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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the Fiscal Year ended December 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
SEC Commission File No : 0-22578
FIRST PATRIOT BANKSHARES CORPORATION
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(Exact name of registrant as specified in its charter)
State of Virginia 54-151425
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12120 Sunset Hills Road, Reston, Virginia 22090
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code : (703) 471-0900
Securities registered pursuant to section 12(b) of the Act : None
Securities registered pursuant to section 12(g) of the Act :
Common stock, $2.50 par value per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act or
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No .
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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 - K or any
amendment to this Form 10 - K. [x]
Based on the closing sales price of $16.31 per share of the registrant's
common stock on February 28, 1997, as reported by the National Association of
Securities Dealers under the symbol FPBK, the aggregate market value of the
voting stock held by non-affiliates was approximately $24,838,718. There were
2,020,929 shares of Common Stock outstanding on February 28, 1997.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report and audited Financial Statements of First Patriot
Bankshares Corporation at December 31, 1996 (the "Annual Report").
2. Proxy Statement for Special Shareholders Meeting (the "Proxy") to be
held in June, 1997.
PART I
ITEM 1. BUSINESS
GENERAL
The First Patriot Bankshares Corporation (the "Company") was
incorporated as a Virginia corporation on August 31, 1989 solely to acquire all
of the issued and outstanding capital stock of Patriot National Bank (the
"Bank"). The primary activity of the Company is the ownership and operation of
the Bank, which commenced operations on April 13, 1990.
In September, 1994 the Company participated in the formation of 2071
Chain Bridge Road, L.L.C., (the L.L.C.) a limited liability company, organized
for the purpose of purchasing an office building comprised of 43,870 square
feet located in Tysons Corner, Virginia. The Company owns 75% of the L.L.C.
and leases office space in the building. In February, 1996 the Bank purchased
the remaining 25% of the L.L.C..
The Bank is organized as a national banking association under the laws
of the United States. The Bank engages in general community and commercial
banking business from its Headquarters in Reston, Virginia, and its eight
branches, emphasizing quality convenient service.
BANKING SERVICES
The Bank offers a full range of deposit services, including checking
accounts, savings accounts and other time deposits of various types, ranging
from daily money market accounts to longer-term certificates of deposit. The
transaction accounts and time certificates are tailored to the principal market
areas at rates competitive to those offered in the area. Retirement accounts
such IRA (Individual Retirement Accounts) and SEP (Simplified Employee Pension)
accounts are available. Custodian and other services are available for 401(k)
profit sharing plans. All deposit accounts are insured by the FDIC up to the
maximum amount of $100,000 per depositor. The Bank solicits these accounts
from individuals, businesses, foundations and governmental authorities.
The Bank also offers a full range of commercial, construction, mortgage
and personal loans. The Bank is designated as a "Preferred Lender" by the U.
S. Small Business
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Administration. This designation is a result of the Bank's favorable
performance record with respect to loan volume, loan loss history, underwriting
standards and packaging. Commercial loans are available for working capital
(including inventory and receivables), business expansion (including
acquisition of real estate and improvements), and purchase of equipment and
machinery. Consumer loans are available for financing automobiles, home
improvements and personal investments. The Bank also originates fixed and
variable rate mortgage loans and offers real estate construction and
acquisition loans to both individuals and builders. The Bank is an approved
seller/servicer for the Federal Home Loan Mortgage Corporation and the Federal
National Mortgage Association and sells substantially all of its fixed rate
mortgage loans in the secondary market. This enables the Bank to serve its
market with competitive long term mortgage loans while maintaining liquidity.
Other services the Bank offers include cash management services, wire
transfer services, foreign currency and drafts, night depository services, lock
box services, safe deposit boxes, travelers checks, direct deposit of payroll,
U.S. savings bonds, official bank checks, money orders and automatic drafts for
various accounts. The Bank provides automated teller machines at each banking
office and issues ATM cards that may be used by Bank customers both nationally
and over seas. Visa and Mastercard credit cards are also available.
Additionally, a courier service is offered to its corporate customers to
facilitate deposits and other transactions.
LOCATION AND SERVICE AREA
The primary service area of the Company consists of the Northern
Virginia area with concentrations in the communities of Reston, Herndon,
Fairfax City, Fairfax County, City of Manassas and the community of Sterling in
Loudoun County. The Headquarters of the Company is located in Reston,
Virginia. The Company solicits business from individuals and small to
medium-sized businesses, including retail shops and professional service
businesses, residing in the primary service area.
The location of the Company's Headquarters is less than one-half mile
from an interchange of the Dulles Toll Road, a major freeway in Northern
Virginia and an interchange of the Fairfax County Parkway, a principal
thoroughfare in Fairfax County. The Company believes that this location
provides easy access for customers to use banking facilities and permits
bankers the ability to be close to customers in the community.
Fairfax County is located in Northern Virginia and is part of the
Washington, D.C. metropolitan area. The target market area of the Company has
experienced substantial growth over the last 20 years and is expected to
sustain continued population growth over the next five years. According to
the 1990 U.S. Government census, Fairfax County's median household income is
the highest in the country at $59,284 per household, nearly double the national
median of $30,056.
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LENDING ACTIVITIES
The Bank is an active lender with a loan portfolio that includes
commercial and residential mortgages, real estate construction loans,
commercial loans, SBA loans and consumer installment loans. The Bank's lending
activity extends to individuals and small to medium-sized businesses within its
primary service area. Consistent with its focus on providing community-based
financial services, the Bank does not attempt to diversify its loan portfolio
geographically by making significant amounts of loans to borrowers outside of
its primary service area.
Commercial and Residential Mortgage Loans. Commercial and residential
mortgage loans accounted for 43% of the total loan portfolio at December 31,
1996. These loans are primarily owner-occupied or fully leased real estate.
Most of the commercial real estate loans are to small businesses. Loans are
made in amounts up to 80% of the appraised value of the real estate collateral
only after adequate projected cash flows for loan repayment have been
demonstrated. The principal risks associated with residential and commercial
mortgage loans are changes in the credit worthiness of borrowers due to loss of
employment, adverse changes in economic conditions and fluctuations in the
value of real estate.
Real Estate Construction Loans. At December 31, 1996 real estate
construction loans comprised approximately 15% of the Company's loan portfolio.
The loans are primarily used for construction of owner-occupied pre-sold
residential homes and are considered an attractive type of lending due to their
short-term maturities and higher yields.
Construction lending entails significant additional risk as compared
with commercial and residential mortgage lending. Construction loans typically
involve larger loan balances concentrated with single borrowers or groups of
related borrowers. Construction loans involve additional risks attributable to
the fact that loan funds are advanced upon the security of the home under
construction, which is of uncertain value prior to the completion of
construction. Thus, it is more difficult to evaluate accurately the total loan
funds required to complete a project and related loan-to value ratios. To
minimize risks associated with construction lending, the Bank limits loan
amounts to 80% of appraised value on pre-sold homes in addition to its usual
credit analysis of its borrowers. The Bank also obtains a first lien on the
property as security for its construction loans.
Commercial Loans. At December 31, 1996, commercial business loans
totaled $43.3 million or 34% of the Bank's total loan portfolio. Commercial
business loans generally have a higher degree of risk than commercial and
residential mortgage loans but have commensurately higher yields. To manage
these risks, the Bank secures appropriate collateral and carefully monitors the
financial condition of its business borrowers. Commercial business loans
typically are made on the basis of the borrower's ability to make payment from
the cash flow of its business and are either unsecured or secured by business
assets, such as accounts receivable, equipment and inventory. As a result, the
availability of funds for the repayment
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of commercial business loans may be substantially dependent on the success of
the business itself. Further, the collateral for secured commercial business
loans may depreciate over time and cannot be appraised with as much precision
as real estate.
U. S. Small Business Administration (S.B.A.) Loans. The Bank is a
"Preferred" S.B.A. lender. This designation means that the S.B.A. has reviewed
the Bank's loan procedures and determined that the Bank meets S.B.A. standards
for the underwriting and packaging of loans. At December 31, 1996, S.B.A.
loans totaled $23.9 million or 18.6% of total loans. The Bank expects to
increase its S.B.A. loan portfolio in the future. S.B.A. loans are 75-90%
guaranteed by the Federal government. The guaranteed portion of S.B.A. loans
are saleable in the secondary market. In addition, S.B.A. loans have better
yields than the typical commercial loan and can be used as collateral for
government deposits.
Consumer Loans. The Bank currently offers most types of consumer
demand, time and installment loans including automobile loans and home equity
lines of credit. The risk associated with installment loans to individuals
varies based upon employment levels, consumer confidence, and other conditions
that affect the ability of consumers to repay indebtedness.
CREDIT POLICIES AND ADMINISTRATION
The Bank has adopted written policies and procedures to manage credit
risk. Loan administration is conducted under a specific portfolio management
strategy, which includes underwriting standards, guidelines for risk
assessment, procedures for ongoing identification and management of credit
risks, regular portfolio reviews and periodic examinations to ascertain
compliance with Company policies.
Loan Approval. The Bank's loan approval policies provide for various
levels of officer lending authority. When the aggregate outstanding loans to a
single borrower exceed an individual officer's lending authority the loan
request must be approved by an officer with a higher lending limit or by the
Officer's Loan Committee of the Bank. This committee consists of the Bank's
three senior officers and two other loan officers. The Bank has assigned a
lending limit for the committee. Loans which would exceed the committee's
assigned limit must be additionally approved by the Director's Loan Committee
which consists of a least six directors as voting members and certain other
bank officers.
All loans to a particular borrower are reviewed each time the borrower
requests a renewal or extension of any loan or requests an additional loan.
All lines of credit are reviewed prior to renewal. These reviews are conducted
by the Officer's Loan Committee and if necessary, the Director's Loan
Committee.
Loan Review. The Bank has a formal loan review function under which a
loan review staff regularly reviews loans and assigns a classification, if
required, based on currently
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perceived credit risk. Whenever loans are classified in a category below
satisfactory grade, heightened management attention is devoted to protect the
Bank's position and to reduce loss exposure. The Bank places loans (other than
installment loans) on non-accrual status whenever in the opinion of management
collection becomes doubtful because the borrower can no longer service debt
from current cash flows and/or collateral liquidation. Loans are charged off
when the collection of principal and interest is doubtful and the loans can no
longer be considered a sound collectible asset. Management meets regularly to
review asset quality trends and to discuss loan policy issues. Potential
losses are identified during this review and reserves are established
accordingly. In management's opinion the allowance for loan losses is adequate
to cover all anticipated losses and potential loan losses.
A major element of credit risk management is diversification. The Bank's
objective is to maintain a diverse loan portfolio to minimize the impact of any
single event or set of occurrences. The credit quality problems the banking
industry has experienced in recent years are principally concentrated in loans
collateralized by commercial real estate. As of December 31, 1996, the Bank
had approximately $17.4 million in loans or 13.5% of total loans that were
collateralized in some part by non-owner occupied commercial real estate.
COMPETITION
In its market area, the Company is subject to intense competition from a
number of local, regional and super-regional banking organizations, along with
other financial institutions and companies that offer financial services, such
as savings and loan associations, credit unions, industrial loan associations,
securities firms, insurance companies, small loan companies, finance companies,
mortgage companies and other financial service enterprises. Competition among
financial institutions is based upon interest rates offered on deposit
accounts, interest rates charged on loans and other credit and service charges,
the quality of services rendered, the convenience of banking facilities and, in
the case of loans to larger borrowers, relative lending limits. Many of the
financial organizations in competition with the Company have much greater
financial resources and branch networks than the Company. Certain of these
institutions have significantly higher lending limits than the Bank and may
provide various services for their customers, such as trust services, which the
Bank does not presently offer to customers. In addition, there can be no
assurance that additional financial institutions, with substantially greater
resources than the Company or the Bank, will not establish operations in the
Bank's service area.
EXPANSION STRATEGY
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In September 1994, the Company formed a majority owned subsidiary which
purchased a 43,870 square foot office building at Tysons Corner. The building
houses the executive offices of the Company, the operations department and a
full service banking office.
The Company's subsidiary, Patriot National Bank opened three new full
service banking offices during 1995. The branches are located in Vienna/Tysons
Corner, Sterling, and Manassas, Virginia. On February 15, 1997 Patriot
National Bank opened its ninth banking office in Herndon, Virginia. Three
additional branches are planned for 1997 which will bring the total number of
full service banking locations to twelve.
EMPLOYEES
At December 31 1996, a total of 97 full time equivalent persons were
employed by the Company and the Bank. None of its employees are represented by
any collective bargaining unit. The company considers relations with its
employees to be good.
EXECUTIVE OFFICERS
Carroll C. Markley is the founding President and CEO of Patriot
National Bank and First Patriot Bankshares Corporation. Mr. Markley formerly
served as Senior Vice President of a regional bank where he worked for 23 1/2
years. His knowledge of banking is diverse and he has specific expertise in
management, operations, budgeting, commercial banking, retail lending and
marketing. Mr. Markley has a B.S. from Carson-Newman College and a M.S. from
George Washington University. Mr. Markley is an active member of the community
and has served as the president of the Tysons Corner Lions Club and the
Northern Virginia Local Development Community. He served as Bank Chairman of
the United Way Campaign and as Metropolitan Board Member for Junior
Achievement. Mr. Markley is also a member of the Fairfax County, Central
Fairfax, Herndon and Greater Reston Chambers of Commerce. He was recently
appointed to serve as a member of the Washington Advisory Council for the Small
Business Administration and he has been named the 1994 Financial Services
Advocate of the Year for the U.S. Small Business Administration's (SBA)
Washington District office.
Michael W. Clarke is Executive Vice President of the Bank, a position
he has held since the Bank opened in April, 1990. Mr. Clarke serves as the
Bank's Senior Loan Officer. Prior to his affiliation with the Bank, Mr. Clarke
was a Vice President at Crestar Bank from 1985 to 1989, where he was
responsible for the development and maintenance of middle market lending
relationships in western Fairfax, Loundon and Prince William Counties.
Charles Wimer was appointed Senior Vice President and Chief Financial
Officer of the Bank in January, 1995. Mr. Wimer was formerly Executive Vice
President and Cashier of The George Mason Bank from 1978 to 1995. Mr. Wimer
is the principal accounting officer of the Bank and is responsible for the
accounting functions of the Company.
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Stephanie H. Ogle has been Senior Vice President, Loan Administration
of the Bank since February, 1990. Ms. Ogle serves as loan administration
officer and manages the credit department and the loan review function. From
1981 to 1990, she was Loan Administration Officer for First Commercial Bank.
Robert C. Shoemaker, was appointed Senior Vice President, Real Estate
Lending, on December 19, 1996. Mr. Shoemaker has served in the position of
Vice President, Real Estate Lending since March, 1990.
No family relationships exist among any of the directors or between any
of the directors and executive officers of the Company.
SUPERVISION AND REGULATION
Bank holding companies and national banks are extensively regulated
under federal law. The following is a summary of certain federal laws and
regulations that govern the Company and the Bank. However, to the extent that
the following information describes statutory or regulatory provisions, it is
qualified in its entirety by reference to the particular statutory and
regulatory provisions. Any change in applicable law or regulation may have a
material effect on the business and prospects of the Company and the Bank.
The regulation and examination of the Company and the Bank are designed
primarily for the protection of depositors and not the Company or its
shareholders.
BANK HOLDING COMPANIES
The Company is registered as a bank holding company under the Bank
Holding Company Act of 1956 (the "BHCA") and as such is subject to regulation
by the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). As a bank holding company, the Company is required to file with the
Federal Reserve Board an annual report and such additional information as the
Federal Reserve Board may require pursuant to the BHCA. The Federal Reserve
Board may also make examinations of the Company.
The BHCA requires the prior approval of the Federal Reserve Board in any
case where a bank holding company proposes to acquire direct of indirect
ownership or control of more than 5% of the voting shares of any bank (unless
it owns a majority of such bank's voting shares) or otherwise to control a bank
or to merge or consolidate with any other bank holding company. The BHCA would
prohibit the Federal Reserve Board from approving an application from the
Company to acquire shares of a bank located outside of Virginia, unless such an
acquisition is specifically authorized by statute of the state in which the
bank whose shares are to be acquired is located. Virginia has adopted
legislation permitting such acquisitions by bank holding companies located in
certain states that have reciprocal
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arrangements with Virginia. Beginning September 29, 1995, the Federal Reserve
Board may approve such acquisitions without regard to whether the transaction
is prohibited under the law of any state.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is not a
bank and from engaging in any business other than banking or managing or
controlling banks. Under the BHCA, the Federal Reserve Board is authorized to
approve the ownership of shares by a bank holding company in any company the
activities of which the Federal Reserve Board has determined to be so closely
related to banking or to managing or controlling banks as to be a proper
incident thereto. The Federal Reserve Board has by regulation determined that
certain activities are closely related to banking within the meaning of the
BHCA.
BANK
The Bank is supervised and regularly examined by the Office of the
Comptroller of the Currency ("OCC"). The various laws and regulations
administered by the OCC affect corporate practices, such as payment of
dividends, incurring debt and acquisition of financial institutions and other
companies, and affect business practices, such as payment of interest on
deposits, the charging of interest on loans, types of business conducted and
location of offices. The Bank is not regulated by the Virginia Bureau of
Financial Institutions or the Virginia State Corporation Commission and is not
subject to Virginia banking law.
FDIC INSURANCE ASSESSMENTS
The "Deposit Insurance Funds Act of 1996" provides for special
assessments beginning with the semiannual periods after December 31, 1996 to
pay interest on the obligations issued by the Financing Corporation ("FICO").
The special assessments will be shared among all insured depository
institutions, including insured national banks, instead of only Savings
Associations Insurance Fund ("SAIF") members. For purposes of the assessments
to pay the interest on the FICO bonds, Bank Insurance Fund ("BIF") assessable
deposits will be assessed at a rate of 20% of the assessment rate applicable to
SAIF-assessable deposits until December 1999.
ECONOMIC AND MONETARY POLICIES
The operations of the Company and the Bank are affected not only by
general economic conditions, but also by the economic and monetary policies of
various regulatory authorities. In particular, the Federal Reserve Board
regulates money, credit and interest rates in order to influence general
economic conditions. These policies have a significant influence on overall
growth and distribution of loans, investments and deposits and affect interest
rates charged on loans or paid for time and savings deposits. Federal Reserve
Board monetary policies have had a significant effect on the operating results
of commercial banks in the past and are
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expected to continue to do so in the future.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
The amount of dividends that may be paid by the Bank to the Company
depends upon the Bank's earnings and capital position, and is limited by
federal law, regulations and policies.
As a national bank subject to the regulations of the Federal Reserve
Board and the OCC, the Bank must obtain approval for any dividend if the total
of all dividends declared in any calendar year would exceed the total of its
net profits, as defined by applicable regulations, for that year, combined with
its retained net profits for the preceding two years. In addition, the Bank may
not pay a dividend in an amount greater than its undivided profits then on hand
after deducting its losses and bad debts. For this purpose, bad debts are
generally defined to include the principal amount of loans which are in arrears
with respect to interest by six months or more unless such loans are fully
secured and in the process of collection. Moreover, for purposes of this
limitation, the Bank is not permitted to add the balance in its allowance for
loan losses account into its undivided profits then on hand; however, it may
net the sum of its bad debts as so defined against the balance in its allowance
for loan losses account and deduct from undivided profits only bad debts as so
defined in excess of that account. At December 31, 1996, the Bank has $4.8
million of retained earnings legally available for the payment of dividends.
In addition, the Federal Reserve Board and the OCC are authorized to
determine under certain circumstances relating to the financial condition of a
national bank or a bank holding company that the payment of dividends would be
an unsafe or unsound practice and to prohibit payment thereof. The payment of
dividends that deplete a bank's capital base could be deemed to constitute such
an unsafe or unsound practice. The Federal Reserve Board has indicated that
banking organizations should generally pay dividends only out of current
operating earnings.
BORROWING BY THE COMPANY
There are various legal restrictions on the extent to which the Company
can borrow or otherwise obtain credit from the Bank. In general, these
restrictions require that any such extensions of credit be secured by
designated amounts of specified collateral and are limited, as to the Company,
to 10 percent of the Bank's capital stock and surplus, and as to the Company
and any nonbanking subsidiaries in the aggregate, to 20 percent of the Bank's
capital stock and surplus. Federal law also requires that transactions between
the Bank and the Company or any nonbanking subsidiaries, including extensions
of credit, sales of securities or assets and the provision of services, be
conducted on terms at least as favorable to the Bank as those that apply or
would apply to comparable transactions with unaffiliated parties.
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CAPITAL REQUIREMENTS
In January 1989, the Federal Reserve Board published risk-based capital
guidelines in final form which are applicable to bank holding companies. The
Federal Reserve Board guidelines redefine the components of capital, categorize
assets into different risk classes and include certain off-balance sheet items
in the calculation of risk-weighted assets. These guidelines became effective
on March 15, 1989. The minimum ratio of qualified total capital to
risk-weighted assets (including certain off balance sheet items, such as
standby letters of credit) is 8.00%. At least half of the total capital must
be comprised of common equity, retained earnings and a limited amount of
permanent preferred stock, less goodwill ("Tier 1 capital"). The remainder
("Tier 2 capital") may consist of a limited amount of subordinated debt, other
preferred stock, certain other instruments and a limited amount of loan and
lease loss reserves. The sum of Tier 1 and Tier 2 capital is "total-risk based
capital." The Company's Tier 1 capital and total risk-based capital ratios as
of December 1996 were 11.22% and 12.39%, respectively.
In addition, the Federal Reserve Board has established a minimum
leverage ratio of Tier 1 capital to quarterly average assets less goodwill
("Leverage ratio") of 3.00% for bank holding companies that meet certain
specified criteria, including that they have the highest regulatory rating.
All other bank holding companies will be required to maintain a Leverage ratio
of 3.00% plus an additional amount of at least 100 to 200 basis points. The
Company's Leverage ratio as of December 31, 1996 was 8.16%. The guidelines
also provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels, without significant
reliance on intangible assets.
The Bank is subject to capital requirements adopted by the OCC that are
substantially similar to those that apply to the Company. At December 31, 1996
the Bank's total risk-based capital, Tier 1 capital and Leverage ratios were
11.21%, 10.02% and 7.26%, respectively.
Under Federal Reserve Board policy, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that, in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks. This support may be required during periods of financial stress or
adversity, in circumstances where the Company might not do so absent such
policy. A bank holding company is expected to maintain the financial
flexibility and capital-raising capacity to obtain additional resources for
assisting its subsidiary banks. The failure of a bank holding company to serve
as a source of strength to its subsidiary banks would generally be considered
by the Federal Reserve Board to be an unsafe and unsound banking practice, a
violation of Federal Reserve Board regulations, or both.
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DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company is
qualified in its entirety by reference to applicable provisions of Virginia law
and the Company's Articles of Incorporation, as amended (the "Articles") and
Bylaws, which are on file with the State Corporation Commission and included or
incorporated by reference as an exhibit.
Authorized and Outstanding Capital Stock. The Company's authorized
capital stock consists of 100,000,000 shares of Common Stock, $2.50 par value
per share, and 10,000,000 shares of Preferred Stock, $25.00 par value per
share. At December 31, 1996 there were 2,020,929 shares of Common stock issued
and outstanding, held by approximately 424 shareholders of record. No shares
of Preferred Stock have been issued.
Common Stock. The holders of Common Stock are entitled to one vote per
share on all matters to be voted on by the shareholders, including election of
directors. Holders of Common Stock do not have cumulative voting rights, which
means the holders of a majority of the shares of Common Stock entitled to vote
in any election of directors can elect all of the directors standing for
election. Holders of Common Stock are entitled to receive such dividends, if
any, as may be declared from time to time by the Board of Directors out of
funds legally available therefore, but only after payment of all required
dividends on any outstanding Preferred Stock. Upon liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share
ratably in assets available for distribution after payment of all debts and
other liabilities and subject to the prior rights of any holders of any series
of Preferred Stock then outstanding. The shares of Common Stock are not
redeemable, have no conversion rights and carry no preemptive or other rights
to subscribe to additional shares of Common Stock or to securities convertible
into Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable.
Preferred Stock. The Board of Directors of the Company, without
shareholder approval is authorized to issue shares of Preferred Stock in one or
more series and to designate, with respect to each such series of Preferred
Stock, the number of shares in each such series, the dividend rates,
preferences and dates of payment, amounts payable upon voluntary and
involuntary liquidation, the terms and conditions of redemption and the prices
at which it may occur, whether or not dividends shall be cumulative and if
cumulative, the date or dates from which the same shall be cumulative, the
sinking fund provisions, if any, for redemption or purchase of shares, the
rights, if any, and the terms and conditions on which shares can be converted
into or exchanged for shares of any other class or series, and any right to
vote as a class, either generally or as a condition to specified corporate
action. Any Preferred Stock issued may be senior to the Common Stock as to
dividends and as to distribution in the event of liquidation, dissolution or
winding up of the Company. The ability of the Board of Directors to issue
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes could, among other things, adversely
affect the voting power and other rights of holders of the Common Stock.
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The creation and issuance of any series of Preferred Stock, and the
relative rights and preferences of such series, if and when established, will
depend upon, among other things, the future capital needs of the Company,
then-existing market conditions and other factors that, in the judgement of the
Board of Directors of the Company, might warrant the issuance of Preferred
Stock. There are currently no plans for the issuance of Preferred Stock.
