Conformed Copy
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[No Fee Required]
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[No Fee Required]
Commission File No. 0-28122
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: Common Stock, par
value $5.00 per share. 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
Total revenues for the registrant's fiscal year ended December 31, 1996
were $6,556,092.
As of March 14, 1997, 1,071,119 shares of the registrant's common stock, par
value $5.00 per share, were outstanding. The common stock is traded on Nasdaq
SmallCap Market under the symbol TYFC. Based on the average of the most
recent sales price of $12.56 per share, the registrant believes that the
aggregate market value of voting stock held by non-affiliates was $10,065,257
on March 14, 1997.
Transitional Small Business Disclosure Format: Yes ____ No _X___
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
Annual Report and the documents incorporated herein by reference constitute
"forward-looking statements" within the meaning of the United States Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions in the Company's market area, inflation, fluctuations in interest
rates, changes in government regulations and competition, which will, among
other things, impact demand for loans and banking services; the ability of the
Company to implement its business strategy; and changes in, or the failure to
comply with, government regulations.
Forward-looking statements are intended to apply only at the time they
are made. Moreover, whether or not stated in connection with a forward-looking
statement, the Company undertakes no obligation to correct or update a
forward-looking statement should the Company later become aware that it is not
likely to be achieved. If the Company were to update or correct a
forward-looking statement, investors and others should not conclude that the
Company will make additional updates or corrections thereafter.
ITEM 1 - DESCRIPTION OF BUSINESS
General
Tysons Financial Corporation (the "Company") was incorporated in
Virginia on December 29, 1989 as a bank holding company to own and control all
of the capital stock of Tysons National Bank, a national banking association
(the "Bank"). The Bank commenced its operations on July 1, 1991 in its primary
service area in Fairfax County, Virginia. The headquarters of the Company and
the Bank are located in an area known as Tysons Corner. Tysons Corner is
approximately 13 miles due west of Washington, D.C. and within 20 to 30 minutes
from other locations such as Dulles International Airport, Washington National
Airport and suburban Maryland. The Bank also operates two additional branches
located in Reston and McLean, Virginia. At December 31, 1996, the Company had
total assets of $87,837,000, total loans, net, of $56,983,000, total deposits of
$78,554,000 and stockholders' equity of $8,265,000.
On May 24, 1996, the Company issued 402,500 shares of common stock in a
public offering for net proceeds of approximately $3,000,000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The executive offices of the Company and the main office of the Bank
are located at 8200 Greensboro Drive, Suite 100, McLean, Virginia 22102,
telephone number (703)556-0015.
Primary Market Area
The Bank draws most of its customer deposits and conducts most of its
lending transactions from and within a primary service area in the Tysons
Corner/Reston corridor in Fairfax County, Virginia.
The large cosmopolitan population that lives and works in this corridor
and in surrounding suburbs, as well as the area's accessibility, make retailing
a significant enterprise. High technology firms are also located within this
corridor. These firms include businesses engaged in operations research,
computer programming and information management. The Bank actively targets and
solicits relationships from the professional staff employed by these
enterprises. The corridor also attracts a significant amount of professional
firms, including accounting and law firms. The Bank actively solicits banking
relationships with these firms as well as their professional staff.
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The Company acquired an additional branch located in Reston, Virginia,
in May 1995, which is approximately nine miles west of the Company's existing
location. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Reston area is experiencing increases in its large
residential community and growing commercial business sectors which are expected
to contribute to the overall growth of the Company.
On September 30, 1996, the Company opened its third branch location in
McLean, Virginia. The McLean branch is located along a main commuter route to
Washington, D.C. The community around the branch is a mixture of small
commercial businesses and professional service firms as well as residential
areas.
Banking Services
The Bank engages in general commercial banking business with particular
emphasis on the needs of professionals, entrepreneurs, and small to medium-sized
businesses located in its primary service area. The Bank offers a comprehensive
range of banking services that are generally offered by other full service banks
and savings and loan associations. Such services include commercial and personal
checking accounts, Automated Teller Machine (ATM) card services for the MOST,
Cirrus and Exchange ATM networks, savings accounts, and other time deposits
including individual retirement accounts and certificates of deposit. The
transaction accounts and time deposits are tailored to the Bank's principal
market area at rates competitive to those offered in the area. The Bank solicits
these accounts from individuals, businesses, professional firms, and public and
governmental organizations. The Bank is not currently dependent upon a single
depositor or borrower the loss of which would have a material adverse effect on
the Bank.
The Bank also provides loans to businesses, including both secured and
unsecured short-term loans for working capital purposes, term loans for fixed
assets and expansion needs such as real estate acquisition and improvements,
real estate construction loans, and other commercial loans suitable to the needs
of its business customers. Loans to individuals which are offered by the Bank
include short-term mortgage loans and installment loans for personal use such as
education and personal investments, or for the purchase of automobiles or other
consumer items. The Bank also acts as an issuing agent for U.S. savings bonds,
travelers' checks and cashier's checks. In addition, the Bank offers its
customers bank-by-mail and direct deposit services, safe deposit services, wire
transfer services and a courier service which picks up non-cash customer
deposits.
Lending Activities
General. At December 31, 1996, the Bank's net loan portfolio totaled
$56,983,000, representing approximately 64.9% of its total assets of
$87,837,000. The categories of loans in the Company's portfolio are commercial,
commercial and residential real estate, and consumer. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Composition of Loan Portfolio."
Commercial Loans. The Bank originates secured and unsecured loans for
business purposes. Additionally, commercial business loans are made to provide
short-term working capital and acquisition capital to businesses in the forms of
lines of credit and term loans which may be secured by accounts receivable,
inventory, equipment or other assets. At December 31, 1996, $17,308,000 or 30.0%
of the Bank's total gross loan portfolio consisted of commercial business loans.
The financial condition and cash flow of commercial borrowers are closely
monitored by the submission of corporate financial statements, personal
financial statements, income tax returns and other documents. The frequency of
submissions of required information depends upon the size and complexity of the
credit and the collateral which secures the loan. It is also the Bank's general
policy to obtain personal guarantees from the principals of its business
borrowers.
Commercial Real Estate Loans. The Bank also originates commercial loans
secured by real estate. At December 31, 1996, $13,872,000 or 24.0% of the Bank's
total gross loan portfolio consisted of commercial real estate loans. Such loans
are primarily secured by owner-occupied office condominiums, retail buildings
and warehouses and general purpose business space. Although terms vary, the
Bank's commercial real estate loans generally have maturities of five years or
less.
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Residential Real Estate Loans. The Bank originates adjustable and
fixed-rate residential mortgage loans, home equity loans and personal loans
secured by residential real estate in order to provide a full range of products
to its customers. Home equity loans are originated by the Bank for typically up
to 80% of the appraised value, less the amount of any existing prior liens on
the property. Home equity loans generally have maximum terms of 15 years and the
interest rate is generally adjustable. The Bank secures these loans with
mortgages on the borrowers' homes (generally a second mortgage). At December 31,
1996, $12,933,000 or 22.4% of the Bank's total gross loan portfolio consisted of
loans secured by residential real estate.
Consumer Loans. The Bank offers a variety of consumer loans in order to
provide a full range of financial services to its customers. The consumer loans
offered by the Bank include loans that are secured by personal property,
including automobiles. At December 31, 1996, $9,389,000 or 16.2% of the Bank's
total gross loan portfolio consisted of consumer loans.
Construction Loans. The Bank originates loans for construction of
single family homes to builders and individuals. These loans are generally
secured by the land on which the homes are to be built. The Bank limits its
lending to one speculative loan outstanding to one builder . Loans generally are
to be owner occupied or have a sales contract in existence. At December 31,
1996, $4,255,000 or 7.4% of the Bank's total gross loan portfolio consisted of
construction loans.
Credit Administration
The Bank employs extensive written policies and procedures to enhance
management of credit risk. The loan portfolio is managed under a specifically
defined credit process. This process includes formulation of a portfolio
management strategy, guidelines for underwriting standards and risk assessment,
procedures for on-going identification and management of credit deterioration,
and regular portfolio reviews to estimate loss exposure and to ascertain
compliance with the Bank's policies. The Bank's loan approval policies provide
for various levels of individual officer lending authority. In general, lending
authority currently granted by the Bank to any one individual is $100,000. A
combination of approvals from certain officers may lend up to an aggregate of
$200,000. The Board's Loan Committee is authorized to approve loans up to the
Bank's internal lending limit of $1,000,000, at December 31 1996 and the
approval of the full Board is required for loans which exceed the Bank's
internal lending limit up to the Bank's legal lending limit of $1,184,000 at
December 31, 1996.
A major element of credit risk management is the diversification of
risk. The Bank's objective is to maintain a diverse but well-balanced loan
portfolio to minimize the impact of any single event or set of circumstances.
Concentration parameters are based upon individual risk factors, industry
categories, policy constraints, economic conditions, origination sources,
collateral and products. The Bank generally does not make loans outside its
market area unless the borrower has an established relationship with the Bank
and conducts its principal business operations within the Bank's market area.
Consequently, the Bank and its borrowers are directly affected by the economic
conditions prevailing in its market area. However, given the diversity and
balance within the Bank's loan portfolio, management does not believe that there
is any significant aggregation or concentration of loans related to any one
industry, client or sector which would adversely impact the overall performance
of the Bank's loan portfolio.
Supervision and Regulation
The Company and the Bank are subject to state and federal banking laws
and regulations which impose specific requirements or restrictions on and
provide for general regulatory oversight with respect to virtually all aspects
of operations. These laws and regulations are generally intended for the
protection of depositors.
Beginning with the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and following with the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), numerous
additional regulatory requirements have been placed on the banking industry in
the past five years, and additional changes have been proposed. The operations
of the Company and the Bank may be affected by legislative changes and the
policies of various regulatory authorities. The Company is unable to predict the
nature
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or the extent of the effect on its business and earnings that fiscal or monetary
policies, economic control, or new federal or state legislation may have in the
future.
The following is a brief summary of certain statutes, rules and
regulations affecting the Company and the Bank. To the extent that the following
summary describes statutory or regulatory provisions, it is qualified in its
entirety by reference to the particular statutory and regulatory provisions.
The Company
The Company is a bank holding company within the meaning of the federal
Bank Holding Company Act of 1956, as amended (the "BHCA") and Chapter 13 of the
Virginia Banking Act (the "Virginia Act").
The BHCA. Under the BHCA, the Company is subject to periodic
examination by the Board of Governors of the Federal Reserve System (the
"Federal Reserve") and is required to file periodic reports of its operations
and such additional information as the Federal Reserve may require. The
Company's and the Bank's activities are limited to banking, managing or
controlling banks, furnishing services to or performing services for its
subsidiaries, or engaging in any other activity that the Federal Reserve
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto.
With certain limited exceptions, the BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve before (i) acquiring
substantially all the assets of any bank, (ii) acquiring direct or indirect
ownership or control of any voting shares of any bank if after such acquisition
it would own or control more than 5% of the voting shares of such bank (unless
it already owns or controls the majority of such shares), or (iii) merging or
consolidating with another bank holding company.
In addition, and subject to certain exceptions, the BHCA and the
Federal Change in Bank Control Act, together with regulations thereunder,
require Federal Reserve approval (or, depending on the circumstances, no notice
of disapproval) prior to any person or company acquiring "control" of a bank
holding company, such as the Company. Control is conclusively presumed to exist
if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. With respect to corporations with
securities registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), under Federal Reserve regulations control will be rebuttably
presumed to exist if a person acquires at least 10% of any class of voting
securities of the corporation. The regulations provide a procedure for challenge
of the rebuttable control presumption. The Company registered its stock under
the Exchange Act with its stock offering in May 1996.
Under the BHCA, the Company is generally prohibited from engaging in,
or acquiring direct or indirect control of more than 5% of the voting shares of
any company engaged in, non-banking activities, unless the Federal Reserve, by
order or regulation, has found those activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the activities that the Federal Reserve has determined by regulation to
be proper incidents to the business of banking include making or servicing loans
and certain types of leases, engaging in certain insurance and discount
brokerage activities, performing certain data processing services, acting in
certain circumstances as a fiduciary or investment or financial advisor, owning
savings associations, and making investments in certain corporations or projects
designed primarily to promote community welfare.
In accordance with Federal Reserve policy, the Company is expected to
act as a source of financial strength and commit resources to support the Bank.
Under the BHCA, the Federal Reserve may require a bank holding company to
terminate any activity or relinquish control of a non-bank subsidiary (other
than a non-bank subsidiary of a bank) upon the Federal Reserve Board's
determination that such activity or control constitutes a serious risk to the
financial soundness or stability of any subsidiary depository institution of the
bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or non-bank subsidiary if the agency determines that divestiture may aid
the depository institution's financial condition.
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In the liquidation or other resolution by any receiver of a bank
insured by the FDIC, the claims of depositors have priority over the general
claims of other creditors. Hence, in the event of the liquidation or other
resolution of a banking subsidiary of the Company (such as the Bank), the
general claims of the Company as creditor of such banking subsidiary would be
subordinate to the claims of the depositors of such banking subsidiary, even if
the claims of the Company were not by their terms so subordinated.
The Virginia Act. All Virginia bank holding companies must register
with the Virginia State Corporation Commission (the "Virginia Commission") under
the Virginia Act. A registered bank holding company must provide the Virginia
Commission with information regarding the financial condition, operations,
management, and intercompany relationships of the holding company and its
subsidiaries. The Virginia Commission may also require additional information it
deems necessary to keep itself informed about whether the provisions of Virginia
law and the regulations and orders issued thereunder by the Virginia Commission
have been complied with, and may make examinations of any bank holding company
and its subsidiaries.
Under the Virginia Act, it is unlawful without the prior approval of
the Virginia Commission for any Virginia bank holding company to acquire direct
or indirect ownership or control of more than 5% of the voting securities of any
bank or other bank holding company. In addition, Chapter 15 of the Virginia Act
allows regional interstate banking by permitting banking organizations in
certain Southeastern states to acquire Virginia banking organizations if
Virginia banking associations are allowed to acquire banking organizations in
their states and the Virginia banking organization to be acquired has been in
existence and continuously operated as a bank for a period of two years. As a
result of this reciprocal banking provision, banking organizations in other
states have entered the Virginia market through acquisitions of Virginia
institutions. Under federal legislation recently passed in Congress, effective
September 29, 1995, bank holding companies will be permitted to acquire banks in
any state.
