== ========== ==========
3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)(Continued)
Sept.30 December 31 Sept.30
1999 1998 1998
---------- ---------- ----------
(In thousands)
LIABILITIES
Deposits:
Noninterest-bearing $1,563,535 $1,601,041 $1,522,573
Interest-bearing:
Interest checking 1,441,207 1,508,511 1,381,608
Money market accounts 967,383 958,966 928,194
Savings deposits 1,115,348 1,134,108 1,137,860
Consumer certificates of deposit 2,312,057 2,414,366 2,446,088
Large denomination
certificates of deposit 447,235 438,086 441,986
---------- ---------- ----------
Total deposits 7,846,765 8,055,078 7,858,309
Short-term borrowings 384,247 385,996 317,327
Long-term debt 2,465 3,217 3,439
Accrued interest and other liabilities 121,906 130,077 125,710
---------- ---------- ----------
Total Liabilities 8,355,383 8,574,368 8,304,785
---------- ---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock, $10 par value 492 534 537
Common stock, $1 par value 49,693 50,094 50,345
Capital surplus - 4,004 15,272
Retained earnings 987,427 934,703 916,514
Accumulated other comprehensive income (loss) (335) 993 2,263
---------- ---------- ----------
Total Shareholders' Equity 1,037,277 990,328 984,931
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $9,392,660 $9,564,696 $9,289,716
========== ========== ==========
See notes to condensed consolidated financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
Sept.30 Sept.30
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands, except per-share data)
Interest income:
Loans $126,532 $131,467 $375,570 $387,767
Loans held for sale 198 275 608 873
Investment securities -
available for sale 1,507 239 2,766 612
Investment securities -
held to maturity 29,146 29,844 88,810 86,547
Money market investments 2,121 6,924 11,089 21,360
Other earning assets 385 389 1,162 1,124
-------- -------- -------- --------
Total interest income 159,889 169,138 480,005 498,283
-------- -------- -------- --------
Interest expense:
Deposits 46,405 56,093 144,032 165,388
Short-term borrowings 3,995 4,108 11,073 10,746
Long-term debt 97 91 234 226
-------- -------- -------- --------
Total interest expense 50,497 60,292 155,339 176,360
-------- -------- -------- --------
Net interest income 109,392 108,846 324,666 321,923
Provision for loan losses 3,178 5,512 11,567 15,651
-------- -------- -------- --------
Net interest income after provision
for loan losses 106,214 103,334 313,099 306,272
-------- -------- -------- --------
5
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Continued)
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands, except per-share data)
Net interest income after provision
for loan losses 106,214 103,334 313,099 306,272
-------- -------- -------- --------
Noninterest income:
Service charges on deposit
accounts 14,416 11,419 41,966 33,218
Electronic banking service fees 3,086 3,302 8,771 9,115
Trust services 3,001 2,508 8,449 7,743
Credit card service charges
and fees 1,201 3,248 5,439 9,233
Insurance premiums and
commissions 1,804 2,100 5,565 5,445
Other customer services 3,623 3,589 10,671 10,695
Other 4,808 2,287 9,441 8,112
Gain on sale of credit card
operations 1,432 - 17,899 -
Investment securities gains - 460 832 971
-------- -------- -------- --------
Total noninterest income 33,371 28,913 109,033 84,532
-------- -------- -------- --------
Noninterest expense:
Salaries and employee benefits 45,973 45,491 135,214 133,691
Occupancy 6,477 6,318 18,901 18,842
Equipment 7,722 7,453 22,815 21,500
Credit card processing fees 1,216 2,472 4,579 6,782
Advertising 1,893 2,425 4,751 7,136
Amortization of intangibles 3,745 3,799 11,355 10,858
Other 15,391 15,065 47,371 43,907
-------- -------- -------- --------
Total noninterest expense 82,417 83,023 244,986 242,716
-------- -------- -------- --------
Income before income taxes 57,168 49,224 177,146 148,088
Provision for income taxes 19,539 17,280 60,993 52,158
-------- -------- -------- --------
Net income $ 37,629 $ 31,944 $116,153 $ 95,930
======== ======== ======== ========
Net income per share of common stock
Basic $ .75 $ .62 $ 2.32 $ 1.86
Diluted .75 .62 2.31 1.85
Average shares of common stock outstanding
Basic 50,081 51,198 50,104 51,621
Diluted 50,323 51,490 50,373 51,925
See notes to condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Accum-
ulated
Pre- Other Total
ferred Common Compre- Share-
Stock Stock Capital Retained hensive holders'