Warrants. The Company's Articles grant authority to the Board of
Directors to create and issue rights options or warrants for the purchase of
any class of the stock of the Company, upon such terms and conditions and for
such consideration, if any, and such purposes as the Board of Directors may
approve. Pursuant to this authority, warrants were issued to members of the
initial Board of Directors. Additional information is provided in Item 11 of
this filing and in note 13 of the Consolidated Financial Statements in the
Annual Report.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES AND BYLAWS
Board of Directors. The Company's Articles and Bylaws contain
provisions which may have the effect of delaying or preventing a change in
control of the Company. The Company's Articles and Bylaws provide (I) for
division of the Board of Directors into three classes, with one class elected
each year to serve a three-year term; (ii) that Directors may be removed only
for cause and only upon the affirmative vote of the holders of at least
two-thirds of the outstanding shares entitled to vote; and (iii) that a vacancy
on the Board shall be filled by the remaining directors.
A classified Board of Directors makes it more difficult for
shareholders, including those holding a majority of the outstanding shares, to
force an immediate change in the composition of a majority of the Board of
Directors. Since the terms of less than a majority of the incumbent directors
expire each year, it requires at least two annual elections for the
shareholders to change a majority, whereas a majority of a non-classified board
may be changed in one year. In the absence of the provisions of the Articles
classifying the Board, all of the Directors would be elected each year.
Management of the Company believes that the staggered election of Directors
tends to promote continuity of management because less than a majority of the
Board of Directors is subject to election each year.
As permitted by the Virginia Stock Corporation Act (the "Virginia Act"),
the Company's Articles contain provisions which indemnify directors and
officers of the Company to the full extent permitted by Virginia law and seek
to eliminate the personal liability of directors and officers for monetary
damages to the Company or its shareholders for breach of their fiduciary
duties, except to the extent such indemnification or elimination of liability
is prohibited by the Virginia Act. These provisions do not limit or eliminate
the rights of the Company or any shareholder to seek an injunction or any other
non-monetary relief in the event of a breach of a director's or officer's
fiduciary duty. In addition, these provisions apply only to claims against a
director or officer arising out of his role as a director or officer and do not
relieve a director or officer from liability for violations of statutory law
such as
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<PAGE> 14
certain liabilities imposed on a director or officer under the federal
securities laws.
In addition, the Company's Articles provide for the indemnification of
both directors and officers for expenses incurred by them in connection with
the defense or settlement of claims asserted against them in their capacities
as directors and officers. In certain cases, this right of indemnification
extends to judgments or penalties assessed against them. The Company has
limited its exposure to liability for indemnification of directors and officers
through the purchase of liability insurance coverage.
The purpose of these provisions is to assist the Company in retaining
qualified individuals to serve as directors by limiting their exposure to
personal liability for serving as such.
The Company is not aware of any pending or threatened action, suit or
proceeding involving any of its directors, officers, employees or agents for
which indemnification from the Company may be sought. Insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended, may be permitted to directors, officers and controlling persons of the
Company, or of an affiliate of the Company pursuant to the Company's Articles
or otherwise, the Board of Directors has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
Authorized Shares. The shares of Common Stock and Preferred Stock
authorized by the Articles provide the Company's Board of Directors with as
much flexibility as possible in using such shares for corporate purposes,
including financing, acquisitions, stock dividends, stock splits, employee
stock options and other similar purposes. However, these additional shares may
also be used by the Board of Directors to deter future attempts to gain control
of the Company. The Board of Directors has sole authority to determine the
terms of any series of the Preferred Stock, including voting rights, conversion
rates and liquidation preferences. As a result of the ability to fix voting
rights for a series of Preferred Stock, the Board has the power to issue a
series of Preferred Stock to persons friendly to management in order to attempt
to block a post-tender offer merger or other transaction by which a third party
seeks control, and thereby assist management to retain its position.
AFFILIATED TRANSACTIONS
The Virginia Act contains a provision governing "Affiliated
Transactions." Affiliated Transactions include certain mergers and share
exchanges, material dispositions of corporate assets not in the ordinary course
of business, any dissolution of the corporation proposed by or on behalf on an
Interested Shareholder (as defined below), and reclassifications, including
reverse stock splits, recapitalizations or mergers of the corporation with its
subsidiaries which have the effect of increasing the percentage of voting
shares beneficially owned by an Interested Shareholder by more than 5%. For
purposes of the Virginia Act, an Interested
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<PAGE> 15
Shareholder is defined as any beneficial owner of more than 10% of any class of
the voting securities of a Virginia corporation.
Subject to certain exceptions discussed below, the provisions governing
Affiliated Transactions require that, for three years following the date upon
which any shareholder becomes an Interested Shareholder, a Virginia corporation
cannot engage in an Affiliated Transaction with such Interested Shareholder
unless approved by the affirmative vote of the holders of two-thirds of the
outstanding shares of the corporation entitled to vote, other than the shares
beneficially owned by the Interested Shareholder, and by a majority (but not
less than two) of the "Disinterested Directors." A Disinterested Director
means, with respect to a particular Interested Shareholder, a member of a
corporation's board of directors who (I) was a member before the later of
January 1, 1988 and the date on which an Interested Shareholder became an
Interested Shareholder and (ii) was recommended for election by, or was elected
to fill a vacancy and received the affirmative vote of, a majority of the
Disinterested Directors then on the corporation's board of directors. At the
expiration of the three year period, these provisions require approval of
Affiliated Transactions by the affirmative vote of the holders of two-thirds of
the outstanding shares of the corporation entitled to vote, other than those
beneficially owned by the Interested Shareholder.
The principal exceptions to the special voting requirement apply to
Affiliated Transactions occurring after the three-year period has expired and
require either that the transaction be approved by a majority of the
Disinterested Directors or that the transaction satisfy certain fair price
requirements of the statute. In general, the fair price requirements provide
that the shareholders must receive the highest per share price for their shares
as was paid by the Interested Shareholder for his shares or the fair market
value of their shares, whichever is higher. The fair price requirements also
require that, during the three years preceding the announcement of the proposed
Affiliated Transaction, all required dividends have been paid and no special
financial accommodations have been accorded the Interested Shareholder, unless
approved by a majority of the Disinterested Directors.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation may adopt, by meeting certain voting requirements,
an amendment to its articles of incorporation or bylaws providing that the
Affiliated Transactions provisions shall not apply to the corporation. The
Company has not adopted such an amendment.
CONTROL SHARE ACQUISITIONS
The Virginia Control Share Acquisitions Statute also is designed to
afford shareholders of a public company incorporated in Virginia protection
against certain types of non-negotiated acquisitions in which a person, entity
or group ("Acquiring Person") seeks to gain voting control of that corporation.
With certain enumerated exceptions, the statute applies to
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<PAGE> 16
acquisitions of shares of a corporation which would result in an Acquiring
Person's ownership of the corporation's shares entitled to vote in the election
of directors falling within any one of the following ranges: 20% to 33 1/3%,
33 1/3% to 50% or 50% or more (a "Control Share Acquisition"). Shares that are
the subject of a Control Share Acquisition ("Control Shares") will not be
entitled to voting rights unless the holders of a majority of the
"Disinterested Shares" vote at an annual or special meeting of shareholders of
the corporation to accord the Control Shares voting rights. Disinterested
Shares do not include shares owned by the Acquiring Person or by officers and
inside directors of the target company. Under certain circumstances, the
statute permits an Acquiring Person to call a special shareholder's meeting for
the purpose of considering granting voting rights to the holders of the Control
Shares. As a condition to having this matter considered at either an annual or
special meeting, the Acquiring Person must provide Shareholders with detailed
disclosures about his identity, the method and financing of the Control Share
Acquisition and any plans to engage in certain transactions with, or to make
fundamental changes to, the corporation, its management or business. Under
certain circumstances, the statute grants dissenter's rights to shareholders
who vote against granting voting to the Control Shares. The Virginia Control
Share Acquisitions Statute also enables a corporation to make provisions for
redemption of Control Shares with no voting rights. A corporation may opt-out
of the statute, which the Company has not done, by so providing in its articles
of incorporation or bylaws. Among the acquisitions specifically excluded from
the statute are acquisitions which are a part of certain negotiated
transactions to which the corporation is a party and which, in the case of
mergers of share exchanges, have been approved by the corporation's
shareholders under other provisions of the Virginia Act.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has 2,020,929 shares of Common Stock outstanding, all of
which are freely transferable without restriction or registration under the
Securities Act of 1933, as amended (the "1933 Act"), except for shares held or
purchased by an "affiliate" of the Company, which will be subject to resale
restrictions under the 1933 Act. At December 31, 1996, there were
approximately 396,935 shares of Common Stock subject to outstanding options or
warrants and 497,286 shares owned by affiliates.
ITEM 2. PROPERTIES
The Company's headquarters and the main office of the Bank are located
at 12120 Sunset Hills Road, Reston, Virginia, on the ground floor of the Reston
Executive Center III office building less than one-half mile from an
interchange of the Dulles Toll Road. The lease expires in 1999 and has two
five year renewal options. In addition, the Company leases space for banking
offices at 1345 Chain Bridge Road, McLean, Virginia, 511 West Broad Street,
Falls Church, Virginia, 10855 Lee Highway, Fairfax, Virginia, 302 W. Maple
Avenue, Vienna, Virginia, 8669 Sudley Road, Manassas, Virginia, 101 E. Holly
Avenue, Sterling, Virginia, 3065 Centreville Rd, Herndon, Virginia, 6355
Multiplex Dr, Centreville, Virginia,
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<PAGE> 17
43761 Parkhurst Plaza Suite 108, Ashburn, Virginia, 10179 Hastings Dr,
Manassas, Virginia, and office space and a branch banking office at 2071 Chain
Bridge Road, Vienna, Virginia.
The Company owns its leasehold improvements and amortizes them over the
term of the leases. Furniture and equipment are owned and depreciated on a
straight-line basis over their respective lives ranging from three to five
years. The book value of premises and equipment, net of accumulated
depreciation, was $5.2 million at December 31, 1996. See note 4 to the
consolidated financial statements for additional information on premises and
equipment, and leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings from time to time in
the ordinary course of business. Based upon information currently available,
management believes that such legal proceedings, if determined adversely to the
Company, would not have a material adverse effect on the Company's business,
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by First Patriot Bankshares Corporation to its
shareholders during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Incorporated herein by reference to page 48 of the Company's Annual
Report for 1996.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference to page 4 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated herein by reference to pages 5 through 15 of the Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference to pages 16 through 43 of the Annual
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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<PAGE> 18
The Company changed its accountants for 1995 and filed a Form 8-K on
June 13, 1995, reporting a change of accountants. There were no changes in and
disagreements with accountants on accounting and financial disclosure in 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age, principal occupation and recent business experience of
each director are set forth below. Information regarding executive officers is
contained in Part 1 of this Form 10K under the caption Executive Officers.
Daniel R. Bannister: Mr. Bannister (age 66) is a current director for
the Company and the Bank, appointed to the board in 1995. Since February 1997,
Mr Bannister has served as the Chairman of the Board of Dyn Corp, an employee
owned technology services firm headquartered in Reston, Virginia with over 100
locations around the world and over 18,000 employees. From 1985 through
January 1997, Mr. Bannister was President and Chief Executive Officer of
DynCorp. Mr. Bannister is very active in the community. He is the current
Chairman of the Northern Virginia Technology Council, an association of
approximately 260 technology service companies. He is the former Chairman of
Professional Services Council, a national trade association representing
approximately 150 technical services companies throughout the United States.
Mr. Bannister also serves as vice chair of the Employee Stock Ownership
Association, a Trustee of the American Management Association, and is on the
board of the Fairfax County Chamber of Commerce, the Northern Virginia
Community Foundation, the George Mason University Foundation and director of
the Easter Seals Society of Washington, D.C. and Maryland. He previously
served as Chairman of the Board of the Washington Metropolitan Area Combined
Health Appeal and a director of the Fairfax Symphony Orchestra.
Robert M. Barlow: Mr. Barlow (age 67) is the initial and current Vice
President of the Company and is also a director of the Company and the Bank.
Mr. Barlow was the founder and principal shareholder of a group of companies
engaged in construction, manufacturing and real estate in Northern Virginia
for the past thirty-eight years. In 1995 he sold these ventures and is now
retired.
Wayne W. Broadwater: Mr. Broadwater (age 73) is an initial and current
director of the Company and the Bank. A retired U.S. Navy Master Chief Petty
Officer, he recently retired as President and CEO of Shipmates Ltd., a chain of
tool and equipment rental and sales companies that he founded in 1972. He is
past President of the National Capital Area Rental Association. He is involved
in civic organizations such as the Chamber of Commerce, the American Legion,
Fleet Reserve Association and the Izaak Walton League.
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<PAGE> 19
Bronson F. Byrd: Mr. Byrd (age 50) is an initial and current director,
Assistant Secretary and Treasurer of the Company and the Bank. He is currently
in the private practice of law, providing legal services in the areas of
business law, commercial litigation and real estate transactions. He is also
an investment advisor, registered with the U.S. Securities and Exchange
Commission. He is the President and owner of Vanguard Investments Services,
Inc., which is an investment advisory company registered with the U.S.
Securities and Exchange Commission and the Commonwealth of Virginia, through
which he provides a number of clients' investment advise and business
consulting services. Some of his former professional roles have included being
the initial CEO and President of START, Inc., a national financial services
company; Senior Vice President and General Counsel for Advanced Technology,
Inc., responsible for all legal services and real estate activities; Director
of budget administration for a public service corporation; and Commanding
Officer, guided nuclear missile battery, United States Army.
Nancy K. Falck: Mrs. Falck (age 67) is an initial and current director, and
Secretary of the Company and the Bank. She is a former member of the Fairfax
County Board of Supervisors (1980-1987) and Fairfax County School Board
(1976-1979). Ms. Falck worked in Virginia as a research bacteriologist and
also spent time as a high school teacher. She is active in community affairs
and is currently a member of the Board of Directors of the Family Respite
Center (a day program that helps people with Alzheimer's disease), and a member
of the Board of Vinson Hall. She has also served as past president of such
associations as the Northern Virginia Mental Health Association, the Social
Center for Psychiatric Rehabilitation, the Washington Council of Governments
and the Junior League of Northern Virginia. From 1970 to 1978, she served on
the Board of Visitors of the College of William and Mary.
Harvey W. Huntzinger: Mr. Huntzinger (age 70) is an initial and current
director of the Company and the Bank. He served in the U. S. Army from 1946
to 1967 in numerous command staff and management jobs relative to aviation
operations, research, development, and engineering. Upon retirement, he joined
TRW's engineering department in support of a helicopter research, development
and prototyping phase. He is a founder of National Systems Management
Corporation, which was organized in 1972, and has been president and CEO since
1983.
Jones V. Isaac: Mr. Isaac (age 65) is an initial and current director of the
Company and the Bank. Mr. Isaac was the Administrator of Finance and
Administration for the Construction Specifications Institute where he was
employed from 1967 until 1995. In this capacity Mr. Isaac was responsible for
the financial, budgetary, office and building administration of CSI as well as
the administration of its staff benefits programs. Currently Mr. Isaac is
President of Isaac Enterprises, Inc., a service oriented firm incorporated in
the State of Maryland.
Carroll C. Markley: Mr. Markley (age 58) is the founding President and CEO of
the Company and the Bank and an initial and current director of the Company and
the Bank. Mr.
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<PAGE> 20
Markley formerly served as Senior Vice President of a regional bank where he
worked for 23 years. Mr. Markley has a B.S. from Carson-Newman College and a
M.S. from George Washington University. He serves on the Virginia Bankers
Association Community Bank Council and The Virginia Association of Community
Banks Board of Directors. He is past president of the Tysons Corner Lions
Club, the Northern Virginia Local Development Community and the McLean Business
and Professional Association. Mr. Markley is currently a member of the Fairfax
County, Central Fairfax, Herndon, Vienna, McLean, Falls Church, Loudoun County
and Greater Reston Chambers of Commerce. He serves as a member of the
Washington Advisory Council for the Small Business Administration. In
addition, he serves on the Virginia Medical Care for Children Advisory Council,
Northern Virginia Community Foundation Board of Directors, the Board of
Directors for the Professional and Technical Studies in Fairfax County, and the
Board of the Future Business Leaders of America.
John H. Rust, Jr.: Mr. Rust (age 50) is the initial and current Chairman of
the Board of Directors for both the Company and the Bank. Mr. Rust is
currently of Counsel with the law firm of McCandlish & Lillard. The law firms
with which Mr. Rust has been associated have served as general counsel to the
Company and the Bank from its inception through 1995. He is presently a member
of the Virginia House of Delegates, and Chairman of the City of Fairfax History
Book Round Table. Mr. Rust is the former Vice Chairman of the Virginia State
Board of Elections, a former President of the Central Fairfax Chamber of
Commerce and former Vice Chairman of the Fairfax County Transportation Advisory
Commission.
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ITEM 11. EXECUTIVE COMPENSATION
1. The following table contains information concerning individual
compensation of the Chief Executive Officer and the only other executive
officer whose compensation exceeded $100,000 for services in all capacities to
the Company and its subsidiary in 1996, 1995, and 1994.
<TABLE>
<CAPTION>
Summary Compensation Table
- - ------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Annual Compensation Long Term
-------------------- Compensation(2)
---------------
OTHER ANNUAL NUMBER OF
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS AWARDED
--------------------------- ---- ------ ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Carroll C. Markley, President & Chief 1996 $176,319 $37,000 0 16,110
Executive Officer 1995 145,536 36,250 0 6,930
1994 120,000 33,067 0 6,930
Michael W. Clarke, Executive Vice 1996 $108,634 18,500 0 4,464
President 1995 91,041 18,000 0 3,464
1994 84,038 16,500 0 3,464
</TABLE>
(1) None of the named individuals received perquisites or other personal
benefits in excess of the lesser of $50,000 or 10% of the total of his
salary and bonus as reported in columns (c) and (d) of this table.
(2) Stock options granted in 1994 have been adjusted for a 2% stock
dividend declared on May 26, 1994
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2. The following table sets forth certain information on stock option
grants in 1996 to the named executive officers of the Company
STOCK OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
SHARES UNDERLYING PERCENT OF TOTAL
NUMBER OF OPTIONS OPTIONS GRANTED TO EXERCISE PRICE
NAME GRANTED IN 1996 EMPLOYEES IN 1996 PER SHARE EXPIRATION DATE
---- --------------- ----------------- --------- ---------------
<S> <C> <C> <C> <C>
Carroll C. Markley 13,860(1) 67% $4.90 April, 2004
2,250(2) 11% 12.00 Jan., 2006
Michael W. Clarke 3,464(3) 17% $4.90 April, 2004
1,000(4) 5% 12.00 Jan., 2006
</TABLE>
(1) 6,930 options were granted on February 22, 1996 pursuant to a
January 1994 employment agreement with Mr. Markley and 6,930 were
granted on December 31, 1996 pursuant to a September 1996 employment
contract. The options are immediately exercisable.
(2) 2,250 options were granted by the Board of Directors on January
25,1996.
(3) These options were granted on February 22, 1996 pursuant to a January
1995 letter agreement with Mr. Clarke and are immediately exercisable.
(4) 1,000 options were granted by the Board of Directors on January 25,
1996.
- - --------------------------------------------------------------------------------
3. The following table provides information concerning the value of options
held by each of the named executive officers on December 31, 1996. No stock
options were exercised by any of the named executive officers during 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities Value of
Underlying Unexercised
Unexercised options in-the-money
Name Shares Acquired Value 12/31/96 options at 12/31/96(1)
on Exercise (#) Realized (#) ($)
- - ---- --------------- -------- --- ---
Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Carroll C. Markley 0 0 60,750 / 0 $658,718 / 0
Michael W. Clarke 0 0 21,784 / 0 $234,613 / 0
</TABLE>
(1) The fair market value at December 31, 1996 for Company Common Stock
was $16.00 and is used to calculate the value of unexercised options.
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<PAGE> 23
4. COMPENSATION PLANS FOR EXECUTIVE OFFICERS
i. PRESIDENT AND CHIEF EXECUTIVE OFFICER
In September 1996, the Company entered into a four year employment
contract with Carroll C. Markley to serve as President and Chief Executive
Officer of the Company and the Bank. Under the contract, Mr. Markley receives
a base salary of $160,000 that can be increased but not decreased at the
discretion of the Board. Also, an annual performance bonus may be awarded at
the sole discretion of the Board, based upon a mutually agreeable formula. In
addition, 6,930 options will be granted on or before December 31, 1996 to
purchase stock based upon the original issue price of the stock, adjusted for
stock splits and stock dividends, provided that the Bank's return on assets
meets or exceeds the amount estimated in the annual budgets as approved by the
Board. For each year following 1996 Mr. Markley will be granted an option to
purchase 3,465 shares of stock at a strike price consistent with the market on
the date granted. Such options may be exercised in whole or in part at any time
prior to ten (10) years from the date of the option. The contract provides for
certain benefits in the event of a change-in-control of the Company followed by
termination of employment without cause. If a change-in-control occurs, the
principal benefit received is a lump sum payment within 30 days of termination
of 150% of base salary during the first year of the contract with decreases of
10% in termination benefits during each subsequent year of the contract.
ii. EXECUTIVE VICE PRESIDENT
In September 1996, the Company entered into a two year employment
contract with Mr. Clarke to serve as a Executive Vice President of the Bank.
Under the agreement, Mr. Clarke receives a base salary of $98,038 that can be
increased but not decreased. Also, an annual performance bonus may be awarded
at the sole discretion of the Board. In addition, each year of the agreement,
Mr. Clarke receives an option to purchase 1,732 shares of stock of the Company
at a strike price consistent with the market price on the date granted,
provided that the Bank's performance meets or exceeds the annual budget. Such
options may be exercised in whole or in part at any time on or before ten (10)
years from the date of the option. The agreement provides for certain benefits
in the event of a change-in-control of the Company followed by termination of
employment without cause. If a change-in-control occurs, the principal benefit
received is payment to Mr. Clarke of the balance of the annual salary due under
the agreement.
B. WARRANTS TO ORGANIZERS
The Company granted warrants at the time of its organization to
members of the initial board of directors in recognition of their guaranteeing
the organizational loan for the Bank,
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<PAGE> 24
entering into the lease for the facilities of the Bank and for performing other
services in connection with the organization of the Bank. The warrants
permitted the organizing directors to purchase three shares of the Company's
Common Stock for every four shares which the director had purchased in the
initial offering of Common Stock in 1989. The exercise price of the warrants
has been adjusted to reflect a 2 for 1 stock split and a 2% stock dividend
declared on April 22, 1993 and May 26, 1994 respectively. The current exercise
price is $4.90 per share. The warrants are currently exercisable until March
31, 2000.
The total number of warrants currently held by each of the present directors is
set forth under "Security Ownership of Certain Beneficial Owners and
Management."
C. DIRECTOR COMPENSATION
Directors receive an annual retainer of $8,000. Directors do not
receive additional compensation for attendance at regular or special meetings
of the Board of Directors or for serving on the various committees of the
Board. In addition, the stockholders of the Company at the 1992 annual meeting
of stockholders approved a plan to issue rights, options or warrants for the
purchase of up to 60,000 shares of common stock to directors, upon such terms
and conditions as the Board may direct, as an additional form of director
compensation. The stockholders also approved the issuance of options from
those shares to each of the directors for the purchase of 2,040 shares of
common stock at $4.41 per share as additional compensation for 1991. In 1992,
the directors received options for 1,020 shares of common stock at $5.50 per
share. The options and price have been adjusted to reflect the 2 for 1 stock
split and the 2% stock dividend declared on April 22, 1993 and May 26, 1994
respectively.
At December 31, 1996, the Company has granted 30,600 options under
this authority and 29,400 shares reserved for such purposes remain available
for grant.
D. BENEFITS
Employee Stock Options. At the annual meeting of stockholders in
1992, the stockholders authorized the Board of Directors of the Company to
issue rights, options or warrants for the purchase of up to 140,000 shares of
common stock to the employees of the Company upon such terms and conditions as
the Board may deem appropriate. Employees will be selected to receive awards
based upon their responsibilities and their current potential contributions to
the success of the Company. As of December 31, 1996, 106,176 options have been
granted under this authority and 33,824 shares reserved for such purposes
remain available for grant.
401(k) Profit Sharing Plan. The Bank has adopted a profit sharing
plan qualified under Section 401(k) of the Internal Revenue code (the "401(k)
Plan"). Employees who have attained the age of 21 years are eligible to
participate in the 401(k) Plan. Eligible employees who elect to participate
may contribute up to 15% of their annual salary to the 401(k) Plan. The Bank
may make discretionary contributions to the Plan.
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<PAGE> 25
E. DIRECTOR'S STOCK INVESTMENT AND DEFERRED COMPENSATION PLAN
The Board of Directors has adopted the Director's Stock Investment and
Deferred Compensation Plan, (the Deferred Compensation Plan).
Under the Deferred Compensation Plan, each member of the Board of
Directors of the Company and its Affiliates, as defined in the Deferred
Compensation Plan, have the following choices with respect to his or her
director fees earned during each semiannual period: (1) elect to receive
director fees in cash; (2) elect to receive all or a portion of the director
fees paid in the form of Common Stock; or (3) elect to defer receipt of all or
a portion of the director fees and have the deferred amount credited in the
form of phantom stock units to a Deferred Compensation Account.
Except in the case of the first year of the Director's Plan, or the
first year of a new members election to the Board of Directors, all decisions
to receive payment of director fees in the form of Common Stock or credited to
the Deferred Compensation Account must be made prior to the beginning of the
semiannual period to which the director fees relate.
As of the last day of each semiannual period, the Company will
determine the amount of directors fees for the period that are to be paid in
shares of Common Stock or credited in phantom stock units to the Deferred
Compensation Accounts. The number of shares delivered or phantom units
credited is based on 100% of the closing price of the Common Stock on the last
day of the semiannual period. When dividends are declared on the Common Stock,
Deferred Compensation Accounts are credited with additional phantom stock units
equal in value to the aggregate dividend amount that would have been paid on
shares equal in number to the number of phantom stock units held in the
account. The balance of a director's Deferred Compensation Account is
distributed in the form of shares of Common Stock at the time selected by the
director when electing to have directors fees credited to the account, but no
earlier than six months after being credited to the account.