The Bank
General. The Bank operates as a national banking association
incorporated under the laws of the United States and is subject to examination
by the Office of the Comptroller of the Currency (the "OCC"). Deposits in the
Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC") up to
a maximum amount (generally $100,000 per depositor, subject to aggregation
rules.) The OCC and the FDIC regulate or monitor all areas of the Bank's
operations, including security devices and procedures, adequacy of
capitalization and loss reserves, loans, investments, borrowings, deposits,
mergers, issuances of securities, payment of dividends, interest rate risk
management, establishment of branches, corporate reorganizations, maintenance of
books and records, and adequacy of staff training to carry on safe lending and
deposit gathering practices. The OCC requires the Bank to maintain certain
capital ratios and imposes limitations on the Bank's aggregate investment in
real estate, bank premises, and furniture and fixtures. The Bank is currently
required by the OCC to prepare quarterly reports on the Bank's financial
condition and to conduct an annual audit of its financial affairs in compliance
with minimum standards and procedures prescribed by the OCC.
Under FDICIA, all insured institutions must undergo regular on-site
examination by their appropriate banking regulator. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency or agencies. FDICIA also directs the FDIC to
develop with other agencies a method for insured depository institutions to
provide supplemental disclosure of the estimated fair market value of assets and
liabilities, to the extent feasible and practicable, in any balance sheet,
financial statement, report of condition or any other report of any insured
depository institution. FDICIA, as amended by the Riegle Community Development
and Regulatory Improvement Act of 1994, also requires the federal banking
regulatory agencies to prescribe, by regulation or guidelines, standards for all
insured depository institutions relating, among other things, to: (i) internal
controls, information systems, and audit systems; (ii) loan documentation ;
(iii) credit underwriting; (iv) interest rate risk exposure; and (v) asset
quality. The regulatory agencies adopted joint guidelines for all areas except
asset quality in July, 1995, and joint guidelines setting qualitative standards
on asset quality and earnings in August, 1996.
Transactions With Affiliates and Insiders. The Bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which places limits on the
amount of loans or extensions of credit to, or investments in, or
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certain other transactions with, affiliates including the Company. In addition,
limits are placed on the amount of advances to third parties collateralized by
the securities or obligations of affiliates. Most of these loans and certain
other transactions must be secured in prescribed amounts. The Bank is also
subject to the provisions of Section 23B of the Federal Reserve Act that, among
other things, prohibits an institution from engaging in transactions with
certain affiliates unless the transactions are on terms substantially the same,
or at least as favorable to such institution or its subsidiaries, as those
prevailing at the time for comparable transactions with non-affiliated
companies. The Bank is subject to restrictions on extensions of credit to
executive officers, directors, certain principal shareholders, and their related
interests. Such extensions of credit (i) must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with third parties and (ii) must not involve more
than the normal risk of repayment or present other unfavorable features.
Branching. National banks are required by the National Bank Act to
adhere to branch banking laws applicable to state banks in the states in which
they are located. Under current Virginia law, the Bank may open branch offices
throughout Virginia with the prior approval of the OCC. In addition, with prior
approval of the OCC and any other agency as appropriate under the circumstances,
the Bank will be able to acquire existing banking operations in Virginia.
Under the recently passed federal legislation discussed above,
effective June 1, 1997, banks may merge or consolidate across state lines,
unless both of the states involved either authorize such merger or consolidation
at an earlier date or either of the states involved elects to prohibit such
merger or consolidation prior to May 31, 1997. Under the federal legislation,
states may authorize banks from other states to engage in branching across state
lines. The Virginia General Assembly passed the "opt-in" law which adopts the
general legislation before it automatically takes effect on June 1, 1997. The
"opt-in" law became effective on July 1, 1995.
Community Reinvestment Act. The Federal Community Reinvestment Act
requires that, in connection with examinations of financial institutions within
their jurisdiction, the Federal Reserve, the FDIC, the OCC, or the Office of
Thrift Supervision (the "OTS") shall evaluate the record of the financial
institutions in meeting the credit needs of their local communities, including
low and moderate income neighborhoods, consistent with the safe and sound
operation of those institutions. These factors are also considered in evaluating
mergers, acquisitions, and applications to open a branch or facility.
Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain federal
laws concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act governing disclosures of credit terms to consumer
borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation to help
meet the housing needs of the community it serves, the Equal Credit Opportunity
Act prohibiting discrimination on the basis of race, creed or other prohibited
factors in extending credit, the Fair Credit Reporting Act of 1978 governing the
use and provision of information to credit reporting agencies, the Fair Debt
Collection Act governing the manner in which consumer debts may be collected by
collection agencies, and the rules and regulations of the various federal
agencies charged with the responsibility of implementing such federal laws. The
deposit operations of the Bank also are subject to the Right to Financial
Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with administrative
subpoenas of financial records, the Electronic Funds Transfer Act and Regulation
E issued by the Federal Reserve Board to implement that act, which govern
automatic deposits to and withdrawals from deposit accounts and customers'
rights and liabilities arising from the use of automated teller machines and
other electronic banking services, and the Truth-in Savings Act, which requires
accurate disclosures of certain items related to deposit accounts such as annual
percentage yield ("APY"), duration of APY, minimum balance requirements and
information about fees and penalties.
Deposit Insurance
The deposits of the Bank are currently insured to a maximum of $100,000
per depositor, subject to certain aggregation rules. The FDIC has implemented a
risk-related assessment system for deposit insurance premiums. All depository
institutions have been assigned to one of nine risk assessment classifications
based upon certain capital
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and supervisory measures. Except to the extent indicated below, the deposits of
the Bank are subject to the rates of the Bank Insurance Fund ("BIF") of the
FDIC. On August 8, 1995, in view of the success in recapitalizing the BIF, the
FDIC reduced the lowest assessment rate for the BIF from $0.23 per $100 of
domestic deposits to $0.04, so that the revised schedule of BIF assessment rates
now ranges from $0.04 per $100 of domestic deposits to $0.31 (the highest rate
remaining unchanged). This reduction in the lowest BIF assessment rate was
effective retroactive to June 1, 1995 (the FDIC having determined that the BIF
achieved the statutory required reserve ratio of 1.25% on May 31, 1995). These
base assessment rates were reaffirmed by the FDIC December 24, 1996. For the
second semiannual period of 1996 and the first semiannual period of 1997,
however, the FDIC has used an adjusted assessment schedule lowering the
applicable rates, so that BIF assessment rates would range from $0.00 per $100
of domestic deposits to $0.27 per $100 of domestic deposits. These lower
adjusted rates will terminate at the end of June, 1997. Based upon the Bank's
current risk classification, the Bank is now required to pay a BIF assessment of
$0.04 per $100 of domestic deposits.
Dividends
The principal source of the Company's cash revenues comes from
dividends received from the Bank. The amount of dividends that may be paid by
the Bank to the Company depends on the Bank's earnings and capital position and
is limited by federal law, regulations, and policies. In addition, the Federal
Reserve has stated that bank holding companies should refrain from or limit
dividend increases or reduce or eliminate dividends under circumstances in which
the bank holding company fails to meet minimum capital requirements or in which
its earnings are impaired.
As a national bank, the Bank may not pay dividends from its
paid-in-capital. All dividends must be paid out of undivided profits then on
hand, after deducting expenses, including reserves for losses and bad debts. In
addition, a national bank is prohibited from declaring a dividend on its shares
of common stock until its surplus equals its stated capital, unless there has
been transferred to surplus no less than one-tenth of the bank's net profits of
the preceding two consecutive half-year periods (in the case of an annual
dividend). The approval of the OCC is required if the total of all dividends
declared by a national bank in any calendar year exceeds the total of its net
profits for that year combined with its retained net profits for the preceding
two years, less any required transfers to surplus. Under FDICIA, the Bank may
not pay a dividend if, after paying the dividend, the Bank would be
undercapitalized. See "Capital Regulations" below.
Capital Regulations
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-balance sheet exposure,
and minimize disincentives for holding liquid assets. The resulting capital
ratios represent qualifying capital as a percentage of total risk-weighted
assets and off-balance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios well in excess of the minimums. The
current guidelines require all bank holding companies and federally-regulated
banks to maintain a minimum risk-based total capital ratio equal to 8%, of which
at least 4% must be Tier 1 capital. Tier 1 capital includes common shareholders'
equity, qualifying perpetual preferred stock, and minority interests in equity
accounts of consolidated subsidiaries, but excludes goodwill and most other
intangibles and excludes the allowance for loan and lease losses. Tier 2 capital
includes the excess of any preferred stock not included in Tier 1 capital,
mandatory convertible securities, hybrid capital instruments, certain qualifying
subordinated debt and intermediate term-preferred stock, and general reserves
for loan and lease losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50%, and 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are assigned
to the 20% category, except for municipal or state revenue bonds,
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which have a 50% rating, and direct obligations of or obligations guaranteed by
the United States Treasury or United States Government agencies, which have a 0%
rating. On September 6, 1996, the OCC revised its risked-based capital rules to
supplement and adjust its risk-based capital ratios for certain banks whose
trading activity equals 10 percent or more of total assets or $1 billion or
more. These new rules became effective January 1, 1997 but compliance is not
required until January 1, 1998. As of December 31, 1996, the Bank does not
conduct trading activities and therefore is not required to comply with these
rules.
The federal bank regulatory authorities have also implemented a
leverage ratio, which is Tier 1 capital as a percentage of average total assets
less intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum required leverage ratio for top-rated institutions is 3%, but
most institutions are required to maintain an additional cushion of at least 100
to 200 basis points.
FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks and requires the FDIC to choose
the least expensive resolution of bank failures. The new capital-based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," significantly undercapitalized" and "critically
undercapitalized." To qualify as a "well capitalized" institution, a bank or
bank holding company must have a leverage ratio of no less than 5%, a Tier 1
risk-based ratio of no less than 6%, and a total risk-based capital ratio of no
less than 10%, and the bank must not be under any order or directive from the
appropriate regulatory agency to meet and maintain a specific capital level.
Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice. The
degree of regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (i) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, interest rates
on deposits, and other activities; (iv) improve their management; (v) eliminate
management fees; or (vi) divest themselves of all or part of their operations.
Bank holding companies controlling financial institutions can be called upon to
boost the institutions' capital and to partially guarantee the institution's
performance under their capital restoration plans. As of December 31, 1996 and
1995, the Company and the Bank met regulatory minimum capital requirements.
In August of 1995, the federal bank regulatory agencies revised their
capital adequacy guidelines to provide explicitly for consideration of interest
rate risk in the overall determination of a bank's minimum capital requirement.
The intended effect is to ensure that banking institutions effectively measure
and monitor their interest rate risk and that they maintain adequate capital for
the risk. A banking institution deemed to have excessive interest rate risk
exposure may be required to maintain additional capital. The Company does not
believe that this revision in the capital adequacy guidelines will have a
material adverse effect on the Company.
These capital guidelines can affect the Company in several ways. If the
Bank begins to grow at a rapid pace, a premature "squeeze" on capital could
occur, making a capital infusion necessary. The requirements could impact the
Company's ability to pay dividends. The Company currently is well capitalized.
Previously, when the Company received regulatory approval to acquire certain
assets and assume certain deposits and other liabilities of Suburban Bank, the
Company's leverage and risk-based capital ratios decreased due to the overall
increase in asset size. Although the Company anticipates that its current level
of capital will be adequate to absorb anticipated growth, this is based on
management's expectations and there can be no assurance that the level of
capital will at current levels. In addition, rapid growth, poor loan portfolio
performance, or poor earnings performance or a combination of these factors
could change the Bank's capital position in a relatively short period of time.
Uniform Financial Institutions Rating System (UFIRS)
UFIRS is a supervisory rating system used by the OCC and the other
federal regulators to evaluate the soundness of depository institutions on a
uniform basis. The agencies have implemented this system through CAMEL ratings
that evaluate banks according to five factors: capital adequacy, asset quality,
management,
8
<PAGE>
earnings, and liquidity. The OCC and the other regulators have added a sixth
factor, sensitivity to market risk, effective January 1, 1997. The rating system
is now referred to as CAMELS.
Governmental Monetary Policies and Economic Controls
The Company is affected by monetary policies of regulatory agencies,
including the Federal Reserve, which regulates the national money supply in
order to mitigate recessionary and inflationary pressures. Among the techniques
available to the Federal Reserve are engaging in open market transactions in
United States Government securities, changing the discount rate on bank
borrowings, changing reserve requirements against bank deposits and limiting
interest rates that banks may pay on time and savings deposits. These techniques
are used in varying combinations to influence the overall growth of bank loans,
investments and deposits. Their use may also affect interest rates charged on
loans or paid on deposits. The effect of governmental policies on the earnings
of the Company cannot be predicted; however, modest short-term changes should
have little effect so long as the Company maintains its current interest
sensitivity gap position.
Recent Legislative Developments
From time to time, various bills are introduced in the United States
Congress with respect to the regulation of financial institutions, including
proposals to consolidate the federal bank regulatory agencies. Certain of these
proposals, if adopted, could significantly change the regulation of banks and
the financial services industry. In particular, during 1996 Congress considered
financial services legislation that would, among other things, substantially
amend the Glass-Steagall Act and the Bank Holding Company Act, statutes that
restrict the ability of banks and bank holding companies to engage in certain
activities, including the underwriting of and dealing in various securities, and
to affiliate with entities not engaged in activities related to the business of
banking. Already in 1997, there have been at least three comparable legislative
proposals made in Congress that would permit affiliation of banks, securities
firms and insurance companies and possibly permit affiliations between banks and
any commercial entity. These proposals also provide for the abolition of
separate and distinct charters for banks and savings associations. If such
statutory reform is enacted, it could cause a significant change in the
financial services industry and expand the ability of the Bank and the Company
to offer a broader range of financial products. The Company cannot predict
whether any of these proposals will be adopted or, if adopted, how these
proposals would affect the Company.
