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 MARCH 31, 1996 [Fee Required]
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
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 (Zip Code)
Executive Offices)
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: NONE
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 March 31, 1996, 668,619 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 March 31, 1996 and December 31, 1995............................2
Consolidated Statements of Operations for the
three months ended March 31, 1996 and 1995............................3
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995............................4
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
DECEMBER
MARCH 31, 31,
1996 1995
(UNAUDITED)
<S> <C> <C>
ASSETS
Loans, net..................................................................................... $43,578,806 43,774,810
Investment securities available-for-sale, at fair value........................................ 5,050,936 4,965,773
Investment securities held-to-maturity, at cost, fair value of $4,514,739 in 1996 and
$5,300,167 in 1995........................................................................... 4,504,951 5,273,850
Interest-bearing deposits in other banks....................................................... 100,000 100,000
Federal funds sold............................................................................. 13,200,000 8,910,000
Cash and due from banks........................................................................ 7,763,166 5,489,076
Property and equipment, net.................................................................... 350,230 319,845
Premium paid for deposits acquired............................................................. 1,075,542 1,108,471
Accrued interest receivable and other assets................................................... 725,203 669,474
Total assets......................................................................... $76,348,834 70,611,299
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand................................................................ $19,990,003 17,618,859
NOW and money market accounts............................................................. 29,724,506 26,945,735
Savings................................................................................... 2,942,231 3,215,240
Certificates of deposit, $100,000 and over................................................ 2,861,740 3,137,699
Certificates of deposit, under $100,000................................................... 15,423,414 14,575,624
Total deposits............................................................................... 70,941,894 65,493,157
Accrued interest payable and other liabilities............................................... 550,192 552,673
Long-term debt............................................................................... 412,500 425,000
Total liabilities.................................................................... 71,904,586 66,470,830
STOCKHOLDERS' EQUITY:
Common stock, par value $5; 10,000,000 shares authorized; 668,619 shares issued and
outstanding............................................................................... 3,343,095 3,343,095
Additional paid-in capital................................................................... 3,071,860 3,071,860
ESOP Trust, 47,166 shares in 1996 and 48,595 shares in 1995.................................. (412,500) (425,000)
Accumulated deficit.......................................................................... (1,580,184) (1,864,784)
Unrealized gain on investment securities available-for-sale.................................. 21,977 15,298
Total stockholders' equity........................................................... 4,444,248 4,140,469
Total liabilities and stockholders' equity........................................... $76,348,834 70,611,299
</TABLE>
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLDIATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH ENDED MARCH
31, 1996 31, 1995
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME:
Loans......................................................................................... $1,104,019 570,524
Investment securities:
Available-for-sale......................................................................... 85,739 51,587
Held-to-maturity........................................................................... 74,361 59,651
Federal funds sold............................................................................ 160,850 14,628
Deposits in other banks....................................................................... 1,587 2,757
Total interest income........................................................................... 1,426,556 699,147
INTEREST EXPENSE:
Interest on deposits:
NOW and money market accounts.............................................................. 224,999 100,083
Savings accounts........................................................................... 23,309 28,374
Certificates of deposit, under $100,000.................................................... 221,704 11,362
Certificates of deposit, $100,000 and over................................................. 52,886 42,071
Interest on short-term borrowings............................................................. -- 969
Interest on long-term debt.................................................................... 10,875 12,743
Total interest expense.......................................................................... 533,773 195,602
Net interest income............................................................................. 892,783 503,545
Provision for loan losses....................................................................... -- 12,766
Net interest income after provision for loan losses............................................. 892,783 490,779
NON-INTEREST INCOME:
Service charge income......................................................................... 50,747 26,585
Other income.................................................................................. 29,752 27,749
Total non-interest income....................................................................... 80,499 54,334
