Conformed Copy
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 33-33051-A
TYSONS FINANCIAL CORPORATION
(Name of small business issuer in its charter)
Virginia 54-1527945
(State or Other Juris- (I.R.S. Employer Identification No.)
diction of Incorporation)
8200 Greensboro Drive Suite 100
McLean, Virginia 22102
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (703) 556-0015
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: Common
Stock, par value $5.00 per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days:
Yes X No
---- ----
As of September 30, 1996, 1,071,119 shares of the registrant's common stock, par
value $5.00 per share, were outstanding.
Transitional Small Business Disclosure Format: Yes No X
---- ----
<PAGE>
PART I
ITEM 1 - FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page(s)
Consolidated Statements of Financial Condition
as of September 30, 1996 and December 31, 1995 . . . . . . 2
Consolidated Statements of Operations for the three
and nine month periods ended September 30, 1996 and 1995 . .3
Consolidated Statements of Cash Flows for the nine month
periods ended September 30, 1996 and 1995. . . . . . . . . 4
1
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
Assets 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Loans, net $ 52,013,883 $ 43,774,810
Investment securities available-for-sale, at fair value 11,137,401 4,965,773
Investment securities held-to-maturity, at cost, fair value
of $4,205,000 in 1996 and $5,300,167 in 1995 3,919,782 5,273,850
Interest-bearing deposits in other banks 100,000 100,000
Federal funds sold 21,643,443 8,910,000
Cash and due from banks 5,524,064 5,489,076
Property and equipment, net 391,086 319,845
Premium paid for deposits acquired 1,013,438 1,108,471
Accrued interest receivable and other assets 1,004,668 669,474
- -------------------------------------------------------------------------------------------------------------
Total Assets $ 96,747,765 $ 70,611,299
=============================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand $ 20,027,589 $ 14,618,859
NOW and money market accounts 46,603,532 26,945,735
Savings 3,478,787 3,215,240
Certificates of deposit, $100,000 and over 3,644,178 3,137,699
Certificates of deposit, under $100,000 14,009,545 14,575,624
- -------------------------------------------------------------------------------------------------------------
Total deposits 87,763,631 62,493,157
Accrued interest payable and other liabilities 577,773 552,673
Long-term debt 387,500 425,000
- -------------------------------------------------------------------------------------------------------------
Total Liabilities 88,728,904 63,470,830
- -------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $5; 10,000,000 shares authorized; 1,071,119 shares
issued and outstanding in 1996
668,619 shares issued and outstanding in 1995 5,355,595 3,343,095
Additional paid-in capital 4,069,275 3,071,860
ESOP Trust, 47,166 shares in 1996 and 48,595 shares (387,500) (425,000)
in 1995
Accumulated deficit (1,019,771) (1,864,784)
Unrealized gain on investment securities available-for-sale 1,262 15,298
- -------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 8,018,861 4,140,469
- -------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 96,747,765 $ 67,611,299
=============================================================================================================
</TABLE>
2
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine months Nine months Three months Three months
ended ended ended ended
(Unaudited) September 30, September 30, September 30, September 30,
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest Income:
Loans $ 3,553,777 $ 2,493,744 $ 1,285,824 $ 1,065,687
Investment securities:
Available-for-sale 325,955 162,360 144,528 56,222
Held-to-maturity 204,661 199,026 65,036 80,545
Federal funds sold 501,043 214,533 173,576 138,548
Deposits in other banks 4,512 7,058 1,440 1,605
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 4,589,948 3,076,721 1,670,404 1,342,607
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits:
NOW and money market accounts 739,311 449,797 289,463 202,055
Savings accounts 69,981 90,080 23,670 31,377
Certificates of deposit, under $100,000 663,146 356,523 214,814 210,159
Certificates of deposit, $100,000 and over 149,363 90,978 54,189 48,300
Interest on short-term borrowings 1,856 2,123 1,413 -
Interest on long-term debt 31,618 37,348 10,174 12,000
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,655,275 1,026,849 593,723 503,891
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 2,934,673 2,049,872 1,076,681 838,716
Provision for loan losses 125,060 212,764 73,000 64,857
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,809,613 1,837,108 1,003,681 773,859
Non-interest income:
Service charge income 140,748 169,210 48,275 71,035
Other income 75,319 55,327 10,510 11,396
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest income 216,067 224,537 58,785 82,431
- ---------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 1,200,447 899,268 412,738 324,947
Occupancy, equipment and depreciation 275,067 224,304 83,824 90,754
Operations expense 594,526 491,936 199,602 192,817
Administration expense 326,768 226,614 106,357 94,383
- ---------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 2,396,808 1,842,122 802,521 702,901
- ---------------------------------------------------------------------------------------------------------------------------
Net income before income taxes 628,872 219,523 259,945 153,389
Income tax benefit (202,823) - (30,823) -
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 831,695 $ 219,523 $ 290,768 $ 153,389
- ---------------------------------------------------------------------------------------------------------------------------
Net income per weighted average share $ 1.04 $ 0.36 $ 0.28 $ 0.25
Weighted average shares outstanding 800,818 616,211 1,025,857 617,640
</TABLE>
3
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited) Nine months Nine months
ended ended
- ----------------------------------------------------------------------------------------------------------------------
September 30, 1996 September 30, 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 831,695 $ 219,523
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 177,914 84,293
Provision for loan losses 125,060 212,764
Income tax benefit (202,823) -
Compensation expense for ESOP Trust 37,500 37,500
Increase in accrued interest receivable and other assets (335,194) (70,783)
Increase in accrued interest payable and other liabilities 25,100 174,407
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 659,252 657,704
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of available-for-sale securities (8,408,568) (321,116)
Purchases of held-to-maturity securities (995,000) (3,000,000)
Proceeds from maturities and principal payments
of available-for-sale securities 2,249,009 206,761
Proceeds from maturities and principal payments
of held-to-maturity securities 2,354,723 1,385,528
Net decrease in interest-bearing deposits in banks - 200,000
Acquisition of deposits net of assets and cash acquired - 5,846,618
Purchase of property and equipment (147,376) (97,772)
Net increase in loan portfolio (8,188,617) (3,800,171)
Issuance of common stock 3,012,034 -
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (10,123,795) 419,848
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 22,270,474 10,206,836
Repayments of long term debt (37,500) (37,500)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 22,232,974 10,169,336
- ----------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 12,768,431 11,246,888
Cash and cash equivalents, beginning of period 14,399,076 6,241,640
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 27,167,507 $ 17,488,528
- ----------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 1,631,774 $ 478,527
Income taxes paid 721 -
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company acquired loans of $13,032,431, equipment of $43,965, other
assets of $19,828, and assumed deposits of $20,101,513 and liabilities of
$26,649. The Company paid a premium of $1,185,320 for deposits acquired.
4
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The following discussion of the financial condition and results of
operations of Tysons Financial Corporation (the "Company") should be read in
conjunction with the Company's financial statements and 1995 annual report on
form 10-KSB. Results reflect the operations of the Company and the Tysons
National Bank, the Company's wholly owned subsidiary ("the Bank") during the
nine months ended September 30, 1996 and 1995.
Net income for the first nine months of 1996 reached $832,000 for an
increase of $612,000 over the same period of 1995. Earnings per share for the
nine month period ended September 30, 1996 were $1.04 as compared to $0.36 over
the same period of 1995. Return on average assets was 1.44% for the first nine
months of 1996 and 0.59% for the same period of 1995. Return on average equity
was 18.18% for the first nine months of 1996 as compared to 7.86% for the same
period in 1995. Equity to average assets was 10.49% for the first nine months of
1996 and 7.58% for the same period in 1995.
