<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report under Section 13 of the Exchange Act of 1934
for the fiscal year ended DECEMBER 31, 1995
Commission File Number 0-16187
FWB BANCORPORATION
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(Exact name of small business issuer in its charter)
MARYLAND 52-1332050
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1800 ROCKVILLE PIKE, P.O. BOX 2022, ROCKVILLE, MARYLAND 20852
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (301) 770-1300
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Securities registered pursuant to Section 12(b) of the Exchange Act: None
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Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
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Title of Class
Check whether the issuer: (1) filed all reports required to be filed by Sections
13 or 15(d) of the Exchange Act during the past 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____
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Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $3,930,558.
The aggregate market value of the voting stock held by non-affiliates as of
March 1, 1996 was $2,763,382. For purposes of this calculation, it is assumed
that directors, officers and beneficial owners of more than 5% of the
registrant's outstanding voting stock are affiliates.
The number of shares of common stock outstanding as of March 1, 1996: 3,258,833.
DOCUMENTS INCORPORATED BY REFERENCE:
The following lists the documents incorporated by reference and the Part of
the Form 10-KSB into which the document is incorporated:
1. Portions of the Annual Report to Stockholders for the fiscal year
ended December 31, 1995. (Parts I and II)
2. Portions of the Proxy Statement for 1996 Annual Meeting of
Stockholders. (Part III)
Transitional Small Business Disclosure Format (check one): YES ____ NO X
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Page 1 of __ Pages Exhibit Index at Page __.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
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<S> <C> <C>
Item 1. Description of Business...................................... 1
Item 2. Description of Property...................................... 11
Item 3. Legal Proceedings............................................ 11
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
PART II
Item 5. Market for the Common Equity and Related Stockholder Matters. 12
Item 6. Management's Discussion and Analysis or Plan of Operation.... 12
Item 7 Financial Statements......................................... 12
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..................... 12
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act............ 13
Item 10. Executive Compensation......................................... 13
Item 11. Security Ownership of Certain Beneficial Owners
and Management............................................... 13
Item 12. Certain Relationships and Related Transactions................. 13
Item 13. Exhibits and Reports on Form 8-K............................... 13
SIGNATURES 15
</TABLE>
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
FWB Bancorporation (the "Corporation"), headquartered in Rockville,
Maryland and incorporated in the State of Maryland in 1983, is a Maryland bank
holding company registered with and subject to the regulation and supervision of
the Board of Governors of the Federal Reserve System ("FRB") under the Bank
Holding Company Act of 1956, as amended (the "Act"). A majority of the
Corporation's outstanding stock is owned by women. The Corporation's operations
primarily consist of managing the operations of FWB Bank (the "Bank"), its
wholly-owned banking subsidiary. The Bank is a Maryland chartered commercial
bank formed in 1979 and subject to the regulation and supervision of the
Maryland State Bank Commissioner (the "Commissioner") and the Federal Deposit
Insurance Corporation (the "FDIC"). As of December 31, 1995, FWB Bank had 30
employees, all of which were full time. The executive offices of the Corporation
and the Bank are located at 1800 Rockville Pike, Rockville, Maryland 20852 and
its telephone number is (301) 770-1300.
BUSINESS OF THE BANK
The Bank, in addition to its headquarters in Rockville, has branch offices
in Bethesda and Germantown, Maryland. The Bank is a full-service community-
oriented commercial bank serving small-to-medium sized businesses,
professionals, and individuals in the Washington, DC metropolitan area.
The Bank offers a full range of commercial and retail banking services,
including commercial and consumer loan and deposit products suited to businesses
and professional and consumer customers. Commercial products include working
capital loans, letters of credit, lines of credit, and real estate loans, along
with deposit products to support the business needs of the customer. Consumer
products include home equity loans, automobile and other personal loans,
overdraft protection through "Chek-Gard", home improvement loans, mortgage loans
and deposit products including checking, savings, certificates of deposit, and
individual retirement accounts. The Bank operates three Automated Teller
Machines, one at each of its office locations. The Bank is a member of the
Internet shared automated teller system, the MOST(R) system, PLUS, and the
Exchange systems, providing 24 hour access to funds.
The Bank's mission is to provide a high level of personal service to the
local community and also to participate in community service within the
Montgomery County and the Washington, D.C. metropolitan area. The Bank competes
with local and regional commercial banks, savings associations, mutual savings
banks, credit unions, money market brokers, and other financial institutions
that provide loan and deposit relationships. The Bank competes with these other
institutions for customers by offering competitive products and services,
interest rates, and delivery of quality service and expertise.
LENDING ACTIVITIES
The Bank's lending activities are broken into three broad types of loan
categories consisting of commercial, real estate and consumer loans. The overall
size and composition of the loan portfolio depends upon the market demand for
credit and management's requirements for liquidity, asset quality and
profitability.
1
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The composition of the Bank's loan portfolio is shown on the following
table.
A. LOANS OUTSTANDING BY TYPE AT DECEMBER 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
% of % of % of
1995 Portfolio 1994 Portfolio 1993 Portfolio
---- --------- ---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Real Estate - Mortgage............... $ 17,107 57% $ 16,329 60% $ 12,363 53%
Real Estate - Construction........... 221 1 29 0 0 0
Commercial........................... 10,403 35 9,125 34 8,931 38
Consumer............................. 2,021 7 1,519 6 2,103 9
------- --- ------- --- ------- ---
Total............................. $29,812 100% $27,002 100% $23,397 100%
======= === ======= === ======= ===
</TABLE>
The table which follows shows contractual maturities and interest
sensitivities of loans in the Portfolio by type of loans as of December 31,
1995. The Bank's experience indicates that some loans will be renewed or prepaid
prior to scheduled maturity.
B. MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
(IN THOUSANDS)
<TABLE>
<CAPTION>
DUE IN ONE DUE IN DUE AFTER
AT DECEMBER 31, 1995 YEAR OR LESS ONE-FIVE YEARS FIVE YEARS
- -------------------- ------------ -------------- ----------
<S> <C> <C> <C>
Real Estate - Mortgage......................... $ 10,182 $ 4,080 $ 2,845
Real Estate - Construction..................... 221 0 0
Commercial..................................... 9,248 1,064 151
Consumer....................................... 1,323 516 182
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Total loans maturities...................... $ 20,974 $ 5,660 $ 3,178
========= ======== ========
<CAPTION>
Variable
LOANS WITH MATURITIES OF ONE YEAR OR GREATER Fixed Rate Rate
---------- --------
<S> <C> <C>
Real Estate - Mortgage......................... $ 6,461 $ 464
Real Estate - Construction..................... 0 0
Commercial..................................... 1,215 0
Consumer....................................... 698 0
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Total Loans................................. $ 8,374 $ 464
======== ========
</TABLE>
REAL ESTATE MORTGAGE AND CONSTRUCTION LOANS
The Bank makes a wide variety of mortgage loan products available to
businesses and individuals. Residential mortgages are made through the Bank's
mortgage lending division, with numerous pricing, term and structuring options
available. The Bank makes home equity lines of credit available to homeowners
for a variety of purposes, with rates based upon the prime rate published in The
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Wall Street Journal, as well as fixed rate home equity term loans for a variety
- -------------------
of purposes including home improvement. These loans are typically secured by 1-
to 4-family, owner occupied homes in the Washington, D.C. metropolitan area.
Commercial mortgages are made available to businesses and individuals for the
purchase or re-finance of commercial properties such as office buildings,
apartment buildings and industrial buildings located in the Washington, D.C.
metropolitan area. These commercial mortgages generally have adjustable rates
of interest based upon the prime rate as published in The Wall Street Journal,
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or tied to an index of U.S. Government securities, have maturities of five years
or less and have amortizations of 15-30 years. The Bank does not generally make
fixed-rate loans with maturities greater than 15 years for its own portfolio.
2
<PAGE>
On a limited basis, the Bank makes loans to businesses and individuals to
finance the acquisition, development and construction of real estate. Generally,
the loans are made to entities that are constructing the property for their own
use and have qualified for permanent financing prior to beginning construction.
The Bank's construction loans generally have adjustable rates of interest based
on the prime rate as published in The Wall Street Journal, with terms not
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generally exceeding one year.
COMMERCIAL LOANS
The Bank makes commercial loans primarily to small- to medium-sized
businesses, professionals, and other individuals who desire specialized and
personalized financial services. The Bank offers a variety of commercial lending
products, including revolving lines of credit, letters of credit, working
capital loans, and loans to finance accounts receivable, inventory, and
equipment. The Bank's commercial loans generally have adjustable rates of
interest based on either the Bank's base lending rate or the prime rate, with
terms not generally exceeding five years. Revolving lines of credit generally do
not exceed terms of one year. Commercial loans are generally secured by accounts
receivable, inventory, other business assets, or real estate.
CONSUMER LOANS
The Bank makes consumer (installment) loans to individuals for a variety of
personal and household purposes. Such loans generally are at fixed rates for
terms of up to five years.
DELINQUENCIES AND NON-ACCRUAL LOANS
All delinquencies over five days are reviewed by loan officers and
management on a weekly basis. Delinquencies greater than 30 days are reviewed by
the Board of Directors on a monthly basis. The Bank's loan policy states that
the transfer of a loan to non-accrual status will occur when there is a
deterioration in the financial condition of the borrower and/or of collateral
such that the collectability of principal and interest is in question or when a
loan becomes contractually 90 days past due, unless, based upon management's
judgment, the loan is well secured and in the process of collection. When a loan
is placed on non-accrual status, all accrued but unpaid interest is reversed
from income and future payments are treated as cash income when received. Refer
to the schedule of non-performing assets and past-due loans on page 4.
Collection Policy. The loan officer who services a borrower's loan is
-----------------
responsible for monitoring the borrower's financial condition and reviewing the
file on a regular basis. If the loan becomes delinquent, the officer is
responsible for the collection of the loan. A past due notice is generally sent
when a loan becomes 15 days past due. Thereafter, the account officer makes
contact with the borrower on a regular basis as necessary. The officer is
responsible for keeping the Bank's management up to date on their collection
efforts and new developments regarding the loan's status. As stated above, the
Bank's past due reports are reviewed by management on a weekly basis. When a
loan becomes 90 days delinquent it is to be transferred to non-accrual status
based on the non-accrual guidelines stated above.
Classified Assets. The Bank reviews the loan portfolio on an ongoing basis
-----------------
to detect and identify loans that show a deterioration in the borrower's
financial condition or collateral values. Each loan is rated through a criteria
and classification system based on the quality of the loan. There are eight
ratings that can be assigned to a loan. These ratings are reviewed on an annual
basis. These ratings are intended to be identical to the ratings used by the
Bank's regulatory agencies. Of the eight ratings, the first four are generally
referred to as "pass" loans, the fifth as "special mention" loans and the sixth,
seventh, and eighth as "substandard," "doubtful," and "loss." When the Bank
classifies loans as either "substandard" or "doubtful," it is required to
establish a specific allowance for loss in an amount deemed prudent by
management. When the Bank classifies a loan as "loss" it is required to
establish a specific allowance equal to 100% of the amount or to charge-off the
amount against the allowance for credit losses. In addition to these specific
allowances, the Bank maintains a general allocation which represents loss
allowances
3
<PAGE>
which have been established to recognize the inherent risk associated with
lending activities but have not been allocated to particular loans. The Bank's
determination as to the classification of its assets and the amount of its
allowance for credit losses is subject to review by the FDIC and the
Commissioner which can require the establishment of additional general or
specific loss allowances.
The Bank maintains a Watch List of all loans rated special mention or
worse. The Watch List includes, among other things, basic information on the
loan, its risk rating, allowance percentage allocated to the loan and the dollar
amount of the allowance specifically reserved against the loan. All changes in
risk rating assignments must be approved by the chief lending officer. Changes
also are made on a monthly basis upon the recommendation of the loan officer
responsible for the loan. The Watch List is reviewed by the Board of Directors
on a monthly basis.
OTHER REAL ESTATE OWNED
Other real estate owned represents assets acquired in satisfaction of loans
either by foreclosure, deeds taken in lieu of foreclosure or by in substance
foreclosure. In substance foreclosures include loans where the borrower has
little or no equity in the collateral and it is doubtful that the borrower can
rebuild equity in the foreseeable future.
Properties acquired are recorded at the lower of cost or fair value minus
estimated selling costs at the time of acquisition with any deficiency charged
to the allowance for credit losses. Thereafter, costs incurred to operate or
carry the properties are charged to operating expense. Gains and losses
resulting from the final disposition of the properties are included in non-
interest expense. Any reductions in value as determined by periodic re-appraisal
of the property, or other means, is either charged to operations or reserved
against the property by an allowance which is funded by a charge to operations.
