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 June 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 June 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 June 30, 1996 and December 31, 1995 . . . . . . 2
Consolidated Statements of Operations for the three
and six month periods ended June 30, 1996 and 1995 . .3
Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and year
ended December 31, 1995 . . . . . . . . . . . . . . . .4
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
Assets 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C>
Loans, net $ 50,825,665 $ 43,774,810
Investment securities available-for-sale, at fair value 8,516,596 4,965,773
Investment securities held-to-maturity, at cost, fair value
of $4,205,000 in 1996 and $5,300,167 in 1995 4,221,124 5,273,850
Interest-bearing deposits in other banks 100,000 100,000
Federal funds sold 10,345,646 8,910,000
Cash and due from banks 5,374,499 5,489,076
Property and equipment, net 374,728 319,845
Premium paid for deposits acquired 1,044,809 1,108,471
Accrued interest receivable and other assets 908,344 669,474
- -----------------------------------------------------------------------------------------
Total Assets $ 81,711,411 $ 70,611,299
=========================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand $ 18,703,282 $ 17,618,859
NOW and money market accounts 32,704,661 26,945,735
Savings 3,103,903 3,215,240
Certificates of deposit, $100,000 and over 2,780,140 3,137,699
Certificates of deposit, under $100,000 15,699,584 14,575,624
- -----------------------------------------------------------------------------------------
Total deposits 72,991,570 65,493,157
Accrued interest payable and other liabilities 596,768 552,673
Long-term debt 400,000 425,000
- -----------------------------------------------------------------------------------------
Total Liabilities 73,988,338 66,470,830
- -----------------------------------------------------------------------------------------
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 4,071,394 3,071,860
ESOP Trust, 47,166 shares in 1996 and 48,595 shares (400,000) (425,000)
in 1995
Accumulated deficit (1,310,539) (1,864,784)
Unrealized gain on investment securities
available-for-sale 6,623 15,298
- -----------------------------------------------------------------------------------------
Total Stockholders' Equity 7,723,073 4,140,469
- -----------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 81,711,411 $ 70,611,299
=========================================================================================
Outstanding shares at month end 1,071,119 668,619
Book Value at month end $7.21 $6.19
</TABLE>
2
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Six months Six months Three months Three months
ended ended ended ended
(Unaudited) June 30, June 30, June 30, June 30,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C>
Interest Income:
Loans $ 2,267,953 $ 1,428,057 $ 1,163,934 $ 857,533
Investment securities:
Available-for-sale 181,427 106,138 95,688 54,551
Held-to-maturity 139,625 118,481 65,264 58,830
Federal funds sold 327,467 75,985 166,617 61,357
Deposits in other banks 3,072 5,453 1,485 2,696
- -------------------------------------------------------------------------------------------------
Total interest income 2,919,544 1,734,114 1,492,988 1,034,967
- -------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits:
NOW and money market accounts 449,848 247,742 224,849 147,659
Savings accounts 46,311 58,703 23,002 30,329
Certificates of deposit, under $100,000 448,332 146,364 226,628 104,293
Certificates of deposit, $100,000 and over 95,174 42,678 42,288 31,316
Interest on short-term borrowings 443 2,123 443 1,154
Interest on long-term debt 21,444 25,348 10,569 12,605
- -------------------------------------------------------------------------------------------------
Total interest expense 1,061,552 522,958 527,779 327,356
- -------------------------------------------------------------------------------------------------
Net interest income 1,857,992 1,211,156 965,209 707,611
Provision for loan losses 52,060 147,907 52,060 135,141
- -------------------------------------------------------------------------------------------------
Net interest income after provision for loan
losses 1,805,932 1,063,249 913,149 572,470
Non-interest income:
Service charge income 92,473 98,175 41,726 71,590
Other income 64,809 43,931 35,057 16,182
- -------------------------------------------------------------------------------------------------
Total non-interest income 157,282 142,106 76,783 87,772
- -------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 787,709 574,321 396,912 299,214
Occupancy, equipment and depreciation 191,243 133,550 101,193 76,129