NON-INTEREST EXPENSE:
Salaries and employee benefits................................................................ 390,797 275,107
Occupancy, equipment and depreciation......................................................... 90,050 57,421
Operations expense............................................................................ 151,249 103,578
Administration expense........................................................................ 150,250 97,533
Total non-interest expense...................................................................... 782,346 533,639
Income before income taxes...................................................................... 190,936 11,474
Income tax benefit.............................................................................. (87,000) --
NET INCOME...................................................................................... $ 277,936 11,474
NET INCOME PER SHARE............................................................................ $ 0.44 0.02
Weighted average shares outstanding............................................................. 620,511 614,307
</TABLE>
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH ENDED MARCH
31, 1996 31, 1995
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................................... $ 277,935 11,474
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.............................................................. 57,718 22,328
Provision for loan losses.................................................................. -- 12,766
Income tax benefit......................................................................... (87,000) --
Compensation expense for ESOP Trust........................................................ 12,500 12,500
Decrease in accrued interest receivable and other assets................................... 31,269 10,941
Increase (decrease) in accrued interest payable and other liabilities...................... (2,481) 54,798
Net cash provided by operating activities................................................ 289,941 124,807
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities.................................................... (454,679) --
Purchases of held-to-maturity securities...................................................... (494,063) --
Proceeds from maturities and principal payments of available-for-sale securities.............. 373,405 47,838
Proceeds from maturities and principal payments of held-to-maturity securities................ 1,265,355 291,250
Net decrease in interest-bearing deposits in banks............................................ -- 100,000
Purchase of property and equipment............................................................ (53,883) --
Net decrease (increase) in loan portfolio..................................................... 201,777 (793,282)
Net cash used in investing activities.................................................... 837,912 (354,194)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits........................................................... 5,448,737 (2,583,184)
Repayments of long term debt.................................................................. (12,500) (12,500)
Net cash provided by (used in) financing activities...................................... 5,436,237 (2,595,684)
Net increase (decrease) in cash and cash equivalents............................................ 6,564,090 (2,825,071)
CASH AND CASH EQUIVALENTS, beginning of period.................................................. 14,399,076 6,241,640
CASH AND CASH EQUIVALENTS, end of period........................................................ $ 20,963,166 3,416,569
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid................................................................................. $ 510,773 180,649
Income taxes paid............................................................................. -- --
</TABLE>
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion of the financial condition of Tysons Financial
Corporation (the "Company") and results of operations should be read in
conjunction with the Company's financial statements and related notes and other
statistical information included elsewhere herein. Results reflect the
operations of the Company and the Company's subsidiary Tysons National Bank (the
"Bank"), during the first quarter ended March 31, 1996 and 1995.
Net income for the first quarter of 1996 reached $278,000 for an increase
of $267,000 as compared to the same period in 1995. Earnings per share for the
first quarter of 1996 were $0.44 as compared to $0.02 for the same period in
1995. Return on average assets was 1.57% for the first quarter of 1996 and 0.13%
for the same period of 1995. Return on average equity was 26.00% for the first
quarter of 1996 as compared to 1.35% for the same period in 1995. Equity to
average assets for the first quarter of 1996 was 6.24% as compared to 9.85% for
the same period in 1995.
As of March 31, 1996 the Company's total assets were $76,349,000 as
compared to $70,611,000 as of December 31, 1995, which represented an increase
of 8.1%. The 1996 first quarter growth of $5,673,000 was primarily due to the
growth of deposits from new and existing customers. The Bank's overall asset
size and customer base, both individual and business, increased significantly
during 1995, which trend continued into the first quarter of 1996.
Total loans, net of allowance for loan losses, at March 31, 1996 were
$43,579,000 as compared to $43,775,000 at December 31, 1995, which represented a
decrease of $196,000. Growth in loans was inhibited by the severe winter weather
of January and February 1996. Although some new loans were funded, outstanding
balances on loans were reduced or paid off resulting in the reduced outstanding
loan balances at March 31, 1996. Changes in the balances of total loans from
December 31, 1995 to March 31, 1996 include an increase in equity lines of
credit of $1,314,000 with smaller increases in real estate construction and
consumer loans, offset by a decrease of $1,779,000 in commercial loans and
smaller decreases in commercial real estate loans. The composition of the loan
portfolio as of March 31, 1996 and December 31, 1995 is presented below.