$10 Par $1 Par Surplus Earnings Income Equity
------- ------- -------- -------- ------ ----------
(Dollars in thousands)
Balance January 1, 1998 $ 583 $51,817 $ 92,971 $865,785 $ - $1,011,156
Comprehensive income:
Net income 95,930 95,930
Unrealized gains on
investment securities
available for sale,
net of tax of $1,230 2,263 2,263
----------
Total comprehensive income 98,193
----------
Conversion of preferred
to common stock (46) 10 36 -
Issuance of shares for
stock options 32 516 548
Common stock repurchases
and related transactions (1,514) (78,251) (79,765)
Dividends declared:
Preferred stock (27) (27)
Common stock
$0.88 per share (45,174) (45,174)
------- ------- -------- -------- ------ ----------
Balance Sept.30, 1998 $ 537 $50,345 $ 15,272 $916,514 $2,263 $ 984,931
======= ======= ======== ======== ====== ==========
7
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(Unaudited)(Continued)
Accum-
ulated
Other
Pre- Compre- Total
ferred Common Hensive Share-
Stock Stock Capital Retained Income holders'
$10 Par $1 Par Surplus Earnings (Loss) Equity
------- ------- -------- -------- ------ ----------
(Dollars in thousands)
Balance January 1, 1999 $ 534 $50,094 $ 4,004 $934,703 $ 993 $ 990,328
Comprehensive income:
Net income 116,153 116,153
Unrealized net losses on
investment securities
available for sale,
net of tax of ($726) (1,328) (1,328)
----------
Total comprehensive income 114,825
----------
Conversion of preferred
to common stock (28) 6 22 -
Preferred stock retired (14) (26) (40)
Issuance of shares for
stock options 77 3,360 3,437
Common stock repurchases
and related transactions (484) (7,360) (13,423) (21,267)
Dividends declared:
Preferred stock (25) (25)
Common stock
$1.00 per share (49,981) (49,981)
------- ------- -------- -------- ------ ----------
Balance Sept.30, 1999 $ 492 $49,693 $ - $987,427($ 335)$1,037,277
======= ======= ======== ======== ====== ==========
See notes to condensed consolidated financial statements.
8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
Sept.30
1999 1998
-------- --------
(In thousands)
Net cash provided by operating activities $141,934 $ 75,727
-------- --------
Investing activities:
Proceeds from the maturity of
held to maturity investment securities 958,527 1,966,447
Proceeds from the maturity or sale of
available for sale investment securities 7,550 118,350
Purchases of held to maturity investment securities (685,364)(2,332,068)
Purchases of available for sale investment securities (101,481) (12,853)
Net increase in loans (271,005) (86,391)
Net increase in other earning assets (697) (970)
Purchases of premises and equipment (8,904) (12,175)
Proceeds from sales of premises and equipment 3,468 4,035
Increase in intangible assets (600) (22,923)
Other (1,719) 7,824
-------- --------
Net cash used for investing activities (100,225) (370,724)
-------- --------
Financing activities:
Net increase (decrease) in deposits (208,313) 238,467
Net increase (decrease) in short-term borrowings (1,749) 65,640
Principal payments on long-term debt (752) (715)
Proceeds from long-term debt - 1,328
Cash dividends - common, $.98 and $.86 per share (49,121) (44,579)
Cash dividends - preferred (25) (27)
Stock repurchases and related transactions (21,307) (79,764)
Proceeds from issuance of common stock 3,437 548
-------- --------
Net cash provided by (used for)
financing activities (277,830) 180,898
-------- --------
Net decrease in cash and cash equivalents (236,121) (114,099)
Cash and cash equivalents at beginning of year 642,931 629,994
-------- --------
Cash and cash equivalents at end of period $406,810 $515,895
======== ========
Net cash provided by operating activities has been
reduced by the following cash payments:
Interest on deposits and borrowings $160,727 $176,959
Income taxes 63,948 53,733
See notes to condensed consolidated financial statements.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. GENERAL
The foregoing unaudited consolidated financial statements include the
accounts of the corporation and all of its subsidiaries. The corporation's
subsidiaries are predominantly engaged in banking. Foreign banking activities
and operations other than banking are not significant. All material
intercompany transactions and accounts have been eliminated. The unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management, are necessary
for a fair presentation of the results of operations for each of the periods.