Generally, the Bank obtains appraisals annually by state licensed or
certified appraisers for each property owned at acquisition, and evaluates each
property's value regularly thereafter.
C. NON-PERFORMING ASSETS AND PAST DUE LOANS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Non-Performing Assets:
Loans accounted for on a non-accrual basis....................... $ 77 $ 0 $ 423
Restructured loans............................................... 388 397 18
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Total non-performing loans.................................... 465 397 441
Other real estate owned net of allowance......................... 1,052 1,633 2,912
Other non-performing assets...................................... 100 0 0
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Total non-performing assets..................................... $ 1,617 $ 2,030 $3,533
======= ======= ======
Total non-performing assets to total assets................... 3.98% 4.90% 8.46%
Total non-performing loans to total loans..................... 1.56% 1.47% 1.88%
Past Due Loans:
Loans contractually past due 90 days or more as to
interest or principal payments, still accruing................ $ 0 $ 0 $ 0
Loans contractually past due 30 days or more through
90 days as to interest or principal payments, still accruing.. 954 0 121
------- ------- ------
Total Past Due Loans.......................................... $ 954 $ 0 $ 121
======= ======= ======
</TABLE>
4
<PAGE>
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is established through a provision for
credit losses based on management's evaluation of the risk inherent in the loan
portfolio and the general economy. This evaluation, which includes a review of
the loan portfolio, considers, among other things, the estimated net realizable
value of the underlying collateral, economic conditions, historical loan loss
experience, and other factors. The adequacy of this allowance is reviewed by
management on a quarterly basis and subsequently reviewed by the Board of
Directors. Although the Bank attempts to maintain an allowance adequate to cover
potential losses, there can be no assurance that future losses will not exceed
the Bank's allowance.
SUMMARY OF LOAN LOSS EXPERIENCE AND
ALLOWANCE FOR CREDIT LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Balance January 1.................................... $ 704 $ 809 $ 892
Provision (recovery) charged to operating expense.... (30) (114) 0
---------- ---------- ---------
Recoveries:
Commercial......................................... 13 91 287
Real Estate - Construction......................... 83 31 136
Real Estate - Mortgage............................. 0 0 50
Consumer and other................................. 12 23 38
--------- --------- ---------
Total recoveries................................ 109 145 511
--------- --------- ---------
Charge-offs:
Commercial......................................... 0 82 84
Real Estate - Construction......................... 0 25 26
Real Estate - Mortgage............................. 5 9 426
Consumer and other................................. 30 20 58
--------- --------- ---------
Total charge-offs............................... 35 136 594
--------- --------- ---------
74 9 (83)
--------- --------- ---------
Balance December 31.................................. $ 748 $ 704 $ 809
========= ========= =========
Average amount of total loans outstanding, net....... $ 29,524 $ 24,464 $ 19,035
Total loans outstanding at December 31, gross........ $ 29,812 $ 27,002 $ 23,397
Loan loss ratios:
Net charge-offs to average loans outstanding, net.. .25% .04% .044%
Allowance for possible loan losses to total
loans outstanding December 31...................... 2.51% 2.61% 3.46%
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN
LOSSES AMONG LOAN TYPE AND % OF % OF % OF % OF
LOAN TYPE TO TOTAL LOAN PORTFOLIO 1995 PORTFOLIO 1994 PORTFOLIO 1993 PORTFOLIO
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Commercial.................................. $ 1 35% $ 70 34% $ 88 38%
Real Estate - Construction.................. 96 1 12 0 0 0
Real Estate - Mortgage...................... 117 57 57 60 102 53
Consumer.................................... 0 7 3 6 48 9
Unallocated................................. 534 N/A 562 N/A 571 N/A
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Total.................................. $ 748 $ 704 $ 809
======= ======= ======
</TABLE>
5
<PAGE>
INVESTMENT ACTIVITY
The Corporation's investment policy is implemented by the Investment
Committee, which is comprised of selected Board members and management. The
investments are chosen primarily to provide and maintain adequate liquidity and
to generate a positive return on investments without undue interest or credit
risk. Investments are generally made with the intent to hold them until
maturity. The Corporation invests in various types of liquid assets, including
United States Treasury obligations and securities of Federal Government agencies
and sponsored entities, certain certificates of deposit, Federal funds, and
other qualifying liquid investments. At December 31, 1995, the Corporation had
$8,014,773 outstanding in the investment portfolio and $12,000 in other
investments. Refer to Note 3 of the Notes to the Consolidated Financial
Statements contained in Item 7 hereof for the carrying and fair values of the
investment securities portfolio. The investment portfolio is accounted for in
accordance with FAS 115 which was implemented as of December 31, 1993. Refer to
Management's Discussion and Analysis in Item 6 hereof for a discussion of
certain investments.
DEPOSIT ACTIVITIES
The Bank offers a wide range of deposit products with varying rates and
terms to meet the banking needs of both individuals and business customers in
the community. The Bank offers checking, interest checking, money market
accounts, savings, and individual retirement accounts ("IRAs"). The Bank also
offers a variety of certificates of deposit with maturities of three months to
five years.
The average balance of deposits and average interest paid during the years
1995, 1994 and 1993 can be found in the Three Year Average Consolidated Balance
Sheet contained in Item 6 hereof.
A. CERTIFICATES OF DEPOSIT OF OVER $100,000 BY MATURITY AT DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Three months or less.................. $1,191 $ 330 $ 100
Over three months through six months.. 100 100 200
Over six months through one year...... 436 675 517
Over one year......................... 106 0 0
------ ------ ------
Total............................ $1,833 $1,105 $ 817
====== ====== ======
</TABLE>
BORROWINGS
The average amounts of borrowings outstanding during 1995, 1994 and 1993
and the approximate weighted average interest rate thereon is contained in the
Three-Year Average Consolidated Balance Sheet in Item 6 hereof.
SUPERVISION AND REGULATION
The Corporation is a bank holding company within the meaning of the Act and
is registered as such with the FRB. The Corporation is required to file with the
FRB an annual report and such other information as the FRB may require pursuant
to the Act. The Corporation is subject to regulation and examination by the FRB,
which may also examine any of the Corporation's subsidiaries.
6
<PAGE>
The Act generally restricts activities of all bank holding companies and
their subsidiaries to banking, and the business of managing and controlling
banks, and to other activities which are determined by the FRB to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. The Act generally requires prior approval by the FRB of the acquisition
by a bank holding company of more than five percent of the voting shares of any
bank. With certain exceptions, the Act prohibits a bank holding company from
acquiring direct or indirect ownership or control of more than five percent of
the voting shares of any company which is not a bank or bank holding company,
unless the FRB determines by order or regulation that the activities of the
company whose shares are to be acquired are so closely related to banking or
managing or controlling banks as to be a proper incident thereto. Some of the
principal activities that the FRB has determined by regulation to be so closely
related to banking are: (i) making or servicing loans; (ii) performing certain
data processing services; (iii) providing securities brokerage services; (iv)
acting as fiduciary, investment or financial advisor; (v) leasing personal or
real property where the lease serves as the functional equivalent of a loan;
(vi) making investments in corporations or projects designed primarily to
promote community welfare; and (vii) acquiring a savings and loan association.
Subsidiary banks of a bank holding company are subject to certain
quantitative restrictions imposed by the Federal Reserve Act on any extension of
credit to, or purchase of assets from, or guarantee or letter of credit on
behalf of the bank holding company or its subsidiaries, and on the investment in
or acceptance of stocks or securities of such holding company or its
subsidiaries as collateral for loans. In addition, provisions of the Federal
Reserve Act and FRB regulations limit the amounts of, and establish required
procedures and credit standards with respect to, loans and other extensions of
credit to officers, directors, and principal shareholders of the Holding Company
and its subsidiaries, and related interests of such persons. Moreover,
subsidiaries of bank holding companies are prohibited from engaging in certain
tie-in arrangements (with the holding company or any of its subsidiaries) in
connection with any extension of credit, lease or sale of property or furnishing
of services.
As a state-chartered commercial bank, the Bank is subject to regulation and
examination primarily by the Commissioner but also by the FDIC. These agencies,
as well as Federal and State law, extensively regulate various aspects of the
Bank's business including permissible types and amounts of loans, investments
and other activities, capital adequacy (by requiring minimum capital ratios),
branching, and the safety and soundness of banking practices. Both the
Commissioner and the FDIC have substantial authority to regulate unsafe or
unsound practices and violations of law including cease and desist orders,
removal of directors and officers, civil money penalties and, ultimately,
appointment of a receiver or conservator. Banking regulations restrict
transactions by banks owned by a bank holding company, including: (1) loans to
and certain purchases from the parent holding company, principal shareholders,
officers, directors, and their affiliates; (2) investments by the subsidiary
bank in the shares or securities of the parent bank holding company (or any
other nonbank affiliates); and (3) acceptance of such shares or securities as
collateral for loans to any borrower. The Bank's regulators also may review
other transactions, such as payments of management fees by subsidiary banks to
affiliated companies. The Bank is subject to legal limitations on the frequency
and amount of dividends that can be paid to the Corporation. Under Maryland
banking regulations, the Bank may not declare a cash dividend except out of
undivided profits, or from its surplus in excess of 100% of its required capital
stock with the prior approval of the Commissioner, both after providing for due
and accrued expenses, losses, interest and taxes. In addition, the FDIC may
restrict the ability of the Bank to pay dividends if such payments would
constitute an unsafe or unsound banking practice. Also, State and Federal laws
regulate the amount of voting stock of a bank or bank holding company that a
person may acquire without prior approval.
Under Federal Reserve Board regulations, the Bank is required to maintain
noninterest-earning reserves against its transaction accounts (primarily
interest checking and regular checking accounts). The Federal Reserve Board
regulations generally require that, for 1995, reserves of 3% must be maintained
against aggregate transaction accounts of $54.0 million or less (subject to
adjustment by the Federal Reserve Board) and an initial reserve of $1.62 million
plus 10% (subject to adjustment by the Federal Reserve Board between 8% and 14%
and was reduced to 10% effective April 1, 1992) against that portion of total
transaction accounts in excess of $54.0 million. The first $4.2 million of
otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. Since the amount of the
Bank's transaction accounts are below the $54.0 million, the Bank is currently
subject to the 3% reserve requirement for maintaining reserves. Because
required reserves must be maintained in the form of either vault cash, a
noninterest-bearing account at a Federal Reserve Bank, or a pass-through account
as defined by the FRB, the effect of this reserve requirement is to reduce the
Bank's interest-earning assets.
7
<PAGE>
EFFECT OF GOVERNMENTAL ACTION
Operating results of the Corporation and the Bank are affected by the
policies of various regulatory, fiscal and monetary authorities including the
FRB. Major functions of the FRB, in addition to those set out under Supervision
and Regulation above, are to regulate the supply of bank credit and to deal
generally with economic conditions within the United States, including efforts
to combat recessionary economic conditions and to curb inflationary pressures.
The instruments of monetary policy employed by the FRB for these purposes
influence in various ways the overall levels of bank loans and extensions of
credit, investments and deposits as well as the interest rate paid on
liabilities and received on earning assets. The implementation of these policies
has had a significant effect on the operating results of bank holding companies
and banks in the past and will continue to do so in the future. In view of
changing conditions within the national economy as well as the uncertain effects
of actions by regulatory, fiscal, and monetary authorities, no prediction can be
made as to possible future changes in interest rates, deposit levels or loan
demand, or their effect on the business and earnings of the Corporation and the
Bank. Also, it cannot be predicted whether or in what manner the operation of
the Corporation and the Bank may be effected by any pending or future Federal or
state legislative actions.
COMMUNITY REINVESTMENT
Under the Community Reinvestment Act ("CRA"), as implemented by FDIC
regulations, a financial institution has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the FDIC, in connection
with its examination of a bank, to assess the institution's record of meeting
the credit needs of its community and to take such record into account in its
evaluation of certain applications by such institution. The CRA rating system
identifies four levels of performance that may describe an institution's record
of meeting community needs: outstanding, satisfactory, needs to improve and
substantial noncompliance. The CRA also requires all institutions to make
public disclosure of their CRA ratings. The Bank received a "Satisfactory" CRA
rating in its most recent examination.
CAPITAL MAINTENANCE
The FDIC has issued regulations that require banks with deposits insured by
the Bank Insurance Fund ("BIF"), such as the Bank, to maintain minimum levels
of capital. The regulations establish a minimum leverage capital requirement of
not less than 3% core capital to total average assets for banks in the strongest
financial and managerial condition, with a CAMEL Rating of 1 (the highest
examination rating of the FDIC for banks). For all other banks, the minimum
leverage capital requirement is 3% plus an additional cushion of at least 100 to
200 basis points. Core capital is comprised of the sum of common stockholders'
equity, noncumulative perpetual preferred stock (including any related surplus)
and minority interests in consolidated subsidiaries, minus all intangible assets
(other than qualifying mortgage servicing rights and purchased credit card
relationships). At December 31, 1995, the Bank's ratio of core capital to total
average assets equalled 9.36%, which exceeded the minimum leverage requirement.