TABLE 1: COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
% OF % OF
LOAN CATEGORY AMOUNT TOTAL AMOUNT TOTAL
<S> <C> <C> <C> <C>
Commercial.................................................................... $12,573,682 28.4 $14,352,202 32.2
Real estate-construction...................................................... 2,343,543 5.3 1,990,779 4.5
Real estate-residential....................................................... 10,539,026 23.8 9,225,299 20.7
Real estate-commercial........................................................ 12,068,975 27.2 12,311,371 27.7
Consumer...................................................................... 6,788,433 15.3 6,638,593 14.9
Gross loans................................................................... 44,313,659 100.0 44,518,244 100.0
Less:
Unearned income............................................................. (156,098) (158,906)
44,157,561 44,359,338
Allowance for loan losses................................................... (578,755) (584,528)
Net loans..................................................................... $43,578,806 $43,774,810
</TABLE>
Average loans as a percentage of average total earning assets decreased to
66.4% at March 31, 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 March 31, 1996, as compared to December 31,
1995.
TABLE 2: SUMMARY OF EARNING ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
% OF % OF
EARNING ASSETS AMOUNT TOTAL AMOUNT TOTAL
<S> <C> <C> <C> <C>
Federal funds sold............................................................ $13,200,000 19.9 $ 8,910,000 14.1
Interest bearing deposits in banks............................................ 100,000 0.1 100,000 0.1
Investment securities:
Available-for-sale.......................................................... 5,050,936 7.6 4,965,773 7.9
Held-to-maturity............................................................ 4,504,951 6.8 5,273,850 8.4
Loans, net of unearned income................................................. 43,578,806 65.6 43,774,810 69.5
Total earning assets.......................................................... $66,434,693 100.0 $63,024,433 100.0
</TABLE>
<PAGE>
Federal funds sold and cash and due from banks at March 31, 1996 totaled
$20,963,000 compared to $14,399,000 at December 31, 1995, representing an
increase of $6,564,000, or 45.6%. Cash and due from banks increased by
$2,274,000, or 41.4% and federal funds sold increased by $4,290,000, or 48.1%
during such period. The increase was primarily attributable to increased
balances in certain customer escrow accounts.
Total deposits were $70,942,000 at March 31, 1996, up from $65,493,000 at
December 31, 1995, representing an increase of 8.3%. The growth of $5,449,000
was primarily the result of increased balances in certain customer escrow
accounts. Non-interest bearing deposits, which represent 28.1% of deposits,
increased by $2,371,000 while interest-bearing deposit accounts, which represent
71.9% of deposits, increased $3,078,000.
RESULTS OF OPERATIONS
The Company's net income for the first quarter of 1996 was $278,000, a
$267,000 increase from the $11,000 net income for the same period in 1995. This
net income represented a return on average assets of 1.57% for the first quarter
of 1996 as compared to 0.13% for the same period in 1995. Return on average
equity improved to 26.00% in the quarter ended March 31, 1996 from 1.35% for the
same period in 1995. The Company's growth in assets and liabilities was the
primary reason for the increase in net income. Average assets rose from
$35,605,000 in the first quarter of 1995 to $71,193,000 in the first quarter of
1996. One significant source of the increase in assets and liabilities was the
purchase on May 15, 1995, of $13,000,000 in loans and assumption of $20,100,000
of deposits from Suburban Bank. Net interest income for the quarter ended March
31, 1996 increased by $389,000, or 77.3%, over the same period of 1995.
Non-interest income for the first quarter of 1996 increased by $26,000, or 48.2%
over the same period in 1995, while non-interest expenses increased by $249,000
or 46.6%.
There was no provision for loan losses in the first quarter of 1996.
Because there was no growth or deterioration in the Bank's loan portfolio, the
allowance for loan losses, which represents 1.31% of outstanding loans, is
considered adequate by management.