At September 30, 1996 the Company's total assets were $96,748,000 as
compared to $70,611,000 at December 31, 1995 which represented an increase of
37.0%. More than half of the 1996 first nine months' growth of $26,137,000 was
due to new deposit relationships and increased deposits of existing customers.
The remaining increase was due to the growth of deposits from an existing escrow
fund customer.
Total loans, net of allowance for loan losses, at September 30, 1996
were $52,014,000 as compared to $43,775,000 at December 31, 1995, which
represented an increase of $8,239,000 or 18.8%. Growth in loans was inhibited by
the severe winter weather of January and February 1996, however loan demand in
March through September increased significantly from the January and February
levels. Changes in the balance of total loans from December 31, 1995 to
September 30, 1996 reflect increases in equity lines of credit and residential
real estate of $3,475,000, commercial real estate of $1,472,000, and consumer
loans of $1,787,000 with smaller increases in real estate construction of
$1,018,000 and commercial loans of $585,000. The composition of the loan
portfolio as of September 30, 1996 and December 31, 1995 is presented below.
5
<PAGE>
Table 1: Composition of Loan Portfolio
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
% of % of
Loan Category Amount Total Amount Total
------------- ------- ----- ------- -----
<S> <C>
Commercial $14,937,469 28.3 $14,352,202 32.2
Real estate-construction 3,008,997 5.7 1,990,779 4.5
Real estate-residential 12,699,870 24.0 9,225,299 20.7
Real estate-Commercial 13,782,803 26.1 12,311,371 27.7
Consumer 8,425,774 15.9 6,638,593 14.9
--------- ---- --------- ----
Gross loans 52,854,913 100.0 44,518,244 100.0
---------- ----- ---------- -----
Less:
Unearned income (181,899) (158,906)
--------- ---------
52,673,014 44,359,338
Reserve for loan losses (659,131) (584,528)
--------- ---------
Net loans $52,013,883 $43,774,810
----------- -----------
</TABLE>
Average loans as a percentage of average total earning assets decreased
to 63.2% as of September 30, 1996, as compared to 71.9% as of December 31, 1995
due to the growth in deposits which exceeded loan growth. Table 2 below is a
summary of the composition of earning assets as of September 30, 1996, as
compared to December 31, 1995.
Table 2: Summary of Earning Assets
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
% of % of
Earning Asset Amount Total Amount Total
------- ----- ------- -----
<S> <C>
Federal funds sold $21,643,443 24.2 $8,910,000 14.1
Interest bearing
deposits in banks 100,000 0.1 100,000 0.1
Investment securities
Available-for-sale 11,137,401 12.4 4,965,773 7.9
Held-to-maturity 3,919,782 4.4 5,273,850 8.4
Loans, net of unearned income 52,673,014 58.9 43,774,810 69.5
---------- ---- ---------- ----
Total earning assets $89,473,640 100.0 $63,024,433 100.0
----------- ----- ----------- -----
</TABLE>
Federal funds sold and cash and due from banks represent the Company's
cash and cash equivalents. Federal funds sold and cash and due from banks at
September 30, 1996 totaled $27,168,000 compared to $14,399,000 at December 31,
1995, representing an increase of $12,769,000. Federal funds sold represented
most of the increase with cash and due from banks increasing $35,000. The
6
<PAGE>
increase was attributable to the escrow deposits of an established customer and
increases in overall volume of the Bank's deposit base. The Bank is aware of the
dates the escrow balances are expected to be paid and consequently invests those
deposits in federal funds sold when they are due. At September 30, 1996 there
were approximately $7,000,000 in escrow funds for one existing customer and
$3,000,000 in temporary deposits for a new customer relationship in the federal
funds balances that have since been paid out.
Total deposits were $87,764,000 at September 30, 1996, up from
$65,493,000 at December 31, 1995, representing an increase of 34.0%. The growth
of $22,271,000 was partially the result of increased balances in certain
customer escrow accounts. The remaining growth was due to new deposit
relationships and increased deposits of other existing customers. Non-interest
bearing deposits increased by $2,409,000 while interest-bearing deposit accounts
increased $19,862,000. Table 3 presents the composition of deposits on September
30, 1996 as compared to December 31, 1995.
Table 3: Deposit Summary
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
% of % of
Amount Total Amount Total
------ ----- ------ -----
<S> <C>
Non-interest bearing demand $20,027,589 22.8 $17,618,859 26.9
NOW and Money Market 46,603,532 53.1 26,945,735 41.1
Savings 3,478,787 4.0 3,215,240 4.9
Time, $100,000 and over 3,644,178 4.2 3,137,699 4.8
Time, under $100,000 14,009,545 15.9 14,575,624 22.3
---------- ---- ---------- ----
Total deposits $87,763,631 100.0 $65,493,157 100.0
----------- ----- ----------- -----
</TABLE>
Results of Operations for the Three Months Ended September 30, 1996 and
1995.
Net income for the three months ended September 30, 1996 was $291,000,
a $138,000 increase from the $153,000 net income for the same quarter of 1995.
The primary reason for the increase was the Company's growth in assets and
liabilities. Assets rose from $69,836,000 at September 30, 1995 to $96,748,000
at September 30, 1996. Net interest income for the quarter ended September 30,
1996 increased $238,000 or 28.4% over the same quarter of 1995. During the same
time period non-interest income decreased $23,000 due to a reduction in
overdraft and return check charges. In 1995 the Company had several customers
incurring large fees in this service charge area. These customers are no longer
incurring the same level of charges, resulting in a reduction in checking
account fee income in the
7
<PAGE>
third quarter of 1996. Non-interest expenses increased $100,000 or 14.2% over
the same period of 1995 due to increased operational and facility costs of
additional customers' transactions. The Bank opened its third branch location
in McLean, Virginia on September 30, 1996 whose operational expenses did not
affect the third quarter of 1996. The allowance for loan losses at September 30,
1996 was 1.25% of outstanding loans.
In view of the loan growth for 1996 and the fact that there was no
deterioration in the Bank's loan portfolio, a provision of $73,000 was made for
loan losses in the third quarter of 1996.
In addition, the Company recognized a net income tax benefit of $31,000
in the three months ended September 30, 1996 as compared to zero in the same
period of 1995. Based upon the Company's profitability for the nine months
ended September 30, 1996 and projected future profitability, management
determined that a valuation allowance was no longer needed against the deferred
tax asset.
Net income per share was $0.28 for the three month period ended
September 30, 1996 as compared to $0.25 net income per share for the same
period of 1995.
Results of Operations for the Nine Months Ended September 30, 1996 and
1995.
