<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, 1996
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
----
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
--------------------------------------
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
--- ---
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. [X]
State issuer's revenues for its most recent fiscal year. $5,323,959
The aggregate market value of the voting stock held by non-affiliates as of
March 7, 1997 was $4,991,548. 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 7, 1997: 4,040,915
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, 1996. (Parts I and II)
2. Portions of the Proxy Statement for 1997 Annual Meeting of
Stockholders. (Part III)
Transitional Small Business Disclosure Format (check one): YES NO X
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FORWARD-LOOKING STATEMENTS
Part I and Part II of this Annual Report on Form 10-KSB contain forward-
looking statements, including statements of goals, intentions, and expectations,
regarding or based upon general economic conditions, interest rates,
developments in national and local markets, and other matters, and which, by
their nature, are subject to significant uncertainties. Because of these
uncertainties and the assumptions on which statements in this report are based,
the actual future results may differ materially from those indicated in this
report.
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 GrandBank, formerly FWB Bank
(the "Bank"), its wholly-owned banking subsidiary. The Bank is a Maryland
chartered commercial bank formed in 1979, with offices now located in Montgomery
County, Maryland and the city of Alexandria, Virginia. The Bank is subject to
the regulation and supervision of the Maryland State Commissioner of Financial
Regulation (the "Maryland Commissioner"), the Virginia Commissioner of Financial
Institutions (the "Virginia Commissioner"), and the Federal Deposit Insurance
Corporation (the "FDIC"). As of December 31, 1996, the Bank had 41 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 and Alexandria, Virginia. 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 established its Alexandria, Virginia office in connection with the
acquisition of a portfolio of loans, certain other assets, and certain deposits,
form First Commonwealth Financial Corp and its subsidiary, First Commonwealth
Federal Savings Bank FSB ("FSB"). This transaction, which was completed on
September 20, 1996, and a related private offering of common stock,
substantially increased the assets, liabilities and capital of the Corporation
and the Bank, and significantly altered their operations, as indicated in the
comparison provided elsewhere in this report.
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. The Bank is a member of the Internet shared automated teller system,
the HONOR 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, Alexandria, Virginia, and the Washington, D.C. metropolitan
area. The Bank competes with local and regional commercial banks, savings
associations, mutual
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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. 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
1996 Portfolio 1995 Portfolio 1994 Portfolio
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Real Estate - Mortgage...... $54,164 74% $17,107 57% $16,329 60%
Real Estate - Construction.. 1,709 2 221 1 29 --
Commercial.................. 15,804 21 10,463 35 9,125 34
Consumer.................... 2,047 3 2,021 7 1,519 6
------- --- ------- --- ------- ---
Total.................. $73,724 100% $29,812 100% $27,002 100%
======= === ======= === ======= ===
</TABLE>
B. MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
(IN THOUSANDS)
<TABLE>
<CAPTION>
DUE AFTER DUE IN ONE DUE AFTER
AT DECEMBER 31, 1996 YEAR OR LESS ONE-FIVE YEARS FIVE YEARS
- --------------------- ------------ -------------- ----------
<S> <C> <C> <C>
Real Estate - Mortgage......................... $38,874 $11,761 $3,529
Real Estate - Construction..................... 1,709 -- --
Commercial..................................... 13,677 2,124 3
Consumer....................................... 1,294 604 149
------- ------- ------
Total loans maturities....................... $55,554 $14,489 $3,681
======= ======= ======
</TABLE>
<TABLE>
<CAPTION> Variable
LOANS WITH MATURITIES OF ONE YEAR OR GREATER Fixed Rate Rate
---------- ----
<S> <C> <C>
Real Estate - Mortgage......................... $13,463 $1,827
Real Estate - Construction..................... -- --
Commercial..................................... 2,127 --
Consumer....................................... 753 --
------- ------
Total Loans.................................. $16,343 $1,827
======= ======
</TABLE>
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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 Wall Street Journal, as well as fixed rate home equity term loans for a
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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, or tied to an index of U.S. Government securities, have
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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.
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 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. In December, 1996, the Company and the
Bank entered into an agreement that calls for the Bank to develop a credit card
lending program for participants in certain health care plans. At year-end 1996,
the program was under development, and lending had not begun.
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 5.
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
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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 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 or deeds taken in lieu of foreclosure.
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.
4
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C. NON-PERFORMING ASSETS AND PAST DUE LOANS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Non-Performing Assets:
Loans accounted for on a non-accrual basis....................... $ 742 $ 77 $ --
Restructured loans............................................... 361 388 397
------ ------ ------
Total non-performing loans.................................... 1,103 465 397
Other real estate owned net of allowance......................... 975 1,052 1,633
Other non-performing assets...................................... 184 100 --
------ ------ ------
Total non-performing assets..................................... $2,262 $1,617 $2,030
====== ====== ======
Total non-performing assets to total assets................... 2.24% 3.98% 4.90%
Total non-performing loans to total loans..................... 1.50% 1.56% 1.47%
Past Due Loans:
Loans contractually past due 90 days or more as to
interest or principal payments, still accruing................ $ 184 $ -- $ --
Loans contractually past due 30 days or more through
90 days as to interest or principal payments, still accruing.. 1,641 954 --
------ ------ ------
Total Past Due Loans.......................................... $1,825 $ 954 $ --
====== ====== ======
</TABLE>
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.
5
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SUMMARY OF LOAN LOSS EXPERIENCE AND
ALLOWANCE FOR CREDIT LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance January 1 $ 748 $ 704 $ 809
Provision (recovery) charged to operating expense (35) (30) (114)
------- --------- ---------
Recoveries:
Commercial 51 13 91
Real Estate - Construction 172 83 31
Real Estate - Mortgage -- -- --
Consumer and other 3 12 23
------ --------- ---------
Total recoveries 226 109 145
------- --------- ---------
Allowance acquired 221 -- --
------- --------- ---------
Charge-offs:
Commercial 112 -- 82
Real Estate - Construction -- -- 25
Real Estate - Mortgage -- 5 9
Consumer and other 32 30 20
------- --------- ---------
Total charge-offs 144 35 136
------- --------- ---------
303 74 9
------- --------- ---------
Balance December 31 $ 1,016 $ 748 $ 704
======= ========= =========
Average amount of total loans
outstanding, net $42,891 $29,524 $24,464
Total loans outstanding at December 31, gross $73,724 $29,812 $27,002
Loan loss ratios:
Net charge-offs
(recoveries) to average
loans outstanding, net (.19%) (.25%) (.04%)
Allowance for possible
loan losses to total
loans outstanding
December 31 1.38% 2.51% 2.61%
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE
FOR LOAN LOSSES AMONG LOAN TYPE AND
% OF LOAN TYPE TO TOTAL LOAN PORTFOLIO % OF % OF % OF
1996 PORTFOLIO 1995 PORTFOLIO 1994 PORTFOLIO
------ --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Commercial................. $ 115 21% $ 1 35% $ 70 34%
Real Estate - Construction. 111 2 96 1 12 --
Real Estate - Mortgage..... 25 74 117 57 57 60
Consumer................... -- 3 -- 7 3 6
Unallocated................ 765 N/A 534 N/A 562 N/A
------ ---- ------- --------- -------- ---------
Total.................... $1,016 $ 748 $ 704
====== ======= ========
</TABLE>
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
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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, 1996, the Corporation had $16,263,924
outstanding in the investment portfolio and $214,100 in other investments.
Refer to Note 4 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, 1994. 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 1996, 1995 and 1994 can be found in the Three Year Average Consolidated
Balance Sheet contained in Item 6 hereof.
A. CERTIFICATE OF DEPOSIT OF OVER $100,000 BY MATURITY AT DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Three months or less.................. $2,881 $1,191 $ 330
Over three months through six months.. 2,426 100 100
Over six months through one year...... 1,972 436 675
Over one year......................... 1,821 106 --
------ ------ ------
Total............................ $9,100 $1,833 $1,105
====== ====== ======
</TABLE>
BORROWINGS
The average amounts of borrowings outstanding during 1996, 1995 and
1994 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.
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
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<PAGE>
to banking are: (i) making or servicing loans; (ii) performing certain data
process ing 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.
As a state-chartered commercial bank, the Bank is subject to
regulation and examination primarily by the Commissioner but also by the FDIC.
The operations of the Bank in Virginia also are subject to the oversight of the
Virginia Commissioner and laws of the Commonwealth of Virginia. 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 1996, 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.
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
8
<PAGE>
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.
NEW LAW.
The operations of the Corporation and the Bank are affected by new
federal and state laws. The federal Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (the "New Act"), enacted in September 1996, includes
provisions that affect banks, bank holding companies, and savings institutions.