Competition
The Bank encounters strong competition among financial institutions in
the northern Virginia and metropolitan Washington, D.C. area for both loans and
deposits. Competition also exists with savings and loan associations, credit
unions, mutual funds, and insurance companies. Principal competitors include
other community commercial banks and larger financial institutions with branches
in the Bank's Primary Service area. This intense competition is expected to
continue as bank mergers and acquisitions of smaller banks into larger
institutions in the Washington, D.C. metropolitan area may be expected to
continue for the foreseeable future.
The areas of business activities in which banking and non-bank
institutions may engage have been expanding in recent years. Consequently, to
the extent that other banks and financial institutions engage in such
activities, the competition for deposits and loans has increased and may be
expected to increase in the future.
Employees
The Company conducts its operations through its subsidiary, the Bank.
Consequently, the Company has no employees. At December 31, 1996, the Bank had
36 full-time employees and 3 part-time employees.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company's, as well as the Bank's, main office is located on the
ground floor of a 14 story office building in a two building office park at 8200
Greensboro Drive in McLean, Virginia. The Company occupies approximately 7,000
square feet of space at this location pursuant to a lease with 8200 Greensboro
Associates. The
9
<PAGE>
Bank's second branch in Reston occupies approximately 2,000 square feet of space
on the ground level of a multi-story office complex. The term of the Reston
branch lease was renegotiated in 1996. The new term is from April 1, 1997
through March 31, 2002. The lease term for the Bank's third branch in McLean is
from September 1, 1996 through August 31, 2003. This location occupies
approximately 1,900 square feet at ground level in a shopping center corner
building.
Recently the Company has committed to approximately 4,100 square feet
of additional space in a building adjoining the main office building. Due to
increased growth in both loans and deposits the Bank requires additional space
to house increased employees and operations to adequately serve its clients. In
management's opinion, with the addition of the lending and lending support
space, facilities will be adequate for the present and near term needs of the
Company and Bank. See Note (7) to the Company's financial statements,
Commitments and Contingencies, for information relating to commitments under the
long-term lease.
ITEM 3 - LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to, nor is any of their
property the subject of, any material pending legal proceedings incidental to
the business of the Company and its subsidiary other than those arising in the
ordinary course of business. Although the amount of any ultimate liability with
respect to such matters cannot be determined, in the opinion of management, any
such liability will not have a material adverse effect on the consolidated
financial position or results of operations of the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 14, 1997, there were approximately 524 holders of record of
the Company's common stock, par value $5 per share (the "Common Stock") and
1,071,119 shares of Common Stock issued and outstanding. In addition, as of such
date there were 347,580 shares of Common Stock issuable pursuant to currently
outstanding warrants and stock options. The Common Stock trades on the Nasdaq
SmallCap Market under the symbol TYFC. The Company became listed on the Nasdaq
SmallCap Market with its offering in May 1996. Prior to this offering trades in
the Company's stock occurred infrequently on a local basis and generally
involved a relatively small number of shares. Based on information made
available to it, the Company believes that the selling price for the Common
Stock ranged during 1995, from $6.50 to $8.25 and from January 1, 1996 through
April 30, 1996, from $6.875 to $7.125. Based on the Nasdaq SmallCap Market
information the selling price for the Common Stock ranged during May 1, 1996
through June 30, 1996, from $8.50 to $9.75; during July 1, 1996 through
September 30, 1996, from $8.00 to $9.75; and during October 1, 1996 through
December 31, 1996, from $9.00 to $10.75.
Dividends
The Company has not paid any dividends. It is anticipated that earnings
will be retained for several years to expand the Bank's capital base to support
asset growth and that no cash dividends will be paid on the Company's stock for
the foreseeable future. In making any determination with respect to the payment
of dividends in the future, the Company's earnings, financial condition and
capital requirements will be taken into consideration. Moreover, the National
Bank Act limits dividend payments by national banks, which in turn could limit
the Company's ability to pay dividends. See also the discussion under Business -
Supervision and Regulation in Item 1 above.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
10
<PAGE>
Overview
The following discussion of the Company's financial condition 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 Bank
during the year ended December 31, 1996 and 1995.
The year ended December 31, 1996 represented the Company's most
successful year since commencement of operations by the Bank on July 1, 1991.
Record earnings of $1,062,000 for the year were posted, and the Company reported
net income for each of the fiscal quarters during the year ended December 31,
1996.
On a per share basis, earnings were $1.23 per share in 1996 as compared
to $0.92 in 1995. Return on average assets was 1.35% in 1996 and 1.07% in 1995.
Return on average equity was 16.17% in 1996 as compared to 15.45% in 1995.
Equity to average assets was 10.47% in 1996 and 7.74% in 1995.
The Company's total assets were $87,837,000 as of December 31, 1996 as
compared to $70,611,000 as of December 31, 1995 which represented an increase of
24.4%. The 1996 growth of $17,266,000 was less than the growth of $31,622,000
from December 31, 1994 to December 31, 1995. The growth during 1995 was
primarily due to the acquisition of certain loans and assumption of deposits
from Suburban Bank, N.A. of Virginia ("Suburban Bank") in May of 1995. The
Bank's overall asset size and customer base, both individual and business,
increased significantly during 1996.
Total loans, net of allowance for loan losses, at December 31, 1996
were $56,983,000 as compared to $43,775,000 at December 31, 1995, which
represented an increase of 30.2%. The $13,208,000 increase in loans is due to
the Bank's continued focus on its core lending activities such as commercial
loans, real estate loans, home equity lines of credit, and consumer loans.
Average loans as a percentage of average total earning assets decreased from
1995 to 1996, representing 67.6% of average total earning assets as of December
31, 1996, as compared to 71.4% as of December 31, 1995. The higher ratio in 1995
reflects the May 1995 purchase of $13,000,000 in loans from Suburban Bank.
Federal funds sold and cash and due from banks at December 31, 1996
totaled $13,625,000 compared to $14,399,000 at December 31, 1995, representing
an decrease of $774,000, or 5.4%. Cash and due from banks increased by
$1,325,000, or 24.1% and federal funds sold decreased by $2,100,000, or 23.6%
during such period. The increase in cash and due from banks is due to the
increase in overall volume of the Bank's deposit base and the Bank's internal
growth during 1996. The decrease in federal funds sold was the result of a shift
in funds from such lower yielding assets to higher yielding investments and
loans.
Total deposits were $78,554,000 at December 31, 1996, up from
$65,493,000 at December 31, 1995, representing an increase of 19.9%. The growth
of $13,061,000 was related to the Bank's normal growth and marketing efforts.
Interest-bearing deposit accounts accounted for the largest increase of
$11,010,000.
Results of Operations
The Company's net income for the year ended December 31, 1996, was
$1,062,000, a $494,000 increase from the $568,000 net income for the year ended
December 31, 1995. The net income represents a return on average assets of 1.35%
in 1996 as compared to 1.07% in 1995. Return on average equity improved to
16.17% in 1996 from 15.45% in 1995. The primary reason for the $494,000 increase
in net income from 1996 to 1995 is net interest income due to the growth and mix
in interest earning assets and interest bearing liabilities. Average assets rose
from $53,313,000 in 1995 to $78,415,000 in 1996. The growth in assets and
liabilities contributed to a $1,110,000, or 37.8%, increase in net interest
income. Non-interest income decreased by $59,000 or 17.4% due to a reduction in
overdraft and return check income from several deposit accounts incurring these
charges during the last half of 1995. This management of overdrafts reduces the
losses on deposit accounts balances to a minimum. Although there was a
substantial increase in assets in 1996, management was able to limit growth in
non-interest expenses to $603,000, or 23.5% as compared to the $853,000, or
49.8% increase in 1995.
11
<PAGE>
In addition, the Company recognized a net income tax benefit of $74,000
in 1996, as compared to $250,000 in 1995, related to a reduction in the deferred
tax asset valuation allowance. Based upon the Company's profitability in 1996
and projected profitability for 1997, management believes that deferred tax
assets are more likely than not realizable in the future. See Note (5) to the
Company's consolidated financial statements. Also in 1996, the Company made a
provision of $172,000 for loan losses as compared to a $394,000 provision in
1995. The Company's purchase of approximately $13,000,000 of loans from Suburban
Bank in May of 1995 required additional provision for that year.
The 1996 increase in net income over that of 1995 is reflected in the
Company's net income per share even though there are 402,500 additional shares
outstanding due to the May 1996 common stock offering. Net income per share in
1996 was $1.23, which is a significant improvement from $0.92 per share in 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 ("volume") of interest-earning
assets and the various rate spreads between the interest-earning assets and the
Company's funding sources. Table 1: "Comparative Average Balances - Yields and
Rates" indicates the Company's average volume of interest-earning assets and
interest-bearing liabilities for 1996 and 1995 and average yields and rates.
Changes in net interest income from period to period result from increases or
decreases in the volume of interest-earning assets and interest-bearing
liabilities, increases or decreases in the average rates earned and paid on such
assets and liabilities, the ability to manage the earning-asset portfolio, and
the availability of particular sources of funds, such as non-interest bearing
deposits. Table 2: "Rate/Volume Variance" indicates the changes in the Company's
net interest income as a result of changes in volume and rates from 1995 to 1996
and from 1994 to 1995.
Net interest income was $4,048,000 for 1996, a 37.8% increase from the
$2,938,000 earned in 1995. Earning assets averaged $72,389,000 in 1996, a 47.1%
increase as compared to $49,196,000 in 1995. The increase in net interest income
is due to the growth of the loan portfolio and an increase in the volume of
investment securities. Average loans as a percentage of total average earning
assets, decreased to 67.6% in 1996 as compared with 71.4% in 1995. Total
investment securities as a percent of total average earning assets decreased in
1996 representing 16.8% as compared to 17.8% in 1995. Average federal funds sold
increased to 15.5% of total average earning assets in 1996 from 10.5% in 1995.
Interest income on loans of $4,879,000 in 1996, increased $1,258,000,
or 34.7% from $3,621,000 in 1995, constituting the largest dollar increase in
interest income and reflecting an increase in the average balance of loans to
$48,931,000 in 1996 from $35,127,000 in 1995. The increase in net interest
income was partially reduced by a decrease in the net interest spread due to
increased competition for loans. The net interest spread, which is the
difference between the yield on earning assets and the cost of interest-bearing
liabilities, decreased to 4.62% in 1996 from 5.00% in 1995.
The key performance measure for net interest income is the "net
interest margin," or net interest income divided by average earning assets. The
Company's net interest margin decreased to 5.59% for 1996 from 5.97% for 1995.
The Company's net interest margin is affected by loan pricing, credit
administration, and deposit pricing. The 1996 decrease was due to increased
competition for loans which reduced the yield on net loans to 9.97% as compared
to 10.31% in 1995. The yield on interest-bearing liabilities also decreased
in 1996, although to a lesser degree to 4.05% as compared to 4.07% in 1995.
[The remainder of this page is intentionally left blank]
12
<PAGE>
Table 1: Comparative Average Balances - Yields and Rates
<TABLE>
<CAPTION>
1996 1995
-------------------------------------- ---------------------------------------
Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balances Expense) Rates Balance Expense Rates
------------ ------------- ----------- ------------ ------------ -----------
<S> <C>
Assets:
Loans (net of unearned income)(1) $48,931 $4,879 9.97% $35,127 $3,621 10.31%
Investment securities:
Available-for-sale 7,929 523 6.60% 3,727 239 6.41%
Held-to-maturity 4,210 261 6.20% 5,032 290 5.76%
Federal funds sold 11,219 607 5.41% 5,155 301 5.84%
Interest bearing deposits in banks 100 6 6.00% 155 9 5.81%
------------ ------------- ----------- ------------ ------------ -----------
Total earning assets (2) $72,389 $6,276 8.67% $49,196 $4,460 9.07%
============= =========== ============ ===========
Allowance for loan losses (617) (407)
Other assets 6,643 4,524
------------ ------------
Total assets $78,415 $53,313
============ ============
Liabilities and stockholders'
equity:
Deposits:
Interest-bearing demand 5,496 113 2.06% 5,371 125 2.33%
Savings 3,081 91 2.95% 3,860 119 3.08%
Money market accounts 27,976 914 3.26% 15,086 511 3.39%
Time deposits 18,000 1,066 5.92% 12,608 716 5.68%
------------ ------------- ----------- ------------ ------------ -----------
Total interest-bearing deposits $54,553 $2,184 4.00% $36,925 $1,471 3.98%
Federal funds purchased 75 3 4.00% 34 2 5.88%
Other borrowed funds 402 41 10.20% 452 49 10.84%
------------ ------------- ----------- ------------ ------------ -----------
Total interest-bearing liabilities $55,030 $2,228 4.05% $37,411 $1,522 4.07%
============= =========== ============ ===========
Demand deposits 16,322 11,874
Other liabilities 495 354
Stockholders' equity 6,568 3,674
------------ ------------
Total liabilities and stockholders'
equity $78,415 $53,313
============ ============
Interest spread
(Average rate earned less average
rate paid) 4.62% 5.00%
Net interest income
(Interest earned less interest paid) $4,048 $2,938
Net interest margin
(Net interest income/total earning
assets) 5.59% 5.97%
</TABLE>
(1)Loans on non-accrual are included in the calculation of average balance.
(2)From inception through December 31, 1996, the Company made no loans or
investments that qualify for tax-exempt treatment and, accordingly, has no
tax-exempt income.
[The remainder of this page is intentionally left blank]
13
<PAGE>
Table 2: Rate/Volume Analysis
Changes in interest income and interest expense can result
from variances in both volume and rates. The Company has an asset and liability
management policy designed to provide a proper balance between rate sensitive
needs.
The following table presents the changes in the Company's net
interest income as a result of changes in volume and rate from 1995 to 1996 and
from 1994 to 1995.