The Company recognized an income tax benefit of $87,000 in the first
quarter of 1996. The income tax benefit relates to a reduction in the deferred
tax asset valuation allowance based upon the Company's profitability in 1995 and
projected profitability over the next twelve months. There was no tax benefit
recorded in the first quarter of 1995.
Net income per share was $0.44 for the quarter ended March 31, 1996 which
was a significant improvement from the $0.02 net income per share for the same
period of 1995.
NET INTEREST INCOME
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 $893,000 for the quarter ended March 31, 1996, a
77.2% increase from the net interest income of $504,000 earned during the same
period of 1995. Earning assets averaged $65,631,000 in the first quarter of
1996, a 98.2% increase as compared to $33,114,000 in the first quarter of 1995.
The increase in net interest income is due to the growth of the loan portfolio,
primarily attributable to the purchase of the Suburban Bank loan portfolio, an
increase in the volume of investment securities and federal funds sold, and
increases in yields on 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 quarter of 1996 as
compared with 71.9% in the same period of 1995. Total average investment
securities as a percentage of total average earning assets decreased to 15.3%
for the first quarter of 1996, as compared to 25.0% in the same period in 1995.
Average federal funds sold increased to 18.3% of total average earning assets
for the first quarter of 1996 as compared to 3.1% for the same period in 1995.
Interest income on loans of $1,104,000 for the first quarter of 1996
increased by $533,000, or 93.3% from $571,000 for the same period in 1995,
constituting the largest dollar increase in interest income and reflecting an
increase in the average balance of loans ($43,589,000 for the first quarter of
1996 as compared to $23,512,000 for the same period in 1995). The net interest
spread, which is the difference between the yield on earning assets and the cost
of interest-bearing liabilities, decreased to 4.52% in the first quarter of 1996
as compared to 5.17% for the same period in 1995. The lower net interest spread
was attributable to the increase in deposits for the first quarter of 1996 that
had not yet been disbursed into loans. 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 quarter of 1996 was $80,000, an increase
of $26,000, or 48.1%, from $54,000 for the same period of 1995. The increase was
primarily due to volume increases in the number of deposit accounts as a result
of the Suburban Bank transaction, which generated more check activity and
increased fee income. Deposit service charges accounted for 63.0% and 48.9% of
total non-interest income for the quarters ended March 31, 1996 and 1995,
respectively.
NON-INTEREST EXPENSE
Non-interest expense totaled $782,000 for the quarter ended March 31, 1996,
as compared to $534,000 for the same period of 1995, an increase of $248,000, or
46.4%. Although total non-interest expense increased during the first quarter of
1996, non-interest expense as a percentage of average total assets decreased to
1.1% in the first quarter of 1996 as compared to 1.5% for the same period in
1995.
Salaries and employee benefits continued to account for the largest
component of non-interest expense, comprising 50.0% of total non-interest
expenses for the first quarter of 1996 and 51.6% for the same period of 1995.
Salaries and employee benefits increased by $116,000, or 42.2%, for the first
quarter of 1996 as compared to the same period in 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 $47,000 or 45.2% primarily due to increased
data processing expenses. Data processing expenses for the first quarter of 1996
increased by $29,000, or 80.6%, as compared to the same period in 1995. The
increases in data processing expenses are primarily volume driven. The increase
was related to the addition of the Reston Branch and the overall increase in the
Bank's transaction volume.
Occupancy and equipment expenses for the first quarter of 1996 increased by
$33,000, or 57.9% as compared to the same period in 1995. The increase was due
to the addition of the Reston branch.
Administrative expense increased by $52,000 or 53.1% primarily due to
increased legal and professional expenses. The increase was primarily due to an
increase in fees paid to the external auditors and regulators as a result of the
increase in the Bank's asset size.
INCOME TAX BENEFIT
The Company recognized a net income tax benefit of $87,000 in the first
quarter of 1996, as compared to zero in the first quarter of 1995, related to a
reduction in the deferred tax asset valuation allowance. Subject to future
profitability, the Company expects to record additional tax benefits until the
net operating loss carryforwards are depleted.