Persons eligible to be in the Deferred Compensation Plan are limited
to members of the Board of Directors of the Company and directors of Patriot
National Bank. The total number of eligible participants is currently nine (9)
individuals.
Currently Directors fees are taxable to recipients and are deductible
to the Company. Under the Plan the income to a director and deduction to the
Company for fees credited to the Deferred Compensation Account are deferred
until distribution of the balance of the Deferred Compensation Account and the
amount of the director's income and the Company's deduction is determined by
reference to the fair market value of the shares of Common Stock when
distributed.
No Common Stock has been issued under the Director's Stock Investment
and Deferred Compensation Plan.
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<PAGE> 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The only persons or entities (including any "group" as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended),
known by the Company to be the beneficial owners of more than 5% of the issued
and outstanding common stock were the three directors as disclosed in "Stock
Ownership of Management" below.
The following table sets forth the beneficial ownership of common
stock by all directors and named executive officers (see "Executive
Compensation - Summary Compensation Table"), and all directors and executive
officers of the Company as a group. Each person has sole voting and investment
power unless otherwise indicated. The individual percentages in the last
column assume the exercise by the individual stockholder of his/her options and
warrants but does not assume such an exercise by any other person. These
computations are in accordance with Securities and Exchange Commission rules
and do not necessarily indicate beneficial ownership for any other purpose.
Stock Options and Warrants have been adjusted to reflect a 2 for 1 stock split
declared on April 22, 1993 and a 2% stock dividend declared on May 26, 1994.
STOCK OWNERSHIP OF MANAGEMENT AT FEBRUARY 28, 1997
ACQUIRABLE WITHIN 60 DAYS
<TABLE>
<CAPTION>
SOLE OR SHARED
VOTING OR STOCK PERCENT OF
NAME INVESTMENT POWER OPTIONS WARRANTS TOTAL CLASS
---- ---------------- ------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Daniel R. Bannister 5,174(1) -- -- 5,174 .25%
Robert M. Barlow 106,443(2) 3,060 51,971 161,474 7.78%
Wayne W. Broadwater 38,547(3) 3,060 25,967 67,574 3.29%
Bronson F. Byrd 25,184 3,060 14,073 42,317 2.08%
Michael W. Clarke 18,128(4) 25,248 -- 43,376 2.12%
Nancy K. Falck 43,427(5) 3,060 24,813 71,300 3.48%
Harvey W. Huntzinger 87,198(6) 3,060 51,973 142,231 6.77%
Jones V. Isaac 42,598(7) 3,060 51,973 97,631 4.70%
Carroll C. Markley 53,619(8) 60,750 26,545 140,914 6.68%
John H. Rust, Jr. 65,456(9) -- -- 65,456 3.24%
All directors and Executive
Officers as a group of
13 persons 498,249 112,936 247,315 858,500 36.05%
</TABLE>
1. Includes 100 shares owned by Mr. Bannister's spouse and 4,668 shares
owned jointly.
2. Includes 9,426 shares owned by Mr. Barlow's spouse and 228 shares owned
jointly.
3. Owned jointly with Mr. Broadwater's spouse.
4. Includes 142 shares held jointly with Mr. Clarke's spouse.
5. Includes 13,591 shares owned by Mrs. Falck's spouse.
6. Includes 1,000 shares owned by Mr. Huntzinger's spouse.
7. Includes 15,300 shares owned by Mr. Isaac's spouse.
8. Includes 12,001 shares held jointly with Ian C. Markley.
9. Includes 4,077 shares owned by Mr. Rust's children, 31,756 shares owned
by Rust & Rust, P.C, and 24,596 shares owned by Rust & Rust, P.C. 401(K)
Plan.
26
<PAGE> 27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A. LOANS TO OFFICERS AND DIRECTORS
Certain directors and officers of the Company and Bank, members of
their immediate families, and corporations, partnerships and other entities
with which such persons are associated are customers of the Bank. As such,
these persons engaged in transactions with the Bank in the ordinary course of
business and will have additional transactions with the Bank in the future.
All loans extended and commitments to lend by the Bank to such persons are made
in the ordinary course of business upon substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons and do not involve more than normal risk
of collectibility or present other unfavorable features.
The amount of loans from the Bank to all officers and directors of the
Company and the Bank, and entities in which they are significantly interested
totaled approximately $5.1 million at December 31, 1996. This amount
represented 35.1% of the total equity capital of the Company as of December 31,
1996.
B. TRANSACTIONS WITH MANAGEMENT
In the ordinary course of its business, the Company and the Bank have
engaged in certain transactions with their officers and directors in which such
officers and directors have a significant interest. All such transactions have
been made on substantially the same terms as those prevailing at the time for
comparable transactions with unaffiliated parties. The Bank has engaged the
Fairfax, Virginia, law firm of McCandlish and Lillard, of which Mr. Rust is a
partner, to perform certain legal services for the Bank. Also, warrants were
issued by the Company in 1989 to certain directors of the Company in
recognition of their personal guarantees of the organizational loan for the
Bank, entering into the lease of facilities for the Bank, and performing other
services in connection with the organization of the Bank. See "Compensation -
Warrants to Organizers." These directors remain personally liable as
guarantors of the lease for the Bank's offices at 12120 Sunset Hills Road,
Reston, Virginia.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM
8-K
(a) (1.) The following financial statements are incorporated by
reference from Item 8 hereof (see Exhibit 13).
Financial Statements:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1996 and
1995.
Consolidated Statements of Operations - years ended
December 31, 1996, 1995, and 1994.
27
<PAGE> 28
Consolidated Statements of Stockholders' Equity - years
ended December 31, 1996, 1995, and 1994.
Consolidated Statements of Cash Flows - years ended
December 31, 1996, 1995, and 1994.
Notes to Consolidated Financial Statements.
(a) (2.) There are no financial statement schedules filed herewith
because they are not required under the related
instructions or are inapplicable and have therefore been
omitted.
(a) (3.) The following exhibits are filed as part of the Annual
Report on Form 10-K.
Number Exhibits
3.1(1) Articles of Incorporation
3.2(2) Articles of Amendment to Articles of Incorporation (2
filings)
3.3(1) Bylaws
10.1(2) Form of Stock Option Agreement
10.2(2) Form of Warrant Agreement
10.3(2) The Board of Directors of the Company is authorized to
issue rights, options and warrants for up to (i) 60,000
shares of Common Stock to directors as additional
compensation and (ii) 140,000 shares of Common Stock to
employees as additional compensation. Additional
information about these authorizations is set forth in
Item 11 of this filing.
10.4 Employment Contract, dated September 1, l996 between
First Patriot Bankshares Corporation and Carroll C.
Markley.
10.5 Letter of Agreement, dated September 1, l996 between
First Patriot Bankshares Corporation and Michael C.
Clarke.
10.6 Letter of Agreement, dated September 1, l996 between
First Patriot Bankshares Corporation and Stephanie H.
Ogle.
10.7 Letter of Agreement, dated September 1, l996 between
First Patriot Bankshares Corporation and Charles Wimer
28
<PAGE> 29
10.8 Letter of Agreement, dated September 1, l996 between
First Patriot Bankshares Corporation and Robert C.
Shoemaker.
13 Draft Annual Report to Stockholders for 1996.
21 Subsidiaries of the Registrant.
Notes:
(1) Incorporated by reference to Exhibit 3 to the Registrant's Form S-18
Registration Statement, No. 33-31168-A.
(2) Incorporated by reference to the Registrant's Form S-1 Registration
Statement (No. 33-66768), filed with the Securities and Exchange
Commission on September 10, 1993.
(b) Reports on Form 8-K
Incorporated by reference to the Registrant's Form 8-K filed
on June 13, 1995.
(c) Exhibits to this Form 10-K are attached or incorporated by
reference as stated above.
(d) None.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIRST PATRIOT BANKSHARES CORPORATION
- - ------------------------------------
Registrant
By: /s/ March 20, 1997
----------------------------------------
Carroll C. Markley
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities 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.
By: /s/ March 20, 1997
----------------------------------------
Carroll C. Markley
President, Chief Executive Officer
(Principal Executive Officer) and Director
By: /s/ March 20, 1997
----------------------------------------
John H. Rust, Jr.
Chairman of the Board
By: /s/ March 20, 1997
----------------------------------------
Robert M. Barlow
Vice President and Director
By: /s/ March 20, 1997
----------------------------------------
Jones V. Isaac
Director
By: /s/ March 20, 1997
----------------------------------------
Nancy K. Falck
Secretary and Director
By: /s/ March 20, 1997
----------------------------------------
Daniel R. Bannister
Director
30
<PAGE> 31
By: /s/ March 20, 1997
------------------------------------
Wayne W. Broadwater
Assistant Treasurer, Director
By: March 20, 1997
------------------------------------
Bronson F. Byrd
Treasurer, Vice Secretary, and Director
By: March 20, 1997
------------------------------------
Harvey W. Huntzinger
Director
By: /s/ March 20, 1997
------------------------------------
Charles Wimer
Senior Vice President and Chief Financial
and Accounting Officer
31
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT SEQUENTIAL PAGE NO.
- - ----------- -------- -------------------
<S> <C>
3.1(1) Articles of Incorporation
3.2(2) Articles of Amendment to Articles of Incorporation (2 filings)
3.3(1) Bylaws
10.1(2) Form of Stock Option Agreement
10.2(2) Form of Warrant Agreement
10.3(2) The Board of Directors of the Company is authorized to issue rights, options and warrants for up to (i) 60,000
shares of Common Stock to directors as additional compensation and (ii) 140,000 shares of Common Stock to
employees as additional compensation. Additional information about these authorizations is set forth in Item 11 of
this filing.
10.4 Employment Contract, dated September 1, l996 between First Patriot Bankshares Corporation and Carroll
C.Markley.......................................................................................................34
10.5 Letter of Agreement, dated September 1, l996 between First Patriot Bankshares Corporation and Michael C.
Clarke..........................................................................................................41
10.6 Letter of Agreement, dated September 1, l996 between First Patriot Bankshares Corporation and Stephanie H.
Ogle............................................................................................................47
10.7 Letter of Agreement, dated September 1, l996 between First Patriot Bankshares Corporation and Charles
Wimer...........................................................................................................52
10.8 Letter of Agreement, dated September 1, l996 between First Patriot Bankshares Corporation and Robert C.
Shoemaker.......................................................................................................57
13 Draft Annual Report to Stockholders for 1996.....................................................................62
21 Subsidiaries of the Registrant..................................................................................63
</TABLE>
32
<PAGE> 33
Notes:
1) Incorporated by reference to Exhibit 3 to the Registrant's Form S-18
Registration Statement, No. 33-31168-A.
(2) Incorporated by reference to the Registrant's Form S-1 Registration
Statement (No. 33-66768), filed with the Securities and Exchange
Commission on September 10, 1993.
33
<PAGE> 1
EXHIBIT 10.4
THIS EMPLOYMENT CONTRACT
made and entered into effective the 1st day of September, 1996 ("Effective
Date") between Patriot National Bank, a national banking association ("Bank")
and First Patriot Bankshares Corporation, a Virginia corporation ("FPBK") (Bank
and FPBK collectively referred to herein as "Employer") and Carroll C. Markley
("Employee").
WHEREAS, Employee presently serves as President and Chief Executive
Officer of the Bank and FPBK; and,
WHEREAS, the parties wish to establish the terms and conditions of
Employee's employment for the term stated herein.
NOW, therefore, in consideration of the promises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
1. RELATIONSHIP AND DUTIES
(a) Employer hereby employs Employee on the Effective Date as
President and Chief Executive Officer of Bank, to hold the title of President
and Chief Executive Officer, and as President and Chief Executive Officer of
FPBK, to hold the title of President and Chief Executive Officer; provided,
however FPBK shall be entitled to place Employee in such different or other
office(s) of FPBK than President and Chief Executive Officer, by an affirmative
vote of two-thirds (2/3) of all members of the Board, whether or not in
attendance at the meeting or voting upon the issue. Employee shall perform
such services and duties as the respective boards of directors of Bank and FPBK
(collectively, "Boards") may, from time to time, designate during the term
hereof. Subject to the terms and conditions hereof, Employee will perform such
duties and exercise such authority as are customarily performed and exercised
by persons holding such office, subject to the guidance of the respective
Boards.
(b) Employee shall seek and accept election to the Boards, and
shall serve as a member of the Executive Committees thereof and such other
committees as the Boards may designate, subject to the terms hereof.
(c) Employee accepts such employment and shall devote his full
time, attention, and best efforts to the diligent performance of his duties
herein specified and as an officer and director of Employer. While employed by
Employer, the Employee will not, without the prior written consent of the
Boards (which consent shall not be unreasonably withheld) accept employment
with any other individual, corporation, partnership, governmental authority or
other entity, or engage in any other venture for profit which Employer or the
Boards may consider to be in conflict with Employer's best interests or to be
in competition with Employer, or which may interfere in any way with Employee's
performance of his duties hereunder. It is understood that Employee does have
the right to participate in passive investments including income producing real
estate, not otherwise in conflict with Bank policy.
<PAGE> 2
(d) Regarding the relationships and duties of the parties to this
contract, Employee shall not be required by Employer, as a part of his duties,
to perform or to participate in any activity which constitutes a violation of
any state or federal law, rule, ordinance or regulation.
2. TERMS OF EMPLOYMENT
(a) The term of this contract shall run from September 1, 1996 to
December 31, 2000, unless terminated earlier pursuant to the terms hereof.
During the year 2000, Employer and Employee shall enter into negotiations for
renewal of Employee's employment.
(b) Employee's employment pursuant to this agreement shall be
terminated by the first to occur of any of the following:
(i) the death of Employee;
(ii) the complete disability of Employee. "Complete disability" as
used herein shall mean the inability of Employee, due to illness, accident, or
any other physical or mental incapacity, completely to fulfill his obligations
hereunder for an aggregate of ninety (90) days within any period of 180
consecutive days during the term hereof;
(iii) the discharge of Employee by Employer for cause. "Cause" as
used herein shall include, without limitation: dishonesty; theft; conviction of
a crime, which is either a (1) felony or (2) misdemeanor involving moral
turpitude or financial impropriety; unethical business conduct; activity which
is contrary to Employer's interests; gross or repeated negligence in carrying
out Employee's duties; or material violation of Employee's obligations
hereunder. Should Employer deem specific activities contrary to Employer's
interest or that negligence by Employee in carrying out his duties or any
violation of Employee's obligations hereunder has occurred, written notice of
said activity, negligence or violation shall be provided by Employer to
Employee along with a reasonable period of time in which to correct. Provided
that such activity, negligence or violation is neither dishonest nor criminal,
90 days shall be deemed to be a reasonable time in which to correct such
deficiencies.
(iv) Discharge for "cause" will require a two-thirds majority vote
of the Boards, exclusive of Employee. Termination of Employee's employment for
cause shall include termination as an employee, officer and director of
Employer.
(c) Upon a Change in Control of either FPBK or Bank,
notwithstanding anything contained herein to the contrary, Employer may
terminate this agreement without cause at any time upon an affirmative vote of
two-thirds (2/3) of all members of the Board, whether or not in attendance at
the meeting or voting upon the issue. In the event of such termination without
cause
<PAGE> 3
by Employer, Employee (i) shall be paid a severance pay based upon Employee's
annual base salary in effect at the time of termination, as follows:
During 1996 or 1997 150% of Base Salary
During 1998 140% of Base Salary
During 1999 130% of Base Salary
During 2000 120% of Base Salary then remaining
Such severance pay shall be paid in a lump sum not later than thirty (30) days
following the effective date of termination. In addition, upon any such
termination Employee shall be entitled to purchase the automobile provided
hereunder at the current book value. Employee shall not be entitled to a
performance bonus in the year of termination, except as may be awarded in the
sole discretion of the Boards.
(d) Employee may cancel this Agreement within ninety (90) days
after a Change in Control, by written notice given to Employer prior to the
Change in Control.
3. COMPENSATION
For all services which Employee may render to Employer during the term
hereof, Bank shall pay to Employee, subject to such deductions as may be
required by law, according to the schedule set out below:
(a) Base Salary. From the Effective Date hereof, Employee shall
receive for the term of this contract a base salary at an annual rate of
$160,000.05, payable in equal semi-monthly installments, subject to such
deductions as may be required by law. Employee will receive performance
reviews at least annually at the end of each fiscal year from the Boards, and
Employee's base salary may be increased but not decreased at the sole
discretion of the Boards.
(b) Performance Bonuses. An annual bonus based on the Bank's
performance may be awarded at the sole discretion of the Boards, upon formulae
to be mutually agreed upon by Employer and Employee.
4. OTHER BENEFITS
During the term of Employee's employment hereunder Bank shall furnish
to Employee: (i) An American automobile of Employee's choice having a cost
(net of trade-in) not to exceed $30,000 which may be leased by the Bank; (ii)
A term life insurance policy providing for death benefits in an amount of up to
two (2) times his annual base salary and having a beneficiary designated by
Employee, or, if such is not obtainable without any rating, a payment of
$300.00 per quarter to Employee; (iii) A group health and hospitalization
insurance policy covering the Employee at no
<PAGE> 4
cost to the Employee; (iv) the current disability benefits plan of the Bank
provided to all officers as well as the benefits provided through the
supplemental policy currently in effect; (v) a complete physical examination
for the Employee on an annual basis at the Bank's expense. The Employee will
be allowed to participate in all other benefits provided to the company's
employees.
5. STOCK OPTIONS
(a) Employee shall be granted an option to purchase 6,930 shares
of stock of FPBK at the original issue price of the stock shall be granted on
or before 12/31/96; provided that at the end of the fiscal year, the Bank's
performance, based upon the Bank's return on assets, meets or exceeds the
amount estimated in the annual budgets as approved by the Bank. The options
may be exercised in whole or in part at any time during the first ten (10)
years after the original issue of stock in FPBK. For each year following
1996, Employee shall be granted an option to purchase 3,465 shares of stock of
FPBK at a strike price consistent with the market on the date granted, provided
that at the end of the fiscal year, the Bank's performance, based upon the
Bank's return on assets and return on equity, meets or exceeds the amount
estimated in the annual budgets as approved by the Bank. The options may be
exercised in whole or in part at any time during the first ten (10) years after
the issue of the stock option agreement.
(b) If, prior to the Expiration Time of the agreement granted,
the Corporation shall subdivide its outstanding shares of common stock into a
greater number of shares, or declare and pay a dividend on its common stock
payable in additional shares of its common stock, the Exercise Price as then in
effect shall be proportionately reduced, and/or the number of shares of common
stock then subject to exercise under the Stock Option Agreement (and not
previously exercised), shall be proportionately increased as the case may be.
(c) If, prior to the Expiration Time of the agreement granted, the
Corporation shall combine its outstanding shares of common stock into a smaller
number of shares, the Exercise Price, as then in effect, shall be
proportionately increased, and the number of shares of common stock then
subject to exercise under this Stock Option Agreement (and not previously
exercised), shall be proportionately reduced.
(d) Any options that have not otherwise been accrued and granted
herein shall immediately terminate upon Employee's termination of employment,
whether such termination be voluntary or involuntary; provided, however, in the
event of termination pursuant to paragraph 2(c) of this agreement, Employee
shall be entitled to any options that would have accrued in the year of
termination but for the termination.
<PAGE> 5
6. EXPENSES
Employer shall pay, or, upon Employee's presentment to Employer of
expense reports acceptable to Employer and which are in sufficiently detailed
form to comply with standards for deduction of business expenses established
from time to time by the Internal Revenue Service, reimburse Employee for, all
expenses approved by Employer and incurred by Employee in connection with
performance of his duties hereunder, including reimbursement for his Westwood
Country Club dues.
7. POST TERMINATION COVENANTS
At such time as Employee's employment by Employer terminates, whether
during the initial contract period of employment or thereafter, and whether
such termination be voluntary or involuntary (but excluding a termination as a
result of the nonrenewal of this agreement), Employee agrees that for six (6)
months following such termination he will not engage (either individually or as
an employee or representative of any other person or entity) in banking
activities, in which chartered national or state banks may at that time legally
be engaged, within a five (5) mile radius of the Bank's Headquarters. The
employees to not furnish, use, or divulge to anyone any confidential
information of Employer acquired by him from Employer and relating to
Employer's business activities and further agrees, in the event there has been
no Change in Control (as defined hereinafter), for six (6) months following
such termination, Employee agrees that he will not, without the prior written
consent of Employer: (i) furnish anyone with the name of, or any list or
lists which identify, any customers or stockholders of Employer or utilize such
list or information himself; (ii) contact directly or indirectly any customer
of Employer for the purpose of soliciting such person's business for another
bank or similar financial institution; (iii) hire for any other employer
(including himself) any employee of Employer or directly or indirectly cause
such employee to leave his or her employment to work for another; (iv) pursue
an actual or potential business opportunity of interest to and which could be
pursued by Employer which came to the attention of Employee in connection with
his employment with Employer and which Employee had not previously offered in
writing to Employer with sufficient advance notice to allow Employer to examine
and pursue or reject such opportunity. Excepted from the requirements of
subparagraph (i) in this paragraph is any information which is or becomes
publicly available information through no fault or act of Employee.
It is understood and agreed by the parties hereto that the provisions
of this paragraph are independent of each other, and to the extent any
provision or portion thereof shall be determined by a court of competent
jurisdiction to be unenforceable, such determination shall not affect the
validity or enforceability of any other provision of this paragraph or the
remainder of this agreement.
<PAGE> 6
8. CHANGE OF CONTROL
For the purposes of this agreement, as used herein the term "Change in
Control" shall mean the acquisition of control of either FPBK or Bank by a
person, acting directly or indirectly or through or in concert with one or more
persons, through a purchase, assignment, transfer, pledge, or other disposition
of its voting stock. As used in the definition of Change in Control, the terms
"person" and "control" shall have the meanings assigned to them in 12 USCS
Section 1817(j)(8), as amended from time to time.
9. WAIVER OF PROVISIONS
Failure by any of the parties hereto to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this agreement shall not be deemed a waiver or relinquishment of
any right granted hereunder or of the obligation of future performance of any
such term or condition or of any other term or condition of this agreement,
unless such waiver is contained in writing signed by or on behalf of all the
parties.
10. GOVERNING LAW
This agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Virginia. If for any reason
any provision of this agreement shall be held by a court of competent
jurisdiction to be void or unenforceable, the same shall not affect the
remaining provisions hereof.
11. MODIFICATION AND AMENDMENT
This agreement contains the sole and entire agreement among the
parties hereto and supersedes all prior discussions and agreements among the
parties, and any such prior agreements shall, from and after the date hereof,
be null and void. This agreement shall not be modified or amended except by an
instrument in writing signed by or on behalf of all parties hereto.
12. COUNTERPARTS AND HEADINGS
This agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. The headings set out herein are for
convenience of reference and shall not be deemed a part of this agreement.
<PAGE> 7
13. INJUNCTIVE RELIEF
In the event of a breach or threatened breach by Employee of any of
the provisions of paragraph 2 or paragraph 7, and notwithstanding any other
provision in this agreement, Employer, in addition to any other available
rights or remedies, shall be entitled to such temporary restraining orders and
permanent injunctions, as are allowable and authorized by the laws of the
Commonwealth of Virginia based on the facts of the case, to restrain such
breach by Employee and/or any persons directly or indirectly acting for or with
him. Employee's obligations under paragraph 7 hereof shall remain binding and
enforceable according to its terms notwithstanding expiration or termination of
the other terms of this agreement or the termination of Employee's employment
relationship with the Bank, whether such termination be voluntary or
involuntary, and including a termination as the result of the nonrenewal of
this agreement.
14. SUCCESSORS
This Agreement shall inure to the benefit of and be binding upon the
Employer, its successors and assigns and upon the Employee, and his heirs and
personal representatives. Neither this agreement nor performance hereunder may
be assigned by Employee or Employer.
IN WITNESS WHEREOF, the parties hereto have executed this agreement
under seal on the 30th day of August, 1996, to be effective as of the date
first written above.
EMPLOYEE:
/s/ /s/ (SEAL)
- - ---------------------------------- -----------------------------------
Witness Carroll C. Markley
EMPLOYER:
PATRIOT NATIONAL BANK,
a national banking association
/s/ By: /s/ (SEAL)
- - ---------------------------------- --------------------------------
(SEAL) Its Authorized Officer
Witness
FIRST PATRIOT BANKSHARES
CORPORATION, a Virginia corporation
/s/ By: /s/
- - ---------------------------------- --------------------------------
(SEAL)
Witness Its Authorized Officer
<PAGE> 1
EXHIBIT 10.5
THIS EMPLOYMENT CONTRACT
made and entered into this 1st day of September, 1996 between Patriot National
Bank ("Employer"), a national banking association chartered through the Office
of the Comptroller of the Currency; and Michael W. Clarke ("Employee")
WHEREAS, Employee has agreed to be a Executive Vice President of the
Bank;
WHEREAS, the parties wish to establish the terms and conditions of
Employee's employment,
NOW, therefore, in consideration of the promises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
1. RELATIONSHIP AND DUTIES
(a) Employer hereby employs Employee on the effective date hereof
(as defined in paragraph 2 below) as Executive Vice President of the Bank to
serve as a commercial lending officer and to perform such services and duties
as the Bank's President & CEO ("President") may, from time to time, designate
during the term hereof. Subject to the terms and conditions hereof, Employee
will perform such duties and exercise such authority as are customarily
performed and exercised by persons holding such office, subject to the
direction of the President.