The FDIC also requires that banks meet a risk-based capital standard. The
risk-based capital standard requires the maintenance of total capital (which is
defined as core capital and supplementary capital) to risk-weighted assets of 8
% and core capital to risk-weighted assets of 4%. In determining the amount of
risk-weighted assets, all assets, plus certain off balance sheet items are
multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes
are inherent in the type of asset or item. The components of core capital are
equivalent to those discussed earlier under the 3% leverage requirement. The
components of supplementary capital currently include cumulative perpetual
preferred stock, certain other preferred stock, mandatory convertible debt
securities, subordinated debt and intermediate term preferred stock, and
allowance for loan and lease losses. Allowance for loan and lease losses
included in supplementary capital is limited to a maximum of 1.25% of risk-
weighted assets. Overall, the amount of capital counted toward supplementary
capital cannot exceed 100% of core capital. Federal law also prohibits a bank
from paying a dividend if it will not meet applicable capital requirements after
the payment.
8
<PAGE>
At December 31, 1995, the Bank's total capital to risk-weighted assets was
15.90% and the Bank's core capital to risk-weighted assets was 14.65%, both
exceeding the FDIC risk-based capital requirement.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA") established a system of prompt corrective action to resolve the
problems of undercapitalized institutions. The FDIC, FRB, Office of the
Comptroller of the Currency ("OCC") and OTS have adopted final rules, effective
December 19, 1992, which require such regulators to take certain supervisory
actions against undercapitalized institutions, the severity of which depends
upon the categories consisting of "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." Regulatory action taken will depend on the level of
capitalization of the institution and may range from restrictions on capital
distributions and dividends to seizure of the institution. Generally, subject
to narrow exceptions, FDICIA authorizes the banking regulators to specify the
ratio of tangible capital to assets at which an institution becomes critically
undercapitalized and requires that ratio to be no less than 2% of assets. The
FDICIA also allows the regulator to downgrade an institution if the institution
is determined to be in an unsafe or unsound condition or to be engaging in
unsafe or unsound practices. Such a downgrading may result in an otherwise
"adequately capitalized" institution with other problems being subject to
supervisory actions as if it were classified as "undercapitalized."
The final rule adopted by the FDIC, on September 15, 1992, to implement the
prompt corrective action section of the FDICIA, generally provides that an
insured institution that has total risk-based capital of less than 8%, core
capital of less than 4%, or a leverage ratio that is less than 4% would be
considered to be "undercapitalized," an insured institution that has total risk-
based capital less than 6%, core capital of less than 3%, or a leverage ratio
that is less than 3% would be considered to be "significantly undercapitalized,"
and an insured institution that is "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized" becomes immediately subject
to certain regulatory restrictions, including, but not limited to, restrictions
on growth, investment activities, capital distributions and affiliate
transactions. The filing of a capital restoration plan, which must be guaranteed
by any parent holding company, is also required. In addition, "critically
undercapitalized" institutions must receive prior written approval from the FDIC
to engage in any material transaction other than the normal course of business.
Subject to a narrow exception, a receiver or conservator must be appointed for
any critically undercapitalized institution within 90 days after it becomes
critically undercapitalized.
INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has established a risk-based deposit insurance premium assessment
system for insured depository institutions. Under the system, the assessment
rate for an insured depository institution depends on the assessment risk
classification assigned to the institution by the FDIC, which is determined by
the institution's capital level and supervisory evaluations. Institutions are
assigned to one of three capital groups -- well-capitalized, adequately
capitalized or undercapitalized -- based on the data reported to regulators for
the date closest to the last day of the seventh month preceding the semi-annual
assessment period. Well-capitalized institutions are institutions satisfying the
following capital ratio standards: (i) total risk-based capital ratio of 10.0%
or greater; (ii) Tier 1 risk-based capital ratio of 6.0% or greater; and (iii)
Tier 1 leverage ratio of 5.0% or greater. Adequately capitalized institutions
are institutions that do not meet the standards for well-capitalized
institutions but that satisfy the following capital ratio standards: (i) total
risk-based capital ratio of 8.0% or greater; (ii) Tier 1 risk-based capital
ratio of 4.0% or greater; and (iii) Tier 1 leverage ratio of 4.0% or greater.
Undercapitalized institutions consist of institutions that do not qualify as
either well-capitalized or adequately capitalized institutions. Within each
capital group, institutions are assigned to one of three subgroups on the basis
of supervisory evaluations by the institution's primary supervisory authority
and such other information as the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
fund. Subgroup A consists of financially sound institutions with only a few
minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses that, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless
9
<PAGE>
effective corrective action is taken. For the semi-annual period beginning June
30, 1995, the assessment rate for BIF-insured institutions, such as the Bank,
was lowered to between 0.04% and .31% of insured deposits from 0.23% to 0.31% of
insured deposits and was subsequently reduced to the statutory minimum of $1,000
for the most highly rated banks for the semi-annual period beginning January 1,
1996. The Bank was notified that its assessment rate for the first six months of
1996 is 0.03%.
Supervision, regulation and examination of the Bank and the Corporation by
the bank regulatory agencies are intended primarily for the protection of
depositors rather than for holders of Bank or Corporation stock.
Under the Federal Deposit Insurance Act (the "FDI Act"), insurance of
deposits may be terminated by the FDIC upon a finding that the institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, rule, order
or condition imposed by the FDIC. The management of the Bank does not know of
any practice, condition or violation that might lead to termination of deposit
insurance.
COMPETITION
In order to compete effectively, the Bank relies substantially on local
commercial and consumer activity; personal contacts by its directors, officers,
other employees and shareholders; personalized services; and its reputation in
the communities it serves.
The Bank presently competes within its market area with numerous bank
subsidiaries of larger bank holding companies, including the subsidiaries of
regional bank holding companies with principal operations in states other than
Maryland. It also competes with numerous independent banks, thrift
institutions, credit unions, and various other nonbank financial companies.
The banking business in Maryland generally, and the Bank's primary service
areas specifically, are highly competitive with respect to both loans and
deposits. As noted above, the Bank competes with many larger banking
organizations that have offices over a wide geographic area. These larger
institutions have certain inherent advantages, such as the ability to finance
wide ranging advertising campaigns and promotions and to allocate their
investment assets to regions offering the highest yield and demand. They also
offer services such as international banking, which are not offered directly by
the Bank (but could be offered indirectly through correspondent institutions);
and by virtue of their larger total capitalization (legal lending limits to an
individual consumer or corporation are limited to a percentage of the Bank's
total capital accounts), such banks have substantially higher lending limits
than does the Bank. Other entities, both governmental and in private industry,
raise capital through the issuance and sale of debt and equity securities and
thereby indirectly compete with the Bank in the acquisition of deposits.
In addition to competing with other commercial banks and thrift
institutions, commercial banks such as the Bank compete with nonbank financial
institutions for funds. For instance, yields on corporate and government debt
and equity securities affect the ability of commercial banks to attract and hold
deposits. Commercial banks also compete for available funds with money market
instruments, which are not subject to interest rate ceilings. Such money market
funds have provided substantial competition to banks for deposits, and it is
anticipated they may continue to do so in the future.
The Act was recently amended by the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Riegle-Neal Act"), which significantly
eased applicable restrictions on interstate banking. The Riegle Neal Act
permits the FRB to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The FRB may not approve the acquisition of
bank that has not been in existence for the minimum time period (not exceeding
five years) specified by the statutory law of the host state. The Riegle-Neal
Act also prohibits the FRB
10
<PAGE>
from approving an application if the applicant (and its depository institution
affiliates) controls or would control more than 10% of the insured deposits in
the United States or 30% or more of the deposits in the target bank's home state
or in any state in which the target bank maintains a branch. The Riegle-Neal
Act does not affect the authority of states to limit the percentage of total
insured deposits in the state which may be held or controlled by a bank or bank
holding company to the extent such limitation does not discriminate against out-
of-state banks or bank holding companies. The effect of the Riegle-Neal Act may
be to increase competition within the State of Maryland among banking and thrift
institutions located in Maryland and from banking companies located anywhere in
the country.
The Riegle-Neal Act also authorizes the federal banking agencies,
effective June 1, 1997, to approve interstate merger transactions without regard
to whether such transaction is prohibited by the law of any state, unless the
home state of one of the banks opts out of the Riegle-Neal Act by adopting a law
after the date of enactment of such Act and prior to June 1, 1997 that applies
equally to all out-of-state banks and expressly prohibits merger transactions
involving out-of-state banks.
The State of Maryland had previously enacted reciprocal interstate
banking statutes that authorized banks and thrift institutions, and their
holding companies, in Maryland to be acquired by regional banks and thrift
institutions, or their holding companies, in designated states, and permitted
Maryland banks and thrift institutions, and their holding companies, to acquire
banks and thrift institutions in designated states, if such jurisdictions have
enacted reciprocal statutes. A majority of the jurisdictions designated in the
interstate banking statutes have enacted legislation authorizing interstate
transactions in one form or another. In 1995, the State of Maryland adopted
legislation allowing out of state financial institutions to merge with Maryland
banks and to establish branches in Maryland, subject to certain limitations. The
effect of the federal and Maryland legislation may be to increase competition
within the State of Maryland among banking and thrift institutions located in
Maryland and from the major regional bank holding companies that acquire
institutions in Maryland, most of which are larger than the Bank.
ITEM 2. DESCRIPTION OF PROPERTY
The main office of the Corporation and the Bank is located at Twinbrook
Square, 1800 Rockville Pike, Rockville, Maryland. The premises are leased under
an agreement which expires in 1999. The Bank leases its two branches; the
Germantown location is operating under a lease which expires in 2005 and the
Bethesda location operates under a lease which expires in 2002. The Bank
considers these properties suitable and adequate for current operations. During
1995, the Bank incurred rental expenses for properties totaling $244,244. Refer
to Note 5--"Property and Equipment" on page 17 of the Annual Report, which is
hereby incorporated by reference.
ITEM 3. LEGAL PROCEEDINGS
The Bank filed suit against two borrowers (the "Borrowers") on January
28, 1992 in the Circuit Court for Montgomery County seeking a judgment of
$421,921.28 for the principal plus interest and late charges owed to the Bank on
the Borrowers' note (the "Note"). In addition, the Bank sought and received a
prejudgment attachment of an account in the name of the Borrowers held at
Shearson Lehman Brothers which was pledged as collateral for the loan. In May
1992, the Borrowers filed for protection under Chapter 11 of the United States
Bankruptcy Code.
A motion by the Borrowers in the Bankruptcy proceeding seeking relief
from the automatic stay to pursue the action in state court was granted and in
December 1992 the Borrowers filed answers and counterclaims in both the State
Court and Bankruptcy actions. The counterclaims alleged that the Bank breached
its contract with the Borrowers when it allegedly indicated in 1990 that it
would not extend the Note for the 6-month period provided for in the Note; the
Bank intentionally misrepresented the ability of the Borrowers to hypothecate
the Shearson Lehman account; the Bank intentionally interfered with the
Borrowers' contracts; and the Bank violated Section 1-302 and 5-807 of the
Maryland Financial Institutions Code. In the Bankruptcy action, the Borrowers
also alleged
11
<PAGE>
that the Bank violated the Equal Credit Opportunity Act ("ECOA"). The
Bankruptcy Court dismissed the ECOA counterclaim with prejudice and other
counterclaims without prejudice to be resolved in the State Court litigation.
In 1993, the Borrowers filed a complaint against the Bank in the
Bankruptcy case requesting that proceeds of the Shearson Lehman account be
turned over to the Borrowers to fund a bankruptcy plan. The Bank filed a
counterclaim for a declaratory judgment that the Bank has a perfected security
interest in the account and for dismissal of the complaint. (The Borrowers'
complaint for turnover and the Bank's counterclaim may be referred to
collectively as the "Turnover Action"). The Bankruptcy Court granted summary
judgment in favor of the Bank in the Turnover Action, ruling that the Bank has a
perfected security interest in the account. The Bankruptcy Court also denied
motions for reconsideration filed by the Borrowers and their counsel. The
Bankruptcy Court subsequently ruled in favor of the Bank and in March 1996, the
proceeds from the Shearson Lehman account were received by the Bank.