Certain amounts previously reported in 1998 have been reclassified for
comparative purposes.
2. INVESTMENT SECURITIES
The following reflects the amortized cost of securities and the related
approximate fair values (in thousands):
Sept.30, 1999 Sept.30, 1998
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
Securities available for sale:
U.S. Government and
its agencies $ 107,885 $ 106,877 $ 12,068 $ 12,230
Other 5,503 5,993 6,990 10,321
---------- ---------- ---------- ----------
$ 113,388 $ 112,870 $ 19,058 $ 22,551
========== ========== ========== ==========
Securities held to maturity:
U.S. Government and
its agencies $1,663,838 $1,637,971 $1,996,312 $2,014,883
State and municipal obligations 360,727 358,438 187,830 192,023
Other 248 250 282 288
---------- ---------- ---------- ----------
$2,024,813 $1,996,659 $2,184,424 $2,207,194
========== ========== ========== ==========
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
3. LOANS
Loans consisted of (in thousands):
Sept.30
1999 1998
---------- ----------
Consumer:
Automobile installment $3,162,937 $2,654,135
Home equity, fixed- and variable-rate 840,062 930,422
Revolving credit plans,
including credit cards 27,917 131,532
Other 323,261 345,105
Real estate:
Construction and land development 142,906 122,673
Commercial mortgage 542,049 577,745
Residential mortgage 643,342 619,000
Other, including Industrial
Development Authority loans 106,064 99,001
Commercial 563,408 530,386
---------- ----------
Loans, net of unearned income
of $146,159 and $161,225 $6,351,946 $6,009,999
========== ==========
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was (dollars in thousands):
Three Months Ended Nine Months Ended
Sept.30 Sept.30
1999 1998 1999 1998
------- ------- ------- -------
Balance at beginning of period $68,313 $68,533 $70,312 $68,064
Increase attributable to
acquired loans - - - 679
Decrease attributable to
loans sold - - (4,323) -
Provision charged to expense 3,178 5,512 11,567 15,651
------- ------- ------- -------
71,491 74,045 77,556 84,394
Less:
Loans charged off, net of
recoveries of $976, $1,053,
$3,233 and $3,304 1,886 4,699 7,951 15,048
------- ------- ------- -------
Balance at September 30 $69,605 $69,346 $69,605 $69,346
======= ======= ======= =======
Percentage of annualized net
charge-offs to average loans .12% .31% .17% .34%
Percentage of allowance for loan
losses to period-end loans 1.10 1.15
Percentage of nonperforming assets
to period-end loans .35 .33
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
5. FEDERAL INCOME TAX
The reconcilement of income tax computed at the federal statutory tax
rates to the provision for income taxes was as follows (dollars in thousands):
Three Months Ended Nine Months Ended
Sept.30 Sept.30
1999 1998 1999 1998
------------- ------------- ------------- -------------
Amount Pct Amount Pct Amount Pct Amount Pct
------- ----- ------- ----- ------- ----- ------- -----
Statutory rate $20,009 35.0% $17,229 35.0% $62,001 35.0% $51,831 35.0%
Nontaxable interest on
municipal obligations(1,453)(2.5) (451)(0.9) (3,994)(2.3) (2,421)(1.6)
Other items 983 1.7 502 1.0 2,986 1.7 2,748 1.8
------- ----- ------- ----- ------- ----- ------- -----
Effective rate $19,539 34.2% $17,280 35.1% $60,993 34.4% $52,158 35.2%
======= ===== ======= ===== ======= ===== ======= =====
6. PREFERRED AND COMMON STOCK
There are 3,000,000 shares of preferred stock, par value $10.00 per
share, authorized. The following four series of cumulative convertible stock
were outstanding:
Sept.30 December 31 Sept.30
Series Dividends 1999 1998 1998
--------- --------- -------- ----------- --------
A 5% 16,988 18,615 18,826
B 7% 3,290 3,340 3,340
C 7% 8,108 9,788 9,786
D 8% 20,842 21,612 21,702
------- ------ ------
49,228 53,355 53,654
======= ====== ======
The Series A, Series B and Series D shares are convertible into two and
one fourth shares of common stock, and the Series C shares are convertible
into one and eight-tenths shares of common stock. All of the preferred stock
may be redeemed at the option of the corporation for $10.00 per share.