(b) Employee accepts such employment and shall devote his full
time, attention, and best efforts to the diligent performance of his duties
herein specified and as an officer of the Bank. While employed by Employer,
the Employee will not, without the prior written consent of the President,
accept employment with any other individual, corporation, partnership,
governmental authority or other entity, or engage in any other venture for
profit which Employer or the Board may consider to be in conflict with the
Bank's best interests or to be in competition with the Bank, or which may
interfere in any way with the Employee's performance of his duties hereunder.
It is understood that Employee does have the right to participate in passive
investments including income producing real estate, not otherwise in conflict
with Bank policy.
(c) Whenever the term "Employer" is used herein, that term shall
be deemed synonymous with the terms "the Bank", "President", or "the Board",
whenever the context so requires.
(d) Regarding the relationships and duties of the parties to this
contract, the Employee shall not be required by Employer, as a part of his
duties, to perform or to participate in any activity which constitutes a
violation of any state or federal law, rule, ordinance or regulation.
<PAGE> 2
2. TERMS OF EMPLOYMENT
Employee's employment hereunder shall commence upon the effective date
of this contract. Said employment shall continue from the date of this
agreement until December 31, 1998, unless terminated earlier pursuant to the
terms hereof. Employee's employment pursuant to this agreement shall be
terminated by the first to occur of any of the following:
(a) the death of the Employee;
(b) the complete disability of the Employee. "Complete
disability" as used herein shall mean the inability of Employee, due to
illness, accident, or any other physical or mental incapacity, completely to
fulfill his obligations hereunder for an aggregate of ninety (90) days within
any period of 180 consecutive days during the term hereof;
(c) The discharge of Employee by Employer for cause. "Cause" as
used herein shall include, without limitation: dishonesty; theft; conviction of
a crime, which is either a felony or misdemeanor other than any minor traffic
violation; unethical business conduct; activity which is contrary to the Bank's
interests; gross or repeated negligence in carrying out Employee's duties; or
material violation of Employee's obligations hereunder. Should Employer deem
specific activities contrary to the Bank's interest or that negligence by
Employee in carrying out his duties or any violation of Employee's obligations
hereunder has occurred, notice of said activity, negligence or violation shall
be provided by Employer to Employee along with a reasonable period of time in
which to correct. Provided that such activity, negligence or violation is
neither dishonest nor criminal, 30 days shall be deemed to be reasonable time
in which to correct such deficiencies.
(d) Discharge for "cause" will require approval by a two-thirds
majority vote of the Board of the Bank. Termination of Employee's employment
for cause shall include termination as an employee and officer of Employer.
3. COMPENSATION
For all services which Employee may render to Employer during the term
hereof, Employer shall pay to Employee, subject to such deduction as may be
required by law, according to the schedule set out below:
(a) Base Salary. From the effective date hereof, Employee shall
receive for the term of this contract a salary based on an annual rate of
$98,038, payable in equal semi-monthly installments, subject to such deductions
as may be required by law. The Employee will receive performance reviews at
least annually at the end of each fiscal year from the President and the Board,
and the Employee's salary may be increased but not decreased at the sole
discretion of the Board.
<PAGE> 3
(b) Performance Bonuses.
(i) Annual Bonus Formulae. For the Bank's fiscal year,
the Bank shall pay a performance bonus in cash to the Employee
not later than thirty days following the completion of the
Bank's audited financial statements for the fiscal year then
ended, subject to adjustment, if any, in accordance with a
formula agreed to at the beginning of each year.
At no time will the aggregate Annual Bonus earned be greater
than 30% of the Employee's base salary for the fiscal year.
No performance bonus otherwise in effect shall be paid if
Employee is terminated for cause prior to the end of the
fiscal year.
4. OTHER BENEFITS
During the term of the Employee's employment hereunder on and after
the effective date (except as noted in this paragraph) Employer shall furnish
to Employee: (i) an automobile of his choice to have a net cost not to exceed
$25,000 which may be leased by the Bank; (ii) A term life insurance policy
providing for death benefits of two times base salary having a beneficiary
designated by the Employee; (iii) A group health, hospitalization and dental
insurance policy covering the Employee at no cost to the Employee other than
such deductible as may be applicable to all other Employees of the Employee,
and, if the Employee desires, covering the dependents and spouse of the
Employee, if any, at no cost to the Employee; and (iv) A long term disability
insurance policy, as generally defined in the insurance industry, providing for
benefits of at least 60% of Employee's basic monthly earnings not to exceed
$5,000 monthly. This long term disability policy will be as consistent as
reasonably possible with the definition of "complete disability" provided in
paragraph 2(b) above. Supplemental long term disability benefits will be
provided on an annual basis as deemed appropriate. The Employee will be allowed
to participate in all other benefits provided to the company's employees.
5. STOCK OPTIONS
(a) Employee shall be granted an option to purchase 1,732 shares
of stock of the Bank holding company during each full fiscal year of employment
during the term of this agreement at a strike price consistent with the market
on the date granted; provided that at the end of each full fiscal year, the
Bank's performance, meets or exceeds, the annual budgets as approved by the
Board. During the 1996 fiscal year, the performance standard shall be based
upon the Bank's return on assets; for each year thereafter under the term of
this agreement, the performance standard shall be based upon the Bank's return
on assets and return on equity. The options may be exercised in whole or in
part at any time during the first ten (10) years after the issue of the stock
option agreement.
<PAGE> 4
(b) If, prior to the Expiration Time of the agreement granted,
the Corporation shall subdivide its outstanding shares of common stock into a
greater number of shares, or declare and pay a dividend on its common stock
payable in additional shares of its common stock, the Exercise Price as then in
effect shall be proportionately reduced, and/or the number of shares of common
stock then subject to exercise under the Stock Option Agreement (and not
previously exercised), shall be proportionately increased as the case may be.
(c) If, prior to the Expiration Time of the agreement granted, the
Corporation shall combine its outstanding shares of common stock into a smaller
number of shares, the Exercise Price, as then in effect, shall be
proportionately increased, and the number of shares of common stock then
subject to exercise under this Stock Option Agreement (and not previously
exercised), shall be proportionately reduced.
(d) Any options that have not otherwise been accrued and granted
herein shall immediately terminate upon Employee's termination of employment.
6. EXPENSES
Upon Employee's presentment to Employer of expense reports acceptable
to Employer and which are in sufficiently detailed form to comply with
standards for deduction of business expenses established from time to time by
the Internal Revenue Service, Employer will reimburse Employee for such
expenses approved by the Employer and incurred by Employee in connection with
performance of his duties hereunder.
7. POST TERMINATION COVENANTS
Employee agrees to not furnish, use, or divulge to anyone any
confidential information of Employer acquired by him from Employer and relating
to the Employer's business activities and further agrees, for one (1) year
following such termination, Employee agrees that he will not, without the prior
written consent of Employer: (i) furnish anyone with the name of, or any list
or lists which identify, any customers or stockholders of the Employer or
utilize such list or information himself, (ii) contact directly or indirectly
any customer of Employer for the purpose of soliciting such person's business
for another bank or similar financial institution; (iii) hire for any other
employer (including himself) any employee of Employer or directly or indirectly
cause such employee to leave his or her employment to work for another; (iv)
pursue an actual or potential business opportunity of interest to and which
could be pursued by Employer which came to the attention of Employee in
connection with his employment with Employer and which Employee had not
previously offered in writing to Employer with sufficient advance notice to
allow Employer to examine and pursue or reject such opportunity. Excepted from
the requirements of subparagraph (i) in this paragraph is any information which
is or becomes publicly and available information through no fault or act of
Employee.
<PAGE> 5
It is understood and agreed by the parties hereto that the provisions
of this paragraph are independent of each other, and to the extent any
provision or portion thereof shall be determined by a court of competent
jurisdiction to be unenforceable, such determination shall not effect the
validity or enforceability of any other provision of this paragraph or the
remainder of this agreement.
8. WAIVER OF PROVISIONS
Failure by any of the parties hereto to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this agreement shall not be deemed a waiver or relinquishment of
any right granted hereunder or of the obligation of future performance of any
such term or condition or of any other term or condition of this agreement,
unless such waiver is contained in writing signed by or on behalf of all the
parties.
9. GOVERNING LAW
This agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Virginia. If for any reason
any provision of this agreement shall be held by a court of competent
jurisdiction to be void or unenforceable, the same shall not affect the
remaining provisions hereof.
10. MODIFICATION AND AMENDMENT
This agreement contains the sole and entire agreement among the
parties hereto and supersedes all prior discussions and agreements among the
parties, and any such prior agreements shall, from and after the date hereof,
be null and void. This agreement shall not be modified or amended except by an
instrument in writing signed by on or behalf of all parties hereto.
11. COUNTERPARTS AND HEADINGS
This agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. The headings set out herein are for
convenience of reference and shall not be deemed a part of this agreement.
12. INJUNCTIVE RELIEF
In the event of a breach or threatened breach by Employee of any of
the provisions of paragraph 2 or paragraph 7, and notwithstanding any other
provision in this agreement, Employer, in addition to any other available
rights or remedies, shall be entitled to such temporary restraining orders and
permanent injunctions, as are allowable and authorized by the laws of the
Commonwealth of Virginia based on the facts of the case, to restrain such
breach by Employee and/or any persons directly or indirectly acting for or with
him. Employee's obligations under paragraph 7 hereof shall remain binding and
enforceable according to its terms notwithstanding expiration or termination of
the other terms of this agreement or the termination of Employee's employment
relationship with the Bank.
<PAGE> 6
13. SUCCESSORS
This agreement shall inure to the benefit of and be binding upon the
Employer, its successors and assignees and upon the Employee, and his heirs and
personal representatives. Neither this agreement nor performance hereunder may
be assigned by Employee.
IN WITNESS WHEREOF, the parties hereto have executed this agreement
under seal on the 27th day of September, 1996, to be effective as of the date
first written above.
EMPLOYEE:
/s/ /s/
- - ------------------------------------ ---------------------------------
Witness Michael W. Clarke
EMPLOYER:
PATRIOT NATIONAL BANK
national banking organization
/s/ /s/
- - ------------------------------------ ---------------------------------
Witness Carroll C. Markley
President & CEO
<PAGE> 1
EXHIBIT 10.6
THIS EMPLOYMENT CONTRACT
made and entered into this 1st day of September, 1996 between Patriot National
Bank ("Employer"), a national banking association chartered through the Office
of the Comptroller of the Currency; and Stephanie H. Ogle ("Employee")
WHEREAS, Employee has agreed to be a Senior Vice President of the
Bank;
WHEREAS, the parties wish to establish the terms and conditions of
Employee's employment,
NOW, therefore, in consideration of the promises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
1. RELATIONSHIP AND DUTIES
(a) Employer hereby employs Employee on the effective date hereof
(as defined in paragraph 2 below) as an officer of the Bank to serve as Senior
Vice President to serve as a loan administration officer and to perform such
services and duties as the Bank's President & CEO ("President") may, from time
to time, designate during the term hereof. Subject to the terms and conditions
hereof, Employee will perform such duties and exercise such authority as are
customarily performed and exercised by persons holding such office, subject to
the direction of the President.
(b) Employee accepts such employment and shall devote full time,
attention, and best efforts to the diligent performance of duties herein
specified and as an officer of the Bank. While employed by Employer, the
Employee will not, without the prior written consent of the President, accept
employment with any other individual, corporation, partnership, governmental
authority or other entity, or engage in any other venture for profit which
Employer or the Board may consider to be in conflict with the Bank's best
interests or to be in competition with the Bank, or which may interfere in any
way with the Employee's performance of his duties hereunder. It is understood
that Employee does have the right to participate in passive investments
including income producing real estate, not otherwise in conflict with Bank
policy.
(c) Whenever the term "Employer" is used herein, that term shall
be deemed synonymous with the terms "the Bank", "President" or "the Board",
whenever the context so requires.
(d) Regarding the relationships and duties of the parties to this
contract, the Employee shall not be required by Employer, as a part of daily
duties, to perform or to participate in any activity which constitutes a
violation of any state or federal law, rule, ordinance or regulation.
<PAGE> 2
2. TERMS OF EMPLOYMENT
Employee's employment hereunder shall commence upon the effective date
of this contract. Said employment shall continue from the date of this
agreement until December 31, 1998, unless terminated earlier pursuant to the
terms hereof. Employee's employment pursuant to this agreement shall be
terminated by the first to occur of any of the following:
(a) the death of the Employee;
(b) the complete disability of the Employee. "Complete
disability" as used herein shall mean the inability of Employee, due to
illness, accident, or any other physical or mental incapacity, completely to
fulfill his obligations hereunder for an aggregate of ninety (90) days within
any period of 180 consecutive days during the term hereof;
(c) The discharge of Employee by Employer for cause. "Cause" as
used herein shall include, without limitation: dishonesty; theft; conviction of
a crime, which is either a felony or misdemeanor other than any minor traffic
violation; unethical business conduct; activity which is contrary to the Bank's
interests; gross or repeated negligence in carrying out Employee's duties; or
material violation of Employee's obligations hereunder. Should Employer deem
specific activities contrary to the Bank's interest or that negligence by
Employee in carrying out duties or any violation of Employee's obligations
hereunder has occurred, notice of said activity, negligence or violation shall
be provided by Employer to Employee along with a reasonable period of time in
which to correct. Provided that such activity, negligence or violation is
neither dishonest nor criminal, 30 days shall be deemed to be reasonable time
in which to correct such deficiencies.
(d) Discharge for "cause" will require approval by a two-thirds
majority vote of the Board of the Bank. Termination of Employee's employment
for cause shall include termination as an employee and officer of Employer.
3. COMPENSATION
For all services which Employee may render to Employer during the term
hereof, Employer shall pay to Employee, subject to such deduction as may be
required by law, according to the schedule set out below:
(a) Base Salary. From the effective date hereof, Employee shall
receive for the term of this contract a salary based on an annual rate of
$63,222, payable in equal semi-monthly installments, subject to such deductions
as may be required by law. The Employee will receive performance reviews at
least annually at the end of each fiscal year from the President, and the
Employee's salary may be increased but not decreased at the sole discretion of
the Board.
<PAGE> 3
4. OTHER BENEFITS
During the term of the Employee's employment hereunder on and after
the effective date (except as noted in this paragraph) Employer shall furnish
to Employee: (i) A term life insurance policy providing for death benefits of
two times base salary having a beneficiary designated by the Employee; (ii) A
group health, hospitalization and dental insurance policy covering the Employee
at no cost to the Employee other than such deductible as may be applicable to
all other Employees of the Bank, and, if the Employee desires, covering the
dependents and spouse of the Employee, if any, at no cost to the Employee; and
(iii) A long term disability insurance policy, as generally defined in the
insurance industry, providing for benefits of at least 60% of Employee's basic
monthly earnings not to exceed $5,000 monthly. This long term disability
policy will be as consistent as reasonably possible with the definition of
"complete disability" provided in paragraph 2(b) above. Supplemental long term
disability benefits will be provided on an annual basis as deemed appropriate.
The Employee will be allowed to participate in all other benefits provided to
the company's employees.
5. EXPENSES
Upon Employee's presentment to Employer of expense reports acceptable
to Employer and which are in sufficiently detailed form to comply with
standards for deduction of business expenses established from time to time by
the Internal Revenue Service, Employer will reimburse Employee for such
expenses approved by the Employer and incurred by Employee in connection with
performance of duties hereunder.
6. POST TERMINATION COVENANTS
Employee agrees to not furnish, use, or divulge to anyone any
confidential information of Employer acquired from Employer and relating to the
Employer's business activities and further agrees, for one (1) year following
such termination, Employee agrees that he will not, without the prior written
consent of Employer: (i) furnish anyone with the name of, or any list or lists
which identify, any customers or stockholders of the Employer or utilize such
list or information; (ii) contact directly or indirectly any customer of
Employer for the purpose of soliciting such person's business for another bank
or similar financial institution; (iii) hire for any other employer (including
self) any employee of Employer or directly or indirectly cause such employee to
leave his or her employment to work for another; (iv) pursue an actual or
potential business opportunity of interest to and which could be pursued by
Employer which came to the attention of Employee in connection with employment
with Employer and which Employee had not previously offered in writing to
Employer with sufficient advance notice to allow Employer to examine and pursue
or reject such opportunity. Excepted from the requirements of subparagraph (i)
in this paragraph is any information which is or becomes publicly and available
information through no fault or act of Employee.
It is understood and agreed by the parties hereto that the provisions
of this paragraph are
<PAGE> 4
independent of each other, and to the extent any provision or portion thereof
shall be determined by a court of competent jurisdiction to be unenforceable,
such determination shall not effect the validity or enforceability of any other
provision of this paragraph or the remainder of this agreement.
7. WAIVER OF PROVISIONS
Failure by any of the parties hereto to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this agreement shall not be deemed a waiver or relinquishment of
any right granted hereunder or of the obligation of future performance of any
such term or condition or of any other term or condition of this agreement,
unless such waiver is contained in writing signed by or on behalf of all the
parties.
8. GOVERNING LAW
This agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Virginia. If for any reason
any provision of this agreement shall be held by a court of competent
jurisdiction to be void or unenforceable, the same shall not affect the
remaining provisions hereof.
9. MODIFICATION AND AMENDMENT
This agreement contains the sole and entire agreement among the
parties hereto and supersedes all prior discussions and agreements among the
parties, and any such prior agreements shall, from and after the date hereof,
be null and void. This agreement shall not be modified or amended except by an
instrument in writing signed by on or behalf of all parties hereto.
10. COUNTERPARTS AND HEADINGS
This agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. The headings set out herein are for
convenience of reference and shall not be deemed a part of this agreement.
11. INJUNCTIVE RELIEF
In the event of a breach or threatened breach by Employee of any of
the provisions of paragraph 2 or paragraph 7, and notwithstanding any other
provision in this agreement, Employer, in addition to any other available
rights or remedies, shall be entitled to such temporary restraining orders and
permanent injunctions, as are allowable and authorized by the laws of the
Commonwealth of Virginia based on the facts of the case, to restrain such
breach by Employee and/or any persons directly or indirectly acting for or with
him. Employee's obligations under paragraph 7 hereof shall remain binding and
enforceable according to its terms notwithstanding expiration or termination of
the other terms of this agreement or the termination of Employee's employment
relationship with the Bank.
<PAGE> 5
12. SUCCESSORS
This agreement shall inure to the benefit of and be binding upon the
Employer, its successors and assignees and upon the Employee, heirs and
personal representatives. Neither this agreement nor performance hereunder may
be assigned by Employee.
IN WITNESS WHEREOF, the parties hereto have executed this agreement
under seal on the 27th day of September, 1996, to be effective as of the date
first written above.
EMPLOYEE:
/s/ /s/
- - ------------------------------------ ------------------------------------
Witness Stephanie H. Ogle
EMPLOYER:
PATRIOT NATIONAL BANK
national banking organization
/s/ /s/
- - ------------------------------------ ------------------------------------
Witness Carroll C. Markley
President & CEO
<PAGE> 1
EXHIBIT 10.7
THIS EMPLOYMENT CONTRACT
made and entered into this 1st day of September, 1996 between Patriot National
Bank ("Employer"), a national banking association chartered through the Office
of the Comptroller of the Currency; and Charles Wimer ("Employee")
WHEREAS, Employee has agreed to be an Officer of the Bank;
WHEREAS, the parties wish to establish the terms and conditions of
Employee's employment,
NOW, therefore, in consideration of the promises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
1. RELATIONSHIP AND DUTIES
(a) Employer hereby employs Employee on the effective date hereof
(as defined in paragraph 2 below) as an officer of the Bank to serve as Senior
Vice President/Chief Financial Officer and to perform such services and duties
as the Bank's President & CEO ("President") may, from time to time, designate
during the term hereof. Subject to the terms and conditions hereof, Employee
will perform such duties and exercise such authority as are customarily
performed and exercised by persons holding such office, subject to the
direction of the President.
(b) Employee accepts such employment and shall devote full time,
attention, and best efforts to the diligent performance of duties herein
specified and as an officer of the Bank. While employed by Employer, the
Employee will not, without the prior written consent of the President, accept
employment with any other individual, corporation, partnership, governmental
authority or other entity, or engage in any other venture for profit which
Employer or the Board may consider to be in conflict with the Bank's best
interests or to be in competition with the Bank, or which may interfere in any
way with the Employee's performance of his duties hereunder. It is understood
that Employee does have the right to participate in passive investments
including income producing real estate, not otherwise in conflict with Bank
policy.
(c) Whenever the term "Employer" is used herein, that term shall
be deemed synonymous with the terms "the Bank", "President" or "the Board",
whenever the context so requires.
(d) Regarding the relationships and duties of the parties to this
contract, the Employee shall not be required by Employer, as a part of daily
duties, to perform or to participate in any activity which constitutes a
violation of any state or federal law, rule, ordinance or regulation.
<PAGE> 2
2. TERMS OF EMPLOYMENT
Employee's employment hereunder shall commence upon the effective date
of this contract. Said employment shall continue from the date of this
agreement until December 31, 1998, unless terminated earlier pursuant to the
terms hereof. Employee's employment pursuant to this agreement shall be
terminated by the first to occur of any of the following:
(a) the death of the Employee;
(b) the complete disability of the Employee. "Complete
disability" as used herein shall mean the inability of Employee, due to
illness, accident, or any other physical or mental incapacity, completely to
fulfill his obligations hereunder for an aggregate of ninety (90) days within
any period of 180 consecutive days during the term hereof;
(c) The discharge of Employee by Employer for cause. "Cause" as
used herein shall include, without limitation: dishonesty; theft; conviction of
a crime, which is either a felony or misdemeanor other than any minor traffic
violation; unethical business conduct; activity which is contrary to the Bank's
interests; gross or repeated negligence in carrying out Employee's duties; or
material violation of Employee's obligations hereunder. Should Employer deem
specific activities contrary to the Bank's interest or that negligence by
Employee in carrying out duties or any violation of Employee's obligations
hereunder has occurred, notice of said activity, negligence or violation shall
be provided by Employer to Employee along with a reasonable period of time in
which to correct. Provided that such activity, negligence or violation is
neither dishonest nor criminal, 30 days shall be deemed to be reasonable time
in which to correct such deficiencies.
(d) Discharge for "cause" will require approval by a two-thirds
majority vote of the Board of the Bank. Termination of Employee's employment
for cause shall include termination as an employee and officer of Employer.
3. COMPENSATION
For all services which Employee may render to Employer during the term
hereof, Employer shall pay to Employee, subject to such deduction as may be
required by law, according to the schedule set out below:
(a) Base Salary. From the effective date hereof, Employee shall
receive for the term of this contract a salary based on an annual rate of
$64,200, payable in equal semi-monthly installments, subject to such deductions
as may be required by law. The Employee will receive performance reviews at
least annually at the end of each fiscal year from the President, and the
Employee's salary may be increased but not decreased at the sole discretion of
the Board.
<PAGE> 3
4. OTHER BENEFITS
During the term of the Employee's employment hereunder on and after
the effective date (except as noted in this paragraph) Employer shall furnish
to Employee: (i) A term life insurance policy providing for death benefits of
two times base salary having a beneficiary designated by the Employee; (ii) A
group health, hospitalization and dental insurance policy covering the Employee
at no cost to the Employee other than such deductible as may be applicable to
all other Employees of the Bank, and, if the Employee desires, covering the
dependents and spouse of the Employee, if any, at no cost to the Employee; and
(iii) A long term disability insurance policy, as generally defined in the
insurance industry, providing for benefits of at least 60% of Employee's basic
monthly earnings not to exceed $5,000 monthly. This long term disability
policy will be as consistent as reasonably possible with the definition of
"complete disability" provided in paragraph 2(b) above. Supplemental long term
disability benefits will be provided on an annual basis as deemed appropriate.
The Employee will be allowed to participate in all other benefits provided to
the company's employees.
5. EXPENSES
Upon Employee's presentment to Employer of expense reports acceptable
to Employer and which are in sufficiently detailed form to comply with
standards for deduction of business expenses established from time to time by
the Internal Revenue Service, Employer will reimburse Employee for such
expenses approved by the Employer and incurred by Employee in connection with
performance of duties hereunder.
6. POST TERMINATION COVENANTS
Employee agrees to not furnish, use, or divulge to anyone any
confidential information of Employer acquired from Employer and relating to the
Employer's business activities and further agrees, for one (1) year following
such termination, Employee agrees that he will not, without the prior written
consent of Employer: (i) furnish anyone with the name of, or any list or lists
which identify, any customers or stockholders of the Employer or utilize such
list or information; (ii) contact directly or indirectly any customer of
Employer for the purpose of soliciting such person's business for another bank
or similar financial institution; (iii) hire for any other employer (including
self) any employee of Employer or directly or indirectly cause such employee to
leave his or her employment to work for another; (iv) pursue an actual or
potential business opportunity of interest to and which could be pursued by
Employer which came to the attention of Employee in connection with employment
with Employer and which Employee had not previously offered in writing to
Employer with sufficient advance notice to allow Employer to examine and pursue
or reject such opportunity. Excepted from the requirements of subparagraph (i)
in this paragraph is any information which is or becomes publicly and available
information through no fault or act of Employee.
It is understood and agreed by the parties hereto that the provisions
of this paragraph are independent of each other, and to the extent any
provision or portion thereof shall be determined by a court of competent
jurisdiction to be unenforceable, such determination shall not effect the
validity or enforceability of any other provision of this paragraph or the
remainder of this agreement.
<PAGE> 4
7. WAIVER OF PROVISIONS
Failure by any of the parties hereto to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this agreement shall not be deemed a waiver or relinquishment of
any right granted hereunder or of the obligation of future performance of any
such term or condition or of any other term or condition of this agreement,
unless such waiver is contained in writing signed by or on behalf of all the
parties.
8. GOVERNING LAW
This agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Virginia. If for any reason
any provision of this agreement shall be held by a court of competent
jurisdiction to be void or unenforceable, the same shall not affect the
remaining provisions hereof.