On or about August 15, 1994, the Borrowers' bankruptcy was converted to
a Chapter 7 proceeding. A Chapter 7 Trustee has been appointed to liquidate the
assets of the estate. The Bank has submitted an offer to the Trustee for the
settlement of the State Court litigation, which offer is under review by the
Trustee.
Note 10--"Litigation" on page 18 of the Annual Report is hereby
incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Corporation's security
holders during the quarter ended December 31, 1995, through solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
This section entitled "Market for the Common Equity and Related
Stockholder Matters" on page 7 of the Annual Report is hereby incorporated by
reference. For information regarding regulatory restrictions on the Bank's, and,
therefore, the Corporation's payment of dividends, see Note 9 -- "Regulatory
Matters and Restrictions" on page 18 of the Annual Report, which hereby is
incorporated by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The section entitled "Selected Financial Data" on page 1 of the Annual
Report and the section entitled "Management's Discussion and Analysis" on pages
2 through 7 in the Annual Report are hereby incorporated by reference.
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements and Independent Auditors' Report on pages 8 through 20 in the Annual
Report, which are listed under Item 13 herein, are incorporated herein by
reference. The remaining information appearing in the Annual Report is not
deemed to be filed as part of this Report, except as expressly provided herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
12
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
The information relating to the Directors and Executive Officers of the
Corporation on pages 2 through 4 of the Corporation's definitive proxy statement
for the Corporation's 1996 Annual Meeting of Stockholders (the "Proxy
Statement") is hereby incorporated by reference.
ITEM 10. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation and Other Benefits" on pages 5
and 6 of the Proxy Statement are hereby incorporated by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Page 2 of the Proxy Statement relating to security ownership of certain
beneficial owners and management is hereby incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions" on page 6 of the Proxy
Statement is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements of the Corporation included in the
Annual Report to stockholders for the year end December 31, 1995 are
incorporated by reference in item 7 of this Report. The remaining
information appearing in the Annual Report to stockholders is not
deemed to be filed as part of this Report except on expressly provided
herein. The following financial statements are filed as part of this
Report:
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Income (Loss) for the Years
Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Independent Auditors' Report
13
<PAGE>
All financial statement schedules are omitted as the required
information is inapplicable or the information is presented in the
consolidated financial statements or related notes which are incorporated
by reference in item 7 hereof.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FWB BANCORPORATION
/s/ STEVEN COLLIATIE
--------------------------------------
Steven Colliatie
Date: March 27, 1996 President and Chief Executive Officer
In accordance with the Securities and Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
<TABLE>
<S> <C>
/s/ STEVEN COLLIATIE March 27, 1996
- --------------------------------------------
Steven Colliatie
President, Chief Executive Officer and Director
/s/ JOAN H. SCHONHOLTZ March 27, 1996
- --------------------------------------------
Joan H. Schonholtz
Chairman of the Board
/s/ BARBARA L. MARTINEZ March 27, 1996
- --------------------------------------------
Barbara L. Martinez
Chief Financial Officer and Secretary
/s/ ABBEY J. BUTLER March 27, 1996
- --------------------------------------------
Abbey J. Butler
Director
/s/ WILMA E. BERNSTEIN March 27, 1996
- --------------------------------------------
Wilma E. Bernstein
Director
/s/ MELVYN J. ESTRIN March 27, 1996
- --------------------------------------------
Melvyn J. Estrin
Director
/s/ NELLA C. MANES March 27, 1996
- --------------------------------------------
Nella C. Manes
Director
/s/ AVIS Y. POINTER March 27, 1996
- --------------------------------------------
Avis Y. Pointer
Director
</TABLE>
15
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Incorporated
by
Exhibit No. Description Reference to
----------- ----------------------------- ------------
<S> <C> <C>
3.1 (a) Articles of Incorporation, April 4, 1983 *
(b) Articles of Share Exchange, August 9, 1983 *
(c) Articles of Amendment, June 7, 1984 *
(d) Articles of Amendment, May 7, 1987 *
(e) Articles of Amendment, September 14, 1988 *
(f) Articles of Amendment, April 22, 1993 *
3.2 FWB Bancorporation Bylaws *
4 Form of Common Stock Certificate *
10.1 FWB Corporation 1994 Incentive Stock Option Plan *
10.2 FWB Bancorporation 1994 Stock Option Plan for
Outside Directors *
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
______________
* Incorporated herein by reference from the Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1994
(File No. 0-16187).
(b) The Corporation did not file a report on Form 8-K during the last
quarter of the period covered by this report.
<PAGE>
EXHIBIT 13
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Bank leases office space under various lease agreements. Rental
expense for 1995, 1994 and 1993 totaled $244,244, $258,890, and $203,293,
respectively. Future minimum annual lease payments for operating leases are as
follows:
<TABLE>
<S> <C>
1996 $293,834
1997 293,834
1998 293,834
1999 264,690
2000 119,000
THEREAFTER 445,664
</TABLE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
10. LITIGATION
At December 31, 1995, the Corporation was involved in litigation arising
from normal banking, financial, and other activities of the Bank. Management,
after consultation with legal counsel, does not anticipate that the ultimate
liability, if any, arising out of these matters will have a material effect on
the Corporation's financial condition.
<PAGE>
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Corporation's common
stock there is limited trading in the stock. Other than options for 105,500
shares of common stock under the Corporation's option plans, there are presently
no other outstanding securities convertible into common equity of the
Corporation. Bid prices for the common stock in the over-the-counter market for
each quarterly period within the two recent fiscal years are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED BID PRICE QUARTER ENDED BID PRICE
1995 1994
<S> <C> <C> <C>
March 31 $2.00 March 31 $1.75
June 30 2.00 June 30 1.87
September 30 2.00 September 30 2.00
December 31 2.00 December 31 2.00
</TABLE>
The quotations were obtained from the Washington Post at each time period
shown and reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
At December 31, 1995, there were 418 holders of record. The Corporation
conducted a private placement offering initiated in December 1994 which closed
in June 1995. A total of 500,000 shares were sold including 80,000 shares sold
in 1995. The Corporation has not agreed to register any common stock under the
Secutities Act for sale by security holders. Ther have been no dividends paid
in the past two fiscal years.
DIVIDENDS
Dividends payable by the Corporation are unrestricted, although the ability
of the Corporation to pay dividends depends upon dividends received by it from
the Bank. The Board of Directors adopted a resolution specifying that no
dividneds will be paid by the Bank to the Corporation except from the undivided
profits of the Bank or with the prior approval of the Bank Commissioner of the
State of Maryland and the Regional Director of the FDIC from the Bank's surplus
in excess of 100% of its required capital stock. In addition, restrictions are
also imposed upon the ability of the Bank to make loans to the Corporation,
purchase stock in the Corporation, or use the Corporation's securities as
collateral for indebtedness of the Bank.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net interest income $ 2,381 $ 2,155 $ 1,427 $ 1,773 $ 1,805
Provision for loan losses (30) (114) --- 418 1,770
Non--interest income 442 400 505 415 455
Non-interest expense 2,577 2,597 2,673 2,826 2,919
Net income (loss) before income taxes 276 72 (742) (1,055) (2,429)
Income taxes (benefit) --- --- --- (620) ---
Net income (loss) 276 72 (742) (435) (2,429)
PER SHARE DATA:
Net income (loss) $ 0.09 $ 0.03 $ (0.39) $ (0.78) $ (6.26)
Book value 1.15 0.98 0.90 1.47 0.23
FINANCIAL CONDITION:
Total assets $ 40,678 $ 41,413 $ 39,405 $ 37,385 $ 46,330
Investments securities 8,027 7,110 10,908 10,470 8,362
Loans - net 29,064 26,298 22,588 19,274 29,754
Deposits 36,671 36,842 36,863 35,229 44,295
Stockholders' equity 3,740 3,105 2,471 1,974 94
SELECTED RATIOS:
Return on average assets 0.65 % 0.18 % NA (1) NA (1) NA (1)
Return on average equity capital 7.88 3.51 NA (1) NA (1) NA (1)
Leverage capital to average assets 9.73 8.59 6.70 % 5.01 % 0.19 %
Average equity to average assets 8.28 5.13 5.68 2.31 2.77
Non-performing loans to total loans 1.56 1.47 1.88 4.87 16.56
Non-performing assets to total assets 3.98 4.90 8.51 13.47 17.39
</TABLE>
(1) The corporation had losses in each of these years.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
BUSINESS OF THE COMPANY AND BANK
FWB Bancorporation (the "Corporation") is a single bank holding company
doing business through its subsidiary bank, FWB Bank (the "Bank"). As a
community bank operating three branches in Montgomery County, Maryland, the Bank
offers deposit accounts and associated services to businesses and individuals
and makes loans and invests in qualified securities. In addition, the Bank's
income includes fees on deposit accounts and loans.
FINANCIAL CONDITION
Total assets of FWB Bancorporation and FWB Bank were $40,678,463 at
December 31, 1995. This was a slight decrease of $735,056 (1.77%) from total
assets of $41,413,519 at December 31, 1994.
Gross loans of the Bank continued to grow in 1995 increasing to $29,812,000
at December 31, 1995. This represents an increase of $2,809,638 (10.41%) from
gross loans of $27,002,362 at December 31, 1994. In 1995, there was an increase
in all components of the loan portfolio as the Bank sought to continue to serve
its primary market of small to medium sized businesses and diversify by
expanding lending to consumers in the market areas of its branches.
Total deposits decreased slightly to $36,670,501 in 1995 from $36,842,363
at December 31, 1994, a decrease of $171,862 (.47%). While interest-bearing
deposits increased relative to noninterest-bearing deposits, noninterest-bearing
deposits were 22% of total deposits at December 31, 1995 as compared to 24% at
December 31, 1994. The shift in mix of deposits reflects consumer reaction to
rate increases through early 1995.
CAPITAL ADEQUACY. Stockholders' equity of $3,739,506 reflects an increase
of $634,486 or 20.43% at December 31, 1995 compared to December 31, 1994. This
increase includes year to date earnings from operations in the amount of
$276,133 and the raising of an additional $152,358, net of expenses, under a
private placement offering initiated in December 1994. This offering closed in
June 1995. Also included in stockholders' equity at December 31, 1995, is an
improvement of $205,996 in the amount of unrealized losses on investment
securities from $463,112 at December 31, 1994 to $257,117 at December 31, 1995.
At December 31, 1995, the Bank's ratio of Tier I capital to total average
assets equaled 9.36% which exceeded the minimum leverage capital ratio of 4% by
5.36%. At December 31, 1995, the Bank's Tier I capital to risk-weighted assets
ratio was 14.65% which exceeded the minimum required ratio of 4% by 10.65%. The
Bank's total capital to risk weighted assets ratio at December 31, 1995 was
15.90% which exceeded the minimum required ratio of 8% by 7.90%.
REGULATORY ACTIVITY. In May 1995, the FDIC and the Bank Commissioner of the
State of Maryland terminated the Memorandum of Understanding under which the
Bank had operated since 1994, thus removing the Bank from this regulatory
operating agreement.
INVESTMENT ACTIVITY. During 1995, the Corporation's investment securities
portfolio increased $916,873 from year end 1994. This resulted from an increase
in carrying value of investments in the Bank's available for sale portfolio due
to increases in estimated fair value and purchases for the Bank's available for
sale portfolio. The securities purchased were fixed rate U.S. Treasury and
government sponsored entity issues. The purchases were the result of an
evaluation of short term liquidity needs and current yields. In addition, there
was an increase in the carrying value of securities in the held to maturity
portfolio due to accretion of discounts on securities previously transferred
from the available for sale portfolio.
ASSET/LIABILITY MANAGEMENT. The Bank's profitability, like that of most
financial institutions, is dependent to a large extent upon its net interest
income, which is the difference between its interest income on interest-earning
assets, such as loans and investments, and its interest expense on interest-
bearing liabilities, such as deposits. Interest rate risk arises due to
fluctuations in the general level of interest rates. The Bank seeks to manage
its interest rate risk through its Asset/Liability Management Committee (ALCO)
established by the Board of Directors and consisting of the full Board and the
Chief Executive Officer, Controller, Chief Lending Officer and the Senior Retail
Banking Officer. The ALCO establishes and monitors the volume and mix of the
Bank's assets and funding sources to produce results which are consistent with
liquidity, capital adequacy, growth, risk, and profitability goals.
Liquidity management enables the Bank to maintain sufficient cash flow to
fund operations and to meet financial obligations to depositors and borrowers.