The New Act had, and is expected to have in the future, its most significant
effect upon bank and savings institutions that hold deposits assessed at Savings
Deposit Insurance Fund ("SAIF") rates. Among other things, the New Act
recapitalized the SAIF through a special assessment on savings association
deposits and bank deposits that had been acquired from savings associations. As
described further below, a portion of the Bank's deposits is subject to
assessment at "SAIF" rates, but the Bank was not subject to any special SAIF
assessment on such deposits, and the direct impact of the New Act on the Bank
was not material in 1996. The New Act may increase competition from savings
associations by equalizing, over time, the amount of federal insurance premiums
paid on savings association and bank deposits. The New Act also provides that,
beginning in 1997, institutions with deposits insured by the Bank Insurance
Fund, as well as those with SAIF insured deposits, will be responsible for
payment of certain bonds issued in connection with the resolution of failed
savings associations. The result of these provisions will be somewhat higher
federal deposit insurance premiums for the Bank. These higher insurance premiums
are not expected to have a material adverse effect on the Bank or the
Corporation.
The New Act also simplifies the regulatory approval process for new
activities of banks and bank holding companies, and reduces a number of other
regulatory burdens. None of these changes is expected to have a significant
effect on the Corporation or the Bank.
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
9
<PAGE>
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, 1996, the Bank's ratio of core capital to total
average assets equalled 6.80% 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.
In July 1996, the federal bank regulatory agencies, including the
FDIC, issued a joint policy statement regarding the evaluation of commercial
banks' capital adequacy for interest rate risk. Under the policy, the FDIC's
assessment of a bank's capital adequacy includes an assessment of the bank's
exposure to adverse changes in interest rates. The FDIC has determined to rely
on its examination process for such evaluations rather than on standardized
measurement systems or formulas. The FDIC may require banks that are found to
have a high level of interest rate risk exposure or weak interest rate risk
management systems to take corrective actions. Management believes its interest
rate risk management systems and its capital relative to its interest rate risk
are adequate.
At December 31, 1996, the Bank's total capital to risk-weighted assets
was 10.25% and the Bank's core capital to risk-weighted assets was 9.00%, both
exceeding the FDIC risk-based capital requirement.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Act establishes a system of prompt
corrective action to resolve the problems of undercapitalized institutions. The
FDIC's Prompt Corrective Action rules require the FDIC to take certain
supervisory actions against undercapitalized institutions for which it is the
primary federal regulator, 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 Federal Deposit Insurance Act 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." FDIC rules generally provide 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
10
<PAGE>
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 effective corrective action is taken. For
the semi-annual period beginning June 30, 1996, 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, 1997. The Bank was notified that its
BIF assessment rate for the first six months of 1997 is .001296%. The portion of
the Bank's deposits attributable to deposits acquired from FSB on September 20,
1996, is subject to assessment at SAIF rates, which currently are higher than
BIF rates. The Bank was not subject to the special assessment on SAIF-insured
deposits imposed by the New Act. The Bank has been notified that its SAIF
assessment rate for the first six months of 1997 is .0648%.
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, 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.
11
<PAGE>
The banking business in Maryland and Virginia 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 FRB may 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
a 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 FRB may not
approve 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. Federal banking
agencies, effective June 1, 1997, also may 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 expressly prohibits
merger transactions involving out-of-state banks.
The States of Maryland and Virginia each had previously enacted
reciprocal interstate banking statutes that authorized banks and thrift
institutions, and their holding companies, in those states to be acquired by
regional banks and thrift institutions, or their holding companies, in
designated states, and permitted Maryland and Virginia banks and thrift
institutions, and their holding companies, to acquire banks and thrift
institutions in designated states, if such jurisdictions have enacted reciprocal
statutes. In 1996, the States of Maryland and Virginia each adopted legislation
allowing out of state financial institutions to merge with their banks and to
establish branches in Maryland and Virginia, respectively, subject to certain
limitations. The Bank's establishment of a branch in Alexandria Virginia was
made possible by these laws. The effect of the federal and state legislation,
however, may be to increase competition within the States of Maryland and
Virginia among banking and thrift institutions.
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 three branches;
the Germantown location is operating under a lease which expires in 2005, the
Bethesda locations operate under leases which expire in 2002 and 2006. The
Company also owns a 6,000 square foot office building in Alexandria, Virginia
which it leases to the Bank. The Bank considers these properties suitable and
adequate for current operations. During 1996, the Bank incurred rental expenses
for properties totaling $428,059. Refer to Note 6--"Bank Premises and Equipment"
on page 19 of the Annual Report, which is hereby incorporated by reference.
12
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Note 14--"Litigation" on page 22 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, 1996, through solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The section entitled "Market for the Common Equity and Related
Stockholder Matters" on page 8 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 13 -- "Regulatory
Matters" on pages 21 and 22 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
3 through 8 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 9 through 25 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.
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 3 and 4 of the Corporation's definitive proxy statement
for the Corporation's 1997 Annual Meeting of Stockholders (the "Proxy
Statement") is hereby incorporated by reference.
13
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation and Other Benefits" on
pages 5 through 7 of the Proxy Statement are hereby incorporated by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pages 2 and 3 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 7 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,
1996 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 as expressly provided herein. The following financial
statements are filed as part of this Report:
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Income for the Years
Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
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
Steven K. Colliatie
Date: March 25, 1997 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:
March 25, 1997
/s/ Steven K. Colliatie
- -------------------------------
Steven K. Colliatie
President, Chief Executive Officer and Director
/s/ David L. Erickson
- ------------------------------
David L. Erickson
Chief Financial Officer and Secretary
A majority of the directors of the Corporation executed a power of attorney
appointing Steven K. Colliatie as their attorney-in-fact, empowering him to sign
this report on their behalf. This power of attorney has been filed with the
Securities and Exchange Commission under Part IV, Exhibit 24 of this Form 10-K
for the year ended December 31, 1996. This report has been signed below by such
attorney-in-fact as of March 20, 1997.
By: /s/ Steven K. Colliatie
-----------------------
Steven K. Colliatie
Attorney-in-Fact for Majority of the
Directors of the Corporation
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 *
** 10.3 Employment Agreement Dated as of February 27, 1996, Exhibit 10
by and between FWB Bancorporation, FWB Bank, and to Report on
Steven K. Colliatie Form 10-QSB
the Quarter
Ended June
30, 1996
(File No.
0-16187)
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
24 Power of Attorney
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, 1995 (File No. 0-
16187).
** Compensatory plan or arrangement
(b) The Corporation did not file a report on Form 8-K during the last
quarter of the period covered by this report.
16
<PAGE>
EXHIBIT 13
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Selected Financial Data...........................................1
President's Message...............................................2
Management's Discussion and Analysis of Results
of Operations and Financial Condition..........................3
Independent Auditor's Report......................................9
Consolidated Financial Statements:
Balance Sheets................................................10
Statements of Income..........................................11
Statements of Changes in Stockholders' Equity.................12
Statements of Cash Flow.......................................13
Notes to Consolidated Financial Statements.......................15
Report of Management.............................................26
Directors and Officers...........................................27
Locations and General Information................................28
Directory of Products and Services...............................30
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
At or For Year Ended December 31,
---------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Results:
Net interest income $ 2,743 $ 2,381 $ 2,155 $ 1,427 $ 1,773
Provision for loan losses (35) (30) (114) - 418
Non-interest income 520 442 400 505 415
Non-interest expense 3,085 2,577 2,597 2,673 2,826
Net income (loss) before income taxes 213 276 72 (742) (1,055)
Income taxes (benefit) 5 - - - (620)
Net income (loss) 208 276 72 (742) (435)
Per Share Data:
Net income (loss) $ 0.06 $ 0.09 $ 0.03 $ (0.39) $ (0.78)
Book value 1.53 1.15 0.98 0.90 1.47
Financial Condition:
Total assets $101,125 $ 40,678 $ 41,413 $ 39,405 $ 37,385
Investment securities 16,478 8,027 7,110 10,908 10,470
Loans - net 72,707 29,064 26,298 22,588 19,274
Deposits 91,283 36,671 36,842 36,863 35,229
Stockholders' equity 6,021 3,740 3,105 2,471 1,974
Selected Ratios:
Return on average assets 0.34% 0.65% 0.18% NA (1) NA (1)
Return on average equity capital 4.30 7.88 3.51 NA (1) NA (1)
Tier I capital to average assets (Bank only) 9.78 9.73 8.59 6.70% 5.01%
Average equity to average assets 7.99 8.28 5.13 5.68 2.31
Non-performing loans to total loans 1.75 1.56 1.47 1.88 4.87
Non-performing assets to total assets 2.24 3.98 4.90 8.51 13.47
</TABLE>
(1) The corporation had losses in each of these years.
FORWARD-LOOKING STATEMENTS
The following letter to our shareholders, management's discussion, and other
portions of this Annual Report include statements of management's goals and
expectations that are based upon assumptions about the future, including future
economic conditions, interest rates, and the financial condition of the Bank's
borrowers. Because these forward-looking statements are based upon assumptions
about the future, they are subject to significant uncertainies, so that actual
future results may differ from those stated.
1
<PAGE>
March 7, 1997
To Our Shareholders:
The past year was a period of fiscal and physical growth for your Company
and its wholly-owned subsidiary, GrandBank, formerly FWB Bank (the Bank). With
the support of our customers and shareholders, strong leadership from our Board
of Directors and the talent of our officers and employees, the Bank is now five
branches strong with more than 45 full-time employees and assets of over $100
million.