There are 175,000,000 shares of common stock, par value $1.00 per share,
authorized and 49,693,000, 50,094,000 and 50,345,000 shares were outstanding
at September 30, 1999, December 31, 1998, and September 30, 1998,
respectively. Options to purchase 693,318 shares of common stock were
outstanding on September 30, 1999. A total of 3,168,706 shares of common
stock were reserved at September 30, 1999: 107,113 shares for the conversion
of preferred stock and 3,061,593 shares for stock options.
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited)
7. EARNINGS PER SHARE
Earnings per share computations are as follows (in thousands, except per
share data):
Three Months Ended Nine Months Ended
Sept.30 Sept.30
1999 1998 1999 1998
------- ------- ------- -------
Basic:
Average common shares outstanding 50,081 51,198 50,104 51,621
======= ======= ======= =======
Net income $37,629 $31,944 $116,153 $95,930
Preferred stock dividends 8 9 25 27
------- ------- ------- -------
Net income applicable to
common stock $37,621 $31,935 116,128 95,903
======= ======= ======= =======
Net income per share of common stock $ .75 $ .62 $ 2.32 $ 1.86
======= ======= ======= =======
Diluted:
Average common shares outstanding 50,081 51,198 50,104 51,621
Dilutive effect of stock options 134 175 159 184
Conversion of preferred stock 108 117 110 120
------- ------- ------- -------
Total average common shares 50,323 51,490 50,373 51,925
======= ======= ======= =======
Net income $37,629 $31,944 $116,153 $95,930
======= ======= ======= =======
Net income per share of common stock $ .75 $ .62 $ 2.31 $ 1.85
======= ======= ======= =======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
QUARTERLY RESULTS
Earnings per share in the third quarter of 1999 increased 21% to $.75
compared to the $.62 earned in the prior year's third quarter. Net income
increased to $37.629 million compared to $31.944 million earned in the 1998
third quarter and the $34.240 million earned in the second quarter of 1999.
This growth in income produced a return on average assets of 1.59% in the
third quarter and a return on average shareholders' equity of 14.40%.
Included in net income were profits from the sale of the remainder of the
corporation's credit card activities and benefits received from the
demutualization of an insurance company in which the corporation had life
insurance policies. These two nonrecurring gains totaled $3.041 million
after taxes. Excluding these two items, earnings per share increased 11% to
$.69 per share and net income increased to $34.588 million compared to
$31.944 million. This produced a return on average assets of 1.46% and a
return on average equity of 13.24%. Making First Virginia's income
comparable to other banking companies by converting it to a "cash basis" that
13
excludes the effect of intangible assets and related amortization expense
associated with acquisitions, and excluding the nonrecurring gains, produced
income of $37.653 million in the third quarter of 1999 compared to $34.822
million in the prior year's third quarter. Cash basis income in the third
quarter resulted in a return on average tangible assets of 1.62%, a return on
average tangible equity of 17.30% and an efficiency ratio of 56.2%.
For the first nine months of 1999, earnings per share rose 25% to $2.31
compared to the $1.85 earned in the comparable period of 1998. Net income
for the first nine months of 1999 totaled $116.153 million compared to the
$95.930 million earned in 1998. The return on average assets and return on
average shareholders' equity for the nine-month periods were 1.63% and 15.09%
in 1999, respectively, and 1.39% and 12.45% in 1998. Excluding nonrecurring
after-tax gains totaling $.27 per share recognized in the first and third
quarters of 1999, earnings per share increased 10% to $2.04, the return on
assets was 1.44% and the return on equity was 13.31%. Cash basis income for
the first nine months of 1999, excluding the nonrecurring items, equaled
$111.671 million and resulted in a return on average tangible assets of
1.60%, a return on average tangible equity of 17.56% and an efficiency ratio
of 56.0%.