Prior to December 31, 1995, 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 during 1996, management reassessed the need for a
valuation allowance and recorded a net $337,000 deferred tax asset, which is the
amount management considers is more likely than not to be realized.
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 March 31, 1996, the Company had two
non-accrual loans totaling $309,000 as compared to zero as of March 31, 1995.
With respect to one such non-accrual loan of $266,000, the Bank subsequently
held a foreclosure sale and has entered into a sale agreement pursuant to which
the Bank expects to recover the full amount of principal, interest and expenses.
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. 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 assumptions about future events, which
are believed to be reasonable, but which may or may not prove valid. Thus, there
can be no assurance for loan loss or that additional increases in the loan loss
allowance will not be required. The Company made no provision for loan losses
for the first quarter of 1996 as compared to $13,000 in the first quarter of
1995. The Bank's total loan balances remained constant with no significant
deterioration in the loan portfolio and therefore management determined no
additional provision was necessary. As of March 31, 1996, the allowance for loan
losses amounted to $579,000, which represented 1.31% of outstanding loans as
compared to 1.32% at December 31, 1995.
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 March 31, 1996 consisted of the two non-accrual
loans totaling $309,000. The non-performing loans 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 $72,000
in non-performing assets as of March 31, 1995.
The Company adopted the provisions of Statements of Financial Accounting
Standards No. 114 (SFAS 114), "Accounting by Creditors for Impairment of Loan,"
as amended by Statements of Financial Accounting Standards No. 118 (SFAS 118),
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosure," effective January 1, 1995. SFAS 114 and 118 require that impaired
loans, which consist of all modified loans and other loans for which collection
of all contractual principal and interest is not probable, be measured based on
the present value of expected cash flows discounted at the loan's effective
interest rate or the fair value of the collateral.
As a result of management's ongoing review of the loan portfolio, loans
are classified as non-accrual when collection of full principal and interest
under the original terms is not expected. These loans are classified as
non-accrual, even though the presence of collateral or the borrower's
financial strength may be sufficient to provide for ultimate repayment.
Interest on non-accrual loans is recognized only when received.
<PAGE>
CAPITAL RESOURCES
Stockholders' equity was $4,444,000 as of March 31, 1996 as compared to
$4,140,000 as of December 31, 1995. The $304,000 increase, or 7.3%, was the
result of net income of $277,000 and an increase in the unrealized gain on
investment securities available-for-sale. The remaining increase in
stockholders' equity was due to a payment on the long-term liability relating to
the Employee Stock Ownership Plan. 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 been exercised.
To date, the Company has provided its capital requirements through the
funds received from its initial stock offering which was completed in 1991.
The Company has filed a Registration Statement on Form SB-2 with the
Securities and Exchange Commission to raise capital through an offering of
up to 345,000 shares of Common Stock. However, there can be no assurance that
the Company will be able to consummate such an offering or that such an
offering could be consummated on terms acceptable to the Company. 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 March 31,
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.
At March 31, 1996 the Company had an asset sensitive gap (more assets
than liabilities subject to repricing within the stated timeframe) of
$8,536,000 which represents 11.0% 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 obliga-
tions. 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 quarter of 1996 as increases in deposits totaled $5,449,000. The
first quarter of 1995 experienced a reduction in deposits of $2,583,000 and cash
maintained in federal funds sold was reduced to offset this decline. 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
March 31, 1996 the Bank had $227,000 in letters of credit and $12,365,000 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 quarter
of 1996, as compared to 36.9% for the same period in 1995. Liquidity levels
increased in the middle of 1995 with the purchases 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 66.7% of average deposits for the first quarter of 1996, as compared to
75.9% for the first quarter of 1995. Average deposits were 100.5% of average
earning assets for the three months ended March 31, 1996 as opposed to 94.8%
for the same period of 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 $5,051,000 and
$4,966,000 as of March 31, 1996 and 1995, respectively.
PART II
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 HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits required by Item 601 Regulation S-K:
None.
B. Reports on Form 8-K:
None.
<PAGE>
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: May 15, 1996