9. MODIFICATION AND AMENDMENT
This agreement contains the sole and entire agreement among the
parties hereto and supersedes all prior discussions and agreements among the
parties, and any such prior agreements shall, from and after the date hereof,
be null and void. This agreement shall not be modified or amended except by an
instrument in writing signed by on or behalf of all parties hereto.
10. COUNTERPARTS AND HEADINGS
This agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. The headings set out herein are for
convenience of reference and shall not be deemed a part of this agreement.
<PAGE> 5
11. INJUNCTIVE RELIEF
In the event of a breach or threatened breach by Employee of any of
the provisions of paragraph 2 or paragraph 7, and notwithstanding any other
provision in this agreement, Employer, in addition to any other available
rights or remedies, shall be entitled to such temporary restraining orders and
permanent injunctions, as are allowable and authorized by the laws of the
Commonwealth of Virginia based on the facts of the case, to restrain such
breach by Employee and/or any persons directly or indirectly acting for or with
him. Employee's obligations under paragraph 7 hereof shall remain binding and
enforceable according to its terms notwithstanding expiration or termination of
the other terms of this agreement or the termination of Employee's employment
relationship with the Bank.
12. SUCCESSORS
This agreement shall inure to the benefit of and be binding upon the
Employer, its successors and assignees and upon the Employee, heirs and
personal representatives. Neither this agreement nor performance hereunder may
be assigned by Employee.
IN WITNESS WHEREOF, the parties hereto have executed this agreement
under seal on the 27th day of September, 1996, to be effective as of the date
first written above.
EMPLOYEE:
/s/ /s/
- - ----------------------------------- --------------------------------
Witness Charles Wimer
EMPLOYER:
PATRIOT NATIONAL BANK
national banking organization
/s/ /s/
- - ---------------------------------- --------------------------------
Witness Carroll C. Markley
President & CEO
<PAGE> 1
EXHIBIT 10.8
THIS EMPLOYMENT CONTRACT
made and entered into this 1st day of September, 1996 between Patriot National
Bank ("Employer"), a national banking association chartered through the Office
of the Comptroller of the Currency; and Robert C. Shoemaker ("Employee")
WHEREAS, Employee has agreed to be a Vice President of the Bank;
WHEREAS, the parties wish to establish the terms and conditions of
Employee's employment,
NOW, therefore, in consideration of the promises and the mutual
covenants and agreements set forth herein, the parties hereby agree as follows:
1. RELATIONSHIP AND DUTIES
(a) Employer hereby employs Employee on the effective date hereof
(as defined in paragraph 2 below) as an officer of the Bank to serve as Vice
President to serve as a construction/real estate lending officer and to perform
such services and duties as the Bank's President & CEO ("President") may, from
time to time, designate during the term hereof. Subject to the terms and
conditions hereof, Employee will perform such duties and exercise such
authority as are customarily performed and exercised by persons holding such
office, subject to the direction of the President.
(b) Employee accepts such employment and shall devote full time,
attention, and best efforts to the diligent performance of duties herein
specified and as an officer of the Bank. While employed by Employer, the
Employee will not, without the prior written consent of the President, accept
employment with any other individual, corporation, partnership, governmental
authority or other entity, or engage in any other venture for profit which
Employer or the Board may consider to be in conflict with the Bank's best
interests or to be in competition with the Bank, or which may interfere in any
way with the Employee's performance of his duties hereunder. It is understood
that Employee does have the right to participate in passive investments
including income producing real estate, not otherwise in conflict with Bank
policy.
(c) Whenever the term "Employer" is used herein, that term shall
be deemed synonymous with the terms "the Bank", "President" or "the Board",
whenever the context so requires.
(d) Regarding the relationships and duties of the parties to this
contract, the Employee shall not be required by Employer, as a part of daily
duties, to perform or to participate in any activity which constitutes a
violation of any state or federal law, rule, ordinance or regulation.
<PAGE> 2
2. TERMS OF EMPLOYMENT
Employee's employment hereunder shall commence upon the effective date
of this contract. Said employment shall continue from the date of this
agreement until December 31, 1998, unless terminated earlier pursuant to the
terms hereof. Employee's employment pursuant to this agreement shall be
terminated by the first to occur of any of the following:
(a) the death of the Employee;
(b) the complete disability of the Employee. "Complete
disability" as used herein shall mean the inability of Employee, due to
illness, accident, or any other physical or mental incapacity, completely to
fulfill his obligations hereunder for an aggregate of ninety (90) days within
any period of 180 consecutive days during the term hereof;
(c) The discharge of Employee by Employer for cause. "Cause" as
used herein shall include, without limitation: dishonesty; theft; conviction of
a crime, which is either a felony or misdemeanor other than any minor traffic
violation; unethical business conduct; activity which is contrary to the Bank's
interests; gross or repeated negligence in carrying out Employee's duties; or
material violation of Employee's obligations hereunder. Should Employer deem
specific activities contrary to the Bank's interest or that negligence by
Employee in carrying out duties or any violation of Employee's obligations
hereunder has occurred, notice of said activity, negligence or violation shall
be provided by Employer to Employee along with a reasonable period of time in
which to correct. Provided that such activity, negligence or violation is
neither dishonest nor criminal, 30 days shall be deemed to be reasonable time
in which to correct such deficiencies.
(d) Discharge for "cause" will require approval by a two-thirds
majority vote of the Board of the Bank. Termination of Employee's employment
for cause shall include termination as an employee and officer of Employer.
3. COMPENSATION
For all services which Employee may render to Employer during the term
hereof, Employer shall pay to Employee, subject to such deduction as may be
required by law, according to the schedule set out below:
(a) Base Salary. From the effective date hereof, Employee shall
receive for the term of this contract a salary based on an annual rate of
$65,285, payable in equal semi-monthly installments, subject to such deductions
as may be required by law. The Employee will receive performance reviews at
least annually at the end of each fiscal year from the President, and the
Employee's salary may be increased but not decreased at the sole discretion of
the Board.
<PAGE> 3
4. OTHER BENEFITS
During the term of the Employee's employment hereunder on and after
the effective date (except as noted in this paragraph) Employer shall furnish
to Employee: (i) A term life insurance policy providing for death benefits of
two times base salary having a beneficiary designated by the Employee; (ii) A
group health, hospitalization and dental insurance policy covering the Employee
at no cost to the Employee other than such deductible as may be applicable to
all other Employees of the Bank, and, if the Employee desires, covering the
dependents and spouse of the Employee, if any, at no cost to the Employee; and
(iii) A long term disability insurance policy, as generally defined in the
insurance industry, providing for benefits of at least 60% of Employee's basic
monthly earnings not to exceed $5,000 monthly. This long term disability
policy will be as consistent as reasonably possible with the definition of
"complete disability" provided in paragraph 2(b) above. Supplemental long term
disability benefits will be provided on an annual basis as deemed appropriate.
The Employee will be allowed to participate in all other benefits provided to
the company's employees.
5. EXPENSES
Upon Employee's presentment to Employer of expense reports acceptable
to Employer and which are in sufficiently detailed form to comply with
standards for deduction of business expenses established from time to time by
the Internal Revenue Service, Employer will reimburse Employee for such
expenses approved by the Employer and incurred by Employee in connection with
performance of duties hereunder.
6. POST TERMINATION COVENANTS
Employee agrees to not furnish, use, or divulge to anyone any
confidential information of Employer acquired from Employer and relating to the
Employer's business activities and further agrees, for one (1) year following
such termination, Employee agrees that he will not, without the prior written
consent of Employer: (i) furnish anyone with the name of, or any list or lists
which identify, any customers or stockholders of the Employer or utilize such
list or information; (ii) contact directly or indirectly any customer of
Employer for the purpose of soliciting such person's business for another bank
or similar financial institution; (iii) hire for any other employer (including
self) any employee of Employer or directly or indirectly cause such employee to
leave his or her employment to work for another; (iv) pursue an actual or
potential business opportunity of interest to and which could be pursued by
Employer which came to the attention of Employee in connection with employment
with Employer and which Employee had not previously offered in writing to
Employer with sufficient advance notice to allow Employer to examine and pursue
or reject such opportunity. Excepted from the requirements of subparagraph (i)
in this paragraph is any information which is or becomes publicly and available
information through no fault or act of Employee.
It is understood and agreed by the parties hereto that the provisions
of this paragraph are independent of each other, and to the extent any
provision or portion thereof shall be determined by
<PAGE> 4
a court of competent jurisdiction to be unenforceable, such determination shall
not effect the validity or enforceability of any other provision of this
paragraph or the remainder of this agreement.
7. WAIVER OF PROVISIONS
Failure by any of the parties hereto to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this agreement shall not be deemed a waiver or relinquishment of
any right granted hereunder or of the obligation of future performance of any
such term or condition or of any other term or condition of this agreement,
unless such waiver is contained in writing signed by or on behalf of all the
parties.
8. GOVERNING LAW
This agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Virginia. If for any reason
any provision of this agreement shall be held by a court of competent
jurisdiction to be void or unenforceable, the same shall not affect the
remaining provisions hereof.
9. MODIFICATION AND AMENDMENT
This agreement contains the sole and entire agreement among the
parties hereto and supersedes all prior discussions and agreements among the
parties, and any such prior agreements shall, from and after the date hereof,
be null and void. This agreement shall not be modified or amended except by an
instrument in writing signed by on or behalf of all parties hereto.
10. COUNTERPARTS AND HEADINGS
This agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument. The headings set out herein are for
convenience of reference and shall not be deemed a part of this agreement.
11. INJUNCTIVE RELIEF
In the event of a breach or threatened breach by Employee of any of
the provisions of paragraph 2 or paragraph 7, and notwithstanding any other
provision in this agreement, Employer, in addition to any other available
rights or remedies, shall be entitled to such temporary restraining orders and
permanent injunctions, as are allowable and authorized by the laws of the
Commonwealth of Virginia based on the facts of the case, to restrain such
breach by Employee and/or any persons directly or indirectly acting for or with
him. Employee's obligations under paragraph 7 hereof shall remain binding and
enforceable according to its terms notwithstanding expiration or termination of
the other terms of this agreement or the termination of Employee's employment
relationship with the Bank.
12. SUCCESSORS
<PAGE> 5
This agreement shall inure to the benefit of and be binding upon the
Employer, its successors and assignees and upon the Employee, heirs and
personal representatives. Neither this agreement nor performance hereunder may
be assigned by Employee.
IN WITNESS WHEREOF, the parties hereto have executed this agreement
under seal on the 27th day of September, 1996, to be effective as of the date
first written above.
EMPLOYEE:
/s/ /s/
- - ------------------------------------ -------------------------------
Witness Robert C. Shoemaker
EMPLOYER:
PATRIOT NATIONAL BANK
national banking organization
/s/ /s/
- - ------------------------------------ -------------------------------
Witness Carroll C. Markley
President & CEO
<PAGE> 1
EXHIBIT 13
<PAGE> 2
FIRST
PATRIOT
BANKSHARES
CORPORATION
1996
ANNUAL REPORT
<PAGE> 3
CORPORATE PROFILE
First Patriot Bankshares Corporation (the "Company"), a Virginia
corporation, is a bank holding company founded on August 31, 1989 and is
headquartered in Reston, Virginia. The Company has two subsidiaries,
Patriot National Bank (the "Bank"), a fully owned bank subsidiary that
opened for business on April 13, 1990, and 2071 Chain Bridge Road,
L.L.C., a wholly owned Virginia limited liability company formed for the
purpose of purchasing and owning an office building in the Tysons Corner
area that houses the offices of the Company and the Bank. The Bank
operates nine offices throughout Northern Virginia specializing in
providing convenient quality service. The bank was the leading
originator of U.S. Small Business Administration loans in the
metropolitan Washington D.C. area for the fifth consecutive year.
The common stock of First Patriot Bankshares Corporation is traded on the
Nasdaq Stock Market under the symbol FPBK. Deposits at the Bank are
insured up to $100,000 by the Federal Deposit Insurance Corporation.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Highlights................................................................................2
Letter to Stockholders..............................................................................3
Selected Consolidated Financial Data................................................................4
Management's Discussion and Analysis................................................................5
Financial Statements...............................................................................16
Board of Directors.................................................................................45
Patriot National Bank Officers.....................................................................46
Advisory Board and Bank Departments................................................................47
Corporate and Stockholder Information..............................................................48
</TABLE>
1
<PAGE> 4
FINANCIAL HIGHLIGHTS
FIRST PATRIOT BANKSHARES CORPORATION
<TABLE>
<CAPTION>
% Change
----------------------
1996 1995
vs. vs.
(dollars in thousands,except per share data) 1996 1995 1994 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net income $2,090 $1,524 $1,096 37% 39%
Dividends declared on comon stock 246 177 -- -- --
Earnings per share:
Primary $0.93 $0.71 $0.54 31% 31%
Fully Diluted 0.93 0.71 0.53 31% 34%
Dividends declared per share $0.12 $0.09 -- -- --
=======================================================================================================================
AT YEAR END
Assets $191,852 $158,791 $104,910 21% 51%
Earning Assets 178,649 145,560 96,525 23% 51%
Loans - net of unearned income 127,868 106,676 75,272 20% 42%
Deposits 154,329 120,259 84,842 28% 42%
Total equity 14,525 12,738 10,832 14% 18%
Book value per share 7.19 6.35 5.50 13% 15%
Common shares outstanding 2,020,929 2,005,200 1,969,896
=======================================================================================================================
KEY RATIOS (FOR THE YEAR)
Return on average assets 1.25% 1.19% 1.10%
Return on average total equity 15.66% 13.06% 10.57%
Average equity to average assets 7.99% 9.09% 10.40%
Net interest margin 5.65% 5.88% 5.41%
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TOTAL ASSETS
($ in millions)
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C>
$69 $95 $105 $159 $191
</TABLE>
<TABLE>
<CAPTION>
RETURN ON ASSETS
(percent)
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C>
0.78 1.00 1.10 1.19 1.25
</TABLE>
<TABLE>
<CAPTION>
EARNINGS
($ in thousands)
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C>
$431 $806 $1,096 $1,524 $2,090
</TABLE>
2
<PAGE> 5
TO OUR STOCKHOLDERS
First Patriot Bankshares Corporation experienced another record setting year of
growth and earnings performance in 1996. Earnings increased 37%, topping the
two million dollar threshold. Assets increased 21% and primary earnings per
share increased 31%.
Other accomplishments of 1996 include a return on average assets of 1.25% and a
return on average equity of 15.66%. These ratios compare with a return on
average assets of 1.19% and a return on average equity of 13.06% in 1995.
Our ninth branch banking office located in Herndon, Virginia at the McLearen
shopping center opened on February 15, 1997. Three additional branches are
scheduled to open during 1997 which will give us a total of twelve locations
throughout Northern Virginia serving the counties of Fairfax, Loudoun and
Prince William.
For the fifth consecutive year, Patriot National Bank was recognized for
originating more U.S. Small Business Administration (SBA) loans than any other
bank in the Washington D.C. metropolitan area. Patriot National Bank is
designated a Preferred Lender by the SBA with authority to originate loans
throughout Virginia, Maryland and the District of Columbia.
Perhaps the most significant event in the history of First Patriot Bankshares
Corporation occurred on February 19, 1997 when we announced that First Patriot
Bankshares Corporation and United Bankshares, Inc. had entered into a
definitive merger agreement. Under the terms of the agreement, shareholders of
First Patriot Bankshares Corporation will receive $17.00 for each share of
First Patriot stock. The consummation of the merger is subject to shareholder
and regulatory approval. More detailed information relating to the proposed
merger will be provided to shareholders in a proxy statement in connection with
a special shareholders meeting that will be held to vote on the merger
agreement and plan of merger.
United Bankshares, Inc., with $2.3 billion in assets, is the second largest
bank holding company headquartered in West Virginia with 43 offices throughout
West Virginia and two offices in Virginia, one in McLean and the other in
Arlington.
We appreciate your support and welcome any questions you may have.
Sincerely,
Carroll C. Markley John H. Rust, Jr.
President and Chief Executive Officer Chairman of the Board
3
<PAGE> 6
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
RESULTS OF OPERATIONS 1996 1995 1994 1993 1992
=================================================================================================================
<S> <C> <C> <C> <C>
Net interest income $8,777 $6,969 $5,104 $3,777 $2,752
Provision for loan losses 751 372 178 279 208
Noninterest income 2,908 2,281 1,505 1,240 347
Noninterest expense 7,748 6,471 4,770 3,795 2,460
--------- --------- --------- --------- ---------
Income before taxes 3,186 2,407 1,661 943 431
Income tax expense 1,096 883 565 137 148
--------- --------- --------- --------- ---------
Income before extraordinary item 2,090 1,524 1,096 806 283
Extraordinary tax benefit -- -- -- -- 148
--------- --------- --------- --------- ---------
Net income $2,090 $1,524 $1,096 $806 $431
========= ========= ========= ========= =========
Primary earnings per share:
Income before extraordinary item $0.93 $0.71 $0.54 $0.51 $0.20
Extraordinary tax benefit -- -- -- -- 0.11
--------- --------- --------- --------- ---------
Net income $0.93 $0.71 $0.54 $0.51 $0.31
========= ========= ========= ========= =========
Weighted average shares outstanding 2,243,695 2,138,556 2,046,960 1,580,113 1,388,567
Fully diluted earnings per share:
Income before extraordinary item $0.93 $0.71 $0.53 $0.51 $0.20
Extraordinary tax benefit -- -- -- -- 0.11
--------- --------- --------- --------- ---------
Net income $0.93 $0.71 $0.53 $0.51 $0.31
--------- --------- --------- --------- ---------
Weighted average shares outstanding 2,249,763 2,148,278 2,061,940 1,580,113 1,388,567
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
FINANCIAL CONDITION 1996 1995 1994 1993 1992
=================================================================================================================
<S> <C> <C> <C>
Assets $191,852 $158,791 $104,910 $95,304 $69,059
Loans, gross $127,868 $106,676 $75,272 $63,253 $45,561
Investments & Federal Funds Sold $50,781 $38,884 $15,749 $13,213 $12,453
Earning assets $178,649 $145,560 $96,525 $90,929 $65,242
Deposits $154,329 $120,259 $84,842 $75,969 $58,591
Stockholders' equity $14,525 $12,738 $10,832 $9,997 $6,195
Book value per share $7.19 $6.35 $5.50 $5.07 $4.46
Common shares outstanding 2,020,929 2,005,200 1,969,896 1,969,896 1,388,567
Number of full service offices 8 8 5 2 1
PERFORMANCE RATIOS
=================================================================================================================
Return on average assets 1.25% 1.19% 1.10% 1.00% 0.78%
Return on average equity 15.66% 13.06% 10.57% 10.98% 7.91%
Net interest margin 5.65% 5.88% 5.41% 4.96% 5.19%
ASSET QUALITY
=================================================================================================================
Allowance for loan losses $1,530 $1,332 $965 $793 $552
Allowance for loan losses to loans, gross 1.20% 1.25% 1.28% 1.25% 1.21%
Nonperforming loans -- -- -- $19 $97
Nonperforming loans to loans, gross -- -- -- 0.03% 0.21%
Net charge-offs to average loans 0.48% -- -- 0.07% --
LIQUIDITY AND CAPITAL RATIOS
=================================================================================================================
Average loans to average deposits 86.88% 84.41% 89.00% 80.61% 80.63%
Risk-based capital:
Tier 1 11.22% 11.59% 15.61% 17.42% 16.55%
Total 12.39% 12.81% 16.87% 18.67% 17.96%
Leverage 8.16% 8.27% 10.32% 10.64% 9.88%
</TABLE>
4
<PAGE> 7
The following discussion is an analysis of the significant changes in the
financial condition and results of operations of First Patriot Bankshares
Corporation and subsidiaries for the years 1994-1996. The discussion should be
read in conjunction with the accompanying consolidated financial statements and
related notes.
ORGANIZATIONAL BACKGROUND
First Patriot Bankshares Corporation (the "Company") was incorporated in
Virginia on August 31, 1989 and is headquartered in Reston, Virginia. With the
proceeds of its initial public offering, the Company acquired all of the issued
and outstanding stock of Patriot National Bank ("the bank"), a national banking
association located in Reston, Virginia that began operations on April 13,
1990.
In April 1993, the Company declared a two for one split of its common
stock. As a result of the split, 680,670 additional shares were issued and the
par value of the Company's stock was reduced to $2.50 per share.
On October 22, 1993, the Company completed its second common stock
offering, which resulted in the issuance of 570,000 additional shares at a
price of $5.75, which in turn resulted in net proceeds of approximately $3
million. A portion of the new capital was used to open its second banking
office.
On June 30, 1994 the Company issued a 2% stock dividend, which resulted
in 38,556 additional shares being issued. During 1994, the Company expanded
its banking operations with the opening of three new offices.
In September 1994, the Company formed 2071 Chain Bridge Road, L.L.C., a
majority-owned limited liability company for the purpose of purchasing an
office building that houses offices for both the Company and the Bank.
In March 1995, the Company paid its first cash dividend representing
$.02 per share. The Company subsequently increased the cash dividend to $.03
for the fourth cash dividend paid on November 30, 1995. The company paid a
$.12 annual dividend in 1996.
The Company opened three new banking offices in 1995. This brings the
total banking offices to eight throughout Northern Virginia.
5
<PAGE> 8
INCOME STATEMENT ANALYSIS
EARNINGS SUMMARY
First Patriot Bankshares Corporation reported net income of $2.090 million
for 1996, an increase of 37% over 1995 earnings of $1.524 million. Fully
diluted earnings per share were $.93, an increase of 31% over $.71 reported in
1995.
Return on assets for 1996 was 1.25%, compared to 1.19% for 1995 and 1.10%
for 1994. Return on shareholders' equity was 15.66% for 1996, compared to
13.06% for 1995 and 10.57% for 1994.
Net interest income increased as a result of a 30.9% increase in average
earning assets. Net interest margin decreased to 5.65% in 1996 compared to
5.88% in 1995 and 5.41% in 1994. This decrease reflects the highly competitive
market for both deposits and loans.
The provision for loan losses doubled from last year as a result of a 20%
increase in loans outstanding and the charge-off of a commercial loan in the
amount of $500,000. The allowance for loan losses as a percentage of
outstanding loans was 1.20% at December 31, 1996, compared to 1.25% at December
31, 1995 and 1.28% at December 31, 1994.
Non-interest income totaled approximately $2.9 million in 1996 compared to
$2.3 million in 1995, an increase of 27%. In 1995, non-interest income
increased 52% over 1994. These increases are largely attributable to increased
service charges on deposit accounts and gains on the sale of loans.
Non-interest expense increased 20% in 1996, following increases of 36% in
1995 and 26% in 1994. Salaries and benefits increased 21% over 1995,
reflecting additional staffing requirements throughout the organization
necessary to support growth. Occupancy, equipment, and other non-interest
expense likewise increased, reflecting the growth of the organization.
NET INTEREST INCOME
Net interest income increased $1.8 million in 1996 or 25.9%, compared to
increases of 36.5% in 1995 and 35.1% in 1994. Net interest margin was 5.65% in
1996 versus 5.88% in 1995 and 5.41% in 1994. The increases in net interest
income were primarily due to increases in average earning assets. Table 1
provides the components of average assets and liabilities together with their
respective yields. Table 2 provides a reconciliation of the changes in net
interest income attributable to variations in balances and yields.
6
<PAGE> 9
TABLE 1 - AVERAGE BALANCES, INTEREST INCOME AND EXPENSES,
AVERAGE YIELDS AND RATES
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
------------------------------ ---------------------------- ----------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
------------------------------ ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Federal funds sold $9,122 $488 5.35% $9,167 $539 5.88% $10,322 $444 4.30%
Investments:
U.S. Treasury securities 1,625 98 6.01% 4,228 215 5.09% 7,064 317 4.49%
Obligations of U.S. government
agencies and corporations 28,626 2,014 7.03% 18,825 1,373 7.29% 5,656 304 5.37%
Other securities 962 55 5.71% 1,256 64 5.10% 1,387 63 4.54%
-------- ------ -------- ------ ------- ------
Total investments 31,213 2,166 6.94% 24,309 1,652 6.80% 14,107 684 4.85%
Loans (3) 114,911 12,036 10.47% 85,083 9,281 10.91% 69,855 6,702 9.59%
-------- ------ -------- ------ ------- ------
Total interest earning assets 155,246 14,690 9.46% 118,559 11,472 9.68% 94,284 7,830 8.30%
Noninterest earning assets:
Cash and due from banks 5,953 5,253 3,891
Other assets 7,390 5,665 2,400
Less: allowance for loan losses (1,547) (1,063) (887)
Total noninterest earning assets 11,796 9,855 5,404
-------- -------- -------
Total assets $167,042 $128,414 $99,688
======== ======== -------
Liabilities and stockholders' equity
Interest bearing liabilities
Deposits:
Interest bearing demand $10,529 216 2.05% $7,795 189 2.42% $6,948 176 2.53%
Savings and money market accounts 30,398 964 3.17% 24,942 849 3.40% 25,795 746 2.89%
Other time 63,928 3,734 5.84% 46,180 2,695 5.84% 30,530 1,406 4.61%
-------- ------ -------- ------ ------- ------
Total interest bearing deposits 104,855 4,914 4.69% 78,917 3,733 4.73% 63,273 2,328 3.68%
Short-term borrowings 18,600 887 4.77% 14,316 762 5.32% 10,144 398 3.92%
Other borrowings 1,125 112 9.95% 100 8 8.00% --
-------- ------ -------- ------ ------- ------ ------
Total interest bearing liabilities 124,580 5,913 4.75% 93,333 4,503 4.82% 73,417 2,726 3.71%
Noninterest bearing liabilities:
Demand deposits 27,416 21,880 15,217
Other liabilities 1,704 1,528 688
-------- -------- -------
Total noninterest bearing liabilities 29,120 23,408 15,905
Total liabilities 153,700 116,741 89,322
Stockholders' equity 13,342 11,673 10,366
-------- -------- -------
Total liabilities and stockholders' equity $167,042 $128,414 $99,688
======== ======== =======
Interest spread (1) 4.72% 4.85% 4.59%
Net interest income $8,777 $6,969 $5,104
====== ======= ======
Net Interest margin (2) 5.65% 5.88% 5.41%
</TABLE>
(1) Interest spread is the average yield earned on earning assets less the
average rate incurred on interest bearing liabilities.