In September, the Company sold 666,666 shares of its common stock in a
private placement for net proceeds of approximately $2 million. The proceeds of
this sale were invested in the capital of the Bank, and provided additional
capital to support a new branch and operations facility in Bethesda, Maryland
and the acquisition of the Alexandria, Virginia branch of First Commonwealth
Savings Bank. This acquisition brought the Bank into the thriving Northern
Virginia marketplace along with approximately $60 million in deposits and a
portfolio of seasoned commercial and consumer loans.
We expect 1997 to be another year of exciting changes. The beginning of the
year will see the implementation of significant improvements in technology,
products, delivery systems, and the initiation of in-depth staff training
programs. These across-the-board upgrades will enable the Bank to provide
customers with today's most innovative banking products and services and equip
us to meet the future needs of our diverse and dynamic urban community in this
age of information and technology.
Another significant change has taken place in March of 1997. FWB Bank
changed its name to GrandBank, reflecting the revitalized attitude of the Bank
and the new changes taking place. GrandBank will retain the personalized
customer service focus that brought customers to us in the past, while adding
innovative products and services that will enable GrandBank to better serve its
new and longtime customers.
Building upon the success of 1996, we are now ready to achieve our vision
of being a strong and significant competitor in the community banking
marketplace. With the continuing support of our customers and shareholders, and
the dedication of our Directors, officers and employees, we will achieve this
vision together in 1997 and the years to come.
Sincerely,
Steven K. Colliatie
President & CEO
2
<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, GrandBank (formerly FWB Bank) (the
"Bank"). As a community bank operating four branches in Mongtomery County,
Maryland and one branch in Alexandria, Virginia, 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 the Bank were $101.1 million at
December 31, 1996. This was a 149% increase from total assets of $40.7 million
at December 31, 1995, primarily as a result of the September 20, 1996
acquisition of certain loans, deposit liabilities, real estate and personal
property from First Commonwealth Financial Corp. and its wholly owned federal
savings bank subsidiary, First Commonweath Savings Bank, F.S.B. of Alexandria,
Virginia ("FSB").
In connection with the acquisition, the Corporation borrowed $3.5 million
and sold 666,666 newly issued shares of common stock, par value $.10 per share,
in a private placement offering to a limited number of accredited investors, at
a price of $3.00 per share. The acquisition was accounted for as a purchase
under generally accepted accounting principles, and accordingly, the assets
acquired and liabilities assumed were recorded at their fair values. As a
result, the following were recorded: deposits with a fair value of $59.8
million; loans, net of the applicable allowance for losses, of $36.5 million,
land and building with a combined fair value, based upon appraisal, of $1.2
million; cash in the amount of $21 million; and other assets with a fair value
of $100 thousand. In addition, a deposit intangible of approximately $1.2
million and goodwill of $344 thousand were recorded in connection with the
acquisition, and are being amortized over periods of 9 years and 12 years
respectively.
Total loans increased by $43.9 million (148%) to $73.7 million. This
increase consists primarily of the loans acquired in the transaction described
above in the amount of $36.7 million.
Total deposits increased 149% to $91.3 million in 1996 from $36.7 million
in 1995. This increase consists primarily of deposit liabilities assumed under
the transaction described above in the amount of $59.8 million. The deposit
liabilities assumed consisted of $49.7 million of certificates of deposit, $7.7
million in interest bearing transaction accounts and $2.4 million in demand
deposits. As a result of this transaction, noninterest bearing deposits
decreased to 11% of total deposits at December 31, 1996 compared to 22% at
December 31, 1995.
Capital Adequacy. Stockholders' equity of $6 million at December 31, 1996
increased $2.3 million from December 31, 1995. This increase includes earnings
of $208 thousand and an improvement in net unrealized holding losses on
investment securities of $77 thousand in 1996.
A private placement offering in the amount of $2 million was completed in
September 1996 in connection with the consummation of the acquisition of assets
and assumption of deposit liabilities previously discussed.
At December 31, 1996, the Bank's ratio of Tier I capital to total average
assets equaled 6.80% which exceeded the minimum leverage capital ratio of 4% by
2.80%. At December 31, 1996, the Bank's Tier I capital to risk-weighted assets
ratio was 9.00% which exceeded the minimum required ratio of 4% by 5.00%. The
Bank's total capital to risk weighted assets ratio at December 31, 1996 was
10.25% which exceeded the minimum required ratio of 8% by 2.25%.
Investment Activity. Total investment securities increased to $16.5
million at December 31, 1996 from $8 million at December 31, 1995, as a portion
of the cash received in the FSB acquisition was used to purchase fixed rate
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, Chief Financial Officer, Chief Lending Officer and the
Senior Retail Banking Officer. The ALCO establishes and monitors the volume and
mix of the Bank's assets and
3
<PAGE>
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 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 $10 million at December 31, 1996, reflected an increase
of $5.1 million from December 31, 1995. 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. Funds available
through short-term borrowings and asset maturities are considered adequate to
meet all current needs. At December 31, 1996, the Corporation has the ability to
borrow up to $6,810,000 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 also has a $5 million borrowing line with the
Federal Home Loan Bank of Atlanta. This line may be utilized as a supplementary
source of funding 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, 1996 was 80.8% which is down from
81.3% at December 31, 1995. 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.
In managing interest rate sensitivity, the Bank seeks to produce a
profitable net interest margin through all phases of interest rate cycles.
Management attempts to make the necessary adjustments to limit 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, 1996 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.
INTEREST SENSITIVITY ANALYSIS
December 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
3 mos. Over 3 mos. Over 1 year Over All
or less to 1 year to 5 year 5 years other Total
--------- ----------- ---------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Time deposits with banks $ 3,000 $ - $ - $ - $ - $ 3,300
Fed. funds sold 624 - - - - 624
Investments 10,250 3,430 - 2,798 - 16,478
Loans 40,200 16,478 13,595 3,451 - 73,724
-------- -------- -------- -------- -------- --------
Total Interest-Earning Assets $54,374 $19,908 $13,595 $ 6,249 $ - $94,126
======== ======== ======== ======== ======== ========
Interest-Earning Liabilities:
Savings & interest checking $12,832 $ - $ - $ - $ - $12,832
Money market checking 13,456 - - - - 13,456
Time deposits 15,753 25,444 13,991 - - 55,188
-------- -------- -------- -------- -------- --------
Total Interest Bearing Liabilities $42,041 25,444 $13,991 $ - $ - 81,476
======== ======== ======== ======== ======== ========
CUMULATIVE GAP $12,333 $ 6,797 $ 6,401 $12,650 $12,650 $12,650
CUMULATIVE GAP TO TOTAL ASSETS 12.38% 6.82% 6.43% 12.70% 12.70% 12.70%
</TABLE>
Note: The table represents the earlier of the maturity or repricing dates for
various assets and liabilities at December 31, 1996.
4
<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, 1996, 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) as a
percentage to total assets was positive 6.82%. This positive gap position means
the Bank had $6.8 million 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, 1996, the allowance for losses
was $1.02 million or 1.38% of loans outstanding compared to $748 thousand or
2.51% of loans outstanding as of December 31, 1995, an increase of $268
thousand. During 1996 the allowance for losses was increased by $220 thousand as
a result of the acquisition of a seasoned portfolio of loans from FSB as
described above. At December 31, 1996, the allowance for loan loss was 79% of
non-performing loans compared to 161% of non-performing loans at December 31,
1995.
A reduction of the allowance for loan losses in the amount of $35 thousand
through a reversal of a prior year's provision for loan losses was recognized in
1996 based upon levels of credit quality, the greater percentage of real estate
mortgage loans to total loans and recoveries, among other factors. For
additional information, please see notes 1 and 5 to the consolidated financial
statements. In management's opinion, the allowance for loan losses as of
December 31, 1996 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 totaling
$2.3 million consist of loans delinquent 90 days or more, non-accrual loans,
restructured loans, other real estate owned ("OREO"), and other assets. The
percentage of non-performing assets to total assets decreased to 2.24% at
December 31, 1996 from 3.98% at December 31, 1995. 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 totaled $1.3 million at December 31, 1996, compared to
$465 thousand at December 31, 1995. Non-performing loans at December 31, 1996
consist of loans delinquent 90 days or more totaling $184 thousand, two loans in
non-accrual status in the amount of $742 thousand and one restructured loan in
the amount of $361 thousand. This restructured loan has been renegotiated and is
currently performing within its new terms. The increase in non-performing loans
resulted primarily from a non-accrual loan in the amount of $648 thousand which
became 90 days past due in the third quarter of 1996. The loan is collateralized
by single family lots. A specific reserve for this loan has been established.
At December 31 1996, OREO, net of valuation reserve, was $975 thousand,
which is a decrease of $77 thousand compared to net OREO at December 31, 1995.