The Bank's liquidity is enhanced by its ability to attract and retain deposits
and by principal and interest payments on loans and maturing securities in the
investment portfolio. The Bank's core deposit base, consisting of demand
deposits, money market, and savings accounts supplemented by
2
<PAGE>
other deposits of varying maturities and rates contributes to the Corporation's
liquidity. The Bank's liquidity position, those assets invested in cash, federal
funds, and obligations of the U.S. Government, its agencies, and sponsored
entities available for sale, of $4,725,931 at December 31, 1995 reflected an
increase of $914,391 from December 31, 1994. This increase is due primarily to
additions of investment securities to the Bank's available for sale portfolio
and an increase in carrying value of securities in the Bank's available for sale
portfolio as a result of increases in estimated fair value. In the first quarter
of 1995, the Bank received $4,000,000 from the proceeds of the sale of
investment securities as of December 1994. These funds were used to eliminate
short term borrowings and fund loans in the first two quarters of 1995. Funds
available through short-term borrowings and asset maturities are considered
adequate to meet all current needs. At December 31, 1995, the Corporation has
the ability to borrow up to $4,970,000 against collateral consisting of
securities in its investment portfolio. Although this liquidity position remains
adequate, the Bank continues to experience increased loan demand which could
have an adverse impact on liquidity. The Bank was recently approved to establish
a borrowing line by the Federal Home Loan Bank of Atlanta. This will be utilized
as a supplementary source of funding short term and long term growth of the
Bank. Management continues to evaluate the asset and liability mix to ensure
that liquidity needs are met.
The loan to deposit ratio at December 31, 1995 was 81.30% which is up from
73.29% at December 31, 1994. The increase in the loan to deposit ratio is due to
the growth in the loan portfolio. The Bank's marketing efforts will increasingly
focus on the growth of core deposits, particularly on the retail side in order
to support continued loan growth.
Interest rate sensitivity management contributes to a steady net interest
margin through all phases of interest rate cycles. Management attempts to make
the necessary adjustments to constrain adverse fluctuations in net interest
income resulting from interest rate movements through analysis of repricing
frequencies and income simulation modeling techniques.
The amounts of interest-earning assets and interest-bearing liabilities
outstanding at December 31, 1995 which are anticipated by the Bank based on
certain assumptions, to reprice or mature in future time periods, are set forth
in the Sensitivity Analysis below.
<TABLE>
<CAPTION>
INTEREST SENSITIVITY ANALYSIS
DECEMBER 31, 1995
(IN THOUSANDS)
============================================================================
3 mos. Over 3 mos. Over 1 Year Over All
or less to 1 year to 5 years 5 years other Total
-------- --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Time deposits with banks $ 95 $ -- $ -- $ -- $ -- $ 95
Investments 4,953 1,001 2,061 12 8,027
Loans 16,222 5,564 4,368 -- 29,812
-------- --------- ---------- -------- -------- --------
Total Interest-Earning
Assets 21,270 6,565 6,429 3,658 12 37,934
======== ========= ========== ======== ======== ========
Interest-Bearing Liabilities:
Savings & interest checking $ 9,245 $ -- $ -- $ -- $ -- $ 9,245
Money market checking 9,387 9,387
Time deposits 3,658 4,232 2,023 177 10,090
Borrowed funds 59 59
-------- --------- ---------- -------- -------- --------
Total Interest-Bearing
Liabilities 22,349 4,232 2,023 177 0 28,781
======== ========= ========== ======== ======== ========
CUMULATIVE GAP $ (1,079) $ 1,254 $ 5,660 $ 9,141 $ 9,153 $ 9,153
CUMULATIVE GAP
TO TOTAL ASSETS (2.65)% 3.08% 13.91% 22.47% 22.50% 22.50%
</TABLE>
Note: The table represents the earlier of the maturity or repricing dates for
various assets and liabilities at December 31, 1995.
3
<PAGE>
The amount of assets and liabilities shown which reprice or mature during a
particular period were determined in accordance with the earlier of term to
repricing or the contractual terms of the asset or liability. The Bank has
assumed that its savings, interest checking, and money market accounts reprice
daily. At December 31, 1995, the Bank's one-year interest sensitivity gap (the
difference between the amount of interest-earning assets anticipated by the
Bank, based on certain assumptions, to mature or reprice within one year and the
amount of interest-bearing liabilities anticipated by the Bank, based on certain
assumptions, to mature or reprice within one year) as a percentage to total
assets was positive 3.08%. This positive gap position means that the Bank had
$1,254,000 more assets than liabilities repricing within one year. This
generally indicates that in a period of declining interest rates, the Bank's net
interest income may be adversely affected. Conversely, in a rising interest rate
environment, the Bank's net interest income may improve.
ALLOWANCE FOR LOAN LOSSES. At December 31, 1995, the allowance for loan
losses was $748,480 or 2.51% of loans outstanding compared to $704,256 or 2.61%
of loans outstanding as of December 31, 1994, an increase of $44,224 or 6.28%.
Net recoveries of $74,224 as of December 31, 1995 increased $64,091 compared to
1994. At December 31, 1995, the allowance for loan loss was 160.86% of non-
performing loans compared to 177.33% of non-performing loans at December 31,
1994.
A reduction of the allowance in the amount of $30,000 in the year ended
December 31, 1995 was due to management's determination that the allowance was
more than adequate as asset quality has continued to improve and recoveries are
realized. In management's opinion, the allowance for loan losses as of December
31, 1995 is adequate to cover potential losses that can be anticipated at this
time based on current risks and knowledge of the portfolio.
NON-PERFORMING LOANS AND ASSETS. The Bank's non-performing assets totalling
$1,617,741 consist of past due and restructured loans, other real estate owned
("OREO"), and other assets. The percentage of non-performing assets to total
assets at December 31, 1995 was 3.98% compared to 4.90% at December 31, 1994.
Management intends to continue its efforts to reduce non-performing assets
through future sales of OREO and other assets and upgrading of non-performing
loans.
Non-performing loans, consisting of loans delinquent 90 days or more and in
non-accrual status, and restructured loans totaled $465,518 at December 31,
1995. This amount consists primarily of one loan in the amount of $368,962 which
has been renegotiated and is currently performing within its new terms and one
non accrual loan in the amount of $77,406. The percentage of non-performing
loans to total loans at December 31, 1995 was 1.56% compared to 1.47% at
December 31, 1994.
At December 31, 1995, OREO, net of valuation reserve, was $1,052,223
compared to $1,632,612 at December 31, 1994, a decrease of $580,389 or 35.55%.
This decrease is primarily a result of a reclassification of a property in the
amount of $550,000 to other assets in 1995. The reclassification of this
property was the result of an evaluation done in conjunction with the Bank's
examination as of January 31, 1995. The Bank has a contractual interest in sales
proceeds from the property which is owned by an affiliate of the Bank as a
result of foreclosure. A significant portion of this asset was sold as of July
31, 1995 and proceeds in the amount of $450,000 were received by the Bank. The
portion which continues to be held as other assets in the amount of $100,000
remains available for sale. In addition, a valuation reserve in the amount of
$30,000 was established in the first quarter of 1995 for another property as a
result of an updated appraisal. This property is currently generating rental
income on a monthly basis (see "Noninterest Income" below) and the lease
agreement contains a purchase option at a price significantly above the Bank's
carrying value. Generally, the Bank evaluates the fair value of each property
owned annually. These evaluations may be appraisals or other market studies. At
December 31, 1995, management believes the carrying amounts for OREO properties
approximate fair value. There were no additions to OREO in 1995.
RESULTS OF OPERATIONS
NET INCOME. The Corporation had net income of $276,133 for the year ended
December 31, 1995, an increase of $204,142 or 283.57% compared to net income in
1994. This increase resulted primarily from an increase in net interest income
during 1995 compared to 1994. The earnings per share were $0.09 for the year
ended December 31, 1995 compared to earnings per share of $0.03 in 1994.
NET INTEREST INCOME. Net interest income is the difference between interest
income and yield related fees on loans, interest income on investments, and
interest expense on deposits and other borrowed funds. Net interest
4
<PAGE>
income for the year ended December 31, 1995 of $2,380,989 reflected an increase
of $225,488 or 10.46% compared to 1994. Interest income for the year ended
December 31, 1995 of $3,487,985 reflected an increase of $399,583 or 12.94%
compared to the corresponding period in 1994. This increase was primarily due to
an increase in interest and fees on loans of $653,938 for the year ended
December 31, 1995 compared to 1994 which resulted from an increase in average
loans outstanding of $5,060,000 for the year ended December 31, 1995 compared to
1994 and a 60 basis point increase in average yield in 1995. Interest income on
investment securities decreased $316,550 or 42.09% in 1995 compared to 1994 due
to the sale of investment securities in December 1994 and to a lesser extent,
the repricing of floating rate securities. The earnings on these securities will
continue to be affected by changes in the relationship of long term and short
term rates. Interest income on federal funds sold for the year ended December
31, 1995 of $91,408 reflected an increase of $62,195 or 212.90% compared to
1994. As a result of growth of interest bearing deposits and rate increases in
1995, interest expense on deposits increased $189,602 or 21.04% compared to
1994.
The average yield on earning assets for the year ended December 31, 1995
was 8.95% compared to 8.59% in 1994. The average interest rate paid on interest
bearing deposits in 1995 was 3.68% compared to 3.13% in 1994. Net interest
margin is the ratio of net interest income to average earning assets. For the
year ended 1995, net interest margin was 6.11% compared to 5.99% for the year
ended December 31, 1994. The following tables illustrate the Bank's analysis of
average balances, yields, and changes in net interest income for the fiscal
years indicated.
THREE YEAR AVERAGE CONSOLIDATED BALANCE SHEET AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
AVERAGE BALANCE (1) YIELD/COST (2) INCOME/EXPENSE (2)
---------------------------- --------------------- ------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 29,524 $ 24,464 $ 19,035 10.03% 9.43% 9.25% $ 2,961 $ 2,307 $ 1,760
Investment securities 7,889 10,716 10,938 5.51 7.02 5.10 435 752 558
Other interest-earning assets 1,555 785 2,289 5.92 3.69 2.97 92 29 68
-------- -------- -------- ----- ---- ---- ------- ------- -------
Total interest-earning assets 38,968 35,965 32,262 8.95 8.59 7.40 3,488 3,088 2,386
Noninterest-earning assets 3,299 4,060 6,481
-------- -------- --------
Total Assets $ 42,267 $ 40,025 $ 38,743
======== ======== ========
Interest-bearing liabilities:
Savings & interest checking $ 9,314 $ 9,799 $ 9,275 2.57 2.44 2.36 $ 239 $ 239 $ 219
Moneymarket accounts 10,210 10,738 8,332 3.37 2.92 2.78 344 314 232
Time deposits 10,129 8,300 11,387 5.02 4.20 4.51 508 349 513
-------- -------- -------- ----- ---- ---- ------- ------- -------
Total interest-bearing deposits 29,653 28,837 28,994 3.68 3.13 3.32 1,091 902 964
Other interest-bearing liabilities 266 630 17 6.02 4.92 (29.41) 16 31 (5)
-------- -------- -------- ----- ---- ---- ------- ------- -------
Total interest-bearing liabilities 29,919 29,467 29,011 3.70 3.17 3.31 1,107 933 959
Noninterest-bearing liabilities:
Demand deposits 8,825 8,374 7,360
Other noninterest-bearing liabilities 202 132 170
Stockholders' equity 3,321 2,052 2,202
-------- -------- --------
Total Liabilities and Stockholders' Equity $ 42,267 $ 40,025 $ 38,743
======== ======== ========
Interest Rate Spread 5.25% 5.42% 4.09%
Net lnterest Margin/Income 6.11% 5.99% 4.42% $ 2,381 $ 2,155 $ 1,427
</TABLE>
1. Nonaccrual loans are included in the average loan balances and income on such
loans is recognized on a cash basis.
2. Yields costs are derived by dividing income or expense by the average balance
of assets or liabilities, respectively, for the periods presented.