The Company's net income for the nine months ended September 30, 1996,
was $832,000, a $612,000 increase from the $220,000 net income for the same
period of 1995. The net income represented a return on average assets of 1.44%
for the nine months ended September 30, 1996 as compared to 0.59% for the same
period of 1995. Return on average equity improved to 18.18% in the nine month
period ended September 30, 1996 from 7.86% for the same period of 1995. The
Company's continued growth in assets and liabilities was the primary reason for
the increase in net income. Average assets rose from $49,600,000 to $76,448,000
in the first nine months of 1995 and 1996, respectively. One significant source
of the increase in average assets and average liabilities was the purchase on
May 15, 1995, of $13,000,000 in loans and acquisition of $20,100,000 of deposits
from Suburban Bank of Virginia, N.A.("Suburban Bank"). Net interest income for
the nine months ended September 30, 1996 increased $885,000, or 43.2%, over the
same period of 1995. During the same time periods non-interest income decreased
$8,000, or 3.8% due to a reduction in overdraft and return check charges. In
1995 the Company had several customers incurring large fees in this service
charge area. These customers are no longer incurring the same level of charges,
resulting in a reduction in checking account fee income. Non-interest expenses
were $2,397,000 for
8
<PAGE>
the first nine months of 1996 representing a 30.1% increase as compared to the
same period of 1995 due to increased costs of the additional branch in Reston
opened in May of 1995 and increased costs of increased customers' transactions.
In view of the loan growth for 1996 and the fact that there was no
deterioration in the Bank's loan portfolio, a provision of $125,000 was made for
loan losses in the first nine months of 1996. The allowance for loan losses at
September 30, 1996 is 1.25% of outstanding loans.
In addition, the Company recognized a net income tax benefit of
$203,000, as compared to zero in the first nine months of 1995. Based upon the
Company's profitability for the nine months ended September 30, 1996 and
projected future profitability, management determined that a valuation
allowance was no longer needed against the deferred tax asset.
Net income per weighted average share was $1.04 for the nine month
period ended September 30, 1996 which was a significant improvement from the
$0.36 net income per weighted average share for the same period of 1995.
Net Interest Income/Margins
The primary source of revenue for the Company is net interest income,
which is the difference between income earned on interest-earning assets, such
as loans and investment securities, and interest incurred on interest-bearing
liabilities, such as deposits and borrowings. The level of net interest income
is determined primarily by the average balances of interest-earning assets and
the various rate spreads between the interest-earning assets and the Company's
funding sources.
Net interest income was $2,935,000 for the first nine months of 1996, a
43.2% increase from the $2,050,000 earned during the same period of 1995.
Earning assets averaged $70,826,000 in the first nine months of 1996, a 54.0%
increase as compared to the average of $45,993,000 in the first nine months of
1995. The increase in net interest income is due to the growth of the loan
portfolio, an increase in the volume of investment securities and federal funds
sold, and increases in yields in the loan portfolio and the investment
securities due to market rate increases throughout 1995. Average loans as a
percentage of total average earning assets decreased to 66.4% in the first nine
months of 1996 as compared with 71.2% in the same period of 1995. Total average
investment securities as a percent of total average earning assets decreased for
the first nine months of 1996, representing 15.6% as compared to 18.2% in 1995.
Average federal funds sold in the nine months ended September 30, 1996 increased
to 17.4% of
9
<PAGE>
total average earning assets from 10.6% in the comparable period in 1995. The
overall increase in average earning assets increased net interest income for
the Company in the first nine months of 1996.
Interest income on loans of $3,554,000 for the nine months ended
September 30, 1996 represented an increase of $1,060,000, or 42.5% from
$2,494,000 for the same period of 1995. This represents the largest dollar
increase in interest income and reflects the increase in the average balance of
loans of $47,058,000. The net interest spread, which is the difference between
the yield on earning assets and the cost of interest-bearing liabilities,
decreased to 4.56% in the first nine months of 1996 from 4.68% in the same
period of 1995. The lower net interest spread was attributable to the increase
in deposits that outpaced the growth in loans for the first nine months of 1996.
These deposit funds had not yet been disbursed into loans as of September 30,
1996. To the extent that balances are moved from lower yielding federal funds
sold to loans, the yield on earning assets is expected to increase.
Non-Interest Income
Non-interest income consists of revenues generated from service charges
on deposit accounts, as well as servicing fees on loans, wire transfer fees,
official check fees, and collection fees.
Non-interest income in the first nine months of 1996 was $216,000, a
decrease of $8,000, or 3.8%, from $225,000 for the same period of 1995. In 1995
the Company had several customers incurring large fees in this service charge
area. These customers are no longer incurring the same level of charges,
resulting in a reduction in checking account fee income in the third quarter of
1996. Volume increases in the number of deposit accounts which generated more
fee activity for wires, collection fees, and other servicing fees offset the
reduced service charge income. Deposit service charges accounted for 65.1% and
75.4% of total non-interest income for the nine months ended September 30, 1996
and 1995, respectively.
Non-Interest Expense
Non-interest expense totaled $2,397,000 for the nine month period ended
September 30, 1996, as compared to $1,842,000 for the same period of 1995;
representing an increase of $555,000, or 30.1%. Although total non-interest
expense increased during the first nine months of 1996, non-interest expense as
a percentage of average total assets decreased to 3.1% in the first nine months
of 1996 as compared to 3.7% for the same period in 1995.
Salaries and employee benefits continued to account for the largest
component of non-interest expense, comprising 50.1% of total non-interest
expenses for the first nine months of 1996 and
10
<PAGE>
48.8% in for the same period of 1995. Salaries and employee benefits increased
by $301,000, or 33.4%, for the nine month period ended September 30, 1996 as
compared to the nine month period ended September 30, 1995. The increase was
mainly attributable to increased staffing as a result of the addition of
the Reston branch and additional operations staff necessary to efficiently
service the increased customer base.
Operations expense increased $103,000, or 20.9%, from the first nine
months of 1995 as compared to the same period of 1996. Data processing costs
represent the largest portion of this increase due to increased customer
transactions and balances. The additional volume of transactions has resulted
from the Suburban transaction and the Reston branch which opened in May
1995. Other expenses that have increased due to the increased customer
bases in loans and deposits are ATM expenses, loan servicing and collection,
and deposit and check losses.
Occupancy and equipment expenses increased by $51,000, or 22.8% during
the first nine months of 1996 as compared to the same period of 1995. The
increase was due to the addition of the Reston Branch rent expense and
additional equipment purchases and maintenance necessary to service the
increased customer base.
Administrative expense increased by $100,000 or 44.2% primarily due to
increased legal and professional expenses and the amortization of the premium
paid on deposits of the Suburban Bank transaction in May 1995. Amortization of
the premium began in June 1995 and consequently four months of amortization
totaling $44,000 is included in the results for the nine months ended September
30, 1995 as compared to $99,000 for the same period of 1996. Legal and other
professional expenses increased $31,000 or 94.0% representing additional
legal fees associated with increased loan volume and customer deposit base.
Income Tax Benefit
The Company recognized a net income tax benefit of $203,000 in the
first nine months of 1996, as compared to zero in the same period of 1995,
related to a reduction in the deferred tax asset valuation allowance. This
accounted for $203,000 of the $612,000 change in net income from September 30,
1995 to September 30, 1996. The benefit of the Company's net operating loss
carryforwards has been fully recognized as of the end of the third quarter of
1996 and consequently tax expense will be recorded in the last quarter of
1996.
As of December 31, 1994, management determined that a valuation
allowance was necessary for the entire amount of the deferred tax asset. This
decision was based on the lack of sufficient profitable operating history of the
Company. Based upon the profitability of the Company in 1995 and projected
profitability of the Company for the next twelve months, management reassessed
the need for a valuation allowance and management considers that all of the
benefit is more likely than not to be realized.