This amount includes four properties. There is a valuation reserve in the amount
of $30,000 which was established in the first quarter of 1995 for one property
as a result of an updated appraisal. This property is currently generating
rental income on a monthly basis. In addition, the lease agreement contains a
purchase option at a price significantly above the Bank's carrying value. It is
management's belief that the property will be sold for the option price at the
end of the lease. Generally, the Bank evaluates the fair value of each property
owned annually. These evaluations may be appraisals or other market studies. At
December 31, 1996, management believes the carrying amounts for OREO properties
approximate fair value. There were no additions to OREO in 1996.
Results of Operations
Net Income. The corporation had net income of $208 thousand for the year
ended December 31, 1996, a decrease of $68 thousand or 25% compared to net
income in 1995. Earnings per share were $0.06 in 1996 compared to $0.09 in 1995.
The decrease is primarily attributable to an increase in compensation,
occupancy, and equipment expenses relating to opening the Bank's new branch in
Bethesda, Maryland.
Net Interest Income. Net interest income is the difference between interest
income on earning assets and interest expense on deposits and other borrowed
funds. Net interest income for the year ended December 31, 1996 of $2.74
million reflected an increase of $362 thousand or 15% compared to 1995. Total
interest income of
5
<PAGE>
$4.8 million in 1996 was an increase of $1.3 million or 38% over 1995. This
increase was primarily the result of increases of $1.1 million in interest and
fees on loans and $189 thousand in interest on investment securities. The
increase in earnings on loans and investments was due to increases in average
outstanding balances of $13.4 million and $2.4 million, respectively. Likewise,
interest paid on deposits increased by $789 thousand or 72% in 1996 due to an
increase in the average balance outstanding during the year of $15.1 million and
an increase in the average cost of funds of 0.52%. Increases in average
outstanding balances were primarily the result of the acquisition of certain
assets and liabilities of FSB as previously described.
The average yield on earning assets for the year ended December 31, 1996,
was 8.49% compared to 8.95% in 1995. The average interest rate paid on interest
bearing deposits in 1996 was 4.20% compared to 3.68% in 1995. Net interest
margin is the ratio of net interest income to average earning assets. For the
year ended 1996, net interest margin was 4.85% compared to 6.11% for the year
ended December 31, 1995. The following tables illustrate the Corporation's
analysis of average balances, yields and changes in net interest income for the
fiscal years indicated.
<TABLE>
<CAPTION>
THREE YEAR AVERAGE CONSOLIDATED BALANCE SHEETS AND RATES
(Dollars in thousands)
Average Balance (1) Yield/Cost (2) Income/Expense (2)
----------------------- ---------------------- ------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
------- ------- ------- ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $42,891 $29,524 $24,464 9.44% 10.03% 9.43% $4,051 $2,961 $2,307
Investment securities 10,297 7,889 10,716 6.05 5.51 7.02 623 435 752
Other interest-earning assets 3,386 1,555 785 3.84 5.92 3.69 130 92 29
------- ------- ------- ------ ------ ------ ------- ------ ------
Total interest-earning assets 56,574 38,968 35,965 8.49 8.95 8.59 4,804 3,488 3,088
Noninterest-earning assets 3,899 3,299 4,060
------- ------- -------
Total assets $60,473 $42,267 $40,025
======= ======= =======
Interest-bearing liabilities:
Savings & interest checking $10,141 $ 9,314 $ 9,799 2.32% 2.57% 2.44% $235 $239 $239
Money market accounts 11,187 10,210 10,738 3.33 3.37 2.92 373 344 314
Time deposits 23,398 10,129 8,300 5.44 5.02 4.20 1,272 508 349
------- ------ ------ ------ ------ ------ ------- ----- -----
Total interest-bearing deposits 44,726 29,653 28,837 4.20 3.68 3.13 1,800 1,091 902
Other interest-bearing liabilities 1,745 266 630 5.56 6.02 4.92 181 16 31
------- ------ ------ ------ ------ ------ ------- ----- -----
Total interest-bearing liabilities 46,471 29,919 29,467 4.25 3.70 3.17 2,061 1,107 933
Noninterest-bearing liabilities:
Demand deposits 8,973 8,825 8,374
Other noninterest-bearing liabilities 195 202 132
Stockholders' equity 4,834 3,321 2,052
------- ------ ------
Total Liabilities and Stockholder's Equity $60,473 $42,267 $40,025
======= ======= =======
Interest Rate Spread 4.24% 5.25% 5.42%
Net Interest Margin/Income 4.85% 6.11% 5.99% $2,743 $2,381 $ 2,155
</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.
6
<PAGE>
NET INTEREST INCOME/CHANGES DUE TO VOLUME AND RATE
(In Dollars)
<TABLE>
<CAPTION>
1996 versus 1995 1996 versus 1995
----------------------------------------------- ---------------------------------------------
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 $1,090,056 $(174,194) $1,343,112 $ (78,862) $ 653,398 $ 146,452 $ 477,195 $ 30,291
Investment securities 187,610 42,600 132,009 13,001 (317,025) (161,133) (198,401) 42,509
Other interest-earning assets 38,657 (32,340) 109,078 (38,081) 62,670 17,172 28,655 16,843
---------- --------- ---------- --------- --------- ---------- --------- -----------
Total interest-earning assets $1,316,323 $(163,934) $1,584,199 $(103,942) $ 399,583 $ 2,491 $ 307,449 $ 89,643
========== ========= ========== ========= ========= ========== ========= ===========
Interest Expense:
Savings & interest checking $ (3,816) $ (23,283) $ 21,535 $ (2,068) $ (71) $ 12,347 $ (11,807) $ (611)
Money market accounts 29,155 (4,083) 33,628 (390) 30,267 48,064 (15,433) (2,364)
Time deposits 763,277 42,539 665,003 55,735 159,406 67,624 76,880 14,902
---------- --------- ---------- --------- --------- ---------- --------- -----------
Total interest-bearing deposits 788,616 15,173 720,166 53,277 189,602 128,035 49,640 11,927
Other interest-bearing liabilities 165,364 (1,222) 173,390 (6,804) (15,507) 6,507 (18,254) (3,760)
---------- --------- ---------- --------- --------- ---------- --------- -----------
Total interest-bearing
liabilities $ 953,980 $ 13,951 $ 893,556 $ 46,473 $ 174,095 $ 134,542 $ 31,386 $ 8,167
========== ========= ========== ========= ========= ========== ========= ===========
Net Interest Income $362,343 $(177,885) $690,643 $(150,415) $225,488 $(132,051) $276,063 $81,476
</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 $35 thousand through a reversal of a prior year's provision for
loan losses was recognized in 1996. This was the result of management's
evaluation that the allowance for loan losses was more than adequate as
described above.
Noninterest Income. Noninterest income for the year ended December 31, 1996
was $520 thousand compared to $443 thousand in 1995, an increase of $77 thousand
or 17%. This increase is primarily due to an increase in service charges on
deposit accounts of $121 thousand less a one-time gain of $63 thousand in 1995
from the sale of loans.
Noninterest expense. Noninterest expense for the year ended December 31,
1996 of $3.1 million reflected an increase of $508 thousand or 20% compared to
1995. Occupancy and equipment expense of $687 thousand increased $210 thousand
or 44% in 1996 as a result of increased expenses associated with the relocation
of the Germantown, Maryland branch, the opening of a new branch in downtown
Bethesda, Maryland and the acquisition of FSB previously described. Data
processing services expense increased by $58 thousand or 28% as a result of the
new branch offices and the acquisition of FSB. The Bank's cost of FDIC insurance
for the year ended December 31, 1996 of $11 thousand decreased by $42 thousand
compared to 1995. The FDIC reduced the deposit insurance premium paid by most
members of the Bank Insurance Fund ("BIF") effective September 1, 1995. In
addition, the Bank's FDIC insurance expense decreased due to its improved
supervisory rating and well-capitalized position. FDIC insurance expense will
increase in the future as a result of the deposits acquired from FSB as
previously described. Legal fees declined by $45 thousand or 26% in 1996 due to
the favorable conclusion of certain litigation. Other expenses of $480 thousand
in 1996 represented an increase of $191 thousand or 66% over 1995. This increase
was primarily due to the new branch offices and the FSB transaction previously
described.
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 require the measurement of financial
position and operating results in terms of historical dollars without
considering the changes in the rela-
7
<PAGE>
tive 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 133,500
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
1996 1995
<S> <C> <C> <C>
March 31 $2.00 March 31 $2.00
June 30 2.50 June 30 2.00
September 30 2.25 September 30 2.00
December 31 2.50 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, 1996 there were 435 holders of record. The Corporation
conducted a private placement offering in September 1996. A total of 666,666
shares were sold. 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 years.