5
<PAGE>
NET INTEREST INCOME/CHANGES DUE TO VOLUME AND RATE
(In dollars)
<TABLE>
<CAPTION>
1995 VERSUS 1994 1994 VERSUS 1993
----------------------------------------------------------------------------------------------
Change due to (1) Change due to (1)
Increase ---------------------------------- Increase ----------------------------------
(Decrease) Rate Volume Rate/Volume (Decrease) Rate Volume Rate/Volume
---------- ---- ------ ----------- ---------- ---- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ 653,938 $ 146,452 $ 477,195 $ 30,291 $ 547,313 $ 35,319 $ 501,921 $ 10,073
Investment securities (317,025) (161,133) (198,401) 42,509 194,186 209,766 (11,323) (4,257)
Other interest-earning assets 62,670 17,172 28,655 16,843 (39,000) 16,970 (44,820) (11,150)
-------- --------- --------- -------- --------- --------- --------- ---------
Total interest-earning assets $ 399,583 $ 2,491 $ 307,449 $ 89,643 $ 702,499 $ 262,055 $ 445,778 $ (5,334)
======== ========= ========= ======== ========= ========= ========= =========
Interest Expense:
Savings & interest checking $ (71) $ 12,347 $ (11,807) $ (611) $ 19,256 $ 6,499 $ 12,390 $ 367
Money market accounts 30,267 48,064 (15,433) (2,364) 82,090 11,763 66,930 3,397
Time deposits 159,406 67,624 76,880 14,902 (164,211) (34,453) (139,098) 9,340
-------- --------- --------- -------- --------- --------- --------- ---------
Total interest-bearing deposits 189,602 128,035 49,640 11,927 (62,865) (16,191) (59,778) 13,104
Other interest-bearing
liabilities (15,507) 6,507 (18,254) (3,760) 36,489 5,748 (176,508) 207,249
-------- --------- --------- -------- --------- --------- --------- ---------
Total interest-bearing
liabilities $ 174,095 $ 134,542 $ 31,386 $ 8,167 $ (26,376) $ (10,443) $(236,286) $ 220,353
======== ========= ========= ======== ========= ========= ========= =========
Net Interest lncome $ 225,488 $(132,051) $ 276,063 $ 81,476 $ 728,875 $ 272,498 $ 682,064 $(225,687)
</TABLE>
1. Variances are computed on a line-by-line basis and are non-additive.
PROVISION FOR LOAN LOSSES. A reduction of the allowance for loan losses in
the amount of $30,000 through a reversal of a prior year's provision for loan
losses was posted in 1995. This was the result of management's evaluation that
the allowance for loan losses was more than adequate as loan quality has
improved and recoveries were realized. No future reductions of the allowance for
loan losses through the provision for loan loss are anticipated.
NONINTEREST INCOME. Noninterest income for the year ended December 31, 1995
was $442,573 compared to $399,663 in 1994, an increase of $42,910 or 10.74%.
This increase is due to an increase in service charges on deposit accounts in
1995 of $42,968 or 21.16% compared to 1994. Noninterest income in 1995 also
includes a gain in the amount of $63,000 on the sale of $1.8 million in loans
and monthly rental income totalling $18,150 from a property carried as OREO.
NONINTEREST EXPENSE. Total noninterest expense continued to decrease in
1995 to $2,577,429, a reduction of $20,201 or .78%. The increase in salaries and
benefits expenses of $91,752 resulted from the addition of an internal auditor
and a retail sales executive hired to further develop the marketing efforts of
the Bank's branch network. Legal expenses of $171,328 in 1995 increased $32,434
compared to 1994 due to continuing litigation. Expenses associated with OREO
continued to decrease in 1995 due to a reduction in the amount of OREO carried.
The Bank's FDIC insurance expense for the year 1995 of $52,982 decreased $45,052
compared to 1994. On August 8, 1995, the FDIC voted to reduce the deposit
insurance premium paid by most members of the Bank Insurance Fund ("BIF")
effective June 1, 1995. Therefore, the Bank was eligible for a refund in the
amount of $23,420 which it received in September 1995. In addition, the Bank's
FDIC insurance premium expense continues to reflect its well-capitalized
position. The Bank's current assessment rate is .07% of deposits. The FDIC has
established a process for raising or lowering all assessment rates for BIF-
insured institutions semi-annually if conditions warrant
6
<PAGE>
a change. The Corporation's expense for other insurance for the year ended 1995
of $52,982 decreased $30,788 from 1994 due to an evaluation of the Bank's
insurance coverage and premiums due to its improved financial condition and
results of operations.
TAXES ON INCOME. Net operating loss carryforwards are offsetting current
income tax expense and deferred tax benefits have not been recognized due to the
uncertainty of their realization.
IMPACT OF INFLATION AND CHANGING PRICES. The Consolidated Financial
Statements and Notes thereto have been prepared in accordance with Generally
Accepted Accounting Principles, which requires the measurement of financial
position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Corporation's operations. Unlike most industrial companies, nearly all assets
and liabilities of the Corporation are monetary in nature. As a result, interest
rates have a greater impact on the Corporation's performance than do the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the price of goods or services.
MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Corporation's common
stock and there is limited trading in the stock. Other than options for 105,500
shares of common stock under the Corporation's option plans, there are presently
no other outstanding securities convertible into common equity of the
Corporation. Bid prices for the common stock in the over-the-counter market for
each quarterly period within the two most recent fiscal years are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED BID PRICE QUARTER ENDED BID PRICE
1995 1994
<S> <C> <C> <C>
March 31 $2.00 March 31 $1.75
June 30 2.00 June 30 1.87
September 30 2.00 September 30 2.00
December 31 2.00 December 31 2.00
</TABLE>
The quotations were obtained from the Washington Post at each time period
shown and reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
At December 31, 1995, there were 418 holders of record. The Corporation
conducted a private placement offering initiated in December 1994 which closed
in June 1995. A total of 500,000 shares were sold including 80,000 shares sold
in 1995. The Corporation has not agreed to register any common stock under the
Securities Act for sale by security holders. There have been no dividends paid
in the past two fiscal years.
7
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
<PAGE>
[LOGO OF STEGMAN & COMPANY APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
FWB Bancorporation
We have audited the accompanying consolidated balance sheets of FWB
Bancorporation and Subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income (loss), changes in stockholders' equity, and
cash flows for each of three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company'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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FWB Bancorporation and Subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/S/ STEGMAN & COMPANY
Towson, Maryland
January 20, 1996
8
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
Cash and due from banks $ 1,557,453 $ 1,567,371
Time deposits with banks 95,000 --
Investment securities:
Available for sale - at fair value 3,073,478 2,244,169
Held to maturity - at amortized cost
(fair value $4,896,875 -
1995 and $4,189,770 - 1994) 4,953,295 4,865,731
Loans 29,812,000 27,002,362
Less allowance for loan losses (748,480) (704,256)
----------- -----------
Loans - net 29,063,520 26,298,106
Property and equipment 350,811 289,237
Foreclosed real estate 1,052,223 1,632,612
Accrued interest receivable 315,595 429,403
Accounts receivable -- 4,020,934
Other assets 217,088 65,956
----------- -----------
TOTAL ASSETS $40,678,463 $41,413,519
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
LIABILITIES:
<S> <C> <C>
Noninterest-bearing deposits $ 7,948,559 $ 8,849,851
Interest-bearing deposits 28,721,942 27,992,512
----------- -----------
Total deposits 36,670,501 36,842,363
Federal funds purchased and securities sold under
agreements to repurchase 59,000 1,352,000
Accrued expenses and other liabilities 209,456 114,136
----------- -----------
Total liabilities 36,938,957 38,308,499
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - $.10 par value; 7,500,000 shares
authorized; 3,258,833 and 3,178,833 shares
outstanding in 1995 and 1994, respectively 325,883 317,883
Additional paid-in capital 8,475,617 8,331,259
Accumulated deficit (4,804,877) (5,081,010)
Net unrealized holding loss on invesment securities (257,117) (463,112)
----------- -----------
Total stockholders' equity 3,739,506 3,105,020
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,678,463 $41,413,519
=========== ===========
</TABLE>
See accompanying notes.
9
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
========== ========== ==========
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $2,961,070 $2,307,132 $1,759,819
Interest on investment securities - U. S. Government,
its agencies, and sponsored entities 429,067 751,857 557,871
Interest on other investment securities 5,965 200 --
Interest on time deposits with banks 475 -- 2,282
Interest on federal funds sold 91,408 29,213 65,931
---------- ---------- ----------
Total interest income 3,487,985 3,088,402 2,385,903
========== ========== ==========
INTEREST EXPENSE:
Interest on certificates of deposit of $100,000 or more 109,939 28,383 41,043
Interest on other deposits 980,970 872,924 923,129
---------- ---------- ----------
1,090,909 901,307 964,172
Interest on federal funds purchased and securities
sold under agreements to repurchase 16,087 31,594 43
Interest on mandatory convertible
subordinated debentures -- -- (4,938)
---------- ---------- ----------
Total interest expense 1,106,996 932,901 959,277
NET INTEREST INCOME 2,380,989 2,155,501 1,426,626
PROVISION (RECOVERY) FOR LOAN LOSSES (30,000) (114,457) --
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,410,989 2,269,958 1,426,626
---------- ---------- ----------
NONINTEREST INCOME:
Service charges on deposit accounts 246,047 203,079 229,454
Net realized gain (loss) on sales of securities -- (260) 155,018
Gain on sales of loans 63,383 -- --
Other income 133,143 196,844 120,705
---------- ---------- ----------
Total noninterest income 442,573 399,663 505,177
---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits 1,272,555 1,180,803 1,079,477
Occupancy and equipment expense 477,461 500,235 495,804
Data processing services 206,683 175,277 171,961
FDIC insurance 52,982 98,034 104,744
Insurance 51,533 82,321 118,456
Legal fees 171,328 138,894 191,014
Foreclosed real estate expenses 56,605 130,910 260,518
Other expenses 288,282 291,156 251,689
---------- ---------- ----------
Total noninterest expense 2,577,429 2,597,630 2,673,663
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 276,133 71,991 (741,860)
APPLICABLE INCOME TAX -- -- --
---------- ---------- ----------
NET INCOME (LOSS) $ 276,133 $ 71,991 $ (741,860)
========== ========== ==========
EARNINGS PER COMMON SHARE $.09 $.03 $(.39)
========== ========== ==========
</TABLE>
See accompanying notes.
10
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Unrealized
Additional Holding Total Stock-
Common Paid-in Accumulated (Loss) on holders'
Stock Capital (Deficit) Securities Equity
======== ========== =========== ============ ==========
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993 $134,583 $6,250,902 $(4,411,141) $ -- $1,974,344
Net loss -- -- (741,860) -- (741,860)
Issuance of common stock
at $1.00 per share 141,300 1,271,700 -- -- 1,413,000
Cumulative effect of the initial application
of Statement of Financial Accounting
Standards No. 115 -- -- -- (192,164) (192,164)
Retirement of mandatory subordinated
debentures -- 18,000 -- -- 18,000
-------- ---------- ----------- ---------- ----------
BALANCE AT DECEMBER 31, 1993 275,883 7,540,602 (5,153,001) (192,164) 2,471,320
Net income -- -- 71,991 -- 71,991
Issuance of common stock
at $2.00 per share 42,000 790,657 -- -- 832,657
Net change in unrealized loss on
investment securities -- -- -- (270,948) (270,948)
-------- ---------- ----------- ---------- ----------
BALANCE AT DECEMBER 31, 1994 317,883 8,331,259 (5,081,010) (463,112) 3,105,020
Net income -- -- 276,133 -- 276,133
Issuance of common stock
at $2.00 per share 8,000 144,358 -- -- 152,358
Net change in unrealized loss on
investment securities -- -- -- 205,995 205,995
-------- ---------- ----------- ---------- ----------
BALANCE AT DECEMBER 31, 1995 $325,883 $8,475,617 $(4,804,877) $(257,117) $3,739,506
</TABLE>
See accompanying notes.
11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
========= ========== ==========
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 276,133 $ 71,991 $ (741,860)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 106,144 108,962 154,576
Accretion and amortization of securities (13,222) (10,592) (43,308)
Provision for loan losses (30,000) (114,457) --
Net realized gain from sales of assets (63,383) (8,809) (110,376)
Other real estate owned - write downs 30,000 114,457 89,787
Net changes in:
Accrued interest receivable 113,808 (92,580) (79,977)
Accounts receivable 20,934 -- --
Other assets 399,257 45,079 (18,122)
Accrued expenses and other liabilities 95,320 43,642 (83,251)
Other - net 108,777 146,075 511,077
---------- ----------- -----------
Net cash provided (used) by operating activities 1,043,768 303,768 (321,454)
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in time deposits with banks (95,000) -- 88,221
Net decrease in federal funds sold -- -- 435,000
Purchases of available for sale securities (1,247,656) (2,011,781) (13,665,014)
Proceeds from maturities/principal payments
on available for sale securities 550,000 250,000 1,596,422
Proceeds from sale of available for sale securities 4,000,000 1,299,565 11,636,917
Net increase in loans (6,104,168) (5,085,151) (1,678,639)
Proceeds from sale of participation loans 3,327,035 2,265,622 775,000
Purchases of loans (3,675) (922,260) (3,875,000)
Purchase of property and equipment (167,718) (40,131) (18,584)
Proceeds from disposition of foreclosed real estate -- 1,173,626 1,959,573
----------- ----------- -----------
Net cash provided (used) by investing activities 258,818 (3,070,510) (2,746,104)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (171,862) (20,867) 1,634,287
Net (decrease) increase in federal funds
purchased and securities sold under
agreements to repurchase (1,293,000) 1,352,000 --
Proceeds from issuance of common stock 152,358 832,657 1,413,000
Expenditure to repurchase mandatory convertible
subordinated debentures -- -- (10,000)
----------- ----------- -----------
Net cash (used) provided by financing activities (1,312,504) 2,163,790 3,037,287
----------- ----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,918) (602,952) (30,271)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,567,371 2,170,323 2,200,594
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,557,453 $ 1,567,371 $ 2,170,323
=========== =========== ===========
</TABLE>
12
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
========== ========== ==========
<S> <C> <C> <C>
Supplemental disclosures:
Interest payments $1,067,408 $ 936,149 $ 929,886
Income tax payments -- -- --
Noncash investing and financing activities:
Transfers from loans to foreclosed real estate $ -- $ -- $ 953,651
Transfer of investment securities from available
for sale to held to maturity -- 4,832,900 --
Unrealized gain (loss) on investment securities
available for sale 205,995 (270,948) (192,164)
</TABLE>
See accompanying notes.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of FWB Bancorporation (the
Corporation), including its wholly owned subsidiary, FWB Bank (the Bank),
conform to generally accepted accounting principles and to prevailing practices
within the banking industry. Certain reclassification has been made to amounts
previously reported to conform with the classifications made in 1995.