First Virginia experienced a continuation of strong loan growth,
particularly in the automobile sector. During the third quarter, gross
production of new automobile loans increased by 30% over the third quarter of
1998. First Virginia is one of the 20 largest automobile lenders in the
country, and specializes in the highest quality "A" loans. Average loans
increased 4% over the 1998 third quarter and were up at an annualized pace of
11% compared to the second quarter of 1999. Excluding the impact of the sale
of credit card loans in late 1998 and early 1999, average loans were up 7% in
the 1999 third quarter compared to the third quarter of 1998.
The growth in outstanding loans has created an improved mix of earning
assets and, as a result, the net interest margin has increased steadily each
quarter this year, reaching 5.12% in the third quarter. During the third
quarter, interest rates continued to move upward in response to rate
increases by the Federal Reserve. The corporation maintains a mix of
earning assets and liabilities with a great deal of liquidity and fairly
short-term duration. As a consequence, movements in rates do not impact
First Virginia's net interest margin to as great an extent as it may other
companies' balance sheets. First Virginia does not employ the use of
derivatives or other hedging devices as the natural liquidity of its assets
and liabilities are sufficient to maintain a relatively high net interest
margin. Despite wide movements in rates, First Virginia has maintained a net
interest margin of 5.00% or better every year since 1978.
Asset quality remains at an excellent level and improved over both the
second quarter of 1999 and the prior year's third quarter. Net loan charge-
offs declined sharply during the third quarter to $1.886 million and
represented an annualized .12% of average loans compared to $4.699 million or
.31% of loans in the 1998 third quarter. Net charge-offs for the first nine
months of 1999 equaled an annualized .17% of average loans compared to .34%
in the 1998 period and are significantly better than industry benchmarks.
Loans past due 90 days or more declined 8% to $12.819 million compared to the
second quarter balance of $13.986 million and represented only .20% of net
loans. This was down 29% compared to the end of the 1998 third quarter figure
of $17.929 million or .30% of net loans. Nonperforming assets totaling
$22.304 million represented .35% of outstanding loans at September 30 and
14
were down compared to the .37% of loans at June 30. As a result of this
further improvement in asset quality, we were able to reduce the quarterly
provision for loan losses by 28% to $3.178 million compared to $4.433 million
in the second quarter, and the provision was down 26% for the first nine
months of 1999 compared to 1998.
A summary of nonperforming and delinquent loans is as follows:
1999 1998
------- -------
(Dollars in thousands)
Nonaccruing loans $15,082 $12,953
Restructured loans 1,919 2,245
Foreclosed real estate 5,303 4,586
------- -------
Total Nonperforming assets $22,304 $19,784
======= =======
Percentage of total loans .35% .33%
======= =======
Loans past due 90 days or more $12,819 $17,929
======= =======
Percentage of total loans .20% .30%
======= =======
Noninterest income increased 15% in the third quarter of 1999 compared
to 1998. During the third quarter of 1999, the corporation recognized a gain
of $3.247 million as a result of benefits received from the demutualization
of an insurance company with which the corporation has outstanding insurance
policies. In addition, a gain of $1.432 million was recognized in connection
with the sale of the remaining portion of the corporation's credit card
activities. The partnering with other organizations specializing in credit
card activities should result in greater net income for First Virginia and
provide an even higher level of service to First Virginia's customers.
Service charge income on deposit accounts increased 26% as a result of the
corporation's efforts to increase the value that customers receive from their
First Virginia relationship. Income from trust and asset management services
increased 20% over the prior year's third quarter.
Noninterest expense declined 1% in the third quarter compared to the
third quarter of 1998 and for the first nine months of 1999, noninterest
expenses are up less than 1% over the comparable period of 1998. This is a
result of the corporation's continued efforts to minimize expenses and
operate efficiently.