8
<PAGE>
[LETTERHEAD 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, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of three years in the period ended December 31, 1996. 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, 1996 and 1995, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Stegman & Company
Towson, Maryland
January 18, 1997
9
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
Assets
<TABLE>
<CAPTION>
1996 1995
============ ===========
<S> <C> <C>
Cash and due from banks $ 2,455,622 $ 1,557,453
Federal funds sold 624,000 -
Time deposits with banks 3,300,000 95,000
Investment securities:
Available for sale - at fair value 3,657,047 3,073,478
Held to maturity - at amortized cost
(fair value of $12,861,416 (1996)
and $4,896,875 (1995)) 12,820,977 4,953,295
Loans 73,723,529 29,812,000
Less allowance for loan losses (1,016,478) (748,480)
------------ -----------
Loans - net 72,707,051 29,063,520
Bank premises and equipment 1,822,804 350,811
Foreclosed real estate 975,223 1,052,223
Accrued interest receivable 617,592 315,595
Intangible assets 1,479,280 -
Other assets 665,568 217,088
------------ -----------
TOTAL ASSETS $101,125,164 $40,678,463
============ ===========
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C>
Liabilities:
Noninterest-bearing deposits $ 9,806,176 $ 7,948,559
Interest-bearing deposits 81,476,660 28,721,942
------------ -----------
Total deposits 91,282,836 36,670,501
Federal funds purchased and other short-term
borrowings 2,000,000 59,000
Long-term debt 1,500,000 -
Accrued expenses and other liabilities 321,340 209,456
------------ -----------
Total liabilities 95,104,176 36,938,957
------------ -----------
Stockholders' Equity:
Common stock - $.10 par value; 7,500,000 shares
authorized; 3,925,499 and 3,258,833 shares
outstanding in 1996 and 1995, respectively 392,550 325,883
Additional paid-in capital 10,405,003 8,475,617
Accumulated deficit (4,596,842) (4,804,877)
Net unrealized holding loss on investment
securities (179,723) (257,117)
------------ -----------
Total stockholders' equity 6,020,988 3,739,506
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $101,125,164 $40,678,463
============ ===========
</TABLE>
See accompanying notes.
10
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
========== ========== ==========
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $4,051,127 $2,961,070 $2,307,132
Interest on investment securities -
U.S. Government, its agencies, and
sponsored entities 548,095 429,067 751,857
Interest on other investment securities 75,020 5,965 200
Interest on time deposits with banks - 475 -
Interest on federal funds sold 130,065 91,408 29,213
---------- ---------- ----------
Total interest income 4,804,307 3,487,985 3,088,402
---------- ---------- ----------
Interest Expense:
Interest on certificates of deposit of
$100,000 or more 250,063 109,939 28,383
Interest on other deposits 1,629,463 980,970 872,924
---------- ---------- ----------
Total interest on deposits 1,879,526 1,090,909 901,307
Interest on short-term borrowings 144,972 16,087 31,594
Interest on long-term debt 36,479 - -
---------- ---------- ----------
Total interest expense 2,060,977 1,106,996 932,901
---------- ---------- ----------
Net Interest Income 2,743,330 2,380,989 2,155,501
Recovery for Loan Losses (35,000) (30,000) (114,457)
---------- ---------- ----------
Net Interest Income After Provision for
Loan Losses 2,778,330 2,410,989 2,269,958
---------- ---------- ----------
Noninterest Income:
Service charges on deposit accounts 367,614 246,047 203,079
Net realized gain (loss) on sales of
securities 7,050 - (260)
Gain on sales of loans - 63,383 -
Other income 144,988 133,143 196,844
---------- ---------- ----------
Total noninterest income 519,652 442,573 399,663
---------- ---------- ----------
Noninterest Expense:
Salaries and employee benefits 1,384,515 1,272,555 1,180,803
Occupancy and equipment expense 686,750 477,461 500,235
Data processing services 264,921 206,683 175,277
FDIC insurance 10,961 52,982 98,034
Insurance 62,804 51,533 82,321
Legal fees 159,485 171,328 138,894
Foreclosed real estate expenses 60,708 56,605 130,910
Other expenses 454,803 288,282 291,156
---------- ---------- ----------
Total noninterest expense 3,084,947 2,577,429 2,597,630
---------- ---------- ----------
Income Before Income Taxes 213,035 276,133 71,991
Applicable Income Tax 5,000 - --
---------- ---------- ----------
Net Income $ 208,035 $ 276,133 $ 71,991
========== ========== ==========
Earnings Per Common Share $.06 $.09 $.03
========== ========== ==========
</TABLE>
See accompanying notes.
11
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
<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, 1994 $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
Net income - - 208,035 - 208,035
Issuance of common stock
at $3.00 per share 66,667 1,929,386 - - 1,996,053
Net change in unrealized loss
on investment securities - - - 77,394 77,394
---------- ------------ ------------ ------------ ------------
Balance at December 31, 1996 $392,550 $10,405,003 $(4,596,842) $(179,723) $6,020,988
========== ============ ============ ============ ============
</TABLE>
See accompanying notes.
12
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
=========== =========== ===========
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 208,035 $ 276,133 $ 71,991
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 119,571 106,144 108,962
Accretion and amortization of
securities (11,661) (13,222) (10,592)
Amortization of intangibles 46,522 - -
Provision for loan losses (35,000) (30,000) (114,457)
Net realized (gain) loss from
sales of assets 26,206 (63,383) (8,809)
Other real estate owned - write
downs - 30,000 114,457
Net changes in:
Accrued interest receivable (110,100) 113,808 (92,580)
Accounts receivable - 20,934 -
Other assets (448,480) 399,257 45,079
Accrued expenses and other
liabilities (425,832) 95,320 43,642
Other - net 226,771 108,777 146,075
----------- ----------- -----------
Net cash (used) provided by
operating activities (403,968) 1,043,768 303,768
----------- ----------- -----------
Cash Flows From Investing Activities:
Investment in time deposits with
banks (3,205,000) (95,000) -
Net increase in federal funds sold (624,000) - -
Purchases of available for sale
securities (3,787,000) (1,247,656) (2,011,781)
Proceeds from maturities/principal
payments on available for sale
securities 1,595,816 550,000 250,000
Proceeds from sale of available for
sale securities 1,704,908 4,000,000 1,299,565
Purchases of held to maturity
securities (8,868,870) - -
Proceeds from maturities/principal
payments on held to maturity
securities 1,000,000 - -
Net increase in loans (9,030,750) (6,104,168) (5,085,151)
Proceeds from sale of participation
loans 3,752,411 3,327,035 2,265,622
Purchases of loans (2,031,887) (3,675) (922,260)
Purchase of property and equipment (295,212) (167,718) (40,131)
Proceeds from sale of foreclosed
real estate and other assets 45,744 - 1,173,626
Net funds received in acquisition 20,756,587 - -
----------- ----------- -----------
Net cash provided (used) by
investing activities 1,012,747 258,818 (3,070,510)
----------- ----------- -----------
Cash Flows from Financing Activities:
Net decrease in deposits (5,147,663) (171,862) (20,867)
Net increase (decrease) in federal
funds purchased and other short-
term borrowings 1,941,000 (1,293,000) 1,352,000
Proceeds from long-term borrowings 1,500,000 - -
Proceeds from issuance of common
stock 1,996,053 152,358 832,657
----------- ----------- -----------
Net cash provided (used) by
financing activities 289,390 (1,312,504) 2,163,790
----------- ----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 898,169 (9,918) (602,952)
Cash and Cash Equivalents at
Beginning of Year 1,557,453 1,567,371 2,170,323
----------- ----------- -----------
Cash and Cash Equivalents at End of
Year $ 2,455,622 $ 1,557,453 $ 1,567,371
=========== =========== ===========
</TABLE>
13
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
========== ========== ==========
<S> <C> <C> <C>
Supplemental disclosures:
Interest payments $1,998,225 $1,067,408 $ 936,149
Income tax payments 5,000 - -
Noncash investing and financing activities:
Transfer of investment securities from available
for sale to held to maturity $ - $ - $4,832,900
Unrealized gain (loss) on investment securities
available for sale 77,394 205,995 (270,948)
</TABLE>
See accompanying notes.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of FWB Bancorporation (the
Corporation), including its wholly owned subsidiary, GrandBank, formerly FWB
Bank (the Bank), conform to generally accepted accounting principles and to
prevailing practices within the banking industry. Certain reclassifications have
been made to amounts previously reported to conform with the classifications
made in 1996.
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 four locations
in Montgomery County, Maryland and one branch in Alexandria, Virginia. 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.
Loans are considered impaired when, based on current information, it is
probable that the Bank will not collect all principal and interest payments
according to the loans' contractual terms. Generally, loans are considered
impaired once principal or interest payments become 90 days or more past due and
they are placed on nonaccrual. Management also considers the financial condition
of the borrower, cash flows of the loan and the value of the related collateral.
Impaired loans do not include large groups of smaller balance homogeneous loans
such as residential real estate and consumer installment loans which are
evaluated collectively for impairment. Loans specifically reviewed for
impairment are not considered impaired during periods of "minimum delay" in
payment (90 days or less) provided eventual collection of all amounts due is
expected. The impairment of the loan is measured based on the present value of
expected future cash flows discounted at the loan's effective
15
<PAGE>
interest rate, or the fair value of the collateral if repayment is expected to
be provided by the collateral. The majority of the Bank's impaired loans are
measured by reference to the fair value of the collateral. Interest income on
impaired loans is recognized on the cash basis.
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.
Long-Lived Assets
Bank premises 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. Upon retirement
or other disposition of properties, the carrying value and the related
accumulated depreciation are removed from the accounts.