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
--------------------- ---------------------
(variances in) (variances in)
-------------- --------------
(dollars in thousands) Net Net
Average Average Increase/ Average Average Increase/
Volume Rate (Decrease) Volume Rate (Decrease)
------------ ------------ -------------- ------------- ------------- --------------
<S> <C>
Interest Income:
Loans $1,372 ($114) $1,258 $1,607 $ 399 $2,006
Investment securities:
Available-for-sale 277 7 284 116 5 121
Held-to-maturity (54) 25 (29) (62) 82 20
Federal funds sold 327 (21) 306 185 42 227
Interest bearing bank
balances (3) - (3) (24) 7 (17)
------------ ------------ -------------- ------------- ------------- --------------
Total interest income $1,919 ($103) $1,816 $1,822 $ 535 $2,357
Interest Expense:
Interest bearing demand
accounts 3 (16) (13) 42 (1) 41
Savings (23) (5) (28) 9 13 22
Money market 421 (18) 403 199 80 279
Time deposits 318 32 350 482 98 580
Federal funds purchased 1 - 1 1 - 1
Other borrowed funds (5) (2) (7) 17 6 23
------------ ------------ -------------- ------------- ------------- --------------
Total interest expense $ 715 ($9) $ 706 $ 750 $ 196 $ 946
------------ ------------ -------------- ------------- ------------- --------------
Change in net interest
income $1,204 ($94) $1,110 $1,072 $ 339 $1,411
============ ============ ============== ============= ============= ==============
</TABLE>
Note: The change in interest income due to both rate and volume has been
allocated proportionally between volume and rate. Loan fees are included in the
interest income computation.
Non-Interest Income
Non-interest income consists of revenues generated from service charges
on deposit accounts, as well as servicing fees on real estate mortgages, wire
transfer fees, official check fees, and collection fees. Non-interest income in
1996 was $280,000, a decrease of $59,000, or 17.4%, from $339,000 in 1995. The
decrease was primarily due to decreases in the number of returned checks and
overdraft fees. Management carefully reviews accounts incurring these charges to
prevent losses due to this type of activity.
14
<PAGE>
Table 3: Non-Interest Income:
<TABLE>
<CAPTION>
1996 1995
---- ----
(dollars in thousands) Amount % Change Amount % Change
----------------- ---------------- ----------------- ---------------
<S> <C>
Deposit service charges $ 188 (20.3%) $ 236 174.4%
Other operating income 92 (10.7%) 103 98.1%
================= ================ ================= ===============
Total non-interest income $ 280 (17.4%) $ 339 147.4%
================= ================ ================= ===============
Non-interest income as a percent of average
total assets 0.4% 0.6%
</TABLE>
Non-Interest Expense
Non-interest expense totaled $3,169,000 for 1996, as compared to
$2,566,000 for 1995, an increase of $603,000, or 23.5%. Although total
non-interest expense increased during 1996, non-interest expense as a percentage
of average total assets decreased to 4.0% in 1996 as compared to 4.8% in 1995.
As shown in Table 4, salaries and employee benefits continued to
account for the largest component of non-interest expense, comprising 49.5% of
total non-interest expenses for 1996 and 49.7% in 1995. Salaries and employee
benefits increased by $291,000, or 22.8%, from 1995 to 1996, and increased by
$465,000, or 57.3%, from 1994 to 1995. The increase in 1995 was mainly
attributable to increased staffing as a result of the addition of the Reston
branch and additional staffing needed to adequately service increased deposits
and loans due to the Suburban Bank transaction, while the 1996 increase was
reflective of increases in staffing, wage increases, and increases in employee
health insurance. In addition, the 1995 salaries and employee benefits also
increased due to payments on the leveraged ESOP which was funded during June
1994. As described in "ITEM 10 - EXECUTIVE COMPENSATION, Employee Stock
Ownership Plan" a lump sum payment is due in June 1998. The Company anticipates
refinancing the loan at or before such time, although this cannot be assured.
Data processing expenses increased by $33,000, or 14.6%, from 1995 to
1996, as compared to an increase of $113,000, or 100.7%, from 1994 to 1995. The
increases in data processing expenses are primarily volume driven. The increase
during 1995 was related to the addition of the Reston branch and the overall
increase in the Bank's transaction volume during 1995.
Occupancy and equipment expenses increased by $95,000, or 31.8%, from
1995 to 1996, as compared to a decrease of $92,000, or 44.2%, from 1994 to 1995.
The increase in 1995 was due to the addition of the Reston Branch in May. Four
months of the new branch in McLean as well as one full year of the Reston branch
increased occupancy and equipment expenses to the 1996 totals.
Legal and professional expenses increased by $81,000, or 36.3%, from
1995 to 1996, as compared to an increase of $55,000, or 32.6%, from 1994 to
1995. The increases in 1996 and 1995 were primarily due to increases in audit
fees paid to the external auditors and regulators as a result of the increase in
the Bank's asset size. Increases in the size of the loan portfolio also
increased the costs of legal fees expended to maintain the Bank's lower losses
on those loans.
Amortization of the premium paid on deposits acquired totaling $126,000
in 1996 and $77,000 in 1995 resulted from the $1,200,000 premium recorded in the
Suburban Bank transaction. The premium is being amortized over a 10 year period
based upon the Company's estimated life of the acquired deposit base.
Business development expenses increased $8,000, or 6.8% in 1996. The
increase was primarily attributable to an increase in advertising and
newsletters sent to the Bank's larger customer base and the Company's increased
number of shareholders.
15
<PAGE>
The following table presents the principal components of non-interest
expense for the last two fiscal years.
Table 4: Non-Interest Expenses
<TABLE>
<CAPTION>
1996 1995
--------------------------------- -----------------------------
(dollars in thousands) Amount % Change Amount % Change
---------------- ---------------- --------------- ------------
<S> <C>
Salaries and employee benefits $1,567 22.8 % $1,276 57.3 %
Data processing 259 14.6 % 226 100.7 %
Occupancy and equipment 394 31.8 % 299 44.2 %
Office and operations expenses 355 23.6% 287 3.1 %
Legal and professional 305 36.2 % 224 32.6 %
Amortization of premium paid for deposits 126 63.6 % 77 100.0 %
Deposit insurance 41 (34.9%) 63 10.1 %
Business development 122 7.0% 114 47.8 %
---------------- ---------------- --------------- ------------
Total non-interest expense $3,169 23.5% $2,566 49.8 %
================ ================ =============== ============
Non-interest expense as a
percentage of average total assets 4.0% 4.8%
</TABLE>
Income Tax Benefit
The Company recognized a net income tax benefit of $74,000 in 1996, as
compared to $250,000 in 1995, related to a reduction in the deferred tax asset
valuation allowance and utilization of net operating loss carryforwards. See
Note (5) to the Company's financial statement, Income Taxes, for additional
information.
Composition of Loan Portfolio
Because loans are expected to produce higher yields than investment
securities and other interest-earning assets, the absolute volume of loans and
the volume as a percentage of total earning assets is an important determinant
of net interest margin. During 1996, average loans were $48,931,000 and
constituted 67.6% of average earning assets and 62.4% of average total assets.
This represents increases of $13,804,000, or 39.3% over 1995 average loans of
$35,127,000 which represented 71.4% of average earning assets and 65.9% of
average total assets. At December 31, 1996, the Company's loan to deposit ratio
was 73.4% as compared to 67.7% at December 31, 1995. Loan growth during 1996 of
$13,318,000 was more than total deposit growth of $13,061,000 which contributed
to the decrease in the loan to deposit ratio.
Commercial loans represent the largest category with 30.0% of the total
loan portfolio. Residential real estate loans experienced the largest volume
increase of $3,708,000 raising the category to 22.4%, or $12,933,000 of the
total loan portfolio as of December 31, 1996. Consumer loans also increased
$2,750,000 to 16.2% of the total loans to $9,389,000.
[The remainder of this page is intentionally left blank]
16
<PAGE>
The following table sets forth the composition of the Company's loan
portfolio, and the related percentage composition of total loans, as of December
31, 1996 and 1995.
Table 5: Loan Portfolio Composition:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
(dollars in thousands) 1996 1995
--------------------------------- ---------------------------------
Type of Loans Amount % of Total Amount % of Total
- ------------- ---------------- ---------------- --------------- -----------------
<S> <C>
Commercial $17,308 30.0% $14,352 32.2%
Real estate-construction 4,255 7.4% 1,991 4.5%
Residential real estate 12,933 22.4% 9,225 20.7%
Commercial real estate 13,872 24.0% 12,311 27.7%
Consumer 9,389 16.2% 6,639 14.9%
---------------- ---------------- --------------- -----------------
Total loans $57,757 100.0% $44,518 100.0%
Less:
Unearned income 80 159
---------------- ---------------
Loans net of unearned income $57,677 $44,359
Allowance for loan losses 694 585
---------------- ---------------
Net loans $56,983 $43,775
================ ===============
</TABLE>
Approximately 93.0% of the Company's commercial and real estate loans
have adjustable rates, the majority of which are tied to the prime rate. This
allows the Bank to adjust the interest rates on its loans to the current
interest rate environment, whereas fixed rates do not allow this flexibility. If
interest rates were to increase in the future, the interest earned on loans
would improve, and if rates were to fall, the interest earned would decline,
thus impacting the Company's income. (See also the discussion under Liquidity
and Interest Rate Sensitivity below.)
The following table sets forth the maturity distribution, classified
according to sensitivity to changes in interest rates, for commercial and real
estate components of the Company's loan portfolio at December 31, 1996. Some of
the loans may be renewed or repaid prior to maturity. Therefore, the following
table should not be used as a forecast of future cash collections.
[The remainder of this page is intentionally left blank]
17
<PAGE>
Table 6: Maturity Schedule of Selected Loans
<TABLE>
<CAPTION>
As of December 31,
1996
----------------------------------------------------------------------
(dollars in thousands) < 1 Year 1 to 5 Years 5+ Years Total
---------------- ---------------- ---------------- ----------------
<S> <C>
Commercial $16,266 $ 896 $ 148 $17,310
Real estate 28,202 2,856 - 31,058
---------------- ---------------- ---------------- ----------------
Total $44,468 $ 3,752 $ 148 $48,368
================ ================ ================ ================
Fixed interest rate $ 258 $ 2,941 $ 148 $ 3,347
Variable interest rate 44,210 811 - 45,021
---------------- ---------------- ---------------- ----------------
Total $44,468 $ 3,752 $ 148 $48,368
================ ================ ================ ================
</TABLE>
<TABLE>
<CAPTION>
1995
< 1 Year 1 to 5 Years 5+ Years Total
---------------- ---------------- ---------------- ----------------
<S> <C>
Commercial $13,053 $ 1,250 $ 49 $14,352
Real estate 19,539 3,313 675 23,527
---------------- ---------------- ---------------- ----------------
Total $32,592 $ 4,563 $ 724 $37,879
================ ================ ================ ================
Fixed interest rate $ 176 $ 3,507 $ 724 $ 4,407
Variable interest rate 32,416 1,056 - 33,472
---------------- ---------------- ---------------- ----------------
Total $32,592 $ 4,563 $ 724 $37,879
================ ================ ================ ================
</TABLE>
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 may not be paid in full. As of December 31, 1996, the Company had loans
totaling $193,000 in non-accrual loans as compared to $266,000 as of December
31, 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. Table 8:
"Allowance for Loan Loss Allocation," which is set forth below, indicates the
specific reserves allocated by loan type and also the general reserves included
in the year-end 1996 allowance for loan losses.
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's provision for loan losses for 1996 was
$172,000, as compared to $394,000 in 1995. The Bank's total loan balance
increased to $57,677,000 as of December 31, 1996 as compared to $44,359,000 as
of December 31, 1995. The increase in provision for loan losses during 1995 was
related primarily to the growth in the loan portfolio due to the loans purchased
from Suburban Bank.
The Bank charged off $88,000 in 1996 as compared to $107,000
in 1995. The charge-offs resulted from $50,000 in real estate loans, $3,000 in
commercial loans and $35,000 in consumer loans. There were $25,000 in
18
<PAGE>
recoveries on loans previously charged off during 1996, as compared to no
recoveries during 1995. The following Table 7: "Allowance for Loan Losses"
summarized the allowance activities for the years ended December 31, 1996 and
1995.
Table 7: Allowance for Loan Losses:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
(dollars in thousands)
<S> <C>
Allowance for loan losses, January 1 $ 585 $ 298
Loans charged off:
Commercial (3) (102)
Real estate (50) -
Consumer (35) (5)
------------ ------------
Total loans charged off $ (88) $ (107)
Recoveries:
Commercial 25 -
------------ ------------
Net (charge-offs) recoveries $ (63) $ (107)
Provision for loan losses 172 394
------------ ------------
Allowance for loan losses, December 31 $ 694 $ 585
============ ============
Loans (net of discount):
Year-end balance $57,677 $44,359
Average balance during the year $48,931 $35,127
Allowance as a percent of year-end loan balance 1.20% 1.32%
Percent of average loans:
Provision for loan losses .35% 1.12%
Net charge-offs .13% 0.30%
</TABLE>
As of December 31, 1996, the allowance for loan losses was 1.20% of
outstanding loans, which was a decrease from December 31, 1995 percentage of
1.32%. 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 borrower's 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. The following Table 8: "Allowance for Loan Loss
Allocation" summarizes the allocation of allowance by loan type.
[The remainder of this page is intentionally left blank]
19
<PAGE>
Table 8: Allowance for Loan Loss Allocation:
<TABLE>
<CAPTION>
As of December 31, 1996:
----------------------------------------
(dollars in thousands) Amount % of Total
------------------ -----------------
<S> <C>
Commercial $169 24.35%
Real estate 255 36.76%
Consumer 105 15.10%
Unallocated 165 23.79%
------------------ -----------------
Total $694 100.00%
================== =================
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1995:
----------------------------------------
Amount % of Total
------------------ -----------------
<S> <C>
Commercial $ 87 14.87%
Real estate 105 17.95%
Consumer 43 7.35%
Unallocated 350 59.83%
------------------ -----------------
Total $585 100.00%
================== =================
</TABLE>
Non-performing loans are defined as non-accrual and renegotiated loans
which are past due. 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 December 31, 1996 consisted
of loans totaling $193,000. The non-performing loans as of December 31, 1996,
were classified for regulatory purposes as substandard and doubtful, and as
such, management had allocated a portion of its allowance for possible loan
losses for future potential loss. There was one non-performing loan as of
December 31, 1995 for $266,000. Table 9: "Non-Performing Assets" presents
information on these assets for the past two years.
There were three impaired loans with a unpaid principal balances of
$182,000 at December 31, 1996. These loans are on nonaccrual, and there is
$16,000 in related impairment reserves. The average balance of impaired loans
during 1996 was $140,000, which had an average impairment reserve of $20,000. No
income was recognized on impaired loans during 1996.