Total shareholders' equity increased 5% to $1.037 billion compared to
the prior year's third quarter of $.985 billion and was up slightly compared
to the second quarter of 1999. During the third quarter, the corporation
purchased 469,700 shares of stock under its share repurchase programs. Also
during the third quarter, the Board of Directors approved a new share
repurchase program, replacing an existing program that was concluding. The
new program authorizes the purchase of up to six million shares and will be
conducted over the next several years. For the past five years, First
Virginia has purchased an average of 1,832,400 shares of stock per year under
several share repurchase programs. There are now 5,748,300 shares available
15
to be purchased under this share repurchase program. At September 30, the
corporation's equity to asset ratio was 11.04% compared to 10.60% at the end
of the prior year's third quarter and is significantly higher than peer group
averages reflecting the corporation's objective of safety first, followed by
income and growth, in that order.
YEAR 2000
The Year 2000 issue is the result of computer programs using two digits
rather than four to define the applicable year. Any of the corporation's
computer programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
First Virginia began preparing its computer systems and applications for
the Year 2000 in 1993. This process involves modifying or replacing the
corporation's affected hardware and software, as well as ensuring that
external service providers, significant vendors and large customers are
taking the appropriate action to remedy their own Year 2000 issues. First
Virginia developed a five phase approach to resolve it's Year 2000 issues.
This approach involves the following phases: awareness, assessment,
renovation, validation and implementation. The awareness and assessment
phases involve identifying the systems affected, analyzing the scope and
magnitude of the problem, and developing an action plan to address each area
affected. Management has identified 64 systems as "mission-critical," which
are defined as those systems which would severely impair operations or cause
a significant loss of revenue if not remediated. The renovation phase
involves modifying or replacing the corporation's affected systems. The
final two phases, validation and implementation, involve testing and
certification that the mission-critical systems are compliant with all Year
2000 issues. As of September 30, 1999, the corporation has completed all
phases for these 64 mission-critical systems.
First Virginia has contacted external service providers, significant
suppliers and large customers to determine the extent to which they may be
affected by Year 2000 issues and to determine whether they are taking the
appropriate steps to remedy their own Year 2000 issues. To date, First
Virginia is not aware of any external service providers, vendors or large
customers whose failure to resolve their own Year 2000 issues would have a
material adverse effect on First Virginia's results of operations. However,
the corporation has no means of ensuring that external agents or large
customers will be ready and the effect of their noncompliance is not
determinable.
The corporation has developed contingency plans for all of its mission-
critical systems and the services provided by its external agents. These
plans involve, among other actions, manual work-arounds, temporary
postponement of certain functions and alternative computer systems. Some of
these plans incorporate parts of the corporation's existing disaster recovery
programs involving offsite data processing and detailed plans for each
function within the corporation.
First Virginia estimates that the total cumulative cost of the project
will be approximately $22 million of which $21 million has already been
16
expended. This includes both internal and external personnel costs related
to modifying the systems, as well as the cost of purchasing or leasing
hardware or software. Purchased hardware and software will be capitalized in
accordance with normal policy. Personnel and all other costs related to the
project are being expensed as incurred. These costs are not expected to have
a material effect on the corporation's results of operations.
FORWARD-LOOKING STATEMENTS
Certain statements in this discussion may constitute "forward- looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risk
including, but not limited to, changes in general economic and business
conditions, interest-rate fluctuations, competition within and without the
banking industry, new products and services in the banking industry, risks
inherent in making loans, including repayment risks and fluctuating
collateral values, changing trends in customer profiles and changes in laws
and regulations applicable to the corporation. Although the corporation
believes that its expectations with respect to the forward-looking statements
are based upon reasonable assumptions within the bounds of its knowledge of
its business and operations, there can be no assurance that actual results,
performance or achievements of the corporation will not differ materially
from any future results, performance or achievements expressed or implied by
such forward-looking statements.