Intangible assets consisting of goodwill and a premium on purchased deposits
are being amortized on the straight-line method over 12 years and 9 years,
respectively.
Long-lived assets are evaluated regularly for other-than-temporary
impairment. If circumstances suggest that their value may be impaired and the
write-down would be material, an assessment of recoverability is performed prior
to any write-down of the asset. Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, was adopted on January 1, 1996. Implementation of this
standard did not have a significant impact on the Corporation's financial
condition or results of operations.
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.
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 (3,446,961 for 1996, 3,242,665 for 1995 and
2,766,354 for 1994). The dilutive effect of stock options is not material for
1996 and 1995.
2. NEW ACCOUNTING STANDARDS
Value of Financial Instruments
Effective for 1995, the Corporation adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 107, Disclosure about Fair Value of
Financial Instruments. This pronouncement requires disclosure in the financial
statements of estimated fair values of financial instruments.
Impaired Loans
Effective January 1, 1995, the Corporation adopted SFAS Nos. 114 and 118,
Accounting by Creditors for Impairment of a Loan and Accounting by Creditors for
Impairment of a Loan - Income Recognition and
16
<PAGE>
Disclosures, respectively. These statements define a loan as impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of a loan.
If the value of the impaired loan is less than the recorded investment in the
loan, the creditor shall recognize the impairment by creating valuation
allowance for the difference. See Note 5 for a discussion of the Corporation's
impaired loans at December 31, 1996 and 1995, respectively.
Long-Lived Assets
Effective January 1, 1996, the Corporation adopted SFAS No. 121, Accounting
for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of.
This standard requires that long-lived assets be evaluated regularly for other-
than-temporary impairment. If circumstances suggest that their value may be
impaired, an assessment of recoverability is performed prior to any write-down
of the asset. Implementation of this standard did not have a significant impact
on the Corporation's financial condition or results of operations.
Financial Assets and Liabilities
On January 1, 1997, the Corporation adopted the provisions of SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The adoption of this statement is not expected to have a material
impact on the Corporation's financial position or results of operations.
3. ACQUISITION
On September 20, 1996, the Corporation acquired, in a purchase and assumption
agreement, the Alexandria, Virginia branch of First Commonwealth Savings Bank,
FSB. Total deposits of approximately $60 million were assumed, loans totaling
approximately $36.7 million and premises and equipment of $1.3 million were
purchased. The excess of the fair value of the liabilities assumed over the fair
value of the assets acquired and cash received is classified as a deposit
intangible ($1,181,140) and goodwill ($344,662) which are being amortized over 9
and 12 years, respectively.
4. INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities at
December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available for Sale
1996
Obligations of U.S.
Government, its
agencies, and
sponsored entities $3,428,546 $14,401 $ - $3,442,947
Other investments 214,100 - - 214,100
----------- ------- -------- -----------
Total $3,642,646 14,401 - $3,657,047
=========== ======= ======== ===========
Available for Sale
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
=========== ======= ======== ===========
Held to Maturity
1996
Obligations of U.S.
Government, its
agencies, and
sponsored entities $10,044,646 $48,760 $25,784 $10,067,622
Mortgage-backed
securities 2,776,331 17,909 446 2,793,794
----------- ------- ------- -----------
Total $12,820,977 $66,669 $26,230 $12,861,416
=========== ======= ======= ===========
Held to Maturity
1995
Obligations of U.S.
Government, its
agencies, and
sponsored entities $4,953,295 $13,060 $69,480 $4,896,875
=========== ======= ======= ===========
</TABLE>
The amortized cost and estimated fair value of investment securities at
December 31, 1996, 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.
17
<PAGE>
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
--------------------------------- ---------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Due in one year
or less $ 548,546 $ 552,576 $ - $ -
Due after one year
through five years 2,880,000 2,890,371 9,045,167 9,058,522
Due after five years
through ten years 214,100 214,100 999,479 1,009,100
Due after ten years - - 2,776,331 2,793,794
--------------- --------------- --------------- ---------------
Total $ 3,642,646 $ 3,657,047 $ 12,820,977 $ 12,861,416
=============== =============== =============== ===============
</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>
1996 1995
--------------------------------- ---------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Available for Sale $ 548,546 $ 552,576 $ 2,380,580 $ 2,407,721
Held to Maturity 4,545,167 4,553,208 4,953,295 4,896,875
--------------- --------------- --------------- ---------------
Total $ 5,093,713 $ 5,105,784 $ 7,333,875 $ 7,304,596
=============== =============== =============== ===============
</TABLE>
Proceeds from sales together with gross gains and losses realized on sales of
securities were as follows:
<TABLE>
<CAPTION>
Available for Sale
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Proceeds from Sale $ 1,500,000 $ -
Gross realized gains 7,050 -
Gross realized losses - -
</TABLE>
5. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio at December 31 was as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
<S> <C> <C>
Real estate - mortgage $ 54,163,698 $ 17,107,062
Real estate - construction 1,709,007 220,750
Commercial 15,804,240 10,462,988
Consumer 2,046,584 2,021,200
----------------- -----------------
Total loans $ 73,723,529 $ 29,812,000
================= =================
</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 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Balance at January 1 $ 639,000 $ 515,000
Amounts borrowed 1,460,000 620,000
Amounts paid (1,705,000) (121,000)
Participation purchased (sold) 375,000 (375,000)
--------------- ---------------
Balance at December 31 $ 769,000 $ 639,000
=============== ===============
</TABLE>
Activity in the allowance for loan losses for the three years ended December
31 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Balance at January 1 $ 748,480 $ 704,256 $ 808,580
Provision (recovery) for
loan losses (35,000) (30,000) (114,457)
Allowance acquired 220,470 - -
Loans charged-off (143,773) (34,553) (135,942)
Recoveries 226,301 108,777 146,075
------------- ------------- -------------
Balance at December 31 $ 1,016,478 $ 748,480 $ 704,256
============= ============= =============
</TABLE>
At December 31, 1996 and 1995, the total recorded investment in impaired
loans amounted to $742,033 and $77,406, respectively. The average balances of
these loans were $220,487 and $77,542 for the years ended December 1996 and
1995, respectively. Following is a summary of cash receipts on impaired loans
and how they were applied:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash receipts applied to principal balance $ - $ 1,575
Cash receipts recognized as interest income 2,900 4,202
---------- ----------
Total cash receipts $ 2,900 $ 5,777
========== ==========
</TABLE>
The allowance for loan losses related to impaired loans amounted to
approximately $111,000 and $22,000 at December 31, 1996 and 1995, respectively.
If interest had been recognized on impaired loans at the original interest rate,
interest income would have increased approximately $70,000 and $3,400 for the
years ended December 31, 1996 and 1995, respectively.
18
<PAGE>
6. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land $ 360,000 $ -
Building 840,000 -
Leasehold improvements 729,013 704,471
Equipment 732,545 428,273
Furniture and fixtures 148,390 85,688
---------- -----------
2,809,948 1,218,432
Less accumulated depreciation (987,144) (867,621)
========== ===========
$1,822,804 $ 350,811
========== ===========
</TABLE>
The Bank leases office space under various lease agreements. Rental
expense for 1996, 1995 and 1994 totaled $428,059, $244,244, and $258,890,
respectively. Future minimum annual lease payments for operating leases are as
follows:
<TABLE>
<S> <C>
1997 $ 467,389
1998 476,459
1999 449,970
2000 297,860
2001 303,216
Thereafter 1,096,568
</TABLE>
7. INTANGIBLE ASSETS
Following is a summary of intangible assets, net of accumulated
amortization, included in the consolidated balance sheets:
<TABLE>
<CAPTION>
Premium on
Purchased
Goodwill Deposits Total
-------- ---------- -----------
<S> <C> <C> <C>
Balance, January 1, 1996 $ - $ - $ -
Acquisitions 344,662 1,181,141 1,525,802
Amortization (16,451) (30,071) (46,522)
-------- ---------- ----------
Balance, December 31, 1996 $328,211 $1,151,069 $1,479,280
======== ========== ==========
</TABLE>
8. DEPOSITS
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Noninterest-bearing
Interest-bearing: $ 9,806,176 $ 7,948,559
Savings and interest checking 12,831,974 9,240,059
Money market 13,456,005 9,386,535
Certificates of deposit of
$100,000 or more 9,099,612 1,833,470
Other 46,089,069 8,261,878
----------- -----------
Total interest-bearing 81,476,660 28,721,942
----------- -----------
Total $91,282,836 $36,670,501
=========== ===========
</TABLE>
9. SHORT-TERM BORROWINGS
At December 31, 1996, the Corporation is indebted to an unaffiliated
bank in the amount of $2,000,000. The note bears interest at the prime rate (as
defined) plus 1/4% and is adjusted annually. Interest is payable monthly and the
principal is due October 1, 1997. The common stock of the Corporation's wholly
owned subsidiary bank is pledged as collateral for this debt.