(2) Net interest margin is net interest income expressed as a percentage of
average earning assets.
(3) Loan fees included for 1996, 1995, & 1994 are: $465 ,$440, and $395
Average earning assets increased $36.7 million in 1996 compared to an
increase of $24.3 million in 1995. Loans on average increased $29.8 million or
35.1% compared to an increase of 21.8% in 1995. Loans outstanding totaled
$127.9 million at December 31, 1996 compared to $106.7 million in 1995, an
increase of 20%. This follows an increase of 42% from year-end 1994 to
December 31, 1995. The Company's investment portfolio increased on average
$6.9 million or 28.4% in 1996 compared to an increase of 72.3% in 1995. The
increase in the investment portfolio in 1996 was principally the result of
deposit growth exceeding the increase in loan demand.
7
<PAGE> 10
Average earning assets comprised 92.9% of average total assets in 1996,
compared to 92.3% in 1995 and 94.6% in 1994.
Average interest-bearing liabilities increased $31.2 million or 33.5% in
1996, compared to an increase of 27.1% in 1995 and 18.8% in 1994. Average
interest-bearing liabilities as a ratio of earning assets was 80.2% in 1996,
78.7% in 1995 and 77.9% in 1994.
Average non-interest-bearing deposits grew $5.5 million or 25.3% in 1996,
compared to increases of 43.8% in 1995 and 33.0% in 1994. The ratio of average
non-interest-bearing deposits to total average deposits was 20.7% for 1996,
compared to 21.7% in 1995 and 19.4% in 1994. On average, short-term borrowings,
consisting primarily of repurchase agreements, increased $4.3 million to $18.6
million in 1996, compared to $14.3 million in 1995 and $10.1 million in 1994.
These increases are attributable to increased usage of our cash management
services.
The Company's net interest rate spread decreased 13 basis points during
1996, following increases of 26 basis points in 1995 and 1994. Yields on
earning assets decreased 22 basis points in 1996 compared to an increase of 138
basis points in 1995 and an increase of 59 basis points in 1994. At December
31, 1996, approximately 74% of the Company's loans were variable rate loans
indexed to the national prime lending rate. Average loan yields decreased 44
basis points
TABLE 2 - VOLUME AND RATE ANALYSIS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1996 Versus 1995 1995 Versus 1994
-------------------------- ---------------------------
Change Due To: Change Due To:
-------------- --------------
(dollars in thousands) Volume Rate Total Volume Rate Total
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold ($3) ($48) ($51) ($42) $137 $95
Investments: 0 0
U.S. Treasury securities (167) 50 (117) (153) 51 (102)
Obligations of U.S. government
agencies and corporations 686 (45) 641 930 139 1,069
Other (19) 10 (9) (3) 4 1
------ ----- ------ ------ ---- ------
Total investments 500 15 515 774 194 968
Loans 3,107 (353) 2,754 1,585 994 2,579
------ ----- ------ ------ ---- ------
Total interest income 3,604 (386) 3,218 2,317 1,325 3,642
Interest expense:
Deposits:
Interest bearing demand 48 (21) 27 20 (7) 13
Savings and money market 167 (52) 115 (21) 124 103
Time 1,039 0 1,039 851 438 1,289
------ ----- ------ ------ ---- ------
Total deposits 1,254 (73) 1,181 850 555 1,405
Borrowings 266 (37) 229 201 171 372
------ ----- ------ ------ ---- ------
Total interest expense 1,520 (110) 1,410 1,051 726 1,777
Increase/(decrease) in net interest income $2,084 ($276) $1,808 $1,266 $599 $1,865
====== ===== ====== ====== ==== ======
</TABLE>
8
<PAGE> 11
during 1996. Yields on the investment portfolio increased 14 basis points
reflecting the addition of $6.9 million in average investment securities at
higher yields.
Interest rates paid on interest-bearing liabilities decreased 7 basis
points during 1996, compared to a 111 basis point increase in 1995 and a 33
basis point increase in 1994.
NON-INTEREST INCOME
Non-interest income increased $627 thousand and totaled $2.9 million in
1996, compared to $2.3 million in 1995 and $1.5 million in 1994. The most
significant increases occurred in gains on the sale of loans and investments as
shown in the consolidated statements of operations in the financial statements.
NON-INTEREST EXPENSE
Non-interest expense totaled $7.7 million, up from $6.5 million in 1995
and $4.8 million in 1994. Total salaries and employee benefits increased $692
thousand over 1995, which is partially attributable to the full twelve months
impact of the three branches opened in 1995. Additional staffing was also
required to support the continued level of growth. Occupancy and equipment
expenses also experienced increases attributable to growth. Other operating
expenses are detailed in Note 7 to the financial statements.
BALANCE SHEET ANALYSIS
INVESTMENT SECURITIES PORTFOLIO
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" effective
December 31, 1993. In accordance with SFAS 115, securities are classified as
either securities held to maturity, securities available for sale or trading
account securities. Securities classified as held to maturity are carried at
amortized cost on the Company's Consolidated Balance Sheets and represent
securities that the Company has the intent and ability to hold to maturity.
Securities classified as available for sale are carried at fair value
and may be sold to meet liquidity needs or in response to significant changes
in interest rates or prepayment risks. The Company did not have any securities
classified as trading securities. In accordance with SFAS 115, unrealized
gains or losses on securities available for sale are excluded from Consolidated
Statement of Income and reported, net of tax, as a separate component of
shareholder's equity. In 1995, The Financial Accounting Standards Board gave
companies a one-time opportunity to reclassify their investment securities for
fiscal year 1995. Accordingly, the Company transferred its held to maturity
securities to the available for sale category in December 1995. At December
31, 1996 all securities were classified as available for sale.
9
<PAGE> 12
At December 31, 1996, the securities portfolio totaled $40.8 million, an
increase of 42.5% over year-end 1995. Average securities increased 28.4% in
1996 compared to 72.3% in 1995. The growth in securities occurred in the U.S.
Government Agencies category. Average securities represented 20.1% of earning
assets in 1996, compared to approximately 20.5% in 1995. The increase in the
percentage of earning assets is largely due to deposits growing more rapidly
than loan demand. Table 3 summarizes the composition of the security
portfolio. Maturity distribution and weighted average yields of the Company's
securities portfolio are summarized in Table 4.
TABLE 3 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States treasuries and agencies $39,847 $27,775 $14,393
Obligations of states and political subdivisions 235 233 646
Other securities 756 657 710
------------------------------------
Total $40,838 $28,665 $15,749
====================================
</TABLE>
TABLE 4 - SECURITIES PORTFOLIO MATURITY DISTRIBUTION AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
------------------ -------------------- ------------------- --------------------
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States treasuries
and agencies $500 4.50% $8,163 6.91% $30,585 7.05% $599 6.68%
Obligations of states
political subdivisions 235 3.40% -- -- -- -- -- --
Other securities -- -- -- -- -- -- 756 6.72%
---------- ---------- ---------- ----------
Total $735 $8,163 $30,585 $1,355
========== ========== ========== ==========
</TABLE>
LOANS HELD FOR SALE
Loans held for sale consist of loans originated under the U.S. Small
Business Administration program. The SBA loan program, designed to provide
financial assistance to small businesses through participating banks, provides
guarantees ranging from 75% to 90%. The guaranteed portion of these loans may
be sold in the secondary market to provide liquidity and funding for new loans.
Patriot National Bank originated more loans of this type in fiscal year 1996
than any other bank in the Metropolitan Washington D.C. area. This is the
fifth consecutive year that Patriot has achieved this distinction,
demonstrating its commitment to small businesses in the community. At December
31, 1996, SBA loans held for sale totaled $8.3 million, down from $12.9 million
on December 31, 1995 a decrease of 36%. This decrease is attributable to the
volume of loans sold during 1996.
10
<PAGE> 13
LOAN PORTFOLIO
The loan portfolio, including available for sale loans, totaled $128.5
million at December 31, 1996, an increase of 20% from December 31, 1995. This
follows an increase of 42.3% in 1995. Average loans, including loans held for
sale, amounted to $114.9 million in 1996, representing an increase of 35.1%
over last year. Note 3 of the financial statements provides a listing of the
various types of loans. Table 5 provides a maturity distribution of the loan
portfolio.
TABLE 5 - MATURITY OF LOANS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Maturing
---------------------------------------------------------
After One
Within One But Within After Five
(dollars in thousands) Year Five Years Years Total
- - ------------------------------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Commercial and SBA $11,713 $8,337 $23,231 $43,281
Commercial mortgage 4,673 18,697 14,184 37,554
Construction 6,188 6,591 6,282 19,061
Residential Mortgage 4,299 6,472 6,826 17,597
Home Equity 699 5,512 0 6,212
Installment 1,584 3,196 35 4,815
-------------- ------------- -------------- --------------
Total $29,157 $48,804 $50,558 $128,520
============== ============= ============== ==============
<CAPTION>
Loans maturing after one year (included in the above table) with:
<S> <C>
Fixed interest rates $ 15,520
Variable interest rates 78,517
--------------
Total $ 94,387
==============
</TABLE>
<TABLE>
<CAPTION>
LOAN MIX- 12/31/96
$128,520
<S> <C>
Comm SBA 43281
Comm Mort 37554
Construction 19061
Res Mort 17594
Equity 6212
Installment 4815
</TABLE>
Commercial loans decreased $1.9 million from year-end 1995 to $43.3 million
at year-end 1996, a 4.4% decrease. Commercial mortgage loans increased
approximately 62% from $23.2 million at December 31, 1995 to $37.5 million on
December 31, 1996. The increase in commercial loans is due to the Company's
continuing efforts to expand the commercial loan portfolio by focusing on the
credit needs of small to medium-sized businesses. The Company has no highly
leveraged transactions.
Construction loans, consisting of both residential and commercial
properties increased $2.3 million or 12.0% from the previous year. Residential
construction loans are comprised of individual properties that are owner
occupied and small project development loans. The increase in construction
loans is due to continued strength in the local real estate market.
Residential mortgage loans totaled $17.6 million at December 31, 1996,
compared to $12.4 million on December 31, 1995, an increase of 41.6%. The
growth in residential mortgage loans is primarily the result of the Company
retaining a larger number of the loans it originates.
Installment loans increased approximately $572 thousand and home equity
loans increased 17.8% to $6.2 million on December 31, 1996, up from $5.3
million on December 31, 1995. Home Equity loans are lines of credit secured by
the borrower's primary residence.
11
<PAGE> 14
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was $1.5 million and represented 1.20% of
loans outstanding at December 31, 1996. The provision for loan losses
increased to $751 thousand in 1996, up from $372 thousand and $178 thousand at
year-end 1995 and 1994, respectively. The increase in the provision is
attributable to the overall growth in the loan portfolio and the charge-off of
a $500 thousand commercial loan.
The level, provision, and allocation of the allowance for loan losses are
based upon internal loan reviews, risk assessments, current economic conditions
in our local market and the level and composition of non performing assets.
Note 3 to the financial statements summarizes the transactions in the allowance
for loan losses.
Table 6 summarizes the allocation of the allowance for loan losses by
major categories of loans and percentages of loans in each category to total
loans. The allocation follows very closely the loan portfolio risk weightings
assigned by individual loan officers and internal loan review. Management's
evaluation of the effect of general economic conditions on the loan portfolio
are also factored into the allocation. Since the criteria used in determining
the allocation is subject to change, the allocation of the allowance is not
necessarily indicative of the trend for future losses in a particular loan
category.
TABLE 6 - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------- ----------------------------------- ---------------------------------
% of Loans % of Loans % of Loans
in Category in Category in Category
% of to Total % of to Total % of to Total
(dollars in thousands) Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- ----- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and SBA $472 30.9 33.7 $389 29.2 42.2 $205 21.2 38.3
Commercial mortgage 642 42.0 29.2 483 36.3 21.6 292 30.3 24.0
Construction 152 10.0 14.8 214 16.1 15.6 65 6.7 12.3
Residential mortgage 146 9.5 13.7 119 8.9 11.7 103 10.7 12.6
Home equity 62 4.1 4.8 78 5.9 4.9 212 22.0 6.3
Installment 56 3.6 3.7 49 3.7 4.0 88 9.1 6.6
----------------------------------- ----------------------------------- ---------------------------------
Total $1,530 100.0 100.0 $1,332 100.0 100.0 $965 100.0 100.0
=================================== =================================== =================================
</TABLE>
RISK ELEMENTS
There were no loans on non-accrual at December 31, 1996 or December 31,
1995. There were three loans totaling $737 thousand that were more than 90
days past due on December 31, 1996 that were not on non-accrual. The loans are
fully collateralized in amounts sufficient to cover principal and accrued
interest.
12
<PAGE> 15
The Company is continually analyzing its loan portfolio in order to
identify early risk elements that require management's attention. The loan
portfolio is subject to review by lending management, internal loan review
staff, internal audit, the Company's independent auditors and regulatory
agencies.
DEPOSITS
Average deposits, as shown in table 7, increased 31.2% for 1996. Average
non-interest-bearing deposits increased 25.3% for 1996, which follows increases
of 43.8% in 1995 and 33.0% in 1994. Average time deposits less than $100
thousand increased 47.8% in 1996, compared to increases of 85.0% in 1995 and
21.4% in 1994. The increase in average deposits is partially attributable to
our expanded branch network. Table 8 sets forth the remaining maturities of
CDS in amounts of $100 thousand or more.
TABLE 7 - AVERAGE DEPOSITS AND WEIGHTED AVERAGE RATES PAID
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------- -------------------------------- ----------------------------
Average Average Average Average Average Average
(dollars in thousands) Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits $27,416 0.00% $21,880 0.00% $15,217 0.00%
Interest bearing demand deposits 10,529 2.05% 7,795 2.42% 6,948 2.53%
Savings and money market deposits 30,398 3.17% 24,942 3.40% 25,795 2.89%
Time deposits $100,000 and over 15,099 5.93% 13,139 5.75% 12,666 4.51%
Other time deposits 48,829 5.81% 33,041 5.87% 17,864 4.67%
----------- ---------- ----------
Total $132,271 3.71% $100,797 3.70% $78,490 2.97%
=========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DEPOSIT MIX - 12/31/96
$154,329
<S> <C>
CD LESS THAN $100K 56,607
CD GREATER THAN $100K 15,858
Savings 10,690
NOW 12,178
DDA 33,466
MMDA 16,979
IRA 8,551
</TABLE>
<TABLE>
<CAPTION>
DEPOSIT GROWTH AT YEAR-END
($ in thousands)
1992 1993 1994 1995 1996
<S> <C> <C>
Deposits $58,591 $75,969 $84,842 $120,259 $154,329
</TABLE>
<TABLE>
<CAPTION>
TABLE 8 - REMAINING MATURITIES OF CD'S
IN AMOUNTS OF $100,000 OR MORE
(dollars in thousands) 1996
- - ----------------------------------------
<S> <C>
Three months or less $2,248
Three through six months $3,903
Six through twelve months $3,686
Over twelve months $6,021
- - ----------------------------------------
Total $15,858
========================================
</TABLE>
RATE SENSITIVITY
The Company's Funds Management Committee monitors interest rate
sensitivity of the balance sheet and reviews asset and liability repricing in
the context of current and future rate scenarios
13
<PAGE> 16
and current economic conditions both nationally and locally. The objective of
the committee is to minimize the impact to earnings from changes in interest
rates while maintaining a net interest margin within the Company's objectives.
Table 9 represents the Company's interest rate sensitivity at December 31,
1996, using known maturities and repricing schedules of loans, deposits and
securities. This table presents a position that existed at one particular day,
that changes continually, and is not necessarily indicative of the Company's
position at any other time.
TABLE 9 - INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
Maturing or Repricing In:
----------------------------------------------------------------------------
0-3 4-12 1-3 Over
(dollars in thousands) Months Months Years 3 Years (1) Total
- - -------------------------------------------------------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold 9,943 -- -- 9,943
Investments available for sale 500 235 0 40,103 40,838
Loans 85,553 12,067 14,794 15,454 127,868
-------------- -------------- --------------- --------------- --------------
Total interest earning assets $95,996 $12,302 $14,794 $55,557 $178,649
============== ============== =============== =============== ==============
Interest bearing liabilities:
Deposits:
Interest bearing demand $12,178 $-- $-- $-- $12,178
Savings and money market 26,377 2,295 1,667 5,882 36,221
Time deposits $100,000 and over 2,248 7,589 2,915 3,106 15,858
Other time deposits 5,873 30,291 15,840 4,603 56,607
Other borrowed money 19,301 433 260 1,185 21,179
-------------- -------------- --------------- --------------- --------------
Total interest bearing liabilities $65,977 $40,608 $20,682 $14,776 $142,043
============== ============== =============== =============== ==============
Periodic Gap $30,019 ($28,306) ($5,888) $40,781 $36,606
Cumulative Gap $30,019 $1,713 ($4,175) $36,606
Ratio of cumulative gap to
total earning assets 16.80% 0.96% -2.34% 20.49%
</TABLE>
(1) Investments available for sale include $756 of equity securities
LIQUIDITY
Liquidity management involves planning to meet both anticipated and
unanticipated funding needs. Long-term liquidity is a function of core
deposits and a strong capital position. The Company is committed to continued
growth in core deposits through pricing, product development, and building
long-term relationships with depositors.
Short-term liquidity needs arise from the continuous fluctuations in cash
flow from both sides of the balance sheet. Cash and bank balances, federal
funds sold, and securities available for sale
14
<PAGE> 17
are the principal sources of short-term liquidity. Other sources of short-term
liquidity include federal funds purchased, repurchase agreements, and
borrowings from the Federal Reserve and Federal Home Loan Bank. Maturing loans
and securities are also sources of liquidity.
EFFECTS OF INFLATION
The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most commercial and
industrial companies that have significant investments in premises, equipment,
and inventory. Inflation has an important impact on the growth of total assets
in the banking industry and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity assets
ratio. Also, another significant effect of inflation is on other expenses,
which tend to rise during periods of inflation.
Management believes the most significant impact on financial results is
the Company's ability to align its asset liability management program to react
to changes in interest rates.
CAPITAL
Shareholders equity increased 14.0% in 1996 to $14.5 million as compared
to $12.7 million in 1995. The Company paid four cash dividends of $.03 per
share in 1996. The company also provides a dividend reinvestment plan.
The Company and the Bank both exceeded regulatory requirements for being well
capitalized. Table 10 shows the Company's risk-based capital ratios and
stockholders' equity to total assets at December 31, 1996 and 1995.
TABLE 10 - ANALYSIS OF CAPITAL
<TABLE>
<CAPTION>
Regulatory Guidelines
----------------------------------
Adequately Well December 31, December 31,
Capitalized Capitalized 1996 1995
---------------- ----------------- --------------- ------------------
<S> <C> <C> <C> <C>
Capital ratios:
Risk-based capital:
Tier 1 4.00% 6.00% 11.22% 11.59%
Total 8.00% 10.00% 12.39% 12.81%
Leverage 4.00% 5.00% 8.16% 8.27%
Stockholders' equity to total assets N/A N/A 7.57% 8.02%
</TABLE>
15
<PAGE> 18
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
First Patriot Bankshares Corporation
Reston, VA
We have audited the accompanying consolidated balance sheet of First Patriot
Bankshares Corporation (the "Company") and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 1996 and 1995. These
consolidated 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. The consolidated financial statements of First
Patriot Bankshares Corporation and subsidiaries as of December 31, 1994, and
for the year ended December 31, 1994, were audited by other auditors whose
report dated February 2, 1995, expressed an unqualified opinion on those
statements.
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 1996 and 1995 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of First Patriot Bankshares Corporation and subsidiaries as of
December 31, 1996 and 1995, and the results of their consolidated operations
and their consolidated cash flows for the years ended December 31, 1996 and
1995, in conformity with generally accepted accounting principles.
Homes Lowry Horn & Johnson, Ltd.
February 18, 1997
16
<PAGE> 19
FIRST PATRIOT BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1996 1995
-------------- --------------
<S> <C> <C>
Cash and due from banks $ 6,775 $ 7,879
Federal funds sold 9,943 10,219
Investments available for sale, amortized cost of
1996 $41,275 and 1995 $28,497 (Notes 2 and 8) 40,838 28,665
Loans, net (Note 3) 118,074 92,427
Loans held for sale (Note 3) 8,264 12,917
Premises and equipment, net (Note 4) 5,195 4,894
Other assets 2,763 1,790
-------------- --------------
Total assets $ 191,852 $ 158,791
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Non-interest bearing demand deposits $ 33,466 $ 28,555
Interest bearing deposits (Note 5) 120,863 91,704
-------------- --------------
Total deposits $ 154,329 $ 120,259
Repurchase and master note agreements (Note 8) 17,904 20,407
FHLB borrowings (Note 8) 1,121 2,309
Other borrowings (Notes 8 and 9) 2,154 1,199
Accrued expenses and other liabilities 1,819 1,879
-------------- --------------
Total liabilities $ 177,327 $ 146,053
-------------- --------------
STOCKHOLDERS' EQUITY (Notes 12 and 14)
Preferred stock ($25 par value; 10 million shares
authorized; -0- issued or outstanding) $ - $ -
Common stock ($2.50 par value; 100 million authorized;
2,020,929 shares issued and outstanding at December 31,
1996 and 2,005,200 in 1995 5,052 5,013
Additional paid-in capital 5,458 5,155
Unrealized gain (loss) on investments available for sale,
net of deferred taxes (289) 110
Retained earnings 4,304 2,460
-------------- --------------
Total stockholders' equity $ 14,525 $ 12,738
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 17)
Total liabilities and stockholders' equity $ 191,852 $ 158,791
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 20
FIRST PATRIOT BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 12,035 $ 9,281 $ 6,702
Interest on investment securities 2,166 1,651 684
Interest on federal funds sold 488 539 444
------------- ------------ -------------
Total interest income $ 14,689 $ 11,471 $ 7,830
------------- ------------ -------------
Interest expense
Interest on deposits (Note 5) $ 4,914 $ 3,733 $ 2,328
Interest on repurchase and master note
agreements (Note 8) 783 574 234
Interest on FHLB and other borrowings
(Notes 8 and 9) 215 195 164
------------- ------------ -------------
Total interest expense $ 5,912 $ 4,502 $ 2,726
------------- ------------ -------------
Net interest income $ 8,777 $ 6,969 $ 5,104
Provision for loan losses (Note 3) 751 372 178
------------- ------------ -------------
Net interest income after provision for loan losses $ 8,026 $ 6,597 $ 4,926
------------- ------------ -------------
Non-interest income
Service charges on deposit accounts $ 694 $ 447 $ 369
Gain on sale of loans and investments, net 628 355 324
Other (Note 6) 1,586 1,479 812
------------- ------------ -------------
Total Non-interest income $ 2,908 $ 2,281 $ 1,505
------------- ------------ -------------
Non-interest expense
Salaries and benefits $ 4,008 $ 3,316 $ 2,361
Occupancy 502 577 419
Equipment 573 405 247
Other (Note 7) 2,665 2,173 1,743
------------- ------------ -------------
Total Non-interest expense $ 7,748 $ 6,471 $ 4,770
------------- ------------ -------------
Income before taxes $ 3,186 $ 2,407 $ 1,661
Income tax expense (Note 10) 1,096 883 565
------------- ------------ -------------
Net income $ 2,090 $ 1,524 $ 1,096
============= ============ =============
Earnings per common share (Note 14):
Primary $ .93 $ .71 $ 0.54
============= ============ =============
Assuming full dilution $ .93 $ .71 $ 0.53
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 21
FIRST PATRIOT BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
(dollars in thousands)
- - ---------------------- Unrealized
Gain (Loss)
on Investments
Available
Additional For Sale, Net Retained Total
Common Paid-in of Deferred Earnings Stockholders'
Stock Capital Taxes (Deficit) Equity
------------- ------------- ------------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 4,924 $ 5,039 $ 17 $ 17 $ 9,997
Unrealized loss on invest-
ments available for sale,
net of deferred taxes - - (261) - (261)
Net income for year
ended December 31, 1994 - - - 1,096 1,096
------------- ------------- ------------------ ------------ ----------------
Balance, December 31, 1994 $ 4,924 $ 5,039 $ (244) $ 1,113 $ 10,832
Net proceeds from
the issuance of
common stock 89 116 - - 205
Cash dividends paid - - - (177) (177)
Unrealized gain on invest-
ments available for sale,
net of $57 deferred taxes - - 354 - 354
Net income for year
ended December 31, 1995 - - - 1,524 1,524
------------- ------------- ------------------ ------------ ----------------
Balance, December 31, 1995 $ 5,013 $ 5,155 $ 110 $ 2,460 $ 12,738
Net proceeds from
the issuance of
common stock 39 113 - - 152
Cash dividends paid - - - (246) (246)
Unrealized loss on invest-
ments available for sale,
net of $149 deferred taxes - - (399) - (399)
Stock options outstanding - 190 - - 190
Net income for year
ended December 31, 1996 - - - 2,090 2,090
------------- ------------- ------------------ ------------ ----------------
Balance, December 31, 1996 $ 5,052 $ 5,458 $ (289) $ 4,304 $ 14,525
============= ============= ================== ============ ================
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 22
FIRST PATRIOT BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,090 $ 1,524 $ 1,096
Adjustments for noncash items included in
net income:
Depreciation and amortization 632 427 234
Provision for loan losses 751 372 178
Gain on sale of loans (586) (413) (369)
(Gain) loss on sale of investments, net (42) 58 45
(Gain) loss on sale of fixed assets - 16 (14)
Increase in other assets (277) (453) (372)
Increase (decrease) in accrued expenses and
other liabilities (87) 547 184
------------- ------------ -------------
Net cash provided by operating activities $ 2,481 $ 2,078 $ 982
------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans $ (32,485) $ (33,913) $ (17,030)
Proceeds from sale of loans 11,352 2,876 5,398
Purchase of securities available for sale (39,095) (25,217) (10,071)
Proceeds from maturity of securities
available for sale 18,820 6,162 260
Proceeds from sale of investments
available for sale 7,542 3,651 6,764
Proceeds from maturities of securities
held to maturity - 3,010 1,500
Purchase of securities held to maturity - - (1,451)
Purchase of subsidiary (767) - -
Proceeds from sale of fixed assets - - 14
Acquisition of premises and equipment (468) (1,809) (3,177)
------------- ------------ -------------
Net cash used by investing activities $ (35,101) $ (45,240) $ (17,793)
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 23
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 34,070 $ 35,417 $ 8,873
Net increase (decrease) in short-term borrowings (2,722) 14,630 (286)
Proceeds (repayments) on long-term borrowings (14) 1,199 -
Proceeds from issuance of common stock, net 152 205 -
Cash dividends paid (246) (177) -
------------- ------------ -------------
Net cash provided by financing activities $ 31,240 $ 51,274 $ 8,587
------------- ------------ -------------
Net increase (decrease) in cash and cash
equivalents $ (1,380) $ 8,112 $ (8,224)
Cash and cash equivalents, beginning of year 18,098 9,986 18,210
------------- ------------ -------------
Cash and cash equivalents, end of year $ 16,718 $ 18,098 $ 9,986
============= ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 5,887 $ 4,771 $ 2,721
============= ============ =============
Income taxes paid $ 1,406 $ 746 $ 946
============= ============ =============
</TABLE>
21
<PAGE> 24
FIRST PATRIOT BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Significant Accounting Policies
Nature of Operations:
First Patriot Bankshares Corporation, a Virginia corporation,
is a bank holding company headquartered in Reston, Virginia.