Consolidation Policy
The consolidated financial statements include the accounts of FWB
Bancorporation and the Bank with all significant intercompany transactions
eliminated. The financial statements of FWB Bancorporation (parent only) include
the Bank under the equity method of accounting.
Nature of Operations
The Corporation provides commercial banking services from its three
locations in Montgomery County, Maryland. Its primary source of revenue is from
providing commercial and real estate loans to customers who are predominately
small businesses, professionals and middle income individuals located in
Montgomery County, suburban Washington, D. C. and northern Virginia.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Securities Available for Sale
Investment securities available for sale are stated at estimated fair value
based on quoted market prices. They represent those securities which management
may sell as part of its asset/liability strategy or which may be sold in
response to changing interest rates, changes in prepayment risk or other similar
factors. The cost of securities sold is determined by the specific
identification method. Net unrealized holding gains and losses on these
securities are reported as a separate component of stockholders' equity, net of
related income taxes.
Investment Securities Held to Maturity
Investment securities held to maturity are stated at cost adjusted for
amortization of premiums and accretion of discounts. The Corporation intends and
has the ability to hold such securities until maturity. When securities are
transferred into the held to maturity category from available for sale, they are
accounted for at estimated fair value with any unrealized holding gain or loss
at the date of the transfer reported as a separate component of stockholders'
equity and amortized over the remaining life of the security as an adjustment of
yield.
Loans
Loans are stated at their principal amount outstanding net of any deferred
fees and costs. Interest income is accrued and credited to income at the
contractual rate based on the principal amount outstanding. Loans are placed on
nonaccrual when a loan is specifically determined to be impaired or when
principal or interest is delinquent for 90 days or more. Any unpaid interest
previously accrued on those loans is reversed from income. Interest income
generally is not recognized on specific impaired loans unless the likelihood of
further loss is remote. Interest payments received on such loans are applied as
a reduction of the loan principal balance. Interest income on other nonaccrual
loans is recognized only to the extent of interest payments received.
Allowance for Loan Losses
The allowance for loan losses represents management's current estimate of
the amount which adequately provides for possible losses in the portfolio. The
adequacy of the allowance is determined by regular review of the loan portfolio
considering such factors as current economic conditions and their effect on the
creditworthiness of borrowers, changes in the character of the portfolio and
historical loan loss experience. The allowance is increased by provisions
charged to operating expense and reduced by loans charged-off, net of recoveries
of amounts previously charged-off and by reversals of previous years'
provisions. Allowances for impaired loans are generally determined based on
collateral values or the present value of estimated cash flows.
14
<PAGE>
Property and Equipment
Property and equipment are stated at cost and are being depreciated
principally on a straight-line basis over the estimated useful lives of the
assets. Repair and maintenance costs are charged against income while
betterments are capitalized as additions to the related assets.
Foreclosed Real Estate
Foreclosed real estate represents assets acquired in satisfaction of loans
either by foreclosure or deeds taken in lieu of foreclosure. Properties acquired
are recorded at the lower of cost or fair value less estimated selling costs at
the time of acquisition with any deficiency charged to the allowance for loan
losses. Thereafter, costs incurred to operate or carry the properties as well as
reductions in value as determined by periodic appraisals or other market studies
are charged to operating expense. Gains and losses resulting from the final
disposition of the properties are included in noninterest expense.
Accounts Receivable
Included in accounts receivable are amounts due from the sale of securities
where the trade date occurred prior to end of the year and proceeds were not
received until the subsequent year.
Income Taxes
Under the asset and liability method, deferred income taxes reflect the
future tax consequences of temporary differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year-end. Deferred
tax assets and liabilities are measured using tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. A valuation allowance is recognized to reduce deferred
tax assets that, based on available evidence, are not expected to be realized.
Earnings Per Common Share
Primary earnings per common share have been computed based on the weighted
average number of shares outstanding (3,242,665 for 1995, 2,766,354 for 1994,
1,897,553 for 1993). The dilutive effect of stock options is not material for
1995 and 1994.
2. NEW ACCOUNTING STANDARDS
In May, 1993, the Financial Accounting Standards Board issued Statement No.
114, Accounting by Creditors for Impairment of a Loan. This statement, effective
for fiscal years beginning after December 15, 1994, generally requires impaired
loans to be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. A loan is impaired when it is probable the creditor will be unable to
collect all contractual principal and interest payments due in accordance with
the terms of the loan agreement. See Note 4 for the Corporation's impaired loan
disclosures.
Effective for 1995, the Corporation adopted the provisions of Statement of
Financial Accounting Standards No. 107 Disclosure about Fair Value of Financial
Instruments. This pronouncement requires disclosure in the financial statements
of estimated fair values of financial instruments. See Note 12 for the
Corporation's presentation of these fair value disclosures.
3. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities at
December 31 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
========= ======= ====== ==========
<S> <C> <C> <C> <C>
1995
Obligations of U.S.
government, its
agencies, and
sponsored entities $3,029,155 $34,463 $2,140 $3,061,478
Other investments 12,000 -- -- 12,000
---------- ------- ------ ----------
Total $3,041,155 $34,463 $2,140 $3,073,478
========== ======= ====== ==========
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
========== ======= ====== =========
<S> <C> <C> <C> <C>
1994
Obligations of U.S.
government, its
agencies, and
sponsored entities $2,318,402 $ -- $86,233 $2,232,169
Other investments 12,000 -- -- 12,000
---------- ------- ------- ----------
Total $2,330,402 $ -- $86,233 $2,244,169
========== ======= ======= ==========
HELD TO MATURITY
1995
Obligations of
U.S. government,
its agencies, and
sponsored entities $4,953,295 $13,060 $ 69,480 $4,896,875
---------- ------- -------- ----------
1994
Obligations of
U.S. government,
its agencies, and
sponsored entities $4,865,731 $ -- $675,961 $4,189,770
========== ======= ======== ==========
</TABLE>
15
<PAGE>
The amortized cost and estimated fair value of investment securities at
December 31, 1995, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
========================= =======================
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
========== ========== ========== ==========
<S> <C> <C> <C> <C>
Due in one year or less $ 499,195 $ 497,863 $ 499,900 $ 499,350
Due after one year
through five years 2,529,960 2,563,615 4,453,395 4,397,525
Due after five years
through ten years 12,000 12,000 -- --
---------- ---------- ---------- ----------
Total $3,041,155 $3,073,478 $4,953,295 $4,896,875
========== ========== ========== ==========
</TABLE>
At December 31, securities pledged as collateral for public deposits and
for other purposes as required or permitted by law were as follows:
<TABLE>
<CAPTION>
1995 1994
========================= ========================
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
========== ========== ========== ==========
<S> <C> <C> <C> <C>
Available for sale $2,380,580 $2,407,721 $2,318,402 $2,232,169
Held to maturity 4,953,295 4,896,875 4,865,731 4,189,770
---------- ---------- ---------- ----------
Total $7,333,875 $7,304,596 $7,184,133 $6,421,939
========== ========== =========== ==========
</TABLE>
Proceeds from sales together with gross gains and losses realized on sales
of securities were as follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
==========================
1995 1994
======= ===========
<S> <C> <C>
Proceeds from sale $ -- $ 5,299,565
Gross realized gains -- --
Gross realized losses -- 260.
</TABLE>
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio at December 31 was as follows:
<TABLE>
<CAPTION>
1995 1994
=========== ===========
<S> <C> <C>
Real estate -
mortgage $17,107,062 $16,328,682
Real estate -
construction 220,750 29,082
Commercial 10,462,988 9,124,952
Consumer 2,021,200 1,519,646
----------- -----------
Total loans $29,812,000 $27,002,362
=========== ===========
</TABLE>
Certain senior officers, directors and companies in which officers and
directors are partners and principal stockholders have had loan transactions
with the Bank. Such extensions of credit have been made in the ordinary course
of business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
outsiders and at the time did not involve more than the normal risk of
collectibility or present other unfavorable circumstances. The following
summarizes changes in amounts outstanding, both direct and indirect, to such
persons during 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
========= ==========
<S> <C> <C>
Balance at January 1 $ 515,000 $1,293,000
Amounts borrowed 620,000 377,000
Amounts paid (121,000) (461,000)
Participation sold (375,000) (694,000)
--------- ----------
Balance at December 31 $ 639,000 $ 515,000
========= ==========
</TABLE>
Activity in the allowance for loan losses for the three years ended
December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
======== ======== ========
<S> <C> <C> <C>
Balance at January 1 $704,256 $808,580 $891,872
Provision (recovery)
for loan losses (30,000) (114,457) --
Loans charged-off (34,553) (135,942) (594,369)
Recoveries 108,777 146,075 511,077
-------- -------- --------
Balance at December 31 $748,480 $704,256 $808,580
======== ======== ========
</TABLE>
At December 31, 1995, the Corporation had one loan of $77,406 classified as
impaired. The average balance of this loan during 1995 was $77,542. The
allowance for loan losses related to this impaired loan was $22,000 at December
31, 1995. The following is a summary of cash receipts on this loan and how they
were applied in 1995:
<TABLE>
<CAPTION>
<S> <C>
Cash receipts applied to principal balance $1,575
Cash receipts recognized as interest income 4,202
------
Total cash receipts $5,777
======
</TABLE>
If interest on this loan had been recognized at the original interest rate,
income would have increased $3,431 for 1995. There were no other nonaccrual
loans at December 31, 1995 and there were no nonaccrual loans at December 31,
1994.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
========== ==========
<S> <C> <C>
Leasehold improvements $ 704,471 $ 676,971
Equipment 428,273 852,548
Furniture and fixtures 85,688 187,196
1,218,432 1,716,715
Less accumulated depreciation (867,621) (1,427,478)
---------- ----------
$ 350,811 $ 289,237
========== ==========
</TABLE>
16
<PAGE>
The Bank leases office space under various lease agreements. Rental expense
for 1995, 1994 and 1993 totaled $244,244, $258,890, and $203,293, respectively.
Future minimum annual lease payments for operating leases are as follows:
<TABLE>
<S> <C>
1996 $293,834
1997 293,834
1998 293,834
1999 264,690
2000 119,000
Thereafter 445,664
</TABLE>
6. DEPOSITS
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
=========== ===========
<S> <C> <C>
Noninterest bearing $ 7,948,559 $ 8,849,851
Interest bearing:
Savings and interest checking 9,240,059 9,665,590
Money market 9,386,535 10,310,034
Certificates of deposit
of $100,000 or more 1,833,470 1,104,683
Other 8,261,878 6,912,205
----------- -----------
Total interest bearing 28,721,942 27,992,512
----------- -----------
Total $36,670,501 $36,842,363
=========== ===========
</TABLE>
7. STOCK OPTION PLAN
On April 8, 1994, the shareholders approved, and on May 12, 1994, the
Corporation adopted a stock option plan for outside Directors and an incentive
stock option plan for key employees. The plans provide that 100,000 and 200,000
shares of common stock of the Corporation be reserved for each Plan,
respectively. The option price shall be the fair market value of the common
stock on the date the option is granted, and the option must be exercised within
ten years from the date granted.
On May 12, 1994, options to purchase 30,000 shares at a price of $1.75 per
share were granted pursuant to the plan for outside Directors and options to
purchase 60,500 shares at a price of $1.75 per share were granted pursuant to
the incentive stock option plan for key employees. Options shall vest and become
exercisable one year from the grant date.