10. LONG-TERM DEBT
At December 31, 1996, the Corporation is also indebted to the same
unaffiliated bank in the amount of $1,500,000. The note bears interest at the
prime rate (as defined) plus 1/4% and is adjusted annually. Interest is payable
monthly and the principal is due October 1, 1999. The common stock of the
Corporation's wholly owned subsidiary bank is also pledged as collateral for
this debt. Also securing this loan is the real property owned by the Corporation
and located in Alexandria, Virginia.
11. STOCK OPTION PLAN
The Corporation maintains 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.
The following is a summary of changes in shares under option for each of
the years ended December 31:
19
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
Weight Weight Weight
Number Average Number Average Number Average
of Shares Exercise Price of Shares Exercise Price of Shares Exercise Price
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 103,500 $1.89 89,500 $1.75 -- $ --
Granted 30,000 3.75 15,000 2.75 90,500 1.75
Exercised -- -- --
Expired -- (1,000) 1.75 (1,000) 1.75
-------- -------- -------
Outstanding at end of year 133,500 $2.31 103,500 $1.89 89,500 $1.75
======== ======== =======
Weighted average fair value of
options granted during the year $2.12 $1.56
========= =========
</TABLE>
The following summarizes information about options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ -----------------------------
Weighted Average
Range of Exercise Remaining Weighted Average Weighted Average
Prices Number Contractual Life Exercise Price Number Exercise Price
- ----------------- ------------ ---------------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
$1.75 - 3.75 133,500 7.32 years $2.31 121,000 $2.16
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the two years ended December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Dividend yield - -
Expected volatility 30.0% 30.0%
Risk-free interest rate 6.29% 6.29%
Expected lives 10 years 10 years
</TABLE>
The Corporation has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS 123), but applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its Plans. No compensation expense related to
the Plans was recorded during the two years ended December 31, 1996. If the
Corporation had elected to recognize compensation cost based on the fair value
at the grant dates for awards under the Plans consistent with the method of
prescribed by SFAS 123, net income and earnings per share would have been
changed to the pro forma amounts as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
-------- --------
<S> <C> <C>
Net income $144,435 $252,733
Earnings per share $ .04 $ .08
</TABLE>
12. INCOME TAXES
The Corporation has not recognized any income tax expense or benefit,
except for a minor amount of Alternative Minimum Tax for 1996, for the three
years ended December 31, 1996. The utilization of net operating loss
carryforwards effectively eliminated income tax expense for the three years.
A reconciliation of the differences between the maximum federal statutory
income tax rate and the Corporation's effective tax rate for the years ended
December 31 is as follows:
20
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------ -------------------------
Amount % Amount % Amount %
----------- ----------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Tax (benefit) at statutory rate $72,342 34.0% $93,885 34.0% $ 24,477 34.0%
State income taxes net of federal
income tax benefit 7,826 3.6 15,705 5.7 3,326 4.6
Nondeductible expenses 5,641 2.6 - .0 - .0
Net operating loss carryforward
(utilization) (80,809) (37.9) (109,590) (39.7) (27,803) (38.6)
--------- --------- --------- --------- --------- ---------
$5,000 2.3% $ - .0% $ - .0%
--------- --------- --------- --------- --------- ---------
</TABLE>
At December 31 net deferred tax assets consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 1,241,941 $ 1,255,091
Allowance for loan losses 307,418 272,863
Foreclosed real estate -
valuation allowance 35,145 44,028
Depreciation 29,396 24,032
Intangible assets 7,392 -
Unrealized holding losses on investment
securities transfers from available for
sale to held to maturity 74,971 111,782
Other 1,081 1,357
---------- ----------
1,697,344 1,709,153
Valuation allowance for deferred tax assets (1,682,548) (1,694,381)
---------- ----------
Total deferred tax assets 14,796 14,772
---------- ----------
Deferred tax liabilities:
Loan fees and costs (9,234) (2,288)
Unrealized holding gains on investment
securities available for sale (5,562) (12,484)
---------- ----------
Total deferred tax liabilities (14,796) (14,772)
---------- ----------
Net deferred tax assets $ - $ -
========== ==========
</TABLE>
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
$3,001,000 that can be used to offset future taxable income through the year
2009.
13. REGULATORY MATTERS
Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory-and possibly additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitive measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitive measures established by regulation to ensure capital adequacy require
the Bank to maintain amounts and ratios (set forth in the table below) of total
and Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1996, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes that changed the
Bank's category.
The Bank's actual capital amounts and ratios are also presented in the table.
21
<PAGE>
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt Corrective
Actual For Capital Adequancy Purposes Action Provisions
------------------------- --------------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ----------- --------------- ---------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital (to Risk
Weighted Assets) $7,886,000 10.25% $6,155,000 8.00% $7,694,000 10.00%
Tier I Capital (to Risk
Weighted Assets) $6,923,000 9.00% $3,078,000 4.00% $4,617,000 6.00%
Tier I Capital (to Average
Assets) $6,923,000 6.80% $4,073,000 4.00% $5,091,000 5.00%
As of December 31, 1995
Total Capital (to Risk
Weighted Assets) $4,174,000 15.90% $2,100,000 8.00% $2,625,000 10.00%
Tier I Capital (to Risk
Weighted Assets) $3,846,000 14.65% $1,050,000 4.00% $1,575,000 6.00%
Tier I Capital (to Average
Assets) $3,846,000 9.36% $1,643,000 4.00% $2,054,000 5.00%
</TABLE>
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, 1996 and 1995, the Bank was
required to maintain reserves of $344,000 and $258,000, respectively.
14. LITIGATION
At December 31, 1996, 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.
15. 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.
22
<PAGE>
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. At December 31, 1996 and 1995, the Bank's
total unfunded commitments to extend credit were $4,493,048 and $4,107,491,
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 loans, 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 $340,762
and $232,700 at December 31, 1996 and 1995, 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 appropriate. Since most of
the letters of credit are expected to expire without being drawn upon, they do
not necessarily represent future cash requirements.
16. 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 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $2,455,622 $2,455,622 $1,577,453 $1,577,453
Federal funds sold 624,000 624,000 - -
Time deposits with banks 3,300,000 3,300,000 95,000 95,000
Investment securities:
Available for sale 3,657,047 3,657,047 3,073,478 3,073,478
Held to maturity 12,820,977 12,861,416 4,953,295 4,896,875
Loans, net of allowance 72,707,051 72,477,143 29,063,520 28,830,875
Accrued interest receivable 617,592 617,592 315,595 315,595
Financial liabilities:
Deposits 91,282,836 91,525,666 36,670,501 36,738,962
Federal funds purchased and
other short-term borrowings 2,000,000 2,000,000 59,000 59,000
Long-term debt 1,500,000 1,500,000 - -
Accrued interest payable 104,453 104,453 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, federal funds sold 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
23
<PAGE>
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 other short-term borrowings: The carrying amounts
approximate their fair values.
. Long-term debt: The fair value is estimated based on interest rates currently
available for debt with similar terms and remaining maturities.
17. PARENT COMPANY FINANCIAL INFORMATION
Condensed balance sheets, statements of income and statements of cash flows
for FWB Bancorporation (parent only) are presented below:
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS:
Cash $ 68,386 $ 151,989
Investments in subsidiary 8,025,288 3,588,996
Bank premises and equipment - net 1,291,924 -
Intangible assets 197,455 -
Other assets 36,445 416
----------- -----------
TOTAL ASSETS $9,619,498 $3,741,401
=========== ===========
LIABILITIES:
Notes payable $3,500,000 $ -
Accrued expenses and other liabilities 98,510 1,895
----------- -----------
Total liabilities 3,598,510 1,895
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 392,550 325,883
Additional paid-in capital 10,405,003 8,475,617
Accumulated deficit (4,596,842) (4,804,877)
Net unrealized holding loss on investment
securities (179,723) (257,117)
----------- -----------
Total stockholders' equity 6,020,988 3,739,506
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $9,619,498 $3,741,401
=========== ===========
</TABLE>
24
<PAGE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INCOME:
Rental income $30,000 $ - $ -
Fee income 34,034 49,944 -
Other income 2,500 - -
------- ------- -------
Total income 66,534 49,944 -
------- ------- -------
EXPENSES:
Salaries and employee benefits 51,170 48,641 -
Interest expense 84,764 - -
Professional fees 69,745 57,342 -
Other expenses 11,718 7,777 -
------- ------- -------
Total expenses 217,397 113,760 -
------- ------- -------
LOSS BEFORE INCOME
TAXES AND EQUITY IN
UNDISTRIBUTED INCOME
OF SUBSIDIARY (150,863) (63,816) -
INCOME TAXES - - -
------- ------- -------
LOSS BEFORE EQUITY IN UNDIS-
TRIBUTED INCOME OF
SUBSIDIARY (150,863) (63,816) -
EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARY 358,898 339,949 71,991
------- ------- -------
NET INCOME $208,035 $276,133 $71,991
======= ======= =======
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $208,035 $276,133 $ 71,991
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in undistributed income
of subsidiary (358,898) (339,949) (71,991)
Depreciation and amortization 8,621 - -
Net realized gains from
sales of assets (2,500) - -
Net changes in:
Other assets (36,029) (416) -
Accrued expenses and
other liabilities 96,615 1,697 -
---------- -------- --------
Net cash used in operating
activities (84,156) (62,535) -
---------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital contributed to subsidiary (4,000,000) - (800,000)
Proceeds from sale of fixed assets 4,500 - -
Net funds disbursed in acquisition (1,500,000) - -
---------- -------- --------
Net cash used in
investing activities (5,495,500) - (800,000)
---------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from borrowings 3,500,000 - -
Proceeds from issuance of
common stock (1,996,053) 152,358 832,657
---------- -------- --------
Net cash provided by
financing activities 5,496,053 152,358 832,657
---------- -------- --------
NET (DECREASE) INCREASE IN CASH (83,603) 89,823 32,657
CASH AT BEGINNING OF YEAR 151,989 62,166 29,509
---------- -------- --------
CASH AT END OF YEAR $ 68,386 $151,989 $ 62,166
========== ======== ========
Supplemental disclosures:
Interest payments $59,146 $ - $ -
========== ======== ========
</TABLE>
25
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the financial statements which have been
prepared in accordance with generally accepted accounting principles. In
Management's opinion the financial statements present fairly the financial
condition of the Corporation and its subsidiary at December 31, 1995 and
December 31, 1996, and the three year period ending at December 31, 1996. The
financial data included amounts that are based on the best estimates and
judgments of Management.