Patriot National Bank is a wholly owned subsidiary of First
Patriot Bankshares Corporation. Patriot National Bank is a
full service community bank with eight offices throughout
Northern Virginia. The Bank provides competitive financial
services, specializing in quality personal service, to
businesses and individuals located in its market.
The subsidiary, 2071 Chain Bridge Road, L.L.C., owns an office
building in Tysons Corner that houses offices of the Company
and the Bank. It also leases space to other parties.
Patriot National Bank offers a full range of loan products,
ranging from credit cards to permanent real estate loans. The
Bank is the area's leading originating bank of U.S. Small
Business Administration loans.
Significant Accounting Policies:
Method of accounting:
The consolidated financial statements of First Patriot
Bankshares Corporation and subsidiaries are prepared in
conformity with generally accepted accounting principles.
Certain reclassifications have been made to prior-year
financial statements to conform them to the current-year
presentation. A summary of the more significant accounting
policies is provided as follows:
(a) Principles of Consolidation
The consolidated financial statements include the
accounts of First Patriot Bankshares Corporation (the
"Company"), its wholly-owned subsidiary Patriot
National Bank (the "Bank") and their wholly-owned
subsidiary, 2071 Chain Bridge Road, L.L.C. The
Corporation purchased 75 percent of 2071 Chain Bridge
Road L.L.C. in 1995 and the Bank purchased the
remaining 25 percent minority interest in 1996. All
significant intercompany balances and transactions
have been eliminated in consolidation.
(b) 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.
22
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Significant Accounting Policies
(continued)
(c) Loans, Interest and Unearned Income
Loans, net, are stated at unpaid principal balances
less the allowances for loan losses, unearned income
and deferred gains on the sale of loans.
Interest on loans is accrued on the basis of the
daily amount of principal outstanding. The accrual
of interest is discontinued when reasonable doubt
exists about the full and timely collection of
interest or principal. When a loan is placed on
nonaccrual status, all interest previously accrued
but not collected is reversed against current period
interest income. Income on such loans is then
recognized only to the extent that cash is received
and where the future collection of principal is
probable. Interest accruals are resumed on such
loans only when they are brought fully current with
respect to interest and principal and when, in the
judgment of management, the loans have demonstrated a
period of performance and are estimated to be fully
collectible as to both principal and interest. The
classification of a loan as nonaccrual is not
necessarily indicative of potential loan loss.
Loan origination and commitment fees and certain
direct loan origination costs are deferred and
recognized as an adjustment to the yield over the
lives of the related loans.
(d) Loans Held for Sale
The Bank originates loans under the Small Business
Administration ("SBA") Program that generally
provides for SBA guarantees of 75 percent to 90
percent of each loan. The Bank may sell the
guaranteed portion of each loan to a third party and
retain the unguaranteed portion in its own portfolio.
Those loans that may be sold are classified as loans
held for sale and are carried at the lower of cost or
estimated market value, based on secondary market
quotes. A gain is recognized on sale of these loans
through collection of a premium over the adjusted
carrying value. The Company's investment in the
remaining SBA loan is based upon a relative fair
market value allocation between the portion of the
loan sold, the portion of the loan retained and any
excess servicing retained. The gain on the sold
portion is recognized over the estimated life of the
loan. The carrying value of the retained portion of
the loan is reduced and amortized into income over
the life of the loan, thereby increasing the future
yield, and any excess servicing would be recorded as
an asset and subsequently amortized to servicing
income. The Bank utilizes a 1 percent normal
servicing fee and has not recorded any excess
servicing assets. Excess servicing assets have been
deemed immaterial at December 31, 1996.
23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Significant Accounting Policies
(continued)
(e) Allowance for Loan Losses
Management periodically reviews and evaluates the
loan portfolio to determine the adequacy of the
allowance for loan losses. This evaluation is based
on the risk characteristics of the loan portfolio and
considers such factors as past loan loss experience,
the financial condition of the borrower, current
economic conditions, net realizable value of the
collateral, and other relevant factors. The
allowance for loan losses is increased by provisions
for loan losses charged to income, which may include
charges to reduce the recorded balance of loans
receivable and loans foreclosed to their estimated
net realizable value or fair value less selling costs
as applicable. Such provisions are based on
management's estimate of net realizable value or fair
value of the collateral, which are dependent upon
current and currently anticipated future operating or
sales conditions. Such estimates are particularly
susceptible to changes that could result in material
adjustments to the results of operations in the near
term. Recovery of the carrying value of such loans
is dependent to a great extent on economic,
operating, and other conditions that may be beyond
the Bank's control.
Various regulatory agencies, as an integral part of
their examination process, periodically review the
allowance for loan losses. Such agencies may require
the Bank to recognize additions to the allowance
based on their judgments about information available
to them at the time of their examination.
(f) Investments in Securities
The Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities
(SFAS 115) effective December 31, 1993. The Company
recognizes the effects of unrealized gains/losses net
of deferred taxes in stockholders' equity. Under
SFAS 115, the Company is required to classify its
securities into one of three categories: available
for sale, held to maturity, or trading.
Trading securities are bought and held principally
for the purpose of selling them in the near term.
Securities purchased for trading are carried at fair
value. Net unrealized gains and losses are
recognized in a valuation allowance by credits or
charges to income. The Company held no assets
classified as trading securities at December 31, 1996
and 1995.
Held to maturity securities are those securities in
which the Company has the ability and intent to hold
the securities until maturity. Held to maturity
securities are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts.
Premiums and discounts are amortized or accreted over
the life of the related security as an adjustment to
yield using the effective interest method. The
company held no assets classified as held to maturity
securities at December 31, 1996 and 1995.
24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Significant Accounting Policies
(continued)
Available for sale securities are recorded at fair
value and include all securities not classified as
trading or held to maturity. Unrealized gains and
losses, net of the related deferred tax effects, are
excluded from earnings and are reported as a separate
component of stockholders' equity.
Dividend and interest income are recognized when
earned. Realized gains and losses for securities
classified as available for sale and held to maturity
are included in earnings and are derived using the
specific identification method for determining the
cost of the security sold. There are no off-balance
sheet hedging mechanisms.
(g) Premises and Equipment
Premises and equipment are stated at cost, less
accumulated depreciation and amortization.
Depreciation and amortization are computed using the
straight-line method over the estimated useful lives
of the respective assets, except for tenant and
leasehold improvements which are amortized over the
terms of the respective leases or the estimated
useful lives of the improvements, whichever is
shorter. The estimated useful lives of the principal
items of premises and equipment are generally as
follows: building and improvements - 39 years;
furniture, fixtures and equipment - 3 to 15 years.
(h) Cash and Cash Equivalents
For the purpose of presentation in the consolidated
statements of cash flows, cash and cash equivalents
consist of federal funds sold, cash, and due from
banks. Included in cash and due from banks are
balances maintained with the Federal Reserve Bank and
other correspondent banks to compensate for services
provided.
(i) Income Taxes
Effective January 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS
109). Under the asset and liability method of SFAS
109, deferred tax assets and liabilities are
recognized for the future tax consequence
attributable to differences between the financial
statement carrying amounts of existing assets and
liabilities and their respective tax bases and
operating loss carryforwards. Deferred tax assets
and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the
years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109,
the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the
period which includes the enactment date.
25
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Significant Accounting Policies
(continued)
(j) Stock-Based Compensation
The Company has opted not to adopt the stock
compensation cost method of SFAS 123, Accounting for
Stock-Based Compensation. The Company has opted to
continue to account for stock-based compensation
under existing standards that measure compensation
cost based on the difference between the market price
of the stock at the grant date (or other measurement
date) and the exercise price.
(k) Earnings Per Share
Primary earnings per share are computed by dividing
net income by the weighted average number of common
shares outstanding during the year, including average
common equivalent shares attributable to dilutive
stock options and warrants.
Fully diluted earnings per share are computed by
dividing net income by the weighted average number of
common shares outstanding during the year, including
the maximum dilutive effect of average common
equivalent shares. See Note 14 for additional
information.
(l) New Accounting Pronouncements
Statement of Financial Accounting Standards No. 125,
Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities (SFAS 125),
was issued in June 1996, and was effective for
transactions occurring after December 31, 1996. In
December 1996, the Financial Accounting Standards
Board delayed the effective date of certain SFAS 125
provisions until after December 31, 1997. Management
does not expect SFAS 125 to have a material impact on
the Company's financial statements.
(m) Reclassifications
Certain reclassifications were made to prior year
financial statements to conform to current year
presentation. The reclassifications did not affect
net income or earnings per share.
26
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Investments Available for Sale
On December 29, 1995, as allowed by a Special Report to Statement
of Financial Accounting Standards No. 115, Accounting for Certain
Investments, the Company made a one-time reassessment of the
classification of its investments held to maturity. As a result
of the reassessment, all of the investments held to maturity were
transferred to the investments available for sale category. On
December 29, 1995, the date of transfer, those investments had an
amortized cost of $2.985 million. The net unrealized loss on
that date was $4,000, and was recognized as a separate component
of stockholders' equity, rather than being recognized in net
income. There were no investments classified as held to maturity
at December 31, 1996 and 1995. The amortized cost basis and
approximate fair value of investments available for sale at
December 31, 1996 and 1995, are shown below:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasuries $ - $ - $ - $ -
Obligations of U.S.
government agencies 39,677 - (429) 39,248
Municipal 235 - - 235
Mortgage-backed securities 607 - (8) 599
Equity securities 756 - - 756
---------------- --------------- --------------- ----------------
Total $ 41,275 $ - $ (437) $ 40,838
================ =============== =============== ================
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
U.S. Treasuries $ 2,999 $ 11 $ - $ 3,010
Obligations of U.S.
government agencies 23,928 159 - 24,087
Municipal 235 - 2 233
Mortgage-backed securities 678 - - 678
Equity securities 657 - - 657
---------------- --------------- --------------- ----------------
Total $ 28,497 $ 170 $ 2 $ 28,665
================ =============== =============== ================
</TABLE>
The Company pledges securities as collateral for repurchase
agreements, treasury, tax, and loan payments and other purposes
in the normal course of business. The approximate carrying value
of securities pledged by the Company at December 31, 1996 and
1995, was $18.043 million and $5.115 million, respectively.
27
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Investments Held to Maturity and Investments Available for Sale
(continued)
Proceeds from sales of investments available for sale during
1996, 1995 and 1994 were $7,452,000, $3,651,000 and $6,764,000,
respectively. Gross realized gains (losses) for these years were
$42,000, $(58,000) and $(45,000), respectively..
As a member of the Federal Reserve and FHLB, the Bank is required
to hold stock in the Federal Reserve Bank of Richmond and the
FHLB of Atlanta. Included in equity securities were Federal
Reserve stock of $239,050 and $210,000 at December 31, 1996 and
1995, respectively, and FHLB stock of $467,300 and $397,000 at
December 31, 1996 and 1995, respectively.
The remaining maturity of the investments available for sale at
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
-------------- --------------
<S> <C> <C>
Due in 1 year or less $ 735 $ 735
Due after 1 year through 5 years 8,179 8,163
Due after 5 years through 10 years 30,998 30,585
Mortgage-backed securities 607 599
Equity securities 756 756
-------------- --------------
Total $ 41,275 $ 40,838
============== ==============
</TABLE>
Note 3. Loans
Residential loans totaling $4.354 million and $5.476 million were
pledged for FHLB borrowings of $1.121 million and $2.309 million
at December 31, 1996 and 1995, respectively. Loans at December
31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ----------------
<S> <C> <C>
Commercial $ 35,017 $ 32,270
Commercial mortgage 37,554 23,187
Construction 19,061 16,777
Residential mortgage 17,598 12,431
Home equity 6,212 5,275
Installment 4,815 4,243
--------------- ----------------
Subtotal $ 120,257 $ 94,183
Unearned income (653) (424)
Allowance for loan losses (1,530) (1,332)
--------------- ----------------
Loans, net $ 118,074 $ 92,427
=============== ================
SBA loans held for sale $ 8,264 $ 12,917
=============== ================
</TABLE>
28
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Loans (continued)
An analysis of the allowance for loan losses for the years ended
December 31, 1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, January 1 $ 1,332 $ 965 $ 793
Provision for loan losses 751 372 178
Charge-offs (553) (9) (6)
Recoveries - 4 -
------------- ------------- -------------
Balance, December 31 $ 1,530 $ 1,332 $ 965
============= ============= =============
</TABLE>
There were no nonaccrual loans at December 31, 1996 and 1995. At
December 31, 1996, loans totaling $737,454 were past due 90 days
or more. At December 31, 1995, loans totaling $223,000 were past
due 90 days or more and were not on nonaccrual status
Restructured loans are defined as those loans on which
concessions in terms have been granted because of a borrower's
financial difficulty. The Company had no restructured loans in
1996 and 1995.
Loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of
loans serviced for others was $29.0milllion and $19.2 million at
December 31, 1996 and 1995, respectively.
Note 4. Premises and Equipment
A summary of the premises and equipment for the years ended
December 31, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Land* $ 568 $ 413
Building and improvements* 2,879 2,501
Leasehold improvements 866 833
Furniture, fixtures and equipment 2,544 2,114
-------------- --------------
Total premises and equipment, at cost $ 6,857 $ 5,861
Less accumulated depreciation and amortization 1,662 967
-------------- --------------
Total premises and equipment, net $ 5,195 $ 4,894
============== ==============
</TABLE>
29
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Premises and Equipment (continued)
* At December 31, 1996, the Company occupies 42 percent of the
building and the remaining 58 percent is leased to outside
parties. The book value of the property is $3,205,436 at
December 31, 1996. The building is collateral for a loan (see
Note 9).
At December 31, 1996, the annual aggregate future minimum lease
receivables are as follows:
<TABLE>
<S> <C>
December 31, 1997 $ 413
1998 368
1999 292
2000 221
2001 80
2002 - 2010 224
---------------
$ 1,598
===============
</TABLE>
Leasing commitments:
The Company occupies and leases its branches, and its operations
center under long-term operating lease agreements. Rent expense
for 1996 was approximately $330,000 compared to $374,000 for 1995
and $360,000 for 1994. At December 31, 1996, the annual
aggregate future minimum lease payments are as follows:
<TABLE>
<S> <C>
December 31, 1997 $ 415
1998 422
1999 415
2000 230
2001 147
2002 - 2011 428
---------------
$ 2,057
===============
</TABLE>
Note 5. Deposits
The detail by type of interest-bearing deposits for the years
ended December 31, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
NOW $ 12,178 $ 10,147
Savings 10,690 8,620
Money market 16,979 19,171
Certificates of deposit less than $100,000 56,607 32,117
Certificates of deposit of $100,000 or more 15,858 14,617
IRA and Keogh accounts 8,551 7,032
---------------- ----------------
Total interest-bearing deposits $ 120,863 $ 91,704
================ ================
</TABLE>
At December 31, 1996, the scheduled maturities of certificates of
deposit are as follows:
<TABLE>
<S> <C>
December 31, 1997 $ 46,000
1998 11,134
1999 7,621
2000 5,885
2001 1,640
</TABLE>
30
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Deposits (continued)
A breakdown of deposit interest expense for the years ended
December 31, 1996, 1995 and 1994, is shown below:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
NOW $ 216 $ 189 $ 176
Savings 350 274 354
Money market 614 576 392
Certificates of deposit less than $100,000 2,424 1,609 671
Certificates of deposit of $100,000 or more 895 754 571
IRA and Keogh accounts 415 331 164
-------------- -------------- --------------
Total deposit interest expense $ 4,914 $ 3,733 $ 2,328
============== ============== ==============
</TABLE>
Note 6. Non-interest Income
Significant amounts included in other Non-interest income for the
years ended December 31, 1996, 1995 and 1994, respectively, are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Credit card $ 512 $ 362 $ 312
Mortgage loan fees 774 809 340
Loan servicing fees 212 102 56
Other 88 206 104
-------------- -------------- --------------
$ 1,586 $ 1,479 $ 812
============== ============== ==============
</TABLE>
Note 7. Non-interest Expense
Significant amounts included in other Non-interest expense for
the years ended December 31, 1996, 1995 and 1994, respectively,
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Legal and professional $ 319 $ 227 $ 218
Data processing 379 278 201
Advertising and promotion 198 112 46
Printing and supplies 171 214 134
FDIC insurance 2 98 178
Virginia franchise tax 81 68 83
Directors fees 74 74 57
Credit card expenses 450 304 256
Miscellaneous 991 798 570
-------------- -------------- --------------
Total $ 2,665 $ 2,173 $ 1,743
============== ============== ==============
</TABLE>
31
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Short-Term Borrowings
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Securities sold under agreements to repurchase $ 17,904 $ 4,916
Master note agreements - 15,491
Federal Home Loan Bank 1,121 2,309
Cash overdraft 969 -
-------------- --------------
$ 19,994 $ 22,716
============== ==============
</TABLE>
Securities sold under agreements to repurchase and master note
agreements generally mature in less than 30 days. See Notes 2
and 3 for collateral. The securities underlying the agreements
are under the Bank's control. Information concerning securities
sold under agreements to repurchase is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Average balance during the year
(average computed on a daily basis) $ 8,861 $ 4,958
============== ==============
Average interest rate during the year 4.63% 4.96%
============== ==============
Maximum month-end balance during the year $ 17,904 $ 5,405
============== ==============
</TABLE>
Note 9. Other Borrowings
In 1995, the subsidiary, 2071 Chain Bridge Road, L.L.C., borrowed
the following:
<TABLE>
<CAPTION>
Fixed Original Balance Owed
Rate Amount 12/31/96 12/31/95
---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
USG Annuity & Life Company,
interest payable monthly,
matures December 2000,
secured by headquarters
building with a carrying
amount of $3,205,000 8.25% $ 1,200 $ 1,185 $ 1,199
============ =============
</TABLE>
Interest expense on long-term borrowings was $98,334 and $8,250
in 1996 and 1995, respectively.
Aggregate maturities during the next four years are: 1997
$16,000; 1998 $18,000; 1999 $19,000; 2000 $1.131 million.
32
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Income Taxes
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 462 $ 441
Accrued expenses 78 21
Unrealized gain on loans held for sale 197 -
Unrealized loss on available for sale
securities 149 -
Deferred rent 47 53
--------------- --------------
Total deferred tax assets $ 933 $ 515
=============== ==============
Deferred tax liabilities:
Depreciation $ (26) $ (61)
Unrealized
gain on available for
sale securities - (57)
Accrual to cash adjustment (4) (9)
--------------- --------------
Total deferred tax liabilities $ (30) $ (127)
--------------- --------------
Net deferred tax asset $ 903 $ 388
=============== ==============
</TABLE>
The provision (benefit) for income taxes attributed to operations
for the years ended December 31, 1996, 1995 and 1994, is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Federal income tax
Current $ 1,405 $ 996 $ 538
Deferred (309) (113) 27
------------- ------------ -------------
Total income tax expense $ 1,096 $ 883 $ 565
============= ============ =============
</TABLE>
33
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Income Taxes (continued)
A reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate for the years ended December
31, 1996, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Statutory federal tax rate 34.00% 34.00% 34.00%
Other .22 2.68 .02
------------- ------------- -------------
Effective income tax rate 34.22% 36.68% 34.02%
============= ============= =============
</TABLE>
Deferred tax expense (benefit) results from timing differences in
the recognition of revenue and expense for tax and financial
statement purposes. The primary source of these differences for
the year ended December 31, 1996, is the difference in treatment
of loan losses for financial statement and tax purposes.
Note 11. Parent Company and Regulatory Restrictions
The activities of the Company are primarily regulated by the
Federal Reserve Bank, whereas the Bank is primarily regulated by
the Office of the Comptroller of the Currency. Certain
regulatory restrictions exist regarding the ability of the Bank
to transfer funds to the Company in the form of cash dividends,
loans or advances. As of December 31, 1996, the Bank has
undivided profits of approximately $4.8 million that could be
distributed to the Company as dividends without prior regulatory
approval.
The Bank is subject to various regulatory capital requirements.
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 quantitative 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.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum 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). The Bank's actual capital amounts and ratios are also
presented in the table. 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
Office of the Comptroller of the Currency 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 have changed the institution's category.