11
<PAGE>
Loan Quality
The Bank attempts to manage the risk characteristics of its loan
portfolio through various control processes, such as credit evaluation of
borrowers, establishment of lending limits and application of lending
procedures, including the holding of adequate collateral and the maintenance of
compensating balances. However, the Bank seeks to rely primarily on the cash
flow of its borrowers as the principal source of repayment. Although credit
policies are designed to minimize risk, management recognizes that loan losses
will occur and that the amount of these losses will fluctuate depending on the
risk characteristics of the loan portfolio as well as general and regional
economic conditions.
The allowance for loan losses represents a reserve for potential losses
in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with a
particular emphasis on non-accruing, past due and other loans that management
believes require special attention. As of September 30,1996, the Company had
$95,000 in non-accrual loans as compared to $397,000 as of September 30, 1995.
For significant problem loans, management's review consists of
evaluation of the financial strengths of the borrower, the related collateral,
and the effects of economic conditions. Specific reserves against the remaining
loan portfolio are based on analysis of historical loan loss ratios, loan
charge-offs, delinquency trends, and previous collection experience, along with
an assessment of the effects of external economic conditions.
The provision for loan losses is a charge to earnings in the current
period to replenish the allowance and maintain it at a level management has
determined to be adequate. The Company made a provision for loan losses for the
first nine months of 1996 of $125,000 as compared to $213,000 in the same period
of 1995. The Bank's total loan balances increased with no decreases in the loan
quality and therefore management determined the above provision was appropriate.
As of September 30, 1996, the allowance for loan losses was 1.25% of
outstanding loans, which was an increase from September 30, 1995 percentage of
1.24%. Management's judgment as to the level of future losses on existing loans
is based on management's internal review of the loan portfolio, including an
analysis of the borrowers' current financial position, the consideration of
current and anticipated economic conditions and their potential effects on
specific borrowers, an evaluation of the existing relationships among loans,
potential loan losses, and the present level of the loan loss allowance; and
results of examinations by independent consultants. In determining the
collectibility of certain loans, management also considers the fair value of any
underlying collateral. However, management's determination of the appropriate
allowance level is based upon a number of
12
<PAGE>
assumptions about future events, which are believed to be reasonable, but which
may or may not prove valid. Thus, there can be no assurance that charge-offs
in future periods will not exceed the allowance for loan loss or that
additional increases in the loan loss allowance will not be required.
Non-performing loans are defined as non-accrual and renegotiated loans.
When real estate acquired by foreclosure and held for sale is included with
non-performing loans, such category is reported as non-performing assets.
Non-performing assets as of September 30 1996 were $95,000. The non-performing
assets were classified for regulatory purposes as substandard, and as such,
management had allocated a portion of its allowance for possible loan losses for
future potential loss. There were $397,000 in non-performing loans as of
September 30, 1995.
There are impaired loans with an unpaid principal balance of $95,000 at
September 30, 1996. These loans are on nonaccrual and have related impairment
reserves of $7,000 which represents 100% of the principal balance less the Small
Business Administration guarantee applicable to them.
Capital Resources
Stockholders' equity was $8,019,000 as of September 30, 1996 as
compared to $4,140,000 as of December 31, 1995. The $3,879,000 increase, or
93.7%, was the result of the issuance of 402,500 shares of common stock for net
proceeds of approximately $3,000,000 and net income of $832,000. The remaining
change in stockholders' equity was due to a payment on the long-term liability
relating to the Employee Stock Ownership Plan and a reduction in the unrealized
gain on investment securities available-for-sale. No dividends have been
declared by the Company since its inception. In addition, no stock warrants have
been exercised and no options under the Stock Option Plan have
13
<PAGE>
been exercised.
Under the Federal Reserve's capital regulations, for as long as the
Company's assets are under $150 million, the Company's capital ratios are
reviewed on a bank-only basis. The Bank exceeded its capital adequacy
requirements as of September 30, 1996 and December 31, 1995. The Company
continually monitors its capital adequacy ratios to assure that the Bank remains
within the guidelines.
Liquidity and Interest Rate Sensitivity
The primary objective of asset/liability management is to ensure the
steady growth of the Company's primary earnings component, net interest income.
Net interest income can fluctuate with significant interest rate movements. To
lessen the impact of these rate swings, management endeavors to structure the
balance sheet so that repricing opportunities exist for both assets and
liabilities in roughly equivalent amounts at approximately the same time
intervals. Imbalances in these repricing opportunities at any point in time
constitute interest rate sensitivity.
The measurement of the Company's interest rate sensitivity, or "gap,"
is one of the principal techniques used in asset/liability management.
Interest-sensitive gap is the dollar difference between assets and liabilities
which are subject to interest-rate repricing within a given time period,
including both floating rate or adjustable rate instruments and instruments
which are approaching maturity.
In theory, interest rate risk can be diminished by maintaining a
nominal level of interest rate sensitivity. In practice, this is made difficult
by a number of factors, including cyclical variations in loan demand, different
impacts on interest-sensitive assets and liabilities when interest rates change,
and the availability of funding sources. Accordingly, the Company undertakes to
manage the interest-rate sensitivity gap by adjusting the maturity of and
establishing rate prices on the earning asset portfolio and certain
interest-bearing liabilities to keep it in line with management's expectations
relative to market interest rates. Management generally attempts to maintain a
balance between rate-sensitive assets and liabilities as the exposure period is
lengthened to minimize the overall interest rate risk to the Company.
The Bank's Executive Committee which oversees the asset/liability
management function meets periodically to monitor and manage the structure of
the balance sheet, control interest rate exposure, and evaluate pricing
strategies for the Company. The asset mix of the balance sheet is continually
evaluated in terms of several variables: yield, credit quality, appropriate
funding sources and liquidity. Management of the liability mix of the balance
sheet focuses on expanding the various funding sources.
14
<PAGE>
At September 30, 1996 the Company had an asset sensitive gap (more
assets than liabilities subject to repricing within the stated timeframe) of
$4,022,000 which represents 4.5% of earning assets over a 30 day period. This
suggests that if interest rates were to increase over this period, the net
interest margin would improve, and if interest rates were to decrease, the net
interest margin would decline. Since all interest rates and yields do not adjust
at the same velocity, the gap is only a general indicator of interest rate
sensitivity. The analysis presents only a static view of the timing of
maturities and repricing opportunities, without taking into consideration that
changes in interest rates do not affect all assets and liabilities equally. Net
interest income may be impacted by other significant factors in a given interest
rate environment, including changes in the volume and mix of earning assets and
interest-bearing liabilities.
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to provide sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. These funds can be obtained by converting assets to cash or by
attracting new deposits. Cash flows from financing activities, which included
funds received from new and existing depositors, provided a large source of
liquidity in the first nine months of 1996 as increases in deposits totaled
$22,270,000. The first nine months of 1996 experienced an increase in loans of
$8,189,000. The Bank seeks to rely primarily on core deposits from customers to
provide stable and cost-effective sources of funding to support asset growth.
Other sources of funds available to the Bank include short-term borrowings,
primarily in the form of federal funds purchased.
In the normal course of business, the Bank enters into various off
balance sheet credit facilities with its customers, including commitments to
extend credit at a future date and letters of credit. Since many of the
commitments can be expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. At
September 30, 1996 the Bank had $152,000 in letters of credit and $14,711,000 in
unfunded loan commitments.
Average liquid assets (cash and amounts due from banks,
interest-bearing deposits in other banks, federal funds sold, investment
securities and other short-term investments) were 39.6% of average deposits for
the first nine months of 1996, as compared to 35.7% for the same period of 1995.