The Corporation and its subsidiary maintain a system of internal accounting
control designed to provide reasonable assurance that transactions are executed
in accordance with Management's general or specific authorization, and are
recorded as necessary to maintain accountability for assets to present the
financial statements in accordance with generally accepted accounting
principles. This system includes written policies and procedures and an Audit
Committee of the Board of Directors which meets with Management periodically to
evaluate the effectiveness of the system of internal accounting control.
Stegman and Company, independent auditors, have been engaged to examine the
consolidated financial statements of the Corporation. Their examination is
conducted in accordance with generally accepted auditing standards, and their
report on the consolidated financial statements is included elsewhere herein.
The financial statements of the Corporation have not been reviewed, or
confirmed for accuracy or relevance, by the Federal Deposit Insurance
Corporation.
26
<PAGE>
Board of Directors of
FWB Bancorporation and GrandBank
Abbey J. Butler
Co-Chairman and Co-Chief Executive Officer
FoxMeyer Health Corporation
Steven K. Colliatie
President and CEO
FWB Bancorporation and
GrandBank
Melvyn J. Estrin
Co-Chairman and Co-Chief Executive Officer
FoxMeyer Health Corporation
Nella C. Manes
President, NCM, Inc.
Avis Y. Pointer
President, The Quantum Leap, Inc.
Joan H. Schonholtz
Chairman of the Board
FWB Bancorporation and
GrandBank
Officers of FWB Bancorporation
Steven K. Colliatie
President and CEO
David L. Erickson
Chief Financial Officer
Secretary
Officers of GrandBank
Steven K. Colliatie
President and CEO
David L. Erickson
Executive Vice President
Chief Financial Officer
Secretary
J. David Richardson
Executive Vice President
Chief Lending Officer
Barbara L. Martinez
Senior Vice President
Controller
Tracy A. Berriman
Vice President
Information Systems
Gail M. Halt
Vice President
Lending
Christine C. Lacy
Vice President
Lending
Monica S. Margulies
Vice President
Lending
Elizabeth W. Radcliffe
Vice President
Retail Banking
John A. Ronveaux
Vice President
Lending
Kenneth M. Thelen
Vice President
Lending
27
<PAGE>
Corporate Headquarters
and Main Banking Office
1800 Rockville Pike
Rockville, MD 20852
(301) 770-1300
Mailing Address
P.O. Box 2022
Rockville, MD 20852
Services: ATM, Vestibule, Drive Through,
Night Depository, Safe Deposit Boxes
Branch Offices
Bethesda, MD
5272 River Road
Bethesda, MD 20816
Services: ATM, Walk-Up Window,
Night Depository, Safe Deposit Boxes
7535 Old Georgetown Road
Bethesda, MD 20814
Services: ATM, Drive Through
Germantown, MD
19701 Frederick Avenue
Germantown, MD 20876
Services: ATM Vestibule, Drive Through,
Night Depository, Safe Deposit Boxes
Alexandria, VA
301 S. Washington Street
Alexandria, VA 22314
Shareholder Information
There is no public trading market for the common stock. Shareholders, analysts
and others seeking financial information are requested to contact the Chief
Financial Officer.
Transfer Agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Independent Auditors
Stegman & Company
Suite 200
405 East Joppa Road
Towson, MD 21286
Counsel
Kennedy & Baris, L.L.P.
1225 Nineteenth Street, N.W.
Washington, D.C. 20036
Annual Meeting
The 1997 Annual Meeting of Shareholders will be held on April 17, 1997, at 10:00
A.M. at Corporate Headquarters, 1800 Rockville Pike, Rockville, MD.
28
<PAGE>
This page intentionally left blank.
29
<PAGE>
Directory of Products and Services
As a full service community bank, GrandBank offers a variety of consumer and
commercial deposit and loan products.
Deposit Products
Checking/Interest Checking
Savings
Money Market
IRA's
Certificates of Deposit
Loan Products
Personal
Auto
Home Improvement
Home Equity
Overdraft Protection
Home Mortgage
Commercial/Business Purpose
Electronic Banking Services
ATM - 24-Hour Automated Teller Machines
Member of Honor Network
Execubanc - PC Banking for Businesses
Telebanc - Account Information and Transaction Requests by Telephone
Wire Transfers, Preauthorized Transfers
30
<PAGE>
EXHIBIT 21
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary Percentage Owned State of Incorporation
- ---------- ---------------- ----------------------
GrandBank, formerly FWB Bank 100% Maryland
<PAGE>
EXHIBIT 23
<PAGE>
Stegman & Company
Certified Public Accountants
Suite 200
400 East Joppa Road
Towson, Maryland 21286
(410) 823-4815
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-KSB of FWB Bancorporation for the year ended December 31, 1996, of our
report dated January 18, 1997, relating to the consolidated financial statements
of FWB Bancorporation and Subsidiary.
/s/ Stegman & Company
----------------------
Stegman & Company
Towson, Maryland
March 25, 1997
<PAGE>
EXHIBIT 24
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors of the Registrant, hereby severally
constitute and appoint Steven K. Colliatie our true and lawful attorney and
agent, to do any and all things in our names in the capacities indicated below
which said person may deem necessary or advisable to enable the Registrant to
comply with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with the annual report on Form 10-KSB for the year ended December 31,
1996, including specifically, but not limited to, power and authority to sign
for us in our names in the capacities indicated below the annual report and any
amendments thereto; and we hereby approve, ratify and confirm all that said
person shall do or cause to be done by virtue thereof.
/s/ Joan H. Schonholtz March 20, 1997
- ------------------------------------------
Joan H. Schonholtz
Chairman of the Board
/s/ Abbey J. Butler March 20, 1997
- ------------------------------------------
Abbey J. Butler
Director
/s/ Melvin J. Estrin March 20, 1997
- ----------------------
Melvin J. Estrin
Director
/s/ Nella C. Manes March 20, 1997
- ----------------------
Nella C. Manes
Director
/s/ Avis Y. Pointer March 20, 1997
- ----------------------
Avis Y. Pointer
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,456
<INT-BEARING-DEPOSITS> 3,300
<FED-FUNDS-SOLD> 624
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,657
<INVESTMENTS-CARRYING> 12,821
<INVESTMENTS-MARKET> 0<F1>
<LOANS> 73,724
<ALLOWANCE> 1,016
<TOTAL-ASSETS> 101,125
<DEPOSITS> 91,283
<SHORT-TERM> 2,000
<LIABILITIES-OTHER> 321
<LONG-TERM> 1,500
0
0
<COMMON> 393
<OTHER-SE> 5,628
<TOTAL-LIABILITIES-AND-EQUITY> 101,125
<INTEREST-LOAN> 4,051
<INTEREST-INVEST> 548
<INTEREST-OTHER> 205
<INTEREST-TOTAL> 4,804
<INTEREST-DEPOSIT> 1,879
<INTEREST-EXPENSE> 2,061
<INTEREST-INCOME-NET> 2,743
<LOAN-LOSSES> (35)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,085
<INCOME-PRETAX> 213
<INCOME-PRE-EXTRAORDINARY> 213
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 208
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
<YIELD-ACTUAL> 4.85
<LOANS-NON> 742
<LOANS-PAST> 184
<LOANS-TROUBLED> 361
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 748
<CHARGE-OFFS> 144
<RECOVERIES> 226
<ALLOWANCE-CLOSE> 1,016<F2>
<ALLOWANCE-DOMESTIC> 251
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 765<F3>
<FN>
<F1>Not broken out in KSB
<F2>Allowance for loan loss at end of period includes an adjustment of interest
recovery posted to the allowance in error, an increase of $220,000 in
connection with the acquisition of loans, and a reduction of $35,000.
<F3>All unallocated is for domestic loans.
</FN>
</TABLE>
