First Virginia Banks, Inc.
First Virginia Banks, Inc.
6400 Arlington Boulevard
Falls Church, Virginia 22042-2336
Fax: (703) 241-3090
Incorporated: 1949 as Mt. Vernon Insurance Agency, Inc.
Total Assets: $7.9 billion
Stock Exchanges: New York Philadelphia
SICs: 6712 Bank Holding Companies; 6022 State
First Virginia Banks, Inc. is the oldest registered bank holding company headquartered in Virginia, with 23 separately-chartered member banks throughout Virginia, Maryland, and Tennessee. In addition to over 350 branch banking offices, the holding company has insurance, advertising, and mortgage subsidiaries with operations in seven states. The regional institution’s stronghold lies in the affluent and stable metropolitan corridor extending from Baltimore to Washington, D.C. and south to Norfolk. This territory, with its concentration of government agencies and the highest average household income level of any major metropolitan area in the United States, has been characterized as “the most recession-resistant area in the country.” In 1993, First Virginia claimed 12.7 percent of Virginia’s banking offices and 9.4 percent of the state’s total deposits. First Virginia characterizes itself as a “Super Community Bank,” which “successfully combines the best aspects of a large, nationally-recognized bank with the best aspects of a small, hometown bank.” The firm is consistently ranked as one of the nation’s safest, strongest, and most responsible financial institutions.
The company’s history may be traced to Edwin T. Holland, who, in 1944, became the director and shareholder of Old Dominion Bank, a small Arlington, Virginia, institution with three branches in the greater Washington, D.C. area. Holland was instrumental in transforming Old Dominion from a strictly commercial, industrial bank into a retail, consumer-oriented institution. He accomplished the shift by extending bank hours for the convenience of working customers, offering premiums with new accounts, and utilizing aggressive advertising campaigns including direct mail. Advertising would continue to occupy an important niche in the First Virginia strategy into the 1990s.
After World War II, as automobile sales increased dramatically, Holland created the Mt. Vernon Insurance Agency to insure bank customers’ car loans in 1949. Banking regulations prohibited Old Dominion from providing the capital for founding the insurance venture, so Holland incorporated Mt. Vernon himself and ’ ’donated’’ all its stock to the bank. The insurance company was then used as a vehicle for growth in the restrictive, but stable and prosperous, U.S. banking environment of the postwar era. Mt. Vernon acquired controlling interests in the Bank of Annandale and National Bank of Manassas in the early 1950s. When Congress passed the Bank Holding Act mid-decade, Mt. Vernon was reorganized as First Virginia Corporation, a bank holding company that was authorized to purchase and operate other banks within the state. Although banking was clearly the primary function of the firm, it continued to offer a variety of life, group, credit life, and property/casualty insurance products through its insurance subsidiaries into the 1990s.
By 1960, First Virginia had four banks with eight branch offices and $68 million in assets. The continuing relaxation of state and federal banking regulations encouraged an unprecedented surge of bank mergers. First Virginia’s financial holdings grew eightfold over the course of that decade, as it added eight banks in the state’s largest metropolitan areas. Over 100 branches made banking more convenient to First Virginia’s growing customer base. By the beginning of the 1970s, the bank had captured six percent of the state’s commercial deposits. The firm acquired a mortgage subsidiary in 1968 to originate, package, and sell conventional and government-insured first mortgages.
During the 1970s, like most other bank holding companies, First Virginia dabbled in some of the riskier schemes it would later condemn. Real estate investment trusts (REITs) had started to gain popularity after 1960, when Congress improved the tax advantages of these investment vehicles. First Virginia sponsored formation of one of them during their early 1970s peak, when they were the primary financing method used for commercial construction loans. The collapse of the commercial real estate market mid-decade left many banks, including First Virginia, holding bad loans. During this period, First Virginia also purchased a consumer loan finance company. When the pitfalls of these sidelines proved deeper than the payoffs, First Virginia got out and swore off “non-traditional opportunities that promised to pay big dividends.”
Barriers to intra- and then interstate banking continued to dissolve in the ensuing decades, encouraging industry consolidation that would continue through the 1990s. While First Virginia took advantage of opportunities for growth through acquisition, it did not expand at the breakneck pace of some of its competitors. First Virginia continued its careful acquisition and merger strategy in the 1970s, trading its own shares for ownership of ten independent banks and establishing five others. Consolidation culminated in a roster of 21 banks with 168 offices in 1980. By that time, First Virginia had access to over two-thirds of the state’s population and had accumulated over $1 billion in assets. The pace of acquisition intensified in the 1980s, as the bank holding company brought 20 more banks into the fold and expanded into Maryland and Tennessee. In 1986, First Virginia ventured north, acquiring The Commercial Bank in Bel Air, Maryland. The company’s first Tennessee acquisition came just one year later, with the purchase of Tri-City Bancorp, Inc. through an exchange of stock.