17
AVERAGE BALANCES AND INTEREST RATES (Unaudited)
(Dollars in thousands)
Three Months Ended Sept.30
1999
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
Interest-earning assets:
Investment securities-available for sale:
U.S. Government and its agencies $ 107,553 $ 1,402 5.17%
Other 7,056 105 5.97
Investment securities-held to maturity:
U.S. Government and its agencies 1,731,958 24,891 5.73
State, municipal and other
(Fully taxable-equivalent basis) 364,087 5,409 5.94
---------- --------
Total investment securities 2,210,654 31,807 5.74
---------- --------
Loans, net of unearned income:
Installment 4,196,663 84,733 8.03
Real estate 1,111,111 22,899 8.24
Other (Fully taxable-equivalent basis) 954,022 19,635 8.24
---------- --------
Total loans 6,261,796 127,267 8.09
---------- --------
Loans held for sale 7,624 198 10.40
Money market investments 166,223 2,121 5.06
Other earning assets 23,120 387 6.68
---------- --------
Total earning assets and income $8,669,417 161,780 7.43
========== --------
Interest-bearing liabilities:
Interest checking $1,462,918 2,912 0.79
Money market accounts 982,561 7,494 3.03
Savings deposits 1,137,053 4,316 1.51
Consumer certificates of deposit 2,305,477 26,363 4.54
Large denomination
certificates of deposit 439,689 5,320 4.80
---------- --------
Total interest-bearing deposits 6,327,698 46,405 2.91
Short-term borrowings 372,261 3,994 4.26
Long-term debt 2,646 98 14.84
---------- --------
Total interest-bearing liabilities
and interest expense $6,702,605 50,497 2.99
========== --------
Net interest income and net interest margin $111,283 5.12%
========
Other average balances:
Demand deposits $1,594,289
Common shareholders' equity 1,044,625
Total shareholders' equity 1,045,121
Total assets 9,460,434
18
AVERAGE BALANCES AND INTEREST RATES (Unaudited)
(Dollars in thousands)
Three Months Ended Sept.30
1998
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
Interest-earning assets:
Investment securities-available for sale:
U.S. Government and its agencies $ 12,809 $ 176 5.44%
Other 10,388 63 2.45
Investment securities-held to maturity:
U.S. Government and its agencies 1,820,145 27,775 6.08
State, municipal and other
Fully taxable- equivalent basis) 159,687 2,726 6.82
---------- --------
Total investment securities 2,003,029 30,740 6.11
---------- --------
Loans, net of unearned income:
Installment 4,028,554 88,213 8.72
Real estate 1,089,609 24,207 8.89
Other (Fully taxable-equivalent basis) 900,277 19,709 8.77
---------- --------
Total loans 6,018,440 132,129 8.74
---------- --------
Loans held for sale 14,119 275 7.81
Money market investments 495,558 6,924 5.54
Other earning assets 22,149 389 7.03
---------- --------
Total earning assets and income $8,553,295 170,457 7.94
========== --------
Interest-bearing liabilities:
Interest checking $1,404,620 4,953 1.40
Money market accounts 913,048 7,963 3.46
Savings deposits 1,146,869 6,555 2.27
Consumer certificates of deposit 2,455,264 30,794 4.97
Large denomination
certificates of deposit 435,458 5,828 5.31
---------- --------
Total interest-bearing deposits 6,355,259 56,093 3.50
Short-term borrowings 336,997 4,108 4.84
Long-term debt 3,584 90 10.10
---------- --------
Total interest-bearing liabilities
and interest expense $6,695,840 60,291 3.57
========== --------
Net interest income and net interest margin $110,166 5.14%
========
Other average balances:
Demand deposits $1,513,307
Common shareholders' equity 1,019,212
Total shareholders' equity 1,019,750
Total assets 9,356,096
19
AVERAGE BALANCES AND INTEREST RATES (Continued) (Unaudited)
(Dollars in thousands)
Nine Months Ended Sept.30
1999
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
Interest-earning assets:
Investment Securities-available for sale:
U.S. Government and its agencies $ 65,707 $ 2,544 5.18%
Other 7,133 223 4.17
Investment Securities-held to maturity:
U.S. Government and its agencies 1,778,409 76,890 5.77
State, municipal and other
(Fully taxable-equivalent basis) 341,249 15,261 5.96
---------- --------
Total investment securities 2,192,498 94,918 5.78
---------- --------
