- The Washington Times - Saturday, July 7, 2001

First Virginia Banks Inc. has a conservative reputation in its business dealings, but analysts say that actively seeking out acquisitions will keep the company, and its stock price, strong.
The Falls Church company on July 2 acquired James River Bankshares Inc., of Suffolk, Va., adding an additional 27 offices in Virginia to its more than 400 spread throughout Virginia, Maryland and eastern Tennessee.
This is almost unusual for the bank, says Collyn Bement Gilbert, an analyst with Ferris Baker Watts in Baltimore. While banks like Wachovia and First Union routinely expand into other markets, First Virginia has kept itself relatively small.
"Unlike other banks, they have a very calculated method for growth. It's been a challenge for them getting earnings growth." she says. "I think their whole mantra is 'safety, profitability, then growth.' "
She also says that most banks the size of First Virginia have outperformed the larger banks, but that's a result of the company being more selective in whom they give loans to.
"Banks like SunTrust are more liberal in their lending practices, and so there's more risk involved," she says. "First Virginia has very strict underwriting standards and only lends to A-credit businesses. They are less likely to have their portfolios go into default."
Derek Statkevicus, an analyst with Keefe Bruyette & Woods in New York, says news of the impending acquisition drove up the stock. The stock was trading at $40 when the announcement was made. The stock closed at $46.46 on Friday.
"The acquisition gives them the opportunity to expand their franchise, and fill in the gaps they had, and will allow them to pick up more deposits," Mr. Statkevicus says, who rates the company as a "market perform," one step below a "buy."
Mr. Statkevicus expects First Virginia to continue to make small acquisitions like it did with James River Bank.
"I won't expect them to do anything dramatic like make an acquisition, and doubling their size," he says.
As telecom and other technology-based stocks continue to slide, and as the economy continues to drag, the stock market has been kind to the financial sector, Mr. Statkevicus says.
"Banks, especially smaller ones, are relatively safer from the credit cycle," he says. The Federal Reserve's [interest rate is] aggressively easing, and that's a positive for financial stocks, banks in particular."
Ms. Gilbert says First Virginia has been smart in shying away from backing technology companies.
"It takes a lot not to be swept up in the Northern Virginia energy, and the influence of the tech economic boom," she says. "Lots of banks might get caught up in that, but First Virginia didn't."
Ms. Gilbert says in this slow economy, acquiring other banks is the only sure way for banks to grow, as it is harder to cultivate a customer base during a slow economy.
"As long as they continue to make acquisitions, that should be the main driver of their growth," she says.

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