Liquidity levels increased in the middle of 1995 with the purchase of deposits
from Suburban Bank. The level of liquidity reduced back to levels held before
the purchase as funds were shifted into less liquid, higher yielding loans.
Average loans were 67.8% of average deposits for the first nine months of 1996,
as compared to 72.4% for the first nine months of 1995. Average deposits were
98.5% of average earning assets for the nine months ended September 30, 1996 as
opposed to 98.3% for the same period of
15
<PAGE>
1995.
Securities maintained in the available-for-sale portfolio may be sold
prior to maturity in order to provide the Company and the Bank with increased
liquidity. Available-for-sale investment securities totaled $11,137,000 and
$3,686,000 as of September 30, 1996 and 1995, respectively.
ITEM 1. LEGAL PROCEEDINGS.
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
None
ITEM 5. OTHER INFORMATION
In October of 1996 an employment agreement between Tysons National Bank, Tysons
Financial Corporation and Terrie G. Spiro, President and Chief Executive
Officer, was signed. The agreement is for four years commencing as of January 1,
1996 and terminating on December 31, 1999 and is filed as Exhibit 10 with this
September 30, 1996 10-QSB.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits required by Item 601 Regulation S-K:
Exhibit 10: Material Contract, Employment Agreement
Exhibit 27: Financial Data Schedule
B. Reports on Form 8-K:
None.
16
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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.
TYSONS FINANCIAL CORPORATION
(Registrant)
BY: /s/Terrie G. Spiro,
Terrie G. Spiro, President,
Principal Executive Officer,
and Director
BY: /s/Janet A. Valentine,
Janet A. Valentine, Principal
Financial and Accounting
Officer
Date: November 14, 1996
17
Exhibit 10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made by and between
Tysons National Bank (the "Bank"), Tysons Financial Corporation (the "Company")
and Terrie G. Spiro, (the "Executive") this ____ day of October, 1996.
RECITALS:
WHEREAS, The Bank and the Company presently employ the Executive as
President and Chief Executive Officer pursuant to an Employment Agreement dated
February 9, 1990, as amended ("Prior Agreement"), which the parties desire to
supersede and replace with this Agreement; and
WHEREAS, The Board of Directors of the Bank (the "Bank Board") and the
Board of Directors of the Company (the "Company Board") recognize that the
Executive's contribution to the growth and success of the Bank since the Bank's
creation has been substantial. The Bank Board and the Company Board desire to
provide for the continued employment of the Executive and to make certain
changes in the Executive's employment arrangements which the Bank Board and the
Company Board have determined will reinforce and encourage the continued
dedication of the Executive to the Bank and the Company and will promote the
best interests of the Bank, the Company and its stockholders.
WHEREAS, The Executive is willing to continue to serve the Bank and the
Company on the terms and conditions herein provided.
NOW THEREFORE, In consideration of the foregoing, the mutual covenants
contained herein, the recitals set forth above, which are hereby incorporated by
reference herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Employment. The Bank and the Company shall continue to employ the
Executive, and the Executive shall continue to serve the Bank and the Company,
as President and Chief Executive Officer upon the terms and conditions set forth
herein. The Executive shall have such authority and responsibilities consistent
with her position and which may be set forth in the Bank's or the Company's
bylaws or assigned by the Bank Board or the Company Board from time to time. The
Executive shall devote her full business time, attention, skill and efforts to
the performance of her duties hereunder, except during periods of illness or
periods of vacation and leaves of absence consistent with Bank and/or Company
policy. The Executive may devote reasonable periods to service as a director or
advisor to other organizations, to charitable and community activities, and to
managing her personal investments, provided that such activities do not
materially interfere with the performance of her duties hereunder and are not in
conflict or competitive with, or adverse to, the interests of the Bank and the
Company.
2. Term. Unless earlier terminated as provided herein, the Executive's
employment under this Agreement shall be for an initial term (the "Initial
Term") of four (4) years, commencing as of January 1, 1996, and terminating on
December 31, 1999; provided, however, this Agreement shall be automatically
renewed after the Initial term for additional term(s) of one (1) year ("Renewal
Terms") unless either party gives the other written notice of non-renewal not
later than six (6) months prior to the expiration of the Initial Term or any
Renewal Term.
3. Compensation and Benefits.
3.1 Base Compensation. The Bank shall pay the Executive a base
annual salary ("Base Compensation") at a rate of not less than $130,000 per
annum commencing January 1, 1996, and not less than $140,000 commencing January
1, 1997, in accordance with the salary payment practices of the Bank. The Bank
Board (upon recommendation of the Personnel and Compensation Committee) shall
review
<PAGE>
the Executive's Base Compensation at least annually (commencing for calendar
year 1998 and each year thereafter) and may increase the Executive's Base
Compensation if it determines in its sole discretion that an increase is
appropriate. In making such determination, the Bank Board shall review peer
group CEO compensation, and such other factors as the parties may agree upon;
provided however, Base Compensation shall be increased by at least the Consumer
Price Index. As used herein, the Term "Consumer Price Index" shall mean the
"United States Bureau of Labor Statistics, Consumer Price Index for Urban Wage
Earners and Clerical Workers" all items, Washington, D.C. standard Metropolitan
Statistical Area Average (1982-1984 = 100.00) CPI-W, and any revisions of or
substitutes for that Index.
3.2 Directors Fees. The Bank and the Company shall also pay to
the Executive Directors fees on the same basis as other directors of the Bank
and the Company commencing January 1, 1996.
3.3 Short Term Performance Bonus. Provided the Bank achieves
appropriate regulatory ratings for safety and soundness, and based upon the
performance of the Bank in relation to targets for earnings and asset growth
established by the Bank Board, in consultation with the Executive, the Executive
shall be entitled to receive a short term performance bonus ("Short Term
Performance Bonus"), in cash, as a percentage of Base Compensation, payable
within thirty (30) days after the completion of the year end financial
statements as follows, with earnings growth and asset growth carrying a fifty
percent (50%) weight and the payout between 10% and 30% being prorated on the
basis of the percentage of performance level:
payout performance level
------ -----------------
10% 90%
15% 100%
20% 110%
30% 125% or more
For example, if Base Compensation for the year in question was $130,000 and the
Executive's performance level was 95% of asset growth and 105% of earnings
growth, the Short Term Performance Bonus would be $19,500, calculated as
follows:
Target Base Compensation Weight Payout Bonus
------ ----------------- ------ ------ -----
Asset Growth ($130,000) x (.5) x (12.5%) = $ 8,125
Earnings ($130,000) x (.5) x (17.5%) = $11,375
-------
Total $19,500
3.4 Long Term Performance Bonus. Provided the Bank achieves
appropriate regulatory ratings for safety and soundness, and based upon the
performance of the Bank in relation to targets for earnings and asset growth
established by the Bank Board, in consultation with the Executive, the Executive
shall be entitled to receive a long term performance bonus ("Long Term
Performance Bonus"), in the form of stock options for a dollar amount of shares
calculated as a percentage of Base Compensation, to be awarded within thirty
(30) days after the completion of the year end financial statements as follows,
with earnings growth and asset growth carrying a fifty percent (50%) weight and
the payout between .25 and 1.00 being prorated on the basis of the percentage of
performance level:
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<PAGE>
payout performance level
------ -----------------
.25 90%
.50 100%
.75 110%
1.00 125% or more
Such stock options shall constitute incentive stock options defined under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
shall be issued under the 1992 Stock Option Plan, as amended as of the issuance
date, or any successor stock option plan or plans (the "Plan"), at an exercise
price equal to the fair market value of the underlying shares at the issuance
date, under terms and conditions substantially in the form of the Stock Option
Grant Agreement attached hereto as Exhibit A.