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. Table 10: "Foregone
Interest" indicates the amount of interest that would have been recorded had all
loans classified as non-accrual been current in accordance with their original
terms and the amount of interest actually accrued.
Table 9: Non-Performing Assets
<TABLE>
<CAPTION>
As of December 31,
-----------------
(dollars in thousands) 1996 1995
------------- ------------
<S> <C>
Loans on non-accrual basis $ 193 $ 266
Renegotiated or restructured loans - -
Real estate acquired by foreclosure - -
------------- ------------
Total non-performing assets $ 193 $ 266
============= ============
</TABLE>
Table 10: Foregone Interest
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------
(dollars in thousands) 1996 1995
------------- ------------
<S> <C>
Interest income that would have been accrued at original terms $ 7 $ 13
Interest recognized $ - $ -
</TABLE>
20
<PAGE>
Capital Resources
Stockholders' equity was $8,265,000 as of December 31, 1996, as
compared to $4,140,000 as of December 31, 1995. The $4,125,000 increase, or
99.6%, was partially the result of net income of $1,062,000, a reduction in the
ESOP Trust debt, and a change in the unrealized gain on investment securities
available-for-sale of $37,000. The remaining increase in stockholders' equity
was due to the net proceeds of $2,976,000 from the May 1996 stock offering. No
dividends have been declared by the Company since its inception (See also the
discussion under Business - Supervision and Regulation in Item 1 above). 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 December 31, 1996 and 1995 (See also the capital regulations
discussion and capital analysis table under Business - Supervision and
Regulation in Item 1 above). 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.
The interest rate sensitivity position at year-end 1996 is presented in
Table 11 - "Rate Sensitivity Analysis." The difference between rate-sensitive
assets and rate-sensitive liabilities, or the interest rate sensitivity gap, is
shown at the bottom of the table. The Company would benefit from increasing
market rates of interest when it is asset sensitive and would benefit from
decreasing market rates of interest when it is liability sensitive. At year-end
1996, the Company had an asset sensitive gap (more assets than liabilities
subject to repricing within the stated timeframe) of $3,835,000 which represents
109.2% 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
21
<PAGE>
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.
Table 11: Rate Sensitivity Analysis
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------------------
(dollars in thousands) Total 1 Yr.+ or
30 Days 31-90 91-180 181 Days- One Year Non-
or Less Days Days One Year or Less Sensitive Total
----------- ---------- ---------- ------------ ---------- ----------- -----------
<S> <C>
Earning Assets:
Fed funds sold $ 6,810 $ - $ - $ - $ 6,810 $ $ 6,810
Interest bearing deposits - - 100 - 100 - 100
Investment securities:
Available-for-sale - - - 2,315 2,315 8,726 11,041
Held-to-maturity - 999 251 750 2,000 1,727 3,727
Loans:
Variable rate 38,787 568 2,772 2,562 44,689 1,230 45,919
Fixed rate 36 13 271 70 390 11,175 11,565
----------- ---------- ---------- ------------ ---------- ----------- -----------
Total earning assets $45,633 $ 1,580 $3,394 $ 5,697 $56,304 $22,858 $79,162
Source of Funds:
Savings $ 2,438 $ - $ - $ - $ 2,438 $ - $ 2,438
NOW accounts 5,774 - - - 5,774 - 5,774
Money market accounts 32,182 - - - 32,182 - 32,182
CDs 566 899 1,278 3,941 6,684 5,500 12,184
CDs 100,000 & over 371 104 213 1,460 2,148 2,226 4,374
IRAs 92 127 126 371 716 773 1,489
----------- ---------- ---------- ------------ ---------- ----------- -----------
Total rate-sensitive deposits $41,423 $ 1,130 $1,617 $ 5,772 $49,942 $ 8,499 $58,441
Long-term borrowings 375 - - - 375 - 375
----------- ---------- ---------- ------------ ---------- ----------- -----------
Total rate-sensitive
liabilities $41,798 $ 1,130 $1,617 $ 5,772 $50,317 $ 8,499 $58,816
Noninterest-bearing
liabilities $ - $ - $ - $ - $ - $20,113 $20,113
Interest rate sensitivity gap $ 3,835 $ 450 $1,777 $ (75) $ 5,987
Ratio of rate sensitive
assets to rate sensitive
liabilities 109.18% 139.82% 209.89% 98.70% 111.90%
</TABLE>
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 1996 and 1995 as increases in deposits totaled $13,061,000 and
$30,600,000, respectively. The Bank seeks to rely primarily on core deposits
from customers to provide stable and cost-effective sources of funding to
support asset growth. The Bank also seeks to augment such deposits with higher
yielding certificates of deposit. Certificates of deposit of $100,000 or more
are summarized by maturity in Table 12 - "Maturity of Time Deposits $100,000 or
More." Other sources of funds available to the Bank include short-term
borrowings, primarily in the form of federal funds purchased.
22
<PAGE>
Table 12: Maturity of Time Deposits $100,000 or More
<TABLE>
<CAPTION>
December 31,
----------------------------
(dollars in thousands) 1996 1995
------------ -------------
<S> <C>
Under 3 months $ 475 $ 613
3 to 6 months 213 -
6 to 12 months 1,460 704
Over 12 months 2,226 1,821
------------ -------------
Total $ 4,374 $ 3,138
============ =============
</TABLE>
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. Details of the commitments
of this nature may be found in Note 12 of the accompanying Notes to Consolidated
Financial Statements. 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.
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 39.4% of average deposits for
1996, as compared to 35.4% for 1995. Liquidity levels increased during 1996 as
funds were maintained in liquid assets to be available for volatility in escrow
type deposit accounts. Average loans were 69.0% of average deposits for 1996, as
compared to 72.0% for 1995. Average deposits were 97.9% of average earning
assets for 1996 as opposed to 99.2% for 1995. As noted in Table 6 - "Maturity
Schedule of Selected Loans," approximately $48,368,000, or 83.7%, of the loan
portfolio consisted of commercial loans and real estate loans. Of this amount,
$44,468,000, or 92.0%, matures within one year.
Table 13 - "Maturity Distribution and Yields of Investment Securities"
indicates that $1,001,000, or 26.9%, of held-to-maturity investment securities
and $846,000, or 7.7%, of available-for-sale investment securities mature
within one year or less. 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
$11,041,000 and $4,966,000 as of December 31, 1996 and 1995, respectively.
[The remainder of this page is intentionally left blank]
23
<PAGE>
Table 13: Maturity Distribution and Yields of Investment Securities
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------
Available-for-sale Held-to-maturity
------------------ ----------------
(dollars in thousands) Book Book
Value Yield Value Yield
----------- ---------- ----------- ----------
<S> <C>
U.S. Treasury:
One year or less $ - - $ 751 5.82%
Over one through five years - - 748 5.98%
Over five through ten years - - - -
Over ten years - - - -
----------- -----------
Total U.S. Treasury $ - - $ 1,499 5.90%
U.S. Government Agencies:
One year or less $ - - $ - -
Over one through five years - - 250 6.81%
Over five through ten years 1,117 6.96% - -
Over ten years 986 7.07% - -
---------- ----------
$ 2,103 7.01% $ 250 6.81%
Mortgage-backed Securities of Government
Sponsored Enterprises:
One year or less $ 568 6.83% $ 250 5.17%
Over one through five years 3,860 6.85% 686 5.91%
Over five through ten years 1,055 6.98% 289 4.98%
Over ten years 2,677 6.97% 3 4.70%
----------- -----------
Total U.S. government-sponsored enterprises $ 8,160 6.90% $ 1,228 5.54%
Other Securities:
One year or less $ 278 5.04% $ - -
Over one through five years 500 7.01% 750 6.46%
----------- -----------
Total other securities $ 778 6.31% $ 750 6.46%
Total investment securities $11,041 6.63% $3,727 5.95%
=========== ===========
</TABLE>
[The remainder of this page is intentionally left blank.]
24
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page(s)
Independent Auditors' Report 26
Consolidated Statements of Financial Condition
as of December 31, 1996 and 1995 27
Consolidated Statements of Operations for the
years ended December 31, 1996 and 1995 28
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1996 and 1995 29
Consolidated Statements of Cash Flows for the
years ended December 31, 1996 and 1995 30
Notes to Consolidated Financial Statements 31-45
25
<PAGE>
Independent Auditors' Report
The Board of Directors
Tysons Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of Tysons Financial Corporation and subsidiary as of December 31, 1996 and 1995,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tysons Financial
Corporation and subsidiary as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
January 24, 1997
26
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1996 and 1995
================================================================================
Assets 1996 1995
- --------------------------------------------------------------------------------
Cash and due from banks (note 6) $ 6,814,233 5,489,076
Federal funds sold (note 13) 6,810,371 8,910,000
Interest-bearing deposits in other banks 100,000 100,000
Investment securities available-for-sale,
at fair value (note 3) 11,040,897 4,965,773
Investment securities held-to-maturity, at cost,
fair value of $3,734,415 in 1996 and $5,300,167
in 1995 (note3) 3,726,535 5,273,850
Loans, net (note 4) 56,982,848 43,774,810
Property and equipment, net 499,977 319,845
Premium paid for deposits acquired (note 3) 982,067 1,108,471
Accrued interest receivable and other assets 879,782 669,474
- --------------------------------------------------------------------------------
$87,836,710 70,611,299
================================================================================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Liabilities:
Deposits:
Noninterest-bearing demand $20,113,231 17,618,859
NOW and money market accounts 37,956,032 26,945,735
Savings 2,438,259 3,215,240
Certificates of deposit, under $100,000 13,672,085 14,575,624
Certificates of deposit, $100,000 and over 4,374,231 3,137,699
- --------------------------------------------------------------------------------
Total deposits 78,553,838 65,493,157
Accrued interest payable and other liabilities 642,787 552,673
Long-term debt (notes 8 and 11) 375,000 425,000
- --------------------------------------------------------------------------------
Total liabilities 79,571,625 66,470,830
- --------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $5; 10,000,000 shares
authorized; 1,071,119 and 668,619 shares
issued and outstanding at December 31, 1996
and 1995, respectively (notes 9 and 10) 5,355,595 3,343,095
Additional paid-in capital 4,035,209 3,071,860
ESOP Trust, 42,878 and 48,595 shares at
December 31, 1996 and 1995, respectively
(note 11) (375,000) (425,000)
Accumulated deficit (802,960) (1,864,784)
Unrealized gain on investment securities
available-for-sale 52,241 15,298
- --------------------------------------------------------------------------------
Total stockholders' equity 8,265,085 4,140,469
- --------------------------------------------------------------------------------
Commitments and contingencies (notes 7 and 12)
$87,836,710 70,611,299
================================================================================
27
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1996 and 1995
================================================================================
1996 1995
- --------------------------------------------------------------------------------
Interest income:
Loans $4,878,836 3,620,751
Investment securities:
Available-for-sale 522,406 238,986
Held-to-maturity 261,413 290,491
Federal funds sold 606,997 301,564
Deposits in other banks 5,952 8,662
- --------------------------------------------------------------------------------
Total interest income 6,275,604 4,460,454
- --------------------------------------------------------------------------------
Interest expense:
Interest on deposits:
NOW and money market accounts 1,026,113 636,423
Savings accounts 90,922 118,976
Certificates of deposit, under $100,000 859,579 579,103
Certificates of deposit, $100,000 and over 206,727 136,861
Interest on federal funds purchased and repurchase
agreements 2,667 2,123
Interest on long-term debt (note 8) 41,441 48,964
- --------------------------------------------------------------------------------
Total interest expense 2,227,449 1,522,450
- --------------------------------------------------------------------------------
Net interest income 4,048,155 2,938,004
Provision for loan losses (note 4) 172,193 393,580
- --------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,875,962 2,544,424
Noninterest income 280,488 339,226
Noninterest expense 3,168,644 2,566,052
- --------------------------------------------------------------------------------
Income before income taxes 987,806 317,598
Income tax benefit (74,018) (250,000)
- --------------------------------------------------------------------------------
Net income $1,061,824 567,598
================================================================================
Net income per share $ 1.23 0.92
================================================================================
Weighted average shares outstanding 857,436 616,926
================================================================================
See accompanying notes to consolidated financial statements.
28
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1996 and 1995
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized
gain (loss)
Additional on
Common paid-in ESOP Accumulated investment
Shares stock capital trust deficit securities Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance, December 31, 1994 668,619 $ 3,343,095 3,071,860 (475,000) (2,432,382) (121,881) 3,385,692
ESOP Trust (note 11) - - - 50,000 - - 50,000
Net income - - - - 567,598 - 567,598
Unrealized gain on investment
securities available-for-sale - - - - - 137,179 137,179
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 668,619 3,343,095 3,071,860 (425,000) (1,864,784) 15,298 4,140,469
ESOP Trust (note 11) 50,000 50,000
Net income 1,061,824 1,061,824
Issuance of common stock 402,500 2,012,500 963,349 2,975,849
Unrealized gain on investment
securities available-for-sale 36,943 36,943
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,071,119 $ 5,355,595 4,035,209 (375,000) (802,960) 52,241 8,265,085
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996 and 1995
================================================================================
1996 1995
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,061,824 567,598
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 228,843 167,471
Provision for loan losses 172,193 393,580
Income tax benefit (74,018) (250,000)
Compensation expense for ESOP Trust 52,988 50,000
Increase in accrued interest receivable and
other assets (210,308) (409,423)
Increase in accrued interest payable and
other liabilities 90,114 291,997
- --------------------------------------------------------------------------------
Net cash provided by operating activities 1,321,636 811,223
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of available-for-sale securities (10,408,528) (1,891,809)
Purchases of held-to-maturity securities (995,000) (2,960,241)
Proceeds from maturities and principal payments
of available-for-sale securities 4,373,925 514,396
Proceeds from maturities and principal payments
of held-to-maturity securities 2,549,624 2,464,166
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 (285,321) (101,821)
Net increase in loan portfolio (13,317,338) (7,172,268)
- --------------------------------------------------------------------------------
Net cash used in investing activities (18,082,638) (3,100,959)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 2,975,849 -
Net increase in deposits 13,060,681 10,497,172
Repayments of long-term debt (50,000) (50,000)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 15,986,530 10,447,172
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (774,472) 8,157,436
Cash and cash equivalents, beginning of year 14,399,076 6,241,640
================================================================================
Cash and cash equivalents, end of year $ 13,624,604 14,399,076
================================================================================
Supplemental disclosures of cash flow information:
Interest paid $ 2,214,273 1,451,528
Income taxes paid 721 -
================================================================================
In 1995, 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.