Operations expense 301,172 246,923 149,923 143,345
Administration expense 314,163 184,427 163,913 73,991
- -------------------------------------------------------------------------------------------------
Total non-interest expense 1,594,287 1,139,221 811,941 592,679
- -------------------------------------------------------------------------------------------------
Net income before income taxes 368,927 66,134 177,991 67,563
Income tax benefit (172,000) - (85,000) -
- -------------------------------------------------------------------------------------------------
Net income $ 540,927 $ 66,134 $ 262,991 $ 67,563
- -------------------------------------------------------------------------------------------------
Net income per share $ 0.78 $ 0.11 $ 0.34 $ 0.11
Weighted average shares outstanding 689,144 615,497 770,503 616,211
</TABLE>
3
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited) Six months Six months
ended ended
June 30, 1996 June 30, 1995
--------------- --------------
<S> <C>
Cash flows from operating activities:
Net income $ 540,927 $ 66,134
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 117,583 38,027
Amortization of
Provision for loan losses 52,060 147,907
Income tax benefit (172,000) --
Compensation expense for ESOP Trust 25,000 25,000
Decrease (increase) in accrued interest receivable
and other assets (238,870) (61,149)
Increase (decrease) in accrued interest payable and
other liabilities 44,095 155,150
--------------------------
Net cash provided by operating activities 368,795 371,069
--------------------------
Cash flows from investing activities:
Purchases of available-for-sale securities (4,464,904) --
Purchases of held-to-maturity securities (995,000) --
Proceeds from maturities and principal payments of
available-for-sale securities 899,382 169,908
Proceeds from maturities and principal payments of
held-to-maturity securities 2,025,639 590,067
Net decrease in interest-bearing deposits in banks -- 200,000
Premium paid for deposits acquired -- (1,185,320)
Purchase of property and equipment 104,625 (106,078)
Net decrease (increase) in loan portfolio (7,102,915) (17,566,515)
Issuance of common stock 3,012,034 --
--------------------------
Net cash used in investing activities (6,521,139) (17,897,938)
--------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 7,498,413 22,967,175
Repayments of long term debt (25,000) (25,000)
--------------------------
Net cash provided by (used in) financing activities 7,473,413 22,942,175
--------------------------
Net increase(decrease) in cash and cash equivalents 1,321,069 5,415,306
Cash and cash equivalents, beginning of period 14,399,076 6,241,640
--------------------------
Cash and cash equivalents, end of period $ 15,720,145 $ 11,656,946
--------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 1,048,922 $ 478,527
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 and results of
operations of Tysons Financial Corporation (the "Company") 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 Tysons National Bank, the Company's wholly
owned subsidiary ("the Bank") during the six months ended June 30, 1996 and
1995.
Net income for the first six months of 1996 reached $541,000 for an
increase of $475,000 over the same period of 1995. Earnings per share for the
six month period ended June 30, 1996 were $0.78 as compared to $0.11 over the
same period of 1995. Return on average assets was 1.49% for the first half of
1996 and 0.32% for the same period of 1995. Return on average equity was 21.34%
for the first six months of 1996 as compared to 3.71% for the same period in
1995. Equity to average assets was 10.60% for the first six months of 1996 and
8.56% for the same period in 1995.
As of June 30, 1996 the Company's total assets were $81,711,000 as
compared to $70,611,000 as of December 31, 1995 which represented an increase of
15.7%. The 1996 first six months' growth of $11,100,000 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 half of 1996.
Total loans, net of allowance for loan losses, at June 30, 1996 were
$50,826,000 as compared to $43,775,000 at December 31, 1995, which represented
an increase of $7,051,000 or 16.1%. Growth in loans was inhibited by the severe
winter weather of January and February 1996, however loan demand in March
through June increased significantly from the January and February levels.
Changes in the balances of total loans from December 31, 1995 to June 30, 1996
were increases in equity lines of credit of $2,815,000, commercial real estate
of $2,005,000, and consumer loans of $1,094,000 with smaller increases in real
estate construction and commercial loans. The composition of the loan portfolio
as of June 30, 1996 and December 31, 1995 is presented below.
