Front Royal Sav. & Loan Ass'n v. First Virginia Bank-Shenandoah Valley

• Decision Date: 12 June 1981
• Docket Number: No. 801957,801957
• Citation: 278 S.E.2d 853,222 Va. 194
• Court: Virginia Supreme Court
• Parties: FRONT ROYAL SAVINGS & LOAN ASSOCIATION v. FIRST VIRGINIA BANK SHENANDOAH VALLEY, et al. Record

Page 853

278 S.E.2d 853

222 Va. 194

FRONT ROYAL SAVINGS & LOAN ASSOCIATION v. FIRST VIRGINIA BANK SHENANDOAH VALLEY, et al.

Record No. 801957.

Supreme Court of Virginia.

June 12, 1981.

James M. Thomson, Charles E. Pikrallidas, Alexandria (Thomson, Pikrallidas & Schott, Alexandria, on brief), for appellant.

William F. Schutt, Richmond, Edward L. Breeden, III, Norfolk (Lewis S. Minter, Richmond, Breeden, Howard & MacMillan, Norfolk, on briefs), for appellees.

Before CARRICO, C. J., and HARRISON, COCHRAN, POFF, COMPTON, THOMPSON and STEPHENSON, JJ.

POFF, Justice.

The central question presented by the appellant in this appeal from a State Corporation Commission order granting a bank's application for a new branch is whether, in determining "public interest", the Commission gave due consideration to "possible adverse effects to existing institutions."

On October 26, 1979, First Virginia Bank-Shenandoah Valley (FVB) filed an application to establish a branch bank in Front Royal, the county seat and principal commercial center of Warren County, the primary service area. Earlier that year, the Commission had authorized Front Royal Savings & Loan Association (FRS&L) to establish an office in Front Royal. See Shenandoah S & L v. Front Royal S & L, 220 Va. 718, 261 S.E.2d 325 (1980), affirming the Commission's order. Protesting FVB's application, FRS&L alleged, inter alia, that the proposed branch "will create excessive competition ... detrimental to the community" and "will particularly jeopardize the financial soundness of the Protestant and the other licensed financial institutions".

The Commission conducted a hearing on April 24, 1980 at which FVB called several witnesses to supplement its pre-filed evidence. FVB, an affiliate of First Virginia Bank Holding Company, has five offices in Shenandoah County with total deposits of $54.6 million and total assets of $60.3 million. Warren County, adjacent to Shenandoah, has three banks with a total of seven offices (all but one of which are located in Front Royal) and one savings and loan association, First Federal Savings & Loan Association. These three banks have total deposits of $32.5 million, $29.1 million, and $10.7 million, and First Federal has $14.7 million.

Warren County's population, essentially static in the 1960 decade, experienced a growth rate of 29.4% in the next nine years. Current projections indicate that the 1980 population will increase 31% by 1990. The county's economy is dependent primarily upon manufacturing and, to lesser degrees, upon agriculture and tourism. Between 1973 and 1978, employment increased by 30%. The county's rate of growth in personal income between 1970 and 1977 was greater than that for the state as a whole. While median family income and per capita income tended to lag behind that for the state at large, this was attributed to the county's rapid population increase. According to Department of Taxation data, retail sales in the county increased by 145% between 1970 and 1978 compared to 141.4% statewide. Housing growth peaked in 1974, dropped after that, and began rising again in 1977. Demand was expected to increase as population grows.

In its application, FVB proposed to construct a 2,400 square-foot building in Royal Plaza Shopping Center. The building is designed to include three drive-in lanes. In addition to customary banking services, FVB will offer safe deposit boxes and introduce certain deposit and loan services currently not available or only marginally so at other banks in the area. FVB expects $2 million in deposits in three years but forecasts operating losses during the first two years.

At the close of FVB's evidence, the Commission called upon FRS&L, which had submitted no pre-filed data, to introduce evidence to support the allegations made in its protest. The sole witness called by FRS&L was John Salony who had been employed as chief executive officer some four weeks before the hearing. Salony testified that FRS&L had called in all its subscriptions and expected to open its office on July 3, 1980. Expressing concern about the current financial climate and FRS&L's ability to attract depositors, Salony said that FRS&L had decided to use a rented trailer instead of depleting its capital in the construction of the building originally planned, and to reduce its operating budget by half. Concerning FRS&L's interest in financing "shell" homes, a market in which FVB had been active, Salony said that the Veterans Administration and FHA will not participate in such loans, and "if we ... decide to make those type of loans, at least we would limit them very much." Asked what impact approval of FVB's application would have upon "your Association getting into business beginning in July of this year", Salony replied, "I think that's the last thing we need, is an extremely competitive, aggressive organization." "I think," he continued, "as a new savings and loan we just need ... at least twelve months. And at the end of twelve months we can reassess our position again."

Aside from Salony's testimony, FRS&L offered no evidence to support the allegations made in its protest. In support of its claim of adverse impact, it relies on brief upon certain data developed during presentation of FVB's evidence. An investigative report prepared by the Bureau of Financial Institutions stated that addition of a new branch bank would decrease the average number of persons per office in Warren County to 2,625 compared to a statewide average of 2,978. The Bureau was of opinion that approval of FVB's application "could have an adverse impact" on FRS&L. This opinion was challenged by Dr. Ganas K. Rakes, an associate professor of finance at the University of Virginia. At the time the Bureau was investigating FVB's application, it issued a report on an application for a Front Royal branch filed by another bank. That application had projected total deposits of $4 million at the end of...