In 1995, options to purchase 15,000 shares at a price of $2.75 per share
were granted pursuant to the plan for outside Directors. There were no options
exercised in 1995.
8. INCOME TAXES
The Corporation has not recognized any income tax expense or benefit for
the three years ended December 31, 1995. The utilization of net operating loss
carryforwards effectively eliminated income tax expense for 1995 and 1994. The
inability to carryback the loss in 1993 eliminated any benefit recognition for
that year.
A reconciliation of the differences between the statutory federal income
tax rate and the Corporation's effective tax rate for the years ended December
31 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
================ ================ ================
Amount % Amount % Amount %
========= ==== ========= ==== ========= ====
<S> <C> <C> <C> <C> <C> <C>
Tax (benefit) at
statutory rate $ 93,885 34.0% $ 24,477 34.0% $(252,198) (34.0)%
State income taxes
net of federal
income tax benefit 15,705 5.7 3,326 4.6 -- .0
Net operating loss
carryforward
(utilization) (109,590) (39.7) (27,803) (38.6) 252,198 34.0
--------- ---- --------- ----- --------- -----
$ -- .0% $ -- .0% $ -- .0%
========= ==== ========= ==== ========= ====
</TABLE>
Components of deferred income tax benefit (expense) for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
========= ========= =========
<S> <C> <C> <C>
Loss provision -
foreclosed real estate $ 11,586 $ (21,158) $ (44,611)
Depreciation 1,176 8,072 24,089
Provision for loan losses 33,279 (24,090) (32,167)
Net operating loss
carryforward (170,030) 11,084 286,468
Other 3,048 (3,953) --
--------- --------- ---------
Deferred tax benefit (expense)
before limitations (120,941) (30,045) 233,779
--------- --------- ---------
Income tax benefit limitation 120,941 30,045 (233,779)
Deferred tax benefit $ -- $ -- $ --
========= ========= =========
</TABLE>
At December 31, 1995 and 1994 net deferred tax assets consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
========== ==========
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $1,255,091 $1,425,121
Allowance for loan losses 272,863 239,584
Foreclosed real estate -
valuation allowance 44,028 32,442
Depreciation 24,032 22,856
Unrealized holding losses on investment
securities available for sale -- 33,303
Unrealized holding losses on investment
securities transfers from available for
sale to held to maturity 111,782 145,551
Other 1,357 1,633
---------- ----------
1,709,153 1,900,490
Valuation allowance for deferred tax assets 1,694,381 (1,894,878)
---------- ----------
Total deferred tax assets 14,772 5,612
---------- ----------
Deferred tax liabilities:
Loan fees and costs (2,288) (5,612)
Unrealized holding gains on investment
securities available for sale (12,484) --
Total deferred tax liabilities (14,772) (5,612)
---------- ----------
Net deferred tax assets $ -- $ --
========== ==========
</TABLE>
17
<PAGE>
A valuation allowance has been established to eliminate all deferred tax
assets due to the uncertainty regarding their realization.
The Corporation has a federal net operating loss carryforward of
approximately $3,286,000 that can be used to offset future taxable income
through the year 2009.
9. REGULATORY MATTERS AND RESTRICTIONS
General
During 1994, the Bank operated under a Memorandum of Understanding ("MOU")
with the Federal Deposit Insurance Corporation ("FDIC") and the Bank
Commissioner of the State of Maryland ("Commissioner"). The MOU required the
Bank to achieve a Tier I capital to total asset ratio of 7% by December 31,
1994. This requirement significantly exceeded minimum regulatory capital levels
and, at December 31, 1994, the Bank's capital to total asset ratio of 8.55%
exceeded this capital requirement. In February 1995, the Bank underwent a Tier I
examination performed jointly by the FDIC and the Commissioner. The examination
included all aspects of the Bank's capital, assets, management, earnings, and
liquidity. As a result, the FDIC and the Commissioner terminated the MOU, thus
removing the Bank from this regulatory operating agreement.
Dividends
Dividends payable by the Corporation are unrestricted, although the ability
of the Corporation to pay dividends depends upon dividends received by it from
the Bank. The Board of Directors adopted a resolution specifying that no
dividends will be paid by the Bank to the Corporation except from the undivided
profits of the Bank or with the prior approval of the Bank Commissioner of the
State of Maryland and the Regional Director of the FDIC from the Bank's surplus
in excess of 100% of its required capital stock. In addition, restrictions are
also imposed upon the ability of the Bank to make loans to the Corporation,
purchase stock in the Corporation, or use the Corporation's securities as
collateral for indebtedness of the Bank.
Cash and Due From Banks
The Federal Reserve System requires that banks maintain reserve balances
based on the type and amount of deposits. At December 31, 1995 and 1994, the
Bank was required to maintain reserves of $258,000 and $293,000, respectively.
10. LITIGATION
At December 31, 1995, the Corporation was involved in litigation arising
from normal banking, financial, and other activities of the Bank. Management,
after consultation with legal counsel, does not anticipate that the ultimate
liability, if any, arising out of these matters will have a material effect on
the Corporation's financial condition.
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit and involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the statement of
financial position. The contract amounts of those instruments reflect the extent
of involvement the Bank has in particular classes of financial instruments as
well as its exposure to credit loss in the event of nonperformance by the other
party. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. At December 31, 1995 and 1994, the Bank's
total unfunded commitments to extend credit were $4,107,491 and $3,550,686,
respectively. The Bank evaluates each customer's creditworthiness on a case-by-
case basis. The amount of collateral obtained if deemed necessary by the Bank
upon extension of credit is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts receivable,
inventory, property, equipment, commercial properties, and other business assets
as may be deemed appropriate.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party and totaled $232,700
and $205,791 at December 31, 1995 and 1994, respectively. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Collateral held varies but may
include accounts receivable, inventory, equipment, marketable securities,
property, and other business assets as may be deemed appropri-
18
<PAGE>
ate. Since most of the letters of credit are expected to expire without being
drawn upon, they do not necessarily represent future cash requirements.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments", requires the disclosure of estimated fair
values of financial instruments. Quoted market prices, where available, are
shown as estimates of fair market values. Because no quoted market prices are
available for a significant part of the Corporation's financial instruments, the
fair values of such instruments have been derived based on the amount and timing
of future cash flows and estimated discount rates .
Present value techniques used in estimating the fair value of many of the
Corporation's financial instruments are significantly affected by the
assumptions used. The fair values derived from using present value techniques
are not substantiated by comparisons to independent markets, and in many cases,
could not be realized in immediate settlement of the instruments. Statement No.
107 excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Corporation.
The estimated fair values of the Corporation's financial instruments at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
========== =======
<S> <C> <C>
Financial assets:
Cash and due from banks $ 1,557,453 $ 1,557,453
Time deposits with banks 95,000 95,000
Investment securities:
Available for sale 3,073,478 3,073,478
Held to maturity 4,953,295 4,896,875
Loans, net of allowance 29,063,520 28,830,875
Accrued interest receivable 315,595 315,595
Financial liabilities:
Deposits 36,670,501 36,738,962
Federal funds purchased and securities
sold under agreements to repurchase 59,000 59,000
Accrued interest payable 67,319 67,319
</TABLE>
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
. Cash and due from banks and time deposits: The carrying amounts reported in
the balance sheet for these assets are considered to approximate their fair
values.
. Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
. Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair values for other loans (for example, fixed rate real
estate, consumer and commercial and industrial loans) are estimated using
discounted cash flow analysis, based on interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. Loan fair value estimates include judgments regarding future
expected loss experience and risk characteristics. The carrying amount of
accrued interest receivable approximates its fair value.
. Deposits: The fair values disclosed for demand deposits (for example,
interest-bearing checking and savings accounts) are, by definition, equal
to the amount payable on demand at the reporting date (that is, their
carrying amounts.) The fair values for 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
contractual maturities on such time deposits. The carrying amount of
accrued interest payable approximates fair value.
. Federal funds purchased and securities sold under agreements to repurchase:
The carrying amounts approximate their fair values.
19
<PAGE>
13. PARENT COMPANY FINANCIAL INFORMATION
Condensed balance sheets, statements of income (loss) and statements of
cash flows for FWB Bancorporation (parent only) are presented below:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
========== ==========
<S> <C> <C>
ASSETS:
Cash $ 151,989 $ 62,166
Investments in subsidiary 3,588,996 3,043,052
Other assets 416 --
---------- ----------
TOTAL ASSETS $3,741,401 $3,105,218
---------- ----------
LIABILITIES:
Accrued expenses
and other liabilities $ 1,895 $ 198
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock 325,883 317,883
Additional paid-in capital 8,475,617 8,331,259
Accumulated deficit (4,804,877) (5,081,010)
Net unrealized holding loss on
investment securities (257,117) (463,112)
Total stockholders' equity 3,739,506 3,105,020
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,741,401 $3,105,218
========== ==========
</TABLE>
STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
1995 1994 1993
========= ======= =========
<S> <C> <C> <C>
Fee income $ 49,944 $ -- $ --
Interest and other expenses (113,760) -- (4,938)
--------- ------- ---------
(Loss) income before
income taxes and
equity in undistributed
(loss) income
of subsidiaries (63,816) -- 4,938
Income tax (benefit) -- -- --
--------- ------- ---------
(Loss) income before equity
in undistributed
(loss) income
of subsidiaries (63,816) -- 4,938
Equity in undistributed
income (loss)
of subsidiaries 339,949 71,991 (746,798)
--------- ------- ---------
Net income (loss) $ 276,133 $71,991 $(741,860)
========= ======= =========
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1995 1994 1993
========= ======== =========
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) $ 276,133 $ 71,991 $(741,860)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Equity in undistributed (loss)
income of subsidiaries (339,949) (71,991) 746,798
Net changes in:
Other assets (416) -- --
Accrued expenses and
other liabilities 1,697 -- (4,938)
---------- -------- ----------
Net cash used in
operating activities (62,535) -- --
---------- -------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital contributed
to subsidiary -- (800,000) (1,410,000)
---------- -------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of common stock 152,358 832,657 1,413,000
Expenditure to repurchase
mandatory convertible
subordinated debenture -- -- (10,000)
---------- -------- ----------
Net cash provided by
financing activities 152,358 832,657 1,403,000
---------- -------- ----------
NET INCREASE (DECREASE)
IN CASH 89,823 32,657 (7,000)
CASH AT BEGINNING OF YEAR 62,166 29,509 36,509
---------- -------- ----------
CASH AT END OF YEAR $ 151,989 $ 62,166 $ 29,509
========== ======== ==========
</TABLE>
20
<PAGE>
EXHIBIT 21
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Subsidiary Percentage Owned State of Incorporation
- ---------- ---------------- ----------------------
<S> <C> <C>
FWB Bank 100% Maryland
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
FWB Bancorporation
We hereby consent to the incorporation by reference in the Annual Report
on Form 10-K of FWB Bancorporation for the year ended December 31, 1995 of our
report dated January 20, 1996, relating to the consolidated financial statements
of FWB Bancorporation and Subsidiary.
/s/ Stegman and Company
Stegman and Company
Towson, Maryland
March 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000719488
<NAME> FWB BANCORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,557
<INT-BEARING-DEPOSITS> 95
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,073
<INVESTMENTS-CARRYING> 4,953
<INVESTMENTS-MARKET> 4,897
<LOANS> 29,812
<ALLOWANCE> 748
<TOTAL-ASSETS> 40,678
<DEPOSITS> 36,671
<SHORT-TERM> 59
<LIABILITIES-OTHER> 209
<LONG-TERM> 0
0
0
<COMMON> 326
<OTHER-SE> 3,414
<TOTAL-LIABILITIES-AND-EQUITY> 40,678
<INTEREST-LOAN> 2,961
<INTEREST-INVEST> 435
<INTEREST-OTHER> 92
<INTEREST-TOTAL> 3,488
<INTEREST-DEPOSIT> 1,091
<INTEREST-EXPENSE> 1,107
<INTEREST-INCOME-NET> 2,381
<LOAN-LOSSES> (30)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,577
<INCOME-PRETAX> 276
<INCOME-PRE-EXTRAORDINARY> 276
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 276
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<YIELD-ACTUAL> 6.11
<LOANS-NON> 77
<LOANS-PAST> 0
<LOANS-TROUBLED> 388
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 704
<CHARGE-OFFS> 35
<RECOVERIES> 109
<ALLOWANCE-CLOSE> 748<F1>
<ALLOWANCE-DOMESTIC> 214
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 534<F2>
<FN>
<F1>Allowance for loan loss at end of period includes a reversal of a previous
year's provision for loan losses.
<F2>All unallocated is for domestic loans.
</FN>
</TABLE>