Table 1: Composition of Loan Portfolio
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
----------------- -------------------
% of % of
Loan Category Amount Total Amount Total
------------- ------- ----- ------- -----
<S> <C>
Commercial $14,829,537 28.7 $14,352,202 32.2
Real estate-construction 2,663,066 5.2 1,990,779 4.5
Real estate-residential 12,078,648 23.4 9,225,299 20.7
Real estate-Commercial 14,316,312 27.7 12,311,371 27.7
Consumer 7,732,617 15.0 6,638,593 14.9
--------- ---- --------- ----
Gross loans 51,620,180 100.0 44,518,244 100.0
---------- ----- ---------- -----
Less:
Unearned income (195,624) (158,906)
--------- ---------
51,424,556 44,359,338
Reserve for loan losses (598,891) (584,528)
--------- ---------
Net loans $50,825,665 $43,774,810
----------- -----------
</TABLE>
Average loans as a percentage of average total earning assets decreased
to 66.7% at of June 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 June 30, 1996, as compared to
December 31, 1995.
Table 2: Summary of Earning Assets
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
% of % of
Earning Asset Amount Total Amount Total
------- ----- ------- -----
<S> <C>
Federal funds sold $10,345,646 13.9 $8,910,000 14.1
Interest bearing
deposits in banks 100,000 0.1 100,000 0.1
Investment securities
Available-for-sale 8,516,596 11.4 4,965,773 7.9
Held-to-maturity 4,221,124 5.7 5,273,850 8.4
Loans,net of unearned 51,424,556 68.9 43,774,810 69.5
---------- ---- ---------- ----
income
Total earning assets $74,607,922 100.0 $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
June 30, 1996 totaled $15,720,000 compared to $14,399,000 at December 31, 1995,
representing an increase of $1,321,000, or 9.2%. Federal funds sold represented
all of the increase with cash and due from banks decreasing $114,000. The net
increase was attributable to the increase in overall volume of the Bank's
deposit base.
Total deposits were $72,992,000 at June 30, 1996, up from $65,493,000 at
December 31, 1995, representing an increase of 11.5%. The growth of $7,499,000
was primarily the result of increased balances in certain customer escrow
accounts. Non-interest bearing deposits increased by $1,084,000 while
interest-bearing deposit accounts increased $6,414,000. Table 3 presents the
composition of deposits on June 30, 1996 as compared to December 31, 1995.
Table 3: Deposit Summary
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
% of % of
Amount Total Amount Total
<S> <C>
Non-interest bearing demand $18,703,282 25.6 $17,618,859 26.9
NOW and Money Market 32,704,661 44.8 26,945,735 41.1
Savings 3,103,903 4.3 3,215,240 4.9
Time, $100,000 and over 2,780,140 3.8 3,137,699 4.8
Time, under $100,000 15,699,584 21.5 14,575,624 22.3
---------- ---- ---------- ----
Total deposits $72,991,570 100.0 $65,493,157 100.0
----------- ----- ----------- -----
</TABLE>
Results of Operations for the Three Months Ended June 30, 1996 and 1995.
Net income for the three months ended June 30, 1996 was $263,000, a
$195,000 increase from the $68,000 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 62,303,000 at June 30, 1995 to $81,711,000 at June
30, 1996. Net interest income for the quarter ended June 30, 1996 increased
$258,000 or 36.4% over the same quarter of 1995. During the same time period
non-interest income decreased $11,000 due to a reduction in overdraft and return
check charges. In the second quarter of 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 second quarter of 1996. Non-interest expenses
increased $219,000 or 36.9% over the same period of 1995 due to increased
operational and facility costs of additional customers and the Reston branch
which opened in May of 1995.
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 $52,000 was made for
loan losses in the first half of 1996. The allowance for loan losses at June 30,
1996 is 1.16% of outstanding loans.
In addition, the Company recognized a net income tax benefit of $85,000
in the three months ended June 30, 1996 as compared to zero in the same period
of 1995. Based upon the Company's profitability for the year ended December 31,
1995 and projected profitability for the twelve months ending June 30, 1997,
management determined that a 100% valuation allowance was no longer needed
against the deferred tax asset.
Net income per share was $0.34 for the three month period ended June 30,
1996 which was a significant improvement form the $0.11 net income per share for
the same period of 1995.
Results of Operations for the Six Months Ended June 30, 1996 and 1995.