See accompanying notes to consolidated financial statements.
30
<PAGE>
(1) Organization and Summary of Significant Accounting Policies
Tysons Financial Corporation (the "Company") was incorporated
December 29, 1989 under the laws of the Commonwealth of Virginia as a
holding company whose activities consist of investment in its wholly
owned subsidiary, Tysons National Bank (the "Bank"). In connection with
the formation of the Company, 10,000,000 shares of $5 par value stock
were authorized and 668,619 shares were originally issued. The Bank
commenced regular operations on July 1, 1991 as a national banking
association primarily supervised by the Office of the Comptroller of
the Currency. The Bank is a member of the Federal Reserve System and
the Federal Deposit Insurance Corporation.
Basis of Financial Statement Presentation
The financial statements have been prepared on the accrual basis
and in conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly from
those estimates.
Consolidation
The consolidated financial statements include the accounts of
the Company and the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company has defined
cash and cash equivalents as those amounts included in cash and due
from banks and federal funds sold.
Investment Securities
The Company classifies its debt and marketable equity securities
in one of three categories: trading, available-for-sale, or
held-to-maturity. Trading securities are bought and held principally
for the purpose of selling them in the near term. Held-to-maturity
securities are those securities for which the Company has the ability
and intent to hold until maturity. All other securities not classified
as trading or held-to-maturity are classified as available-for-sale.
The Company does not engage in trading activities and, accordingly, has
no trading portfolio.
Available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses on available-for-sale securities
are excluded from earnings and reported as a separate component of
stockholders' equity until realized. A decline in the market value of
any available-for-sale or held-to-maturity security below cost that is
deemed other than temporary is charged to earnings, resulting in the
establishment of a new cost basis for the security.
Held-to-maturity securities are recorded at cost, adjusted for
the amortization or accretion of premiums or discounts. Premiums and
discounts are amortized or accreted over the life of the related
security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains
and losses for securities classified as available-for-sale and
held-to-maturity are included in earnings and are derived using the
specific identification method for determining the cost of securities
sold.
Prepayment of the mortgages securing the collateralized mortgage
obligations may affect the maturity date and yield to maturity. The
Company uses actual principal prepayment experience and estimates of
future principal prepayments in calculating the yield necessary to
apply the effective interest method.
31
<PAGE>
(1) Continued
Income Recognition on Loans
Interest on loans is credited to income as earned on the
principal amount outstanding. When, in management's judgment, the full
collectibility of principal or interest on a loan becomes uncertain,
that loan is placed on nonaccrual. Any accrued but uncollected interest
on nonaccrual loans is charged against current income. Interest income
is then recognized as cash is received.
Interest accruals are resumed on such loans only when they are
brought fully current with respect to principal and interest and when,
in the judgment of the management, the loans have demonstrated a new
period of performance and are estimated to be fully collectible as to
both principal and interest.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance available
for losses incurred on loans. It is established through charges to
earnings in the form of provisions for loan losses. Loan losses are
charged to the allowance for loan losses when a determination is made
that collection is unlikely to occur. Recoveries are credited to the
allowance at the time of recovery.
Prior to the beginning of each year, and quarterly during the
year, management estimates whether the allowance for loan losses is
adequate to absorb losses that can be anticipated in the existing
portfolio. Based on these estimates, an amount is charged to the
provision for loan losses to adjust the allowance to a level determined
to be adequate to absorb currently anticipated losses.
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. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to recognize additions to the allowance based on
their judgments about information available to them at the time of
their examination.
Loan Fees
Loan origination fees and direct loan origination costs are
deferred and amortized as an adjustment to yield over the life of the
loan.
Property and Equipment
Property, leasehold improvements, and equipment are stated at
cost, less accumulated depreciation and amortization. Amortization of
leasehold improvements is computed using the straight-line method over
the estimated useful lives of the improvements or the lease term,
whichever is shorter. Depreciation of property and equipment is
computed using the straight-line method over their estimated useful
lives ranging from 3 to 25 years.
Income Taxes
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Deferred tax assets are recognized subject to management's
judgment that realization of the asset is more likely than not.
32
<PAGE>
(1) Continued
Income Per Common Share
Income per common share is computed by dividing net income by
the weighted average number of common and common equivalent shares
(using the treasury stock method) outstanding during the year. Shares
held by the ESOP Trust are included in the income per common share
calculation as they become committed to be released. Common equivalent
shares include stock options and warrants and are therefore considered
in earnings per share calculations if dilutive.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which was effective in 1996. SFAS No. 121
requires that assets to be held and used be evaluated for impairment
whenever events or circumstances indicate that the carrying value may
not be recoverable. SFAS No. 121 also requires that assets to be
disposed of be reported at the lower of cost or fair value less selling
costs. Implementation of SFAS No. 121 did not have a material impact on
the Company's results of operations or financial position.
In May 1995, the FASB issued SFAS No. 122, Accounting for
Mortgage Servicing Rights, which became effective in 1996. SFAS No. 122
provides accounting for mortgage servicers that sell or securitize
loans and retain servicing rights. The Company does not sell or
securitize mortgage loans and therefore implementation of SFAS No. 122
does not have a material impact.
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation, which became effective in 1996. SFAS No. 123
encourages companies to record an expense for all stock compensation
awards based on fair value at grant date; however, companies may elect
to continue to follow the accounting standards existing prior to SFAS
No. 123 with the additional requirement that they disclose pro forma
net income and earnings per share as if they had adopted the expense
recognition provisions of SFAS No. 123. The Company follows the
existing accounting standards for these plans.
Reclassifications
Certain amounts for 1995 have been reclassified to conform to
the presentation for 1996.
(2) Acquisition
On May 12, 1995, the Company acquired certain assets and
deposits from Suburban Bank of Virginia, N.A., including its Reston,
Virginia branch, comprising approximately $13,000,000 of loans and
$20,100,000 of deposits. All assets acquired and liabilities assumed
were recorded at fair value at the date of acquisition.
The Company paid a premium of approximately $1,200,000 for the
deposits acquired. This premium is being amortized on a straight-line
basis over 10 years based on management's estimate of the life of
deposits acquired. The Company reviews the unamortized balance of the
premium on a quarterly basis for possible impairment when events or
changed circumstances may affect the underlying basis of the
liabilities assumed. Amortization of the premium was $126,404 in 1996.
[The remainder of this page is intentionally left blank]
33
<PAGE>
(3) Investment Securities
The carrying value and fair value of investment securities
held-to-maturity at December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ -------------------
Carrying Fair Carrying Fair
(dollars in thousands) value value value value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
U.S. Treasury securities $ 1,499 1,505 1,472 1,482
Obligations of U.S. government agencies 250 251 250 253
Mortgage-backed securties of government sponsored enterprises 1,228 1,227 2,302 2,305
Other corporate securities 750 752 1,250 1,260
- -----------------------------------------------------------------------------------------------------------------------
$ 3,727 3,735 5,274 5,300
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying value and fair value of held-to-maturity
investment securities at December 31, 1996 and 1995, by contractual
maturity are shown in the following table. Expected maturities may
differ from contractual maturities because many issuers have the right
to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
1996 1995
------------------------ ----------------------
Carrying Fair Carrying Fair
(dollars in thousands) value value value value
- --------------------------------------------------------------------------------------
<S> <C>
Maturing within 1 year $ 1,001 1,001 1,303 1,308
After 1 but within 5 years 2,434 2,444 3,473 3,495
After 5 but within 10 years 289 287 289 289
After 10 years 3 3 209 208
- --------------------------------------------------------------------------------------
$ 3,727 3,735 5,274 5,300
- --------------------------------------------------------------------------------------
</TABLE>
Gross unrealized losses in investment securities
held-to-maturity at December 31, 1996 and 1995 were $4,735 and $5,569,
respectively. Gross unrealized gains were $12,615 and $31,886 at
December 31, 1996 and 1995, respectively. There were no sales or
transfers of held to maturity securities during the years ended
December 31, 1996 and 1995.
The carrying value and amortized cost of available-for-sale
securities at December 31, 1996 and 1995, are shown below. Because
available-for-sale securities are marked-to market, the carrying value
is equal to fair value.
<TABLE>
<CAPTION>
1996 1995
--------------------------- ----------------------
Carrying Amortized Carrying Amortized
(dollars in thousands) value cost value cost
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Obligations of U.S. government agencies $ 2,103 2,078 1,577 1,565
Mortgage-backed securities of government sponsored enterprises 8,161 8,106 2,985 2,981
Other corporate securities 777 778 404 404
- -------------------------------------------------------------------------------------------------------------------------
Total $ 11,041 10,962 4,966 4,950
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
(3) Continued
The carrying value and amortized cost of available-for-sale
investment securities by contractual maturity at December 31, 1996 and
1995, are shown below. Expected maturities may differ from contractual
maturities because many issuers have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
1996 1995
--------------------------- ----------------------
Carrying Amortized Carrying Amortized
(dollars in thousands) value cost value cost
- -----------------------------------------------------------------------------------------------------
<S> <C>
Maturing within 1 year $ 568 564 248 250
After 1 but within 5 years 4,360 4,335 1,417 1,407
After 5 but within 10 years 2,172 2,153 1,891 1,887
After 10 years 3,663 3,632 1,256 1,252
Marketable equity securities 278 278 154 154
- -----------------------------------------------------------------------------------------------------
Total $ 11,041 10,962 4,966 4,950
- -----------------------------------------------------------------------------------------------------
</TABLE>
Gross unrealized losses in the available-for-sale securities at
December 31, 1996 and 1995 were $1,612 and $14,712, respectively. Gross
unrealized gains were $80,765 and $30,010 at December 31, 1996 and
1995, respectively.
There were no sales or transfers of available-for-sale
securities during the years ended December 31, 1996 and 1995.
Securities with carrying values of $747,145 and $661,371 at
December 31, 1996 and 1995, respectively, were pledged to secure
Treasury tax and loan payments and for other purposes as required by
law.
As a member of the Federal Reserve System, the Bank is required
to hold stock in the Federal Reserve Bank of Richmond. This stock is
carried at cost since no active trading markets exist.
(4) Loans Receivable
The loan portfolio at December 31, 1996 and 1995 consists of the
following:
(dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------
Commercial $ 17,308 14,352
Real estate - commercial 13,872 12,311
Real estate - residential 12,933 9,225
Real estate - construction 4,254 1,991
Consumer 9,390 6,639
- -----------------------------------------------------------------------------
Gross loans 57,757 44,518
Unearned income (80) (159)
- -----------------------------------------------------------------------------
Loans, net unearned income 57,677 44,359
Allowance for loan losses (694) (584)
- -----------------------------------------------------------------------------
Loans, net $ 56,983 43,775
- -----------------------------------------------------------------------------
[The remainder of this page in intentionally left blank]
35
<PAGE>
(4) Continued
Analysis of the activity in the allowance for loan losses is as
follows:
(dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------
Balance, beginning of year $ 585 298
Provision for loan losses 172 394
Loans charged off (88) (107)
Recoveries 25 -
- -------------------------------------------------------------------------------
Balance, end of year $ 694 585
- -------------------------------------------------------------------------------
Loans on which the accrual of interest has been discontinued or
reduced amounted to $193,246 and $265,661 at December 31, 1996 and
1995, respectively. Interest lost on these nonaccrual loans was
approximately $6,598 for 1996 and $13,465 for 1995.
At December 31, 1996, the Company had three impaired loans with
unpaid principal balances of $182,000. The loans are on nonaccrual and
there is $16,000 in related impairment reserves against these loans.
The average balance of impaired loans during 1996 was $140,000 which
had an average impairment reserve of $20,000. There was one impaired
loan with an unpaid principal balance of $266,000 at December 31, 1995.
This loan was on nonaccrual, but had no related impairment reserve. The
average balance of impaired loans during 1995 was $334,000 which had an
average impairment reserve of $26,000.
All of the Bank's loans, commitments and standby letters of
credit have been granted to customers located in the Washington, D.C.
metropolitan area. The concentrations of credit by type of loan are set
forth above. The Bank, as a matter of policy, does not extend credit,
net of participated amounts, to any single borrower or group of related
borrowers in excess of $1,000,000.
(5) Income Taxes
Deferred income tax assets and liabilities are recognized for
differences between financial statement and tax bases of assets and
liabilities that will result in future tax consequences. A valuation
allowance is required to reduce deferred tax assets to an amount more
likely than not realizable.
Based upon the profitability of the Company in 1995 and 1996,
and projected profitability of the Company in 1997, management
reassessed the need for a valuation allowance and management considers
that all of the benefit is more likely than not to be realized.
The provision for income tax for the years ended December 31,
1996 and 1995 consists of:
(dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------
Current income tax expense $ 16 -
Deferred income tax benefit (90) (250)
- -------------------------------------------------------------------------------
Income tax benefit $ (74) (250)
- -------------------------------------------------------------------------------
[The remainder of this page is intentionally left blank]
36
<PAGE>
(5) Continued
A reconciliation of tax at the statutory federal tax rate to the
income tax provision is presented below for the years ended December
31, 1996 and 1995:
(dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------
Tax applicable to total income at statutory rate $ 336 108
Adjustments due to:
Nondeductible expenses 7 5
Change in valuation allowance (408) (363)
Other (9) -
- -------------------------------------------------------------------------------
Income tax benefit $ (74) (250)
- -------------------------------------------------------------------------------
Deferred tax assets and liabilities consist of the following at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------------
<S> <C>
Alternative minimum tax carryforward $ 15 -
Premium paid for deposits acquired 22 9
Bad debt expense 196 148
Amortization - 28
Net operating loss carryforward 134 510
Other 7 -
- -------------------------------------------------------------------------------------
Gross deferred tax assets 374 695
Less - valuation allowance - (408)
- -------------------------------------------------------------------------------------
Depreciation 35 37
Unrealized gain on securities available-for-sale 27 -
- -------------------------------------------------------------------------------------
Gross deferred tax liabilities 62 37
- -------------------------------------------------------------------------------------
Net deferred tax assets $ 312 250
- -------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, the Company had completely used its net
operating loss carryforward for financial statement purposes.