For example, if Base Compensation for the year in question was $130,000 and at
the time of the award, the price of the shares of common stock was $10 per
share, and the Executive's performance level was 102% of asset growth and 93% of
earnings growth, the Long Term Performance Bonus would be an award of the option
to purchase 5704 shares at $10 per share, calculated as follows:
Target Base Compensation Weight Payout Bonus
------ ----------------- ------ ------ -----
Asset Growth ($130,000) x (.5) x (.55) = $ 35,750
Earnings ($130,000) x (.5) x (.3275) = $ 21,287.50
-----------
Total $ 57,037.50
Total = $57,037.50 / $10 per share = 5704 option shares
3.5 Grant of Option Upon Execution. Upon execution of this
Agreement, the Company shall grant to the Executive an option ("Execution
Option") to purchase six thousand (6,000) shares of stock of the Company at an
exercise price of Eleven Dollars ($11). The Execution Option shall vest
immediately as to 100% of the shares subject to such Option. Such stock option
shall constitute an incentive stock option under Code section 422, if the
exercise price equals or exceeds the fair market value of the underlying shares
at the issuance date, and shall be issued under the Plan, as amended as of the
issuance date, under the terms and conditions contained in the Stock Option
Grant Agreement attached hereto as Exhibit B, which shall be executed between
the parties as of the date of the execution of this Agreement.
3.6 Other Benefit Plans. The Executive shall continue to
participate in all retirement, welfare, life and health insurance, and other
benefit plans or programs of the Bank now or hereafter applicable to the
Executive or applicable generally to employees of the Bank or to a class of
employees that includes senior executives of the Bank; provided (i) that during
any period during the Term that the Executive is subject to a Disability (as
defined in Paragraph 4.12), the amount of the Executive's compensation provided
under this Paragraph 3 shall be reduced by the sum of the amounts, if any, paid
to the Executive for the same period under any disability benefit or pension
plan of the Bank or the Company; and (ii) that the Executive's participation in
the Plan shall be limited to the participation set forth in paragraphs 3.4 and
3.5, unless otherwise determined by the Bank Board and/or the Company Board.
3.7 Automobile Expenses. The Bank shall continue to provide to
the Executive an automobile owned or leased by the Bank of a make and model
appropriate to the Executive's status or, in lieu thereof, shall provide the
3
<PAGE>
Executive with an annual allowance of not less than $7,500 to partially cover
the cost of the business use of an automobile owned or leased by the Executive.
3.8 Dues reimbursement. The Bank shall continue to reimburse the
Executive's reasonable expenses for dues for one country club and one dining
club membership held by the Executive. The Bank shall pay the initiation fee for
a membership in the name of Executive in a country club of the Executive's
choice, not to exceed Twenty Thousand Dollars ($20,000) and to be payable in
annual installments not to exceed Seven thousand dollars ($7,000). In the event
that Executive terminates this Agreement during the Initial Term (other than a
termination pursuant to Paragraph 4.15), or exercises her right not to renew at
the end of the Initial Term or any Renewal Term; or in the event that the Bank
terminates Executive's employment for Just Cause pursuant to paragraph 4.13,
Executive shall reimburse the Bank the initiation fee paid by the Bank. Such
reimbursement shall be paid on or before the Termination Date (as defined in
paragraph 4.3).
3.9 Expense Reimbursement. The Bank shall continue to reimburse
the Executive for travel, seminar, and other expenses related to the Executive's
duties which are incurred and accounted for in accordance with the historic
practices of the Bank.
3.10 Bonus Targets for 1996. For the period January 1, 1996,
through June 30, 1996, the budgetary goals for earnings and asset growth in
connection with the bonus to be paid to Executive after the end of the fiscal
year, shall be the goals heretofore established by the Bank Board for that
period. The bonus for that period shall be determined by the Bank Board upon the
recommendation of the Personnel and Compensation Committee. For the Period July
1, 1996, through December 31, 1996, the targets to be used in connection with
Paragraphs 3.3 and 3.4, shall be established by the Bank Board, in consultation
with the Executive, and the bonus for that period will be calculated in
accordance with Paragraphs 3.3 and 3.4.
4. Termination.
4.1 The Executive's employment under this Agreement may be
terminated prior to the end of the Initial Term or any Renewal Term only as
follows:
4.11 Upon the death of the Executive.
4.12 By the Bank due to the Disability of the Executive
upon delivery of a Notice of Termination (as defined in
Paragraph 4.2) to the Executive; As used herein, "Disability"
shall mean the inability of the Executive, due to illness,
accident, or any other physical or mental incapacity, to fulfill
her obligations hereunder for a period of one hundred eighty
(180) consecutive days during the term hereof.
4.13 The Bank or the Company may, by written notice to
the Executive, immediately terminate her employment at any time,
for Just Cause. The Executive shall have no right to receive
compensation or other benefits for any period after termination
for Just Cause. Termination for "Just Cause" shall mean
termination because of, in the good faith determination of the
Company Board and the Bank Board, the Executive's personal
dishonesty, breach of fiduciary duty involving personal profit,
willful failure to perform stated duties, repeated refusal to
carry out the written directions of the Bank Board or the
Company Board, willful violation of any law, rule or regulation
(other than traffic violations or similar offenses), final
cease-and-desist order, or material breach of any provision of
this Agreement. No act, or failure to act, on the Executive's
part shall be considered "willful" unless she has acted, or
failed to act,
4
<PAGE>
with an absence of good faith and without a reasonable belief
that her action or failure to act was in the best interests of
the Company or the Bank. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Just
Cause unless there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not
less than a two thirds (2/3) majority of the entire membership
of the Company Board and the Bank Board at a meeting of such
Boards called and held for such purpose (after reasonable notice
to the Executive and an opportunity for the Executive to be
heard before such Boards), finding that in the good faith
opinion of such Boards the Executive was guilty of conduct
constituting Just Cause and specifying the particulars thereof
in detail.
4.14 By the Bank or the Company, at any time, without
Just Cause, upon delivery of a Notice of Termination (as defined
in paragraph 4.2) to the Executive. No Notice of Termination
shall be given under this section unless there shall have been a
vote of not less than a majority of the entire membership of the
Company Board and the Bank Board at a meeting of such Boards
called and held for that purpose.
4.15 By the Executive for Just Cause by delivering a
Notice of Termination (as hereinafter defined in paragraph 4.2) stating
with particularity the reasons for the giving of the Notice of
Termination. Upon receipt of the Notice of Termination under this
paragraph 4.15, the Bank and/or the Company shall have a thirty (30)
day period within which to cure the circumstances set forth in the
Notice of Termination given by the Executive. As used in this paragraph
4.15, Just Cause shall mean the occurrence of any of the following
events that have not been consented to in writing by the Executive in
advance: (i) the requirement that the Executive move her personal
residence, or perform her principal executive functions, more than 35
miles from her primary office; (ii) the assignment to the Executive of
duties and responsibilities materially different from those normally
associated with her position as referenced in Paragraph 1 hereof; (iii)
a failure to elect or re-elect the Executive to the Bank Board or the
Company Board; or (iv) a material diminution or reduction in the
Executive's responsibilities or authority (including reporting
responsibilities) in connection with her employment with the Bank.