The Company's net income for the six months ended June 30, 1996, was
$541,000, a $475,000 increase from the $66,000 net income for the same period of
1995. The net income represented a return on average assets of 1.49% for the
first half of 1996 as compared to 0.32% for the first half of 1995. Return on
average equity improved to 21.34% in the six month period ended June 30, 1996
from 3.71% 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 $42,259,000 to $72,845,000 in the first half 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 six months ended June 30,
1996 increased $647,000, or 53.4%, over the same period of 1995. During the same
time periods non-interest income increased $15,000, or 10.7%. Non-interest
expenses were $455,000 for the first six month period of 1996, representing a
39.9% increase as compared to the same period of 1995.
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 $52,000 was made for
loan losses in the first half of 1996. The allowance for loan losses at June 30,
1996 is 1.16% of outstanding loans.
In addition, the Company recognized a net income tax benefit of
$172,000 in the first half of 1996, as compared to zero in the first half of
1995. Based upon the Company's profitability for the year ended December 31,
1995 and projected profitability for the twelve months ended June 30, 1997,
management determined that a 100% valuation allowance was no longer needed
against the deferred tax asset.
Net income per share was $0.78 for the six month period ended June 30,
1996 which was a significant improvement from the $0.11 net income per 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 $1,858,000 for the first six months of 1996, a
53.4% increase from the $1,211,000 earned during the same period of 1995.
Earning assets averaged $67,074,000 in the first half of 1996, a 70.9% increase
as compared to $39,250,000 in the first half 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 66.7% in the first half of 1996 as compared with 73.0% in the same
period of 1995. Total average investment securities as a percent of total
average earning assets decreased for the first half of 1996; representing 15.0%
as compared to 20.5% in 1995. Average federal funds sold in the six months ended
June 30, 1996 increased to 18.3% of total average earning assets from 6.5% in
the comparable period in 1995. The overall increase in average earning assets
increased net interest income for the Company in the first six months of 1996.
Interest income on loans of $2,268,000 for the six months ended June 30,
1996 represented an increase of $840,000, or 58.8% from $1,428,000 for the same
period of 1995, constituting the largest dollar increase in interest income and
reflecting an increase in the average balance of loans to $44,128,000 for the
half year ended June 30, 1996 from $28,635,000 for the same period of 1995. The
net interest spread, which is the difference between the yield on earning assets
and the cost of interest-bearing liabilities, decreased to 4.57% in the first
half of 1996 from 5.18% in the same period of 1995. The lower net interest
spread was attributable to the increase in deposits for the first half 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 six months of 1996 was $157,000, an increase
of $15,000, or 10.6%, from $142,000 for the same period of 1995. The increase
was primarily due to volume increases in the number of deposit accounts which
generated more fee activity for wires, collection fees, and other servicing
fees. Deposit service charges accounted for 58.6% and 69.0% of total
non-interest income for the six months ended June 30, 1996 and 1995,
respectively.
Non-Interest Expense
Non-interest expense totaled $1,594,000 for the six month period ended
June 30, 1996, as compared to $1,139,000 for the same period of 1995;
representing an increase of $455,000, or 39.9%. Although total non-interest
expense increased during the first half of 1996, non-interest expense as a
percentage of average total assets decreased to 2.2% in the first six months of
1996 as compared to 2.7% for the same period in 1995.
Salaries and employee benefits continued to account for the largest
component of non-interest expense, comprising 49.4% of total non-interest
expenses for the first half of 1996 and 50.4% in for the same period of 1995.
Salaries and employee benefits increased by $214,000, or 37.3%, for the six
month period ended June 30, 1996 as compared to the six month period ended June
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 $54,000, or 21.9%, from the first half of
1995 as compared to the first half of 1996 primarily due to increased data
processing expenses. The increases in data processing expenses are 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 increased by $57,000, or 42.5%. 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 $130,000 or 70.7% 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 was $10,000 for the six months ended June 1995 as compared to
$66,000 for the same period of 1996. Legal and other professional expenses
increased $35,000 or 32.4% 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 $172,000 in the first
half of 1996, as compared to zero in the first half of 1995, related to a
reduction in the deferred tax asset valuation allowance. This accounted for
$172,000 of the $475,000 change in net income from June 30, 1995 to June 30,
1996. Subject to future profitability, the Company expects to record additional
tax benefits until the net operating losses 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 for the next twelve months, management reassessed
the need for a valuation allowance and recorded a net $422,000 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 June 30,1996, the Company had two
loans for $114,000 in non-accrual loans as compared to $34,000 as of June 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 half of 1996 of $52,000 as compared to $148,000 in the first half 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 June 30, 1996, the allowance for loan losses was 1.16% of
outstanding loans, which was an increase from June 30, 1995 percentage of 1.06%.