(6) Regulatory Matters
The Bank, as a national bank, is subject to the dividend
restrictions set forth by the Comptroller of the Currency. Under such
restrictions, the Bank may not, without the prior approval of the
Comptroller of the Currency, declare dividends in excess of the sum of
the current year's earnings (as defined) plus the retained earnings (as
defined) from the prior two years. At December 31, 1996 and 1995, there
were no net earnings against which dividends could be charged.
The Bank is required to maintain a minimum average reserve
balance with the Federal Reserve Bank. The average amount of the
required reserve was $754,269 and $1,046,000 for 1996 and 1995,
respectively.
As a member of the Federal Reserve Bank system, the Bank is
required to subscribe to shares of $100 par value Federal Reserve Bank
stock equal to 6 percent of the Bank's capital and surplus. The Bank is
required to pay for one-half of the subscription. The remaining amount
is subject to call when deemed necessary by the Board of Governors of
the Federal Reserve.
37
<PAGE>
(6) Continued
The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") requires the regulators to stratify institutions into
five quality tiers based upon their relative capital strengths and to
increase progressively the degree of regulation over the weaker
institutions, limits the pass through deposit insurance treatment of
certain types of accounts, adopts a "truth in savings" program, calls
for the adoption of risk-based premiums on deposit insurance and
requires the Bank to observe insider credit underwriting products no
less strict than those applied to comparable noninsider transactions.
At December 31, 1996 and 1995, the Company and its subsidiary
bank met all regulatory capital requirements. The key measures of
capital are: (1) Tier I capital (stockholders' equity less certain
deductions) as a percent of total risk adjusted assets; (2) Tier I
capital as a percent of total assets, and (3) total capital (Tier I
capital plus the allowance for loan losses up to certain limitations)
as a percent of total risk adjusted assets. The capital ratios for the
Bank at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Analysis of Capital
-------------------------------------------------------------------------
(dollars in thousands) Required Required Actual Actual Excess Excess
Amount % Amount % Amount %
------------ ----------- ----------- ----------- ------------ -----------
<S> <C>
As of December 31, 1996
Tier 1 risk-based capital ratio $ 2,516 4.00% $ 7,231 11.50% $ 4,715 7.50%
Total risk-based capital ratio $ 5,032 8.00% $ 7,925 12.60% $ 2,893 4.60%
Tier 1 leverage ratio $ 2,504 3.00% $ 7,231 8.66% $ 4,727 5.66%
As of December 31, 1995
Tier 1 risk-based capital ratio $ 1,873 4.00% $ 3,436 7.34% $ 1,563 3.34%
Total risk-based capital ratio $ 3,745 8.00% $ 4,021 8.59% $ 276 0.59%
Tier 1 leverage ratio $ 1,887 3.00% $ 3,436 5.46% $ 1,549 2.46%
</TABLE>
(7) Commitments and Contingencies
The Bank entered into a lease for office space at its current
location for a term of ten years beginning May 1993. This lease is
subject to 3 percent annual increases, as well as allocations of real
estate taxes and certain operating expenses. In addition, the Company
has two additional branch leases also subject to annual increases as
well as allocations of real estate taxes and operating expenses.
Minimum future rental payments under the noncancelable operating
leases, as of December 31, 1996 for each of the next five years and in
the aggregate, are as follows:
(dollars in thousands)
Year ending December 31, Amount
--------------------------------------------------------
1997 $ 315
1998 357
1999 366
2000 375
2001 384
Thereafter 412
--------------------------------------------------------
$ 2,209
--------------------------------------------------------
The total rent expense was $209,039 and $162,286 in 1996 and
1995, respectively.
(8) Related-Party Transactions
Officers, directors, employees and their related business
interests are loan customers in the ordinary course of business. In
management's opinion, these loans are made on substantially the same
terms, including interest rates and collateral, as those prevailing at
the time for comparable loans with other persons and do not involve
more than normal risk of collectibility or present other unfavorable
features.
38
<PAGE>
(8) Continued
Analysis of activity for loans to related parties is as follows:
(dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------
Balance, beginning of year $ 1,081 558
New loans 236 659
Loans paid off or paid down (208) (136)
- -------------------------------------------------------------------------------
Balance, end of year $ 1,109 1,081
- -------------------------------------------------------------------------------
Effective January 1, 1993, the Company established an Employee
Stock Ownership Plan (ESOP), as further described in Note 11. During
June 1994, the Company purchased 32,949 and 22,722 shares of its common
stock from several of the Company's current and former directors,
respectively, at $8.75 per share, for the ESOP.
The loan used to fund the ESOP was provided by a director of the
Company in the original amount of $500,000. As of December 31, 1996 the
outstanding balance of the loan was $375,000. In management's opinion,
the loan is at market terms. The loan requires quarterly principal
payments of $12,500, quarterly interest payments at prime plus 2
percent, and a balloon payment for the remaining principal balance on
June 1, 1998.
(9) Stock Warrants
Associated with the Company's initial public offering, the
organizers were granted one warrant for each share of common stock
purchased for cash in the offering. The stock purchase warrants entitle
the holder of the warrants to purchase Company stock at $10 per share,
at any time during the term of the warrant. The warrants expire on July
1, 2001.
In the event of a capital call upon the Bank, the Office of the
Comptroller of the Currency will require the Company stock warrants to
be exercised at a price no less than current book value or the warrants
will be forfeited. The Company had 228,250 stock warrants issued and
outstanding at December 31, 1996. No warrants have been exercised.
(10) Stock Option Plan
In 1992, the stockholders approved a stock option plan that
provides for incentive stock options, non-qualified stock options, and
restricted stock. The plan was amended and restated in 1996 to effect
certain technical changes in connection with revisions to Rule 166-3
promulgated under the Exchange Act of 1934 as amended. A designated
committee of the Board of Directors is authorized to grant options to
employees, officers, directors and advisory board members. A total of
160,058 shares of common stock have been reserved for this plan. All
options are immediately exercisable and expire 10 years from the grant
date.
At December 31, 1996, the Company had the stock-based
compensation plan described above. The Company applies APB Opinion No.
25 and related Interpretations in accounting for its plan. Accordingly,
no compensation cost has been recognized for its stock option plan. Had
compensation cost for the Company's stock-based compensation plan been
recorded consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma
amounts indicated as follows:
39
<PAGE>
(10) Continued
<TABLE>
<CAPTION>
December 31,
-----------
(dollars in thousands except per share data) 1996 1995
-------------------------------------------------------- ----------------- ----------------
<S> <C>
Net income As reported $1,062 $ 568
Pro forma $ 565 $ 550
Primary earnings per share As reported $ 1.23 $ .92
Pro forma $ .66 $ .89
</TABLE>
The fair value of each option grant was estimated on the date of
grant using an option-pricing model with the following assumptions
for both years; risk-free interest rate of 5.25 percent; dividend
yield of zero percent; expected life of ten years and volatility of
25 percent.
A summary of the status of the Company's performance-based stock
option plan as of December 31, 1995 and 1996 and changes during the
years ended on those dates is presented below:
<TABLE>
<CAPTION>
for the years ended December 31,
1996 1995
--------------------------------------------------
Weighted Weighted
average average
exercise exercise
Performance Options Shares price Shares price
----------------------------------------------------------------------------------------------
<S> <C>
Outstanding at beginning of the year 12,500 $8.75 6,000 $8.75
Granted 109,830 $9.19 6,500 $8.75
Exercised 0 0 0 0
Forfeited 3,000 $8.71 0 0
Outstanding at end of year 119,330 $9.18 12,500 $8.75
Options exercisable at year-end 119,330 $9.18 12,500 $8.75
Weighted average fair value of options
granted during the year $4.54 $4.33
Weighted average remaining contractual life 9.9 years 9 years
</TABLE>
As of December 31, 1996, the 119,330 performance options under
the plan, have exercise prices between $8.50 and $11.00.
(11) Employee Stock Ownership Plan
The Company has established the Employee Stock Ownership Plan
and Trust (ESOP) which became effective on January 1, 1993, for
employees of the Bank who have at least one year of credited service
and have attained the age of twenty-one (21). The ESOP is to be funded
by the Bank's annual contributions made in cash or common stock.
Contributions to the plan are made at the discretion of the Board of
Directors. Shares purchased by the ESOP are held in a suspense account
for allocation among the participants as the loan is repaid. As
described in note 8, during 1994 the ESOP purchased 57,171 shares of
company stock using $500,000 of funds borrowed from a director of the
Company. Compensation expense relating to the ESOP for 1996 and 1995
was $52,988 and $50,000, respectively. No dividends have been declared
on the Company's stock; therefore dividends had no effect on the
compensation expense relating to the ESOP. As of December 31, 1996,
14,293 shares have been allocated to participants. The fair value of
unearned shares at December 31, 1996 is approximately $460,939.
Contributions to the ESOP and shares released from the suspense
account are allocated among the participants on the basis of salary in
the year of allocation. Benefits become 20 percent vested after the
third year of credited service, with an additional 20 percent vesting
each year thereafter until 100 percent vesting after seven years. For
any year in which the aggregate of benefits to key employees exceeds 60
percent of the aggregate benefits accrued to non-key employees,
benefits allocated to participants in that year will become 20 percent
vested after two years, increasing to 100 percent after 6 years.
Forfeitures will
40
<PAGE>
be reallocated annually among remaining participating employees.
Benefits may be payable upon retirement, separation from service,
disability or death.
(12) Financial Instruments with Off Balance Sheet Risk
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit and
financial guarantees. Commitments to extend credit are agreements to
lend to a customer so long as there is no violation of any condition
established in the contract. Commitments usually have fixed expiration
dates up to one year or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of the contractual obligations
by a customer to a third party. The majority of these guarantees extend
until satisfactory completion of the customer's contractual
obligations. All standby letters of credit outstanding at December 31,
1996, are collateralized.
Those instruments represent obligations of the Company to extend
credit or guarantee borrowings, therefore, they are not recorded on the
consolidated statements of financial condition. The rates and terms of
these instruments are competitive with others in the market in which
the Company operates. Almost all of these instruments as of December
31, 1996 have floating rates, therefore significantly mitigating the
market risk.
Those instruments may involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statements of financial condition. Credit risk is defined
as the possibility of sustaining a loss because the other parties to a
financial instrument fail to perform in accordance with the terms of
the contract. The Company's maximum exposure to credit loss under
standby letters of credit and commitments to extend credit is
represented by the contractual amounts of those instruments.
<TABLE>
<CAPTION>
Contractual
(dollars in thousands) amount
- ----------------------------------------------------------------------------------------------
<S> <C>
Financial instruments whose contract amounts represent potential credit risk:
Commitments to extend credit $ 17,330
Standby letters of credit $ 222
- ----------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the Company did not have any financial
instruments whose contractual amounts exceed the amount of credit risk.
The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet
instruments. The Company evaluates each customer's creditworthiness on
a case-by-case basis and requires collateral to support financial
instruments when deemed necessary. The amount of collateral obtained
upon extension of credit is based on management's evaluation of the
counterparty. Collateral held varies but may include deposits held by
the Company; marketable securities; accounts receivable; inventory;
property, plant and equipment; and income-producing commercial
properties.
(13) Significant Concentrations of Credit
At December 31, 1996, the Company had federal funds sold to
three correspondent banks totaling approximately $6,810,000, each of
which had a balance of $453,000 or more. These are overnight
investments and are rolled-over on a daily basis. The Company does not
normally require collateral for this type of investment.
41
<PAGE>
(14) Noninterest Expense
Noninterest expenses consist of the following:
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C>
Salaries and employee benefits $ 1,567 1,276
Occupancy and equipment 394 299
Office and operations expenses 355 287
Data processing 259 226
Legal and professional fees 305 224
Business development 122 114
Amortization of premium paid for deposits 126 77
Deposit insurance 41 63
- ---------------------------------------------------------------------------------------
$ 3,169 2,566
- ---------------------------------------------------------------------------------------
</TABLE>
(15) Disclosures of Fair Value of Financial Instruments
The assumptions used and the estimates disclosed represent
management's best judgment of appropriate valuation methods. These
estimates are based on pertinent information available to management as
of December 31, 1996. In certain cases, fair values are not subject to
precise quantification or verification and may change as economic and
market factors, and management's evaluation of those factors change.
Although management uses its best judgment in estimating the
fair value of these financial instruments, there are inherent
limitations in any estimation technique. Therefore, these fair value
estimates are not necessarily indicative of the amounts that the
Company would realize in a market transaction. Because of the wide
range of valuation techniques and the numerous estimates which must be
made, it may be difficult to make reasonable comparisons of the
Company's fair value information to that of other financial
institutions. It is important that the many uncertainties discussed
above be considered when using the estimated fair value disclosures and
to realize that because of these uncertainties, the aggregate fair
value amount should in no way be construed as representative of the
underlying value of the Company.
Fair Value of Financial Instruments
The following summarizes the significant methodologies and
assumptions used in estimating the fair values presented in the
accompanying table.
Cash and Cash Equivalents
The carrying amount of cash and cash equivalents was used as a
reasonable estimate of fair value.
Investments
Fair values of the Company's investment portfolio were based
on actual quoted prices or prices quoted for similar financial
instruments.
42
<PAGE>
(15) Continued
Loans
To determine the fair market value for loans, the loan
portfolio was segmented based on loan type, credit quality and
maturities. For certain variable rate loans with no
significant credit concerns and frequent repricings, estimated
fair values are based on current carrying values. The fair
values of other loans are estimated using discounted cash flow
analysis, using interest rates that were offered as of
December 31, 1996 for loans with similar terms to borrowers of
similar credit quality.
Deposits
The fair value of deposits with no stated maturity is equal to
the amount payable on demand. The fair value of certificates
of deposit are estimated using discounted cash flow analysis
using interest rates that were offered as of December 31,
1996.
Long-Term Debt
As described in Note 8, the long-term debt is variable rate at
market terms; therefore, the carrying amount was used as a
reasonable estimate of fair value.