4.2 "Notice of Termination" shall mean a written notice of
termination from the Bank or the Executive which specifies an effective date of
termination, indicates the specific termination provision in this Agreement
relied upon, and sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. A Notice of Termination by the Bank without Just
Cause shall be sufficient if it states that the termination is without Just
Cause without further detail.
4.3 "Termination Date" shall mean, in the case of the Executive's
death, her date of death or the date upon which the employment of the Executive
ceases.
4.4 If the Executive's employment with the Bank and/or the Company
shall be terminated during the Term (i) by reason of the Executive's death, or
(ii) by the Bank and/or the Company for Disability or Just Cause, the Bank shall
pay to the Executive (or in the case of her death, the Executive's estate)
within fifteen (15) days after the Termination Date a lump sum cash payment
equal to all Base Compensation and Directors fees earned through the Termination
Date. If the Termination Date occurs after the end of a fiscal year but before
Executive has received any Short Term and/or Long Term Performance Bonuses to
which she is
5
<PAGE>
entitled for that fiscal year pursuant to the provisions of paragraphs 3.3 and
3.4, then Executive shall also be paid the Long Term and Short Term Performance
Bonuses in accordance with the provisions of Paragraphs 3.3 and 3.4 above.
Vested rights of the Executive relating to such matters as her 401(k) account,
ESOP account, qualified pension plan and the like shall not be effected by such
termination, but shall be governed by the terms of such plans and accounts.
4.5 If the Executive's employment with the Bank and/or the
Company shall be terminated by the Bank and/or the Company without Just Cause
(pursuant to paragraph 4.14), the Executive shall be entitled to the following:
4.51 The Bank and/or the Company shall pay the
Executive (i) in cash within fifteen (15) days after Termination
Date an amount equal to all Base Compensation and Directors Fees
earned through the Termination Date; and (ii) in the event that
the Termination Date occurs after the end of a fiscal year but
before Executive has received any Short Term and/or Long Term
Performance Bonuses to which she is entitled for that fiscal
year pursuant to the provisions of paragraphs 3.3 and 3.4, then
Executive shall also be paid the Long Term and Short Term
Performance Bonuses in accordance with the provisions of
Paragraphs 3.3 and 3.4 above.
4.52 For the period from the Termination Date through
the end of the Initial Term or the Renewal Term, the Bank or the
Company shall pay to the Executive in cash at the end of each
regular pay period of the Bank, an amount equal to the Base
Compensation to which Executive is entitled pursuant to
Paragraph 3.1 above; provided, however, in no event shall
Executive be paid under this subsection for a period of less
than twelve months.
4.53 For the period during which the Executive shall be
entitled to payments under Paragraph 4.52 above (the
"Continuation Period"), the Bank shall at its expense continue
on behalf of the Executive and her dependents and beneficiaries
the life insurance, disability, medical, dental and
hospitalization benefits provided to the Executive as of the
Termination Date, or at any time thereafter to other similarly
situated executives who continue in the employ of the Bank
during the Continuation Period. The coverage and benefits
(including deductibles and costs) provided in this Paragraph
4.53 during the Continuation Period shall be no less favorable
to the Executive and her dependents and beneficiaries than the
benefits available to Executive as of the Termination Date. The
Bank's obligation hereunder with respect to the foregoing
benefits shall be limited to the extent that the Executive
obtains any such benefits pursuant to a subsequent employer's
benefit plans, in which case the Bank may reduce the coverage of
any benefits it is required to provide the Executive hereunder
as long as the aggregate coverages and benefits of the combined
benefit plans is no less favorable to the Executive than the
coverages and benefits required to be provided hereunder; and
4.54 The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by
seeking other employment or otherwise and no such payment shall
be offset or reduced by the amount of any compensation or
benefits provided to the Executive in any subsequent employment
except as provided in Paragraph 4.53.
4.6 The severance pay and benefits provided for in this
Paragraph 4 shall be in lieu of any other severance or termination pay to which
the Executive may be entitled under any Bank severance or termination plan,
program, practice or arrangement, except that termination of Executive's
employment by the Bank and
6
<PAGE>
or the Company without Just Cause within six (6) months before or upon the
occurrence of a Change in Control (as defined in Paragraph 5.13) or by the
Executive after the occurrence of a Change in Control, as hereinafter defined
shall be covered by the provisions of paragraph 5 below and the provisions of
this paragraph 4 shall not apply.
4.7 In the event that the Bank Board and/or the Company Board
elects not to renew Executive's contract pursuant to Paragraph 2, Executive
shall be entitled to Base Compensation, Directors fees, Short Term and Long Term
Performance Bonuses payable from the date of the Notice of Termination pursuant
to Paragraph 2 to the end of the Initial Term or Renewal Term, as the case may
be. In addition, Executive shall be entitled to be paid Base Compensation from
the Termination Date for an additional period of six (6) months (the "Post
Expiration Period"). During the Post Expiration Period, the Executive shall be
entitled to the benefits set forth in Paragraph 4.53.
4.8 In the event that the Executive terminates this Agreement
for Just Cause pursuant to Paragraph 4.15, she shall be entitled to be paid her
Base Compensation for an additional period of six (6) months after the
Termination Date.
4.9 This Agreement shall terminate immediately without further
liability or obligation of the Bank or the Company to the Executive (i) if the
Bank is closed or taken over by the Office of the Comptroller of the Currency or
other supervisory authority, including the Federal Deposit Insurance
Corporation; or (ii) if any such supervisory authority should exercise its cease
and desist powers to remove the Executive from office.
5. Change in Control Provisions.
5.1 Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
5.11 "Base Amount" shall mean the amount of
the Executive's annual Base Compensation at the rate in effect immediately
prior to the Change in Control.
5.12 "Bonus Amount" shall mean the most
recent annual Short Term Performance Bonus paid or payable to the Executive,
the full fiscal year ended prior to the fiscal year during which a Change in
Control occurred.
5.13 "Change in Control" as used herein shall
mean any of the following events:
(A) When the Company or the Bank
acquires actual knowledge that any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange
Act")), other than an employee benefit plan established or maintained by the
Company or the Bank, is or becomes the beneficial owner (as defined in Rule
13d-3 of the Exchange Act) directly or indirectly, or record owner of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities;
(B) Upon the first purchase of the
Company's common stock pursuant to a tender or exchange offer (other than a
tender or exchange offer made by the Company or an employee benefit plan
established or maintained by the Company or the Bank);
(C) Upon the approval by the
Company's stockholders of (1) a merger or consolidation of the Company with or
into another corporation (other than a merger or consolidation the
definitive agreement for which provides that at least two-thirds of the
directors of the surviving or resulting corporation immediately after the
transaction are Continuing Directors (as
7
<PAGE>
defined herein)),or (2) a sale or disposition of all or substantially all of the
Company's assets;
(D) If during any period of two
consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of either the Company or the Bank (the
"Continuing Directors") cease for any reason to constitute at least a majority
thereof;
(E) Upon a sale of (1) common
stock of the Bank if after such sale any person (as defined above), other than
the Company or an employee benefit plan established or maintained by the Company
or the Bank, owns a majority of the Bank's common stock or (2) all or
substantially all of the Bank's assets; or
(F) Any other agreement, happening
or device which has substantially the same effect on control of the Company or
the Bank as any of the foregoing.