While regarded as overly conservative by some of its faster-moving competitors, First Virginia maintained its characteristic conservatism, which protected it from the speculative real estate loans, Third World debt, and other pitfalls that brought down hundreds of banks in the 1980s. The company’s chairperson and CEO, Robert H. Zalokar, would later tell Bank Management magazine that First Virginia’s strategy had been rather simple: “We stayed out of [bad assets] by hewing to the standard principles of banking, by requiring equity on the part of the borrowers, and not advancing reserves or interest payments like so many of [our competitors] did.” Cautious investment standards endowed the bank with an enviable portfolio of assets in the early 1990s. In 1993, as rivals struggled to unload commercial real estate holdings gone bad, First Virginia held no foreclosed property in the Washington/Baltimore region and had no foreign or highly leveraged transactions in its portfolio. In fact, the holding company’s nonperforming assets as a percentage of total assets stood at less than one half of one percent “an astoundingly low figure” by Bank Management’s standards.
During this time, the Federal Reserve reduced the prime interest rate to its lowest level in decades, which was both good and bad news for First Virginia. While the bank’s net interest income (the difference between income from earning assets and interest paid on deposits and borrowed funds) benefited, many customers moved their funds from low-interest savings accounts to mutual funds and other higher-performing financial services.
After two decades of acquisitions, First Virginia itself became the subject of takeover rumors. In 1990, company president Paul Geithner, Jr. conceded that “we’ve been mentioned by everyone and his mother as a possible takeover target,” but emphasized that “the way to remain independent is to be a superior earner.” Since the “super-regionals” were unable to acquire First Virginia outright, they brought intense competition to bear: in the last decade of the twentieth century, Nations-Bank and First Union, two of America’s ten largest banks, began to encroach on First Virginia’s stronghold.
First Virginia countered by continuing to emphasize superior customer service, expense control, and offered new products (including annuities, a discount brokerage, and an assest allocation account using mutual funds). The firm began to be called a “Super Community Bank,” referring to its blending of both the ideals and names of super-regionals and small community institutions. First Virginia maintained this corporate culture through a very decentralized management structure: each of the holding company’s member banks and subsidiaries had its own board of directors, chief executive officer, and loan authority up to the legal limit of the bank. This organizational strategy kept each of the holding company’s 20 banks in touch with local needs and helped lower the number of nonperforming loans. Moreover, the federation of the banks maximized economies of scale, with centralized, on-line computer processing and other more efficient administrative functions. In 1993, First Virginia’s 56 percent efficiency ratio (a comparison of non-interest overhead to net operating revenue) was significantly better than the industry average of over 60 percent.
While First Virginia professed no grand growth aspirations, it did expect to acquire more banks in central and southern Maryland and east Tennessee before the end of the twentieth century. Criteria for acquisition included clean loan portfolios and a compatible corporate culture. In 1993, First Virginia recorded its 17th consecutive year of dividend increases, and its capital ratio (a key banking indicator) ranked first in the top five percent of the United States’ largest banking companies. Moreover, as rising interest rates, intensifying competition from several angles, and regulatory challenges converged in the last decade of the twentieth century, the institution’s top executives hinted in 1993’s annual report that they may be inclined to take some risks in the years to come but will continue to adhere to its primary goal of operating a safe and sound banking institution while providing a good return to shareholders.
First Virginia Bank—Central Maryland; First Virginia Bank—Maryland; First Virginia Bank—Central; First Virginia Bank—Colonial; First Virginia Bank—Commonwealth; First Virginia Bank—South Hill; First Virginia Bank of Tidewater; First Virginia Bank—Shenandoah Valley; First Virginia Bank—Clinch Valley; First Virginia Bank—Franklin County; First Virginia Bank—Highlands; First Virginia Bank—Piedmont; First Virginia Bank—Southside; First Virginia Bank—Southwest; Bank of Madison-ville; First Virginia Bank—Mountain Empire; Tri-City Bank and Trust Co.; First Virginia Mortgage Co.; First General Mortgage Co.; First Virginia Life Insurance Co.; First Virginia Insurance Services Inc.; First Virginia Services, Inc.; Northern Operations Center, Inc.; Eastern Operations Center, Inc.; Southwest Operations Center, Inc.; Tennessee Operations Center Inc.; Springdale Advertising Agency, Inc; United Southern; First Knoxville Bank; Farmers Bank of Maryland; Atlantic Bank and Caroline County Bank.
Feinberg, Mark, “Whose Heads Are on the Bank Takeover Block?,” Bankers Monthly, March 1990, pp. 19-24.
First Virginia Banks, Inc., A World of Difference, Falls Church, Virginia: First Virginia Banks, Inc., 1994.
Rice, Harvey, “Tried and True First Virginia,” Bank Management, September 1993, pp. 31-37.
Stillinger, Richard I., “Riches Among the Ruins,” Bankers Monthly, October 1990, pp. 74-79.
—April Dougal Gasbarre