Loans, net of unearned income:
Installment 4,073,408 250,422 8.21
Real estate 1,116,968 69,231 8.26
Other (Fully taxable-equivalent basis) 954,104 58,045 8.16
---------- --------
Total loans 6,144,480 377,698 8.21
---------- --------
Loans held for sale 9,527 608 8.51
Money market investments 308,264 11,089 4.81
Other earning assets 22,911 1,164 6.77
---------- --------
Total earning assets and income $8,677,680 485,477 7.47
========== --------
Interest-bearing liabilities:
Interest checking $1,474,087 9,582 0.87
Money market accounts 983,290 22,370 3.04
Savings deposits 1,140,187 14,409 1.69
Consumer certificates of deposit 2,349,674 82,140 4.74
Large denomination
certificates of deposit 432,838 15,531 4.80
---------- --------
Total interest-bearing deposits 6,380,076 144,032 3.02
Short-term borrowings 366,876 11,073 4.04
Long-term debt 2,884 234 10.84
---------- --------
Total interest-bearing liabilities
and interest expense $6,749,836 155,339 3.08
========== --------
Net interest income and net interest margin $330,138 5.08%
========
Other average balances:
Demand deposits $1,577,079
Common shareholders' equity 1,025,592
Total shareholders' equity 1,026,098
Total assets 9,472,565
20
AVERAGE BALANCES AND INTEREST RATES (Continued) (Unaudited)
(Dollars in thousands)
Nine Months Ended Sept.30
1998
------------------------------
Interest
Average Income/
Balance Expense Rate
---------- --------- -------
Interest-earning assets:
Investment Securities-available for sale:
U.S. Government and its agencies $ 10,227 $ 421 5.50%
Other 10,411 191 2.45
Investment Securities-held to maturity:
U.S. Government and its agencies 1,770,079 80,496 6.07
State, municipal and other
(Fully taxable-equivalent basis) 154,700 8,172 7.05
---------- --------
Total investment securities 1,945,417 89,280 6.13
---------- --------
Loans, net of unearned income:
Installment 3,991,647 261,206 8.74
Real estate 1,048,239 69,399 8.83
Other (Fully taxable-equivalent basis) 897,248 59,116 8.84
---------- --------
Total loans 5,937,134 389,721 8.76
---------- --------
Loans held for sale 15,289 873 7.62
Money market investments 518,285 21,360 5.51
Other earning assets 21,832 1,124 6.87
---------- --------
Total earning assets and income $8,437,957 502,358 7.95
========== --------
Interest-bearing liabilities:
Interest checking $1,396,312 15,219 1.46
Money market accounts 864,536 22,148 3.43
Savings deposits 1,147,085 19,614 2.29
Consumer certificates of deposit 2,455,522 91,294 4.97
Large denomination
certificates of deposit 429,487 17,113 5.33
---------- --------
Total interest-bearing deposits 6,292,942 165,388 3.51
Short-term borrowings 299,487 10,746 4.80
Long-term debt 3,372 226 8.93
---------- --------
Total interest-bearing liabilities
and interest expense $6,595,801 176,360 3.57
========== --------
Net interest income and net interest margin $325,998 5.16%
========
Other average balances:
Demand deposits $1,485,697
Common shareholders' equity 1,026,527
Total shareholders' equity 1,027,081
Total assets 9,233,074
21
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
As of September 30, 1999, there have been no material changes
in information regarding quantitative and qualitative
disclosures about market risk from the information presented
as of December 31, 1998 in the corporation's annual report
on Form 10-K.
22
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K
----------------------------------
a) Exhibit 27 - Financial Data Schedule (Page 28)
b) A Form 8-K was not required to be filed during the quarter
ended September 30, 1999.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by its
principal financial officer hereunto duly authorized.
FIRST VIRGINIA BANKS, INC.
/s/ Richard F. Bowman
November 12, 1999 __________________________
Richard F. Bowman,
Senior Vice President,
Treasurer and
Chief Financial Officer
23
<PAGE>
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<NAME> FIRST VIRGINIA BANKS, INC.
<MULTIPLIER> 1000
<S> <C>
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<PERIOD-END> SEP-30-1999
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