5.2 Upon termination of Executive's employment upon the occurrence of a
Change in Control of the Bank or the Company, or upon Notice of Termination
given by Executive pursuant to paragraph 5.3, as a consequence of a Change in
Control, the Bank or the Company shall pay to Executive an amount equal to 2.0
multiplied by the Executive's Base Amount and Bonus Amount, provided, however,
such payment shall be reduced to the extent necessary to eliminate the
imposition of any taxes under Code Sections 280G and 4999 to such payment, if
the amount of such payment thereby received by the Executive on an after tax
basis would be higher than the amount of such payment the Executive would
otherwise receive on an after tax basis had no reduction occurred. In the event
that the Executive is entitled to any payments under this paragraph 5.2 and has
already received any payments under the provisions of paragraph 4.5, such
payments already received shall be deducted from any payment due under this
paragraph 5.2.
5.3 Notwithstanding any other provision of this Agreement to the
contrary, the Executive may voluntarily terminate her employment under this
Agreement within six (6) months following a Change in Control of the Company or
the Bank, by giving Notice of Termination and the Executive shall thereupon be
entitled to receive the payment described in Paragraph 5.2 of this Agreement,
upon the occurrence of any of the following events, which have not been
consented to in advance by the Executive in writing: (i) the requirement that
the Executive move her personal residence, or perform her principal executive
functions, more than 35 miles from her primary office as of the date of the
Change in Control; (ii) a material reduction in the Executive's Base
Compensation as in effect on the date of the Change in Control or as the same
may be increased from time to time; (iii) the failure by the Bank and the
Company to continue to provide the Executive with compensation and benefits
provided for under this Agreement, as the same may be increased from time to
time, or with benefits substantially similar to those provided to her under any
of the Executive benefit plans in which the Executive now or hereafter becomes a
participant, or the taking of any action by the Company or the Bank which would
directly or indirectly reduce any of such benefits in a material way or deprive
the Executive of any material fringe benefit enjoyed by her at the time of the
Change in Control, provided that such reduction is not part of a Bank-wide
reduction which affects all employees or all similarly situated employees; (iv)
the assignment to the Executive of duties and responsibilities materially
different from those normally associated with her position as referenced in
Paragraph 1 hereof; (v) a failure to elect or re-elect the Executive to the Bank
Board or the Company Board, if the Executive is serving on such Boards on the
date of the Change in Control; or (vi) a material diminution or reduction in the
Executive's responsibilities or authority (including reporting responsibilities)
in connection with her employment with the Bank.
8
<PAGE>
5.4 Any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C ss. 1828(k) and any regulations promulgated thereunder.
6. Trade Secrets; Covenant not-to-compete.
6.1 The Executive shall not, at any time, either during the
Initial Term or any Renewal Term or after the Termination Date, use or disclose
any Trade Secrets of the Bank, except in fulfillment of her duties as the
Executive during her employment, for so long as the pertinent information or
data remain Trade Secrets, whether or not the Trade Secrets are in written or
tangible form. As used herein. "Trade Secrets" shall mean any information,
including but not limited to technical or non-technical data, a formula, a
pattern, a compilation, a program, a device, a method, a technique, a drawing, a
process, financial data, financial plans, product plans, information on
customers, or a list of actual or potential customers or suppliers, which: (i)
derives economic value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use, and (ii) is the subject of
efforts that are reasonable under the circumstances to maintain its secrecy.
6.2 Upon termination of Executive's employment hereunder, by the
Bank, the Company or the Executive, for any reason, for a period of eighteen
(18) months after the Termination Date (the "Non-Compete Period"), Executive
agrees that she will not engage in banking activities, in which a chartered
state or national bank may at the time legally be engaged, within an area (the
"Territory") comprised of Fairfax, Arlington, Prince William and Loudoun
Counties, including the incorporated cities situated therein, and the City of
Alexandria in the Commonwealth of Virginia. In the event that the Bank or the
Company opens or acquires a location for its operations in any other
jurisdiction, the county or the District of Columbia in which such location is
opened or acquired shall be added to the Territory. During the Non-Compete
Period, Executive further agrees that she will not directly or indirectly
solicit or provide banking services to customers of the Bank or the Company.
7. Successors; Binding Agreement.
7.1 This Agreement shall be binding upon and shall inure to the
benefit of the Bank, their successors and assigns and the Company and the Bank
shall require any successors and assigns to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the Bank
would be required to perform if no such succession or assignment had taken
place.
7.2 Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, her beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
8. Fees and Expenses. The Bank shall pay legal fees and related
expenses incurred by the Executive as a consequence of the negotiation and
execution of this Agreement not to exceed Two Thousand Dollars ($2,000).
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Company:
9
<PAGE>
Tysons Financial Corporation
8200 Greensboro Drive, Suite 100
McLean, Virginia 22102
Attention: Board of Directors
With a copy to: Secretary
If to the Bank:
Tysons National Bank
8200 Greensboro Drive, Suite 100
McLean, Virginia 22102
Attention: Board of Directors
With a copy to: Secretary
If to the Executive:
Terrie G. Spiro
105 Follin Lane, SE
Vienna, Virginia 22180
Any party to this Agreement may change such address for notices by sending to
the parties to this Agreement written notice of a new address for such purpose.
All notices and communications shall be deemed to have been received on the date
of delivery thereof.
10. Settlement of Claims. The Company's and the Bank's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company or the Bank may have against the Executive or others.
The Company or the Bank may, however, withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
11. Modification and Waiver. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive, the Bank, and the Company. No
waiver by any party hereto at any time of any breach by the other party hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
12. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Virginia without
giving effect to the conflict of laws principles thereof. Any action brought by
any party to this Agreement shall be brought and maintained in a court of
competent jurisdiction in the Commonwealth of Virginia.
13. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes the Prior Agreement and, except for
option and warrant agreements previously entered into between the Executive and
the Company, any and all prior agreements, if any, understandings and
arrangements, oral or written, between the parties hereto with respect to the
subject matter hereof.
15. Headings. The headings of Paragraphs herein are included solely
for convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
10
<PAGE>
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement
to be executed and its seal to be affixed hereunto by its officers thereunto
duly authorized, and the Executive has signed and sealed this Agreement,
effective as of the date first above written.
TYSONS NATIONAL BANK
By: (SEAL)
J. Patrick Rowland, Chairman of the Board
TYSONS FINANCIAL CORPORATION
By: (SEAL)
Richard Schwartz, Chairman of the Board
EXECUTIVE
(SEAL)
Terrie G. Spiro
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information derived from Tysons
Financial Corporation's unaudited financial statements for the nine months ended
September 30, 1996, and is qualified in its entirety by reference to such
financial statements and the notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 5,524,064
<SECURITIES> 15,157,183
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 391,086
<DEPRECIATION> 0
<TOTAL-ASSETS> 96,747,765
<CURRENT-LIABILITIES> 0
<BONDS> 387,500
0
0
<COMMON> 5,355,595
<OTHER-SE> 3,050,766
<TOTAL-LIABILITY-AND-EQUITY> 96,747,765
<SALES> 0
<TOTAL-REVENUES> 4,806,015
<CGS> 0
<TOTAL-COSTS> 2,070,040
<OTHER-EXPENSES> 326,768
<LOSS-PROVISION> 125,060
<INTEREST-EXPENSE> 1,655,275
<INCOME-PRETAX> 628,872
<INCOME-TAX> (202,823)
<INCOME-CONTINUING> 831,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 831,695
<EPS-PRIMARY> $1.04
<EPS-DILUTED> $1.04
</TABLE>