34
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Parent Company and Regulatory Restrictions (continued)
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
--------------------- ------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio
- - ---------------------- ---------- -------- ------------------------------- -----------------------------
<S> <C> <C> <C> <C>
As of December 31, 1996:
Total capital (to risk-
weighted assets):
Consolidated $ 16,115 12.39% Greater than or equal to $10,401 Greater than or equal to 8.00%
Patriot National Bank $ 14,335 11.21% Greater than or equal to $10,226 Greater than or equal to 8.00%
Tier I Capital (to risk-
weighted assets):
Consolidated $ 14,585 11.22% Greater than or equal to $ 5,200 Greater than or equal to 4.00%
Patriot National Bank $ 12,806 10.02% Greater than or equal to $ 5,113 Greater than or equal to 4.00%
Tier I Capital (to
average assets):
Consolidated $ 14,585 8.16% Greater than or equal to $ 7,151 Greater than or equal to 4.00%
Patriot National Bank $ 12,806 7.26% Greater than or equal to $ 7,057 Greater than or equal to 4.00%
As of December 31, 1995:
Total capital (to risk-
weighted assets):
Consolidated $ 13,960 12.81% Greater than or equal to $ 8,718 Greater than or equal to 8.00%
Patriot National Bank $ 11,430 10.77% Greater than or equal to $ 8,494 Greater than or equal to 8.00%
Tier I Capital (to risk-
weighted assets):
Consolidated $ 12,628 11.59% Greater than or equal to $ 4,358 Greater than or equal to 4.00%
Patriot National Bank $ 10,098 9.51% Greater than or equal to $ 4,247 Greater than or equal to 4.00%
Tier I Capital (to
average assets):
Consolidated $ 12,628 8.27% Greater than or equal to $ 6,105 Greater than or equal to 4.00%
Patriot National Bank $ 10,098 6.73% Greater than or equal to $ 6,000 Greater than or equal to 4.00%
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
---------------------------------------------------------
(dollars in thousands) Amount Ratio
- - ---------------------- ---------------- ----------------------------------
<S> <C> <C>
As of December 31, 1996:
Total capital (to risk-
weighted assets):
Consolidated $ 13,001 Greater than or equal to 10.00%
Patriot National Bank $ 12,783 Greater than or equal to 10.00%
Tier I Capital (to risk-
weighted assets):
Consolidated $ 7,800 Greater than or equal to 6.00%
Patriot National Bank $ 7,670 Greater than or equal to 6.00%
Tier I Capital (to
average assets):
Consolidated $ 8,939 Greater than or equal to 5.00%
Patriot National Bank $ 8,821 Greater than or equal to 5.00%
As of December 31, 1995:
Total capital (to risk-
weighted assets):
Consolidated $ 10,898 Greater than or equal to 10.00%
Patriot National Bank $ 10,617 Greater than or equal to 10.00%
Tier I Capital (to risk-
weighted assets):
Consolidated $ 6,537 Greater than or equal to 6.00%
Patriot National Bank $ 6,371 Greater than or equal to 6.00%
Tier I Capital (to
average assets):
Consolidated $ 7,631 Greater than or equal to 5.00%
Patriot National Bank $ 7,500 Greater than or equal to 5.00%
</TABLE>
35
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Parent Company and Regulatory Restrictions (continued)
Condensed parent company financial statements for the years ended
December 31, 1996 and 1995, and for the three-year period ended
December 31, 1996, are as follows:
PARENT COMPANY ONLY BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ----------------
<S> <C> <C>
Cash $ 396 $ 281
Premises and equipment, net - 75
Investment in banking subsidiary 12,517 10,208
Investment in other subsidiary 1,417 2,173
Due from banking subsidiary 190 -
Other assets 3 1
--------------- ----------------
Total assets $ 14,523 $ 12,738
=============== ================
Stockholders' equity $ 14,523 $ 12,738
=============== ================
</TABLE>
PARENT COMPANY ONLY INCOME STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
Income:
Interest income $ - $ 56 $ 102
Management fees 7 18 18
Loss on sale of investments - (45) -
--------------- --------------- ----------------
Total income $ 7 $ 29 $ 120
--------------- --------------- ----------------
Expenses:
Occupancy $ 7 $ 18 $ 18
Interest on note payable - 101 34
Other 42 97 70
--------------- --------------- ----------------
Total expenses $ 49 $ 216 $ 122
--------------- --------------- ----------------
Loss before equity in undistributed
net income of subsidiaries $ (42) $ (187) $ (2)
Undistributed net income
of subsidiaries 2,132 1,711 1,098
--------------- --------------- ----------------
Net income $ 2,090 $ 1,524 $ 1,096
=============== =============== ================
</TABLE>
36
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Parent Company and Regulatory Restrictions (continued)
PARENT ONLY STATEMENT OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net income $ 2,090 $ 1,524 $ 1,096
Less noncash items:
Depreciation and amortization 7 21 30
Realized loss on sale of
investments - 45 -
Undistributed net income of
subsidiaries (2,132) (1,711) (1,098)
(Increase) decrease in other assets (2) 15 -
Increase (decrease) in accrued
expenses and other liabilities - - (31)
----------------- ----------------- -----------------
Net cash provided (used)
by operations $ (37) $ (106) $ (3)
----------------- ----------------- -----------------
Investment in subsidiaries $ (900) $ (285) $ (1,814)
Distributions from subsidiaries 1,146 201 -
Proceeds on sale of investment
securities - 2,164 -
----------------- ----------------- -----------------
Net cash provided (used)
by investing activities $ 246 $ 2,080 $ (1,814)
----------------- ----------------- -----------------
Proceeds (payment) of loan from
bank subsidiary $ - $ (1,849) $ 1,849
Stock issuance proceeds, net 152 205 -
Cash dividends paid (246) (177) -
----------------- ----------------- -----------------
Net cash provided (used)
by financing activities $ (94) $ (1,821) $ 1,849
----------------- ----------------- -----------------
Net increase in cash $ 115 $ 153 $ 32
Cash, beginning of year 281 128 96
----------------- ----------------- -----------------
Cash, end of year $ 396 $ 281 $ 128
================= ================= =================
</TABLE>
37
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Stock Option Plans
In recognition of their services, employees and executive
officers of the Bank, and the Directors of the Company and the
Bank, were granted options in the Company's stock. The stock
option transactions for the years ended December 31, 1995 and
1994, are as follows:
<TABLE>
<CAPTION>
Option
Executive Price Per
Directors Officers Employees Total Common Share
--------- ------------ --------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Outstanding,
December 31, 1993 30,600 47,130 12,963 90,693 $4.17 to $5.88
Granted - 11,414 - 11,414 $4.90 to $6.00
Forfeited - - (408) (408) $5.88
---------- ---------- -------- ----------
Outstanding,
December 31, 1994 30,600 58,544 12,555 101,699 $4.17 to $6.00
Granted - 11,744 3,750 15,494 $4.90 to $10.75
Exercised (3,060) - - (3,060) $4.41 to $5.52
Forfeited - - (1,653) (1,653) $5.88
---------- ---------- -------- ----------
Outstanding,
December 31, 1995 27,540 70,288 14,652 112,480 $4.17 to $10.75
========== ========== ======== ==========
</TABLE>
Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS 123), is effective for years
beginning after December 15, 1995. SFAS 123 encourages, but does
not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. Under
SFAS 123, compensation cost is based on the fair value of the
award on the date of grant. The company has opted to continue to
account for stock-based compensation under existing standards
that measure compensation cost based on the difference between
the market price of the stock at the grant date (or other
measurement date) and the exercise price. The required proforma
disclosures have not been presented because the effect of
applying SFAS 123's fair value method to the company's
stock-based awards results in net income and earnings per share
that are not materially different from the 1996 amounts reported.
Of the 125,137 options for common stock outstanding at December
31, 1996, 121,287 are exercisable immediately, and an additional
3,850 are exercisable on December 31, 1998. All options and
dollar prices have been adjusted for the stock dividend as
described in Note 14. During 1996, compensation expense of
$155,917 was taken relating to options granted at a price below
the fair market value on the date of grant was recorded. The
exercise price for options outstanding as of December 31, 1996,
range from $4.17 to $12.00. There are 3,350 options at $10.75,
1,000 at $12.00 and 120,787 that range between $4.17 and $5.88.
The maximum term of options granted is ten years. The stock
option plan authorizes the issuance of up to 200,000 options to
purchase shares of common stock.
38
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Stock Option Plans (continued)
A summary of the Company's stock option activity and related
information for the year ended December 31, 1996, follows:
<TABLE>
<CAPTION>
Weighted-
Average
Exercise
Options Price
------------- -------------
<S> <C> <C>
Outstanding - January 1, 1996 112,480 $ 5.288
Granted 20,574 6.022
Exercised (5,519) 5.804
Forfeited (2,398) 8.386
-------------
Outstanding - December 31, 1996 125,137 5.327
=============
Exercisable - December 31, 1996 121,287 5.087
Weighted-average fair value of options
granted during 1996 $ 8.18
</TABLE>
The fair value of the weighted-average of options granted during
1996 was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average
assumptions for 1996: risk-free interest rate of 6.06 percent;
dividend yields of 1.25 percent; volatility factors of the
expected market price of the Company's common stock of 29 to 47;
and a weighted-average expected life of the option of .50 to 1.5.
Note 13. Warrants
The Company has granted warrants to the original organizers in
recognition of the services performed in connection with the
organization of the Company. The warrants were granted based on
three warrants, at $4.90 per share, for every four shares of the
Company's common stock that the Directors had subscribed to in
the initial offering. These warrants are exercisable on or
before March 31, 2000. The total number of warrants granted,
adjusted for the stock split and the stock dividend, was 298,343.
Warrants totaling $-0-, $26,545 and $-0- were exercised in 1996,
1995 and 1994, respectively. Warrants outstanding on December
31, 1996, are 271,798.
39
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. Stockholders' Equity and Earnings Per Share
Cash dividends of 3 cents per share were paid on February 29,
1996, May 31, 1996, August 30, 1996, and November 29, 1996.
Cash dividends of 2 cents per share were paid on March 30, 1995,
June 30, 1995, and August 30, 1995. A 3 cents per share cash
dividend was paid on November 30, 1995.
On May 26, 1994, the Company declared a 2 percent stock dividend,
payable on June 30, 1994, to stockholders of record as of June
10, 1994. As a result of the stock dividend, 38,556 shares of
common stock were issued and the total number of common shares
outstanding increased to 1,969,896. The financial statements
have been retroactively restated to reflect the stock dividend.
On October 22, 1993, the Company completed a stock offering of
570,000 shares of common stock at a price of $5.75. The offering
netted approximately $3 million to enable the Company to take
advantage of continued growth opportunities. On April 22, 1993,
the Company announced a two-for-one stock split of the Company's
common stock, $5.00 par value, payable to stockholders of record
at the close of business on April 30, 1993. The stock split
reduced the par value of the Company's common stock to $2.50 per
share. The financial statements have been retroactively restated
to reflect the stock split.
Note 15. Significant Concentrations of Credit Risk
Most of the Company's business activity is with customers located
in Northern Virginia. Accordingly, the ultimate collectibility
of a substantial portion of the Bank's loan portfolio, which
primarily consists of real estate loans (see Note 3), is
susceptible to changes in these markets.
Note 16. Related Party Transactions
During 1994, the Bank made a loan to the Company to capitalize a
new subsidiary formed for the purpose of purchasing and owning an
office building. The building is utilized by the Bank for its
corporate offices and its operations departments. The loan
required interest payments monthly at the prime rate and was paid
in full during 1995. The loan was fully secured by U.S. Treasury
and agency securities.
Note 17. Commitments and Contingencies
In the normal course of business, the Company makes various
commitments to extend credit and incurs contingent liabilities
which are not reflected in the balance sheets.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. At December 31, 1996 and
1995, the commitments to extend credit were $34.2 million and
$23.1 million, respectively.
40
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Commitments and Contingencies (continued)
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support lease
deposits, infrastructure development, and private borrowing
arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
commitments to customers. The Company holds marketable
securities and other collateral supporting those commitments for
which collateral is deemed necessary. Commitments under standby
letters of credit were $2.680 million at December 31, 1996, and
$1.671 million at December 31, 1995. The portion of standby
letters of credit collateralized was 99 percent at December 31,
1996 and 1995. The commitments for loans and lines of credit are
predominately at variable rates based upon prime.
The Company also maintains federal funds lines of approximately
$10.5 million with a number of larger regional banking
institutions. None of these lines were in use at December 31,
1996 and 1995.
The Bank sells the guaranteed portion of some SBA loans. The
loans are sold with full recourse for the first ninety days after
settlement. The credit risk involved in selling the loans with
the ninety-day recourse provisions is that there is a potential
that the Bank would have to repurchase the loans and thereby
reverse the gross gain previously recognized if the original
borrowers default within 90 days. At December 31, 1996, in
relation to SBA loans sold after September 30, 1996, the Bank had
collected gross proceeds of $4.2 million and recognized gain
during 1996 of $212,169. At December 31, 1995, in relation to
loans sold after September 30, 1995, the Bank had collected gross
proceeds of $3.7 million and recognized gain during 1995 of
$214,858. The principal balances of these sold loans were $3.9
million and $2.9 million, respectively, at December 31, 1996 and
1995.
Note 18. Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values
are based on estimates using present value techniques. Those
techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows.
The derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. SFAS 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 Company.
The following methods and assumptions were used by the Company in
estimating the fair value for its financial instruments as
defined by SFAS No. 107:
CASH, DUE FROM BANKS AND FEDERAL FUNDS SOLD: The carrying amount
approximates fair value.
SECURITIES AVAILABLE FOR SALE: Fair values are based on
published market prices.
LOANS AND LOANS HELD FOR SALE: For credit card and equity line
receivables with short-term and/or variable characteristics,
total receivables outstanding approximate fair value. This
amount excludes any value related to account relationship. The
fair value of other types of loans, including loans held for
sale, is estimated by discounting the future cash flows using the
comparable risk-free rate and adjusting for credit risk and
operating costs.
41
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18. Fair Value of Financial Instruments (continued)
INTEREST RECEIVABLE AND INTEREST PAYABLE: The carrying amount
approximates fair value.
NON-INTEREST-BEARING DEPOSITS: The fair value of these
instruments is the amount payable on demand at the reporting
date.
INTEREST-BEARING DEPOSITS: The fair value of demand deposits,
savings accounts and money market deposits with no defined
maturity is the amount payable on demand at the reporting date.
The fair value of certificates of deposit is estimated by
discounting the future cash flows using the current rates at
which similar deposits would be made.
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS, FEDERAL FUNDS
PURCHASED, AND OTHER SHORT-TERM BORROWINGS: For these short-term
instruments, the carrying amount approximates fair value.
LONG-TERM BORROWINGS: Fair value is based on estimates made by
discounting the future cash flows using the current rates at
which similar borrowings would be made.
COMMITMENTS TO EXTEND CREDIT AND STANDBY AND COMMERCIAL LETTERS
OF CREDIT: The fair value of commercial lending related letters
of credit and commitments is estimated based upon the amount of
fees currently charged to enter into similar agreements, and
taking into account the present creditworthiness of the
counterparties. The fair value of such instruments was not
considered material.
The estimated fair values of the Company's financial instruments
at December 31, 1996 and 1995, required to be disclosed under
SFAS No. 107 is as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- ---------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash, due from banks
and federal funds sold $ 16,718 $ 16,718 $ 18,098 $ 18,098
Loans receivable and
loans held for sale, net 126,338 129,314 105,344 108,031
Investments available for
sale 40,838 40,838 28,665 28,665
Interest receivable 1,323 1,323 1,106 1,106
Financial Liabilities:
Deposit accounts $ 154,329 $ 154,813 $ 120,259 $ 121,169
Repurchase and master
note agreements 17,904 17,904 20,407 20,407
FHLB borrowings 1,121 1,089 2,309 2,312
Other borrowings 2,154 2,154 1,199 1,199
Interest payable 174 174 162 162
</TABLE>
42
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19. Subsequent Event
On February 18, 1997, First Patriot Bankshares Corporation
entered into a merger agreement with United Bankshares
Incorporated, subject to shareholder and regulatory approval.
Note 20. 401(k) Pension Plan
The Company maintains a qualified pension plan that covers
substantially all employees who meet certain age and service
requirements. The qualified plan was established in 1990.
Contributions to the plan by the Company are discretionary. The
Company contributed $58,717 in 1996, $30,000 in 1995, and $-0- in
1994.
Note 21. Transactions With Directors and Others
The Company has engaged in banking transactions in the ordinary
course of business with some of its directors, officers, and
their associates. All loans or commitments to extend loans are
made on the same terms, including interest rates and collateral,
as those prevailing at the time for comparable loans to unrelated
borrowers. These loans to related parties for the years ended
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Balance, January 1 $ 3,038 $ 4,458
New loans/commitments 1,260 1,631
Participations sold (repayments) 800 (3,051)
--------------- ---------------
Balance, December 31 $ 5,098 $ 3,038
=============== ===============
</TABLE>
These related parties had deposits with the Bank totaling $1.8
million at December 31, 1996
Included in legal and professional fees are fees paid to a law
firm, whose partner is a director of the Company and the Bank,
totaling approximately $104,690, $18,000 and $14,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
43
<PAGE> 46
FIRST PATRIOT BANKSHARES CORPORATION
SUMMARY OF OPERATIONS BY QUARTER
<TABLE>
<CAPTION>
(unaudited)
1996 Quarters Ended
---------------------------------------------
(dollars in thousands) 3/31 6/30 9/30 12/31 Total
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $3,420 $3,507 $3,825 $3,937 $14,689
Interest expense 1,362 1,354 1,571 1,625 5,912
----------------------------------------------- ----------
Net interest income 2,058 2,153 2,254 2,312 8,777
Provision for loan losses 127 363 119 142 751
Noninterest income 515 794 683 916 2,908
Noninterest expense 1,804 1,959 1,927 2,058 7,748
----------------------------------------------- ----------
Income before tax expense 642 625 891 1,028 3,186
Income tax expense 251 175 322 348 1,096
----------------------------------------------- ----------
Net income $391 $450 $569 $680 $2,090
=============================================== ==========
Earnings per share (1):
Primary $0.17 $0.20 $0.26 $0.30 $0.93
=============================================== ==========
Fully diluted $0.18 $0.20 $0.25 $0.30 $0.93
=============================================== ==========
</TABLE>
<TABLE>
<CAPTION>
First Patriot Bankshares Corporation
Summary of Operations by Quarter
(unaudited)
1995 Quarters Ended
---------------------------------------------
(dollars in thousands) 3/31 6/30 9/30 12/31 Total
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $2,314 $2,740 $3,084 $3,333 $11,471
Interest expense 826 1,087 1,250 1,339 4,502
----------------------------------------------- ----------
Net interest income 1,488 1,653 1,834 1,994 6,969
Provision for loan losses 38 44 58 232 372
Noninterest income 324 566 601 790 2,281
Noninterest expense 1,351 1,733 1,760 1,627 6,471
----------------------------------------------- ----------
Income before tax expense 423 442 617 925 2,407
Income tax expense 132 140 204 407 883
----------------------------------------------- ----------
Net income $291 $302 $413 $518 $1,524
=============================================== ==========
Earnings per share (1):
Primary $0.14 $0.14 $0.20 $0.23 $0.71
=============================================== ==========
Fully diluted $0.14 $0.14 $0.20 $0.23 $0.71
=============================================== ==========
</TABLE>
(1) Per share amounts have been restated to give the effects of the
two-for-one stock split, effective April 30, 1993 and the 2% stock
dividend, effective June 30, 1994.
44
<PAGE> 47
BOARD OF DIRECTORS
<TABLE>
<S> <C> <C>
"PICTURE" "PICTURE" "PICTURE"
DAN R. BANNISTER ROBERT M. BARLOW WAYNE W. BROADWATER
Dyncorp Prospect Enterprises, Inc. Shipmates, Ltd.
T/A Rental Depot
"PICTURE" "PICTURE" "PICTURE"
BRONSON F. BYRD NANCY K. FALCK HARVEY W. HUNTZINGER
Attorney, Investment Advisor Business Woman National Systems Management
"PICTURE" "PICTURE" "PICTURE"
JONES V. ISAAC CARROLL C. MARKLEY JOHN H. RUST, JR.
Isaac Enterprises Inc. First Patriot Bankshares McCandlish & Lillard
Corporation
Patriot National Bank
</TABLE>
45
<PAGE> 48
PATRIOT NATIONAL BANK
OFFICERS
<TABLE>
<S> <C>
CYNTHIA L. CALDWELL SUSAN E. OGREN, C.P.A.
Vice President Accounting Officer
MICHAEL W. CLARKE KENNETH L. O'SHEA
Executive Vice President Vice President
JUDY DEMASI DEBORAH ROBERTSON
Compliance Officer Assistant Vice President
DOUGLAS R. GILBERT CRAIG W. SACKNOFF
Assistant Vice President Vice President
MARY N. KIDD ROBERT C. SHOEMAKER
Assistant Vice President Senior Vice President
JAMES KERNS DEBORAH STEINBERGER
Branch Officer Assistant Vice President
MICHAEL K. KUHNS CARL WALLACE
Vice President Vice President
THEODORE P. LAUER CAROL WALNETSKI
Vice President Vice President
CARROLL C. MARKLEY CHARLES WIMER
President and Chief Executive Officer Senior Vice President and Chief
Financial Officer
KELLY MARSH SANDRA M. ZARESKI
Corporate Secretary Vice President
STEPHANIE H. OGLE
Senior Vice President
</TABLE>
46
<PAGE> 49
PATRIOT NATIONAL BANK DEPARTMENTS
<TABLE>
<S> <C> <C>
ACCOUNTING Charles Wimer 442-7130
COMPLIANCE Judy DeMasi 442-7192
FACILITIES Carol Walnetski 442-7185
DISCOUNT BROKERAGE / IRA Kathryn Freese 442-7191
LOAN ADMINISTRATION Stephanie Ogle 442-7110
COMMERCIAL LOANS Michael Clarke 442-7140
CONSUMER LOANS Diane Holmes 442-7193
MARKETING Susan Pierson 442-7196
MERCHANT BANKCARD Travis Miller 442-7190
MORTGAGE LENDING Kenneth O'Shea 442-7100
OPERATIONS Cynthia Caldwell 442-7127
HUMAN RESOURCES Sandra Zareski 442-7194
</TABLE>
ADVISORY BOARD MEMBERS
<TABLE>
<S> <C> <C>
FRANK ALSTON RUSSELL A. DECARLO EDWARD MILLER, PH. D
e. Villages L.L.C. Russell A, DeCarlo, D.D.S. FBLA-PBL, Inc.
KENNETH L. BONNER J. ANTHONY FULKERSON DAVE MOREY
Bonner Metropolitan Architecture Fulkerson Financial Group Ameriprint
J. GREGG BORCHELT BOB GALLOWAY JOE MOTON
The Brick Institute of America Insty Prints Moton Insurance Agency
MICHAEL M. BOWMAN GREGORY A. HARRISON, P.E. DON OWENS, JR.
Michael M. Bowman & Associates Gregory A. Harrison, P.E. & Associates Griffin Owens Insurance Agency
JOHN G. COLBY TIMOTHY D.C. MC INERNEY ANN PAGE
J.G. Colby & Co. Kol Bio Medical Instruments NOVA Commercial Realty
E.T. CONRAD EVAN JOHNSON KEN STRICKLAND
SCS Engineers HMS Enterprises Hair Quarters of McLean
ROBERT D. DAIN ANDREW E. KAUDERS PAULINE THOMPSON
Dain, Oxley and Associates Storage Solver Tysons Realty
STEVE WARD
Scott & Stringfellow
</TABLE>
47
<PAGE> 50
CORPORATE AND STOCKHOLDER INFORMATION
<TABLE>
<S> <C>
CORPORATE HEADQUARTERS: CORPORATE OFFICES:
12120 Sunset Hills Road 2071 Chain Bridge Road
Reston, Virginia 22090 Vienna, Virginia 22182
(703) 471-0900 (703) 917-1400
Fax (703) 708-7242 Fax (703) 917-8333
</TABLE>
TRANSFER AGENT (stock registration and transfer questions should be directed
to):
First Union National Bank of North Carolina
Shareholder Services Group
230 South Tryon Street, 10th Floor
Charlotte, North Carolina 28288-1154
CORPORATE PUBLICATIONS:
The Annual Reports and Form 10-K, Quarterly Reports and other
corporate publications are available with charge to the stockholders
by calling or writing Charles Wimer at the Corporate Offices as
shown above.
STOCK INFORMATION:
First Patriot Bankshares common stock is traded on the Nasdaq Stock
Market (symbol FPBK). A dividend reinvestment program is available,
wherein common shareholders receive a 5% discount from market price
when they reinvest their First Patriot Bankshares dividends in
additional shares. Shareholders participating in the Plan can also
make optional cash purchases of common stock at market price and pay
no brokerage commissions. As of January 2, 1997, the Company had
approximately 424 holders of record of its common stock. To obtain
the Plan prospectus and enrollment card, write or call our Investor
Relations Department at the corporate offices shown above.
QUARTERLY COMMON STOCK PRICES AND DIVIDENDS:
The high and low market prices of the Company's common stock, as
well as dividend payout information, during each quarter of the last
two years is shown below:
FIRST PATRIOT BANKSHARES
QUARTERLY COMMON STOCK PRICES
<TABLE>
<CAPTION>
1996 1995
Market Price Market Price
----------------------- Dividends ----------------------- Dividends
High Low Declared High Low Declared
---------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $13.00 $11.50 $0.03 $7.00 $5.50 $0.02
Second Quarter 12.00 9.25 0.03 8.00 6.38 0.02
Third Quarter 12.50 10.00 0.03 10.63 8.00 0.02
Fourth Quarter 16.00 11.50 0.03 13.00 9.00 0.03
</TABLE>
48
<PAGE> 51
PATRIOT NATIONAL BANK
(703) 917-1400
<TABLE>
<S> <C> <C>
RESTON FAIRFAX FALLS CHURCH
12120 Sunset Hills Rd 10855 Lee Highway 511 W. Broad St
Reston, VA 22090 Fairfax, VA 22030 Falls Church, VA 22042
(703) 471-0900 (703) 385-4440 (703) 237-7800
MCLEAN VIENNA STERLING
1345 Chain Bridge Rd 302 Maple Ave W 101 E Holly Ave
McLean, VA 22102 Vienna, VA 22180 Sterling, VA 20164
(703) 506-1900 (703) 242-6700 (703) 421-8000
TYSONS MANASSAS MCLEAREN
2071 Chain Bridge Rd 8669 Sudley Rd 3065 Centreville Rd
Vienna, VA 22182 Manassas, VA 22110 Herndon, VA 20171
(703) 556-0900 (703) 331-0607 (703) 471-7200
</TABLE>
Loan Production Offices also located in Winchester, Warrenton,
and Front Royal
<PAGE> 1
EXHIBIT 21
<PAGE> 2
Exhibit 21
First Patriot Bankshares Corporation owns 100% of Patriot National
Bank, a national banking association headquartered in the community of Reston,
Virginia.
First Patriot Bankshares Corporation owns 75% of 2071 Chain Bridge
Road, L.L.C., a limited liability company under the laws of the Commonwealth of
Virginia. The company was formed for the sole purpose of acquiring and
managing an office building located at 2017 Chain Bridge Road, Vienna,
Virginia. Patriot National Bank owns the remaining 25% of 2071 Chain Bridge
Road, L.L.C..
64
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996, FORM 10K FOR FIRST PATRIOT BANKSHARES, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,775
<INT-BEARING-DEPOSITS> 120,863
<FED-FUNDS-SOLD> 9,943
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 40,838
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 127,868
<ALLOWANCE> 1,530
<TOTAL-ASSETS> 191,852
<DEPOSITS> 154,329
<SHORT-TERM> 19,994
<LIABILITIES-OTHER> 1,819
<LONG-TERM> 1,185
0
0
<COMMON> 5,052
<OTHER-SE> 9,473
<TOTAL-LIABILITIES-AND-EQUITY> 14,525
<INTEREST-LOAN> 12,035
<INTEREST-INVEST> 2,166
<INTEREST-OTHER> 488
<INTEREST-TOTAL> 14,689
<INTEREST-DEPOSIT> 4,914
<INTEREST-EXPENSE> 5,912
<INTEREST-INCOME-NET> 8,777
<LOAN-LOSSES> 751
<SECURITIES-GAINS> 42
<EXPENSE-OTHER> 7,748
<INCOME-PRETAX> 3,186
<INCOME-PRE-EXTRAORDINARY> 3,186
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,090
<EPS-PRIMARY> .93
<EPS-DILUTED> .93
<YIELD-ACTUAL> 5.65
<LOANS-NON> 0
<LOANS-PAST> 737
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,332
<CHARGE-OFFS> 553
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,530
<ALLOWANCE-DOMESTIC> 1,530
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 49
</TABLE>