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 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 June 30 1996 consisted of two loans for $144,000.
The non-performing loan was 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 $53,000 in non-performing
loans as of June 30, 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.
There are two impaired loans with an unpaid principal balance of
$114,000 at June 30, 1996. These loans are on nonaccrual and have related
impairment reserves of $18,000 which represents 100% of the principal balance
less the Small Business Administration guarantee applicable to them.
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.
Capital Resources
Stockholders' equity was $7,723,000 as of June 30, 1996 as compared to
$4,140,000 as of December 31, 1995. The $3,583,000 increase, or 86.5%, 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 $541,000. 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 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 June 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.
At June 30, 1996 the Company had an asset sensitive gap (more assets
than liabilities subject to repricing within the stated timeframe) of $7,023,000
which represents 9.5% 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 half of 1996 as increases in deposits totaled $7,498,000.
The first six months of 1996 experienced an increase in deposits of $22,967,000
and an increase in loans of $17,567,000. The Suburban Bank transaction accounted
for $20,100,000 of the deposit increase and $13,000,000 of the loan increase as
it was completed on May 15, 1995. 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 June 30, 1996 the Bank had
$213,000 in letters of credit and $13,643,000 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 39.5% of average deposits for the first half of
1996, as compared to 34.7% 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
67.0% of average deposits for the first half of 1996, as compared to 75.7% for
the first half of 1995. Average deposits were 99.5% of average earning assets
for the six months ended June 30, 1996 as opposed to 96.3% 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 $8,517,000 and
$4,966,000 as of June 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
The Company held its annual meeting of shareholders on June 14, 1996. The
following directors of the Company were re-elected at the meeting: Michael
Farnum, Beth W. Newburger, William C. Sellery, Jr., St. Clair Tweedie, and
Stephen A. Wannall. The following chart indicates the number of votes for,
against, and abstaining with respect to each individual elected.
Director For Against Abstaining
- -------- ---- ------- ----------
Michael Farnum 470,693 1,500 0
Beth W. Newburger 470,693 1,500 0
William C. Sellery 470,693 1,500 0
St. Clair J. Tweedie 470,693 1,500 0
Stephen A. Wannall 470,693 1,500 0
Immediately after the elections at the meeting, the following persons
served as directors of the Company: Class I directors were Joel M. Birken,
Zachary A. Kaye, M.D., Alben A. Goldstein, and Stephen A. Wannall. Class II
directors were Michael Farnum, Beth W. Newburger, William C. Sellery, Jr., and
St. Clair J. Tweedie. Class III directors were J. Patrick Rowland, Richard
Schwartz, and Terrie G. Spiro.
In addition to the election of directors, the Company's shareholders
voted at the annual meeting to ratify and approve the Company's independent
public accountants. The accounting firm, KPMG Peat Marwick LLP, nominated by
management received the following votes: For 466,693, Against 2,500, and
Abstaining 3,000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits required by Item 601 Regulation S-K:
Exhibit 27: Financial Data Schedule
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: August 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information derived from
Tysons Financial Corporation's unaudited financial statements for the
six months ended June 30, 1996, and is qualified in its entirety
by reference to such financial statements and the notes thereto
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,374,499
<SECURITIES> 12,837,720
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 374,728
<DEPRECIATION> 0
<TOTAL-ASSETS> 81,711,411
<CURRENT-LIABILITIES> 0
<BONDS> 400,000
0
0
<COMMON> 5,355,595
<OTHER-SE> 2,367,478
<TOTAL-LIABILITY-AND-EQUITY> 81,711,411
<SALES> 0
<TOTAL-REVENUES> 3,076,826
<CGS> 0
<TOTAL-COSTS> 1,293,115
<OTHER-EXPENSES> 301,172
<LOSS-PROVISION> 52,060
<INTEREST-EXPENSE> 1,061,552
<INCOME-PRETAX> 368,927
<INCOME-TAX> (172,000)
<INCOME-CONTINUING> 540,927
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 540,927
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.78
</TABLE>