Commitments
The fair value of these financial instruments is based on the
credit quality and relationship, fees, interest rates,
probability of funding, compensating balance and other
convenants or requirements. These commitments generally have
fixed expiration dates expiring within one year. Many
commitments are expected to, and typically do, expire without
being drawn upon. The rates and terms of these instruments are
competitive with others in the market in which the Company
operates. The carrying amounts are reasonable estimates of the
fair value of these financial instruments. The carrying
amounts of these instruments are zero at December 31, 1996.
Fair Value of Financial Instruments as of December 31, 1996
- ------------------------------------------------------------------------------
December 31, 1996
--------------------------
Carrying Estimated
(dollars in thousands) Amount Fair Value
- ------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $ 13,625 13,625
Investments 14,767 14,775
Loans 56,983 56,955
Financial liabilities:
Noninterest-bearing demand deposits 20,113 20,113
NOW and money market accounts 37,956 37,956
Savings 2,438 2,438
Certificates of deposit 18,046 17,751
Long-term debt 375 375
Commitments $ - -
- ------------------------------------------------------------------------------
43
<PAGE>
(16) Holding Company Only Financial Statements
Balance Sheets as of December 31, 1996 and 1995: (dollars in thousands)
<TABLE>
<CAPTION>
Assets 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C>
Assets:
Cash $ 50 12
Federal funds sold 384 -
Prepaids and other assets 10 -
Investment in subsidiary bank 8,182 4,560
- --------------------------------------------------------------------------------------------
Total assets $ 8,626 4,572
- --------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------
Liabilities:
Long term debt $ 375 425
Other liabilities 38 6
- --------------------------------------------------------------------------------------------
Total liabilities 413 431
- --------------------------------------------------------------------------------------------
Stockholders' equity
Common stock 5,356 3,343
Additional paid-in capital 4,035 3,072
Employee stock ownership plan trust (375) (425)
Retained earnings (803) (1,849)
- --------------------------------------------------------------------------------------------
Total stockholders' equity 8,213 4,141
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 8,626 4,572
- --------------------------------------------------------------------------------------------
</TABLE>
Statements of Operations for the years ended December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------
<S> <C>
Income:
Equity in undistributed earnings of subsidiary $ 1,070 576
Interest income 10 -
- ------------------------------------------------------------------------------------------
Total income 1,080 576
Expenses 18 8
- ------------------------------------------------------------------------------------------
Total expenses 18 8
- ------------------------------------------------------------------------------------------
Net income (loss) $ 1,062 568
- ------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
(16) Continued
Statements of Cash Flows for the years ended December 31, 1996 and
1995:
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C>
Operating activities:
Net income $ 1,062 568
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiary (1,070) (576)
Compensation expense for ESOP trust 53 50
Other 18 -
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 63 42
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 2,976 -
Increased investment in subsidiary (2,567) -
Payments on ESOP trust debt (50) (50)
- -------------------------------------------------------------------------------------------------
Net cash provided ( used) by financing activities 359 (50)
- -------------------------------------------------------------------------------------------------
Increase (decrease) in cash 422 (8)
Cash and cash equivalents, beginning of year 12 20
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 434 12
- -------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth certain information with respect to the
directors, and executive officers of the Company and the Bank. The Company's
articles of incorporation and by-laws provide for staggered terms for the Board
of Directors. The Company's Board of Directors has been divided into three
classes so that, after their initial terms, approximately one-third of the
directors are elected to a three-year term at each annual shareholders meeting.
Members of the Bank's Board of Directors will serve one-year terms until the
next annual meeting of the Bank's shareholders, and thereafter until their
successors are elected and qualified. Executive officers of the Company are
elected by the Company's Board of Directors, and executive officers of the Bank
are elected by the Bank's Board of Directors, in each case for one-year terms
and to serve until their successors are elected and qualified. Except as
otherwise indicated, each person has been or was engaged in his present or last
principal occupation, in the same or a similar position, for more than five
years.
45
<PAGE>
<TABLE>
<CAPTION>
Name Age Position Held and Principal Occupations
- ---- --- ---------------------------------------
<S> <C>
George Assaf 35 Mr. Assaf joined the Bank in 1993 as a commercial lender and
became the Chief Lending Officer in April, 1996. Prior to joining
the Bank, he was with Barnett Bank from 1991 to 1993. Mr. Assaf
has over ten years of banking experience in lending, credit analysis,
branch operations, and management.
Joel M. Birken 49 Mr. Birken has been a Class I director of the Company and a director
of the Bank since 1995. Mr. Birken is a founding shareholder of the
law firm of Rees, Broome & Diaz, P.C., and has practiced law with
that firm in Vienna, Virginia since 1974. Rees, Broome & Diaz, P.C.
serves as the Company's corporate counsel.
David M. Cordingley 50 Mr. Cordingley joined the Company in May 1996. He has over 20 years
experience in banking including the founding of Bank 1st, N.A. in
McLean, Virginia in 1987. Additionally, Mr. Cordingley spent 15
years in various positions with First American Bank of Virginia. Mr.
Cordingley graduated from C.W. Post College in Greenvale, New York
with a B. A. in economics.
Michael Farnum 51 Mr. Farnum has been a Class II director of the Company and a director
of the Bank since 1991. He has been, since 1991, self-employed with
the Farnum Company and concentrates on the sales and leasing of
commercial and industrial real estate. From 1973 to 1991, he was
vice president and sales manager of two regional real estate firms,
including Weaver Bros., Inc.
Alben G. Goldstein, M.D. 51 Dr. Goldstein has been a Class I director of the Company since 1989
and was a director of the Bank from 1991 through January 15, 1997.
He has been the owner and senior physician of the Arthritis
Associates of Northern Virginia, P.C. for more than the past five
years.
Zachary A. Kaye, M.D. 49 Dr. Kaye has been a Class I director of the Company since 1989 and a
director of the Bank since 1991. He is currently a physician in sole
practice in Woodbridge, Virginia. He has been an individual
practitioner for more than the past fifteen years.
Beth W. Newburger(1) 59 Ms. Newburger has been a Class II director
of the Company and a director of the Bank since 1991. She has been
President of Corabi International Telemetrics, Inc., a biomedical
instrumentation company, for more than the past five years. She was
appointed Chief of Staff, White House Office of Women's Initiatives
and Outreach, in October 1995 and she assumed the position of Deputy
Administrator, General Services Administration on April 15, 1996.
J. Patrick Rowland 59 Mr. Rowland has been a Class III director and Vice Chairman of the
Board of Directors of the Company since 1989, and a director and
Chairman of the Board of the Bank since 1991. Since January 1995, he
has been a business consultant with offices in Washington, D.C.
Prior to this, Mr. Rowland was director of government relations for
the Borg-Warner Security Corporation from September of 1993 to
December of 1994. For five years prior to that, he was the Chairman
of Rowland & Sellery, a Washington, D.C. business consulting firm.
</TABLE>
- -------------------------
(1)Ms. Newburger is married to Mr. Schwartz.
46
<PAGE>
<TABLE>
<CAPTION>
Name Age Position Held and Principal Occupations
- ---- --- ---------------------------------------
<S> <C>
Fred J. Rubin 35 Mr. Rubin joined the Bank as its Vice President of Credit Policy in
July, 1996. Prior to his employment by the Bank, Mr. Rubin was a
National Bank Examiner with the Office of the Comptroller of the
Currency. Mr. Rubin has over thirteen years of banking experience in
lending, credit and regulatory relations.
Richard Schwartz(2) 67 Mr. Schwartz has been a Class III director and Chairman of the Board
of the Company, and director and Vice Chairman of the Bank, since
1991. He is the founder, and for more than the past five years,
President of Boat Owners Association of The United States
("BOAT/U.S."). He is also the Chairman of the Board and CEO, of Boat
America Corporation, a service company. Mr. Schwartz is an attorney
and is admitted to the New York, Florida, and District of Columbia
Bars, and the Supreme Court of the United States.
William C. Sellery, Jr. 49 Mr. Sellery has been a Class II director of the Company since 1989
and director of the Bank since 1991. He has been President of
Sellery Associates, Inc., since September 1993. Prior to this, he
was president of Rowland & Sellery, Inc., a Washington D.C. business
consulting firm, from 1988 to 1993.
Samuel E. Smith, Jr. 41 Mr. Smith joined the Bank in June 1994 as its Vice President of
Credit Administration and Operations. Mr. Smith previously was
Assistant Vice President at Citizens Bank of Washington from 1991 to
1994. From 1986 to 1991, Mr. Smith served as Assistant Vice
President of Citizens Bank of Virginia. Mr Smith as over nineteen
years of banking experience in lending, compliance, credit and branch
administration.
Terrie G. Spiro 40 Ms. Spiro, who is the founding President, has been President/CEO and
a Class III director of the Company since 1989, and President/CEO and
director of the Bank since 1991. Ms. Spiro has over seventeen years
of commercial banking experience.
St. Clair J. Tweedie 59 Mr. Tweedie has been a Class II director of the Company and a
director of the Bank since 1991. He is currently a management
consultant. Prior to this, he was the Director of Government
Relations for American Cyanamid Company for more than the past five
years.
Janet A. Valentine 45 Ms. Valentine serves as Senior Vice President and Chief Financial
Officer of the Bank since February 1996. From 1991 to 1996, she was
Vice President and Controller at Patriot National Bank of Virginia.
Ms. Valentine has over nineteen years of experience in bank financial
reporting, budgeting and management.
Stephen A. Wannall 49 Mr. Wannall was appointed to serve as a Class I director of the
Company and a director of the Bank at the December 1995 meeting of
the Board of Directors and subsequently elected at the 1996 Annual
Shareholders Meeting. He is the Managing Shareholder of Brown, Dakes
& Wannall, P.C., an accounting firm located in Northern Virginia.
Mr. Wannall is a Certified Public Account and has over twenty years
of experience in public accounting.
</TABLE>
(2)Ms. Newburger is married to Mr. Schwartz.
47
<PAGE>
ITEM 10 - EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth for the fiscal years ended December 31,
1994, and 1995, the cash compensation paid or accrued by the Company and the
Bank, as well as certain other compensation paid or accrued for those years, for
services in all capacities to the chief executive officer of the Company and the
Bank, Terrie G. Spiro and chief lending officer, George Assaf. No executive
officers of the Company or the Bank, other than Ms. Spiro and Mr. Assaf, earned
total annual compensation, including salary and bonus, for the fiscal year ended
December 31, 1996, in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Securities
Name and Principal Underlying All other
Position Year Salary($) Bonus($) Options (#) Compensation
- ------------------ ---- --------- -------- ----------- ------------
<S> <C>
Terrie G. Spiro - 1996 $130,000 $25,000 9,400 $19,222(3)
President and
Chief Executive 1995 $105,663 $40,000 3,000 $18,609
Officer
1994 $102,731 - 6,000 $14,383
- -----------------
George Assaf 1996 $ 65,502 $47,636 500 -(2)
Vice President
and Chief 1995 $ 50,000 $18,564 500 -
Lending Officer
1994 $ 45,000 $ 8,037 - -
</TABLE>
(1) See "Option Grants," "Option Exercises and Year-End Values" and "Stock
Option Plan" for disclosure regarding outstanding stock options.
(2) In accordance with SEC rules, perquisites constituting less than the lesser
of $50,000 or 10% of total salary and bonuses are not reported.
(3) Comprises employer contributions of term life insurance premium of $296,
disability insurance premium of $2,900, health insurance premium of $2,306, car
lease payments of $6,316, fuel and parking allowance of $3,600, and club dues of
$3,804.
[The remainder of this page is intentionally left blank]
48
<PAGE>
OPTION GRANTS
Options granted to the Named Executive Officers during 1996 are set
forth in the following table. For disclosure regarding the terms of stock
options see "Stock Option Plan."
Options Grants in Last Fiscal Year - Individual Grants
<TABLE>
<CAPTION>
Percent Potential Realizable
of Value at Assumed
Total Annual Rates of
Shares Number of Stock Price
Under- Options Appreciation
lying Granted Exercise for Option Term (2)
Options Employees Price Expiration -----------------------
Name Granted in 1996 ($/share)(1) Date 5% ($) 10% ($)
- ---- -------- ------- ------------ ----------- ---------- ----------
<S> <C>
Terrie G. Spiro 3,400 27.4% $ 8.50 Feb. 2006 $18,175 $ 46,059
Terrie G. Spiro 6,000 48.4% $11.00 Oct. 2006 $41,507 $105,187
N. George Assaf 500 4.0% $ 8.50 Feb. 2006 $ 2,673 $ 6,773
</TABLE>
(1) The exercise price of each option was the fair market value of the
underlying Common Stock on the date of the grant, as determined by the
Board of Directors of the Company.
(2) Future value of current-year grants assuming the indicated percentage rates
per year over the applicable option term. The actual value realized
may be greater than or less than the potential realizable values set
forth in the table.
OPTION EXERCISES AND YEAR-END VALUES
No stock options were exercised by the Named Executive Officers during
1996. There were no stock appreciation rights outstanding during 1996. The
following table sets forth certain information regarding unexercised options
held by the Named Executive Officers as of December 31, 1996:
<TABLE>
<CAPTION>
Aggregated Fiscal Year-End Option Values
----------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year-End (#) Fiscal Year-End ($)(1)
------------------------------ -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------- ----------- -------------
<S> <C>
Terrie G. Spiro 9,000(2) 0 $18,000 N/A
Terrie G. Spiro 3,400(3) 0 $ 7,650 N/A
Terrie G. Spiro 6,000(4) 0 $ 0 N/A
Terrie G. Spiro 2,630(5) 0 $ 4,274 N/A
N. George Assaf 500(2) 0 $ 1,000 N/A
N. George Assaf 500(3) 0 $ 1,125 N/A
</TABLE>
(1) Value determined by the Board of Directors of the Company.
(2) The exercise price of these options is $8.75 per share.
(3) The exercise price of these options is $8.50 per share.
(4) The exercise price of these options is $11.00 per share.
(5) The exercise price of these options is $9.125 per share.
49
<PAGE>
Compensation of Directors
Directors of the Bank receive $150 for every Board of Directors meeting
attended, paid quarterly in arrears. In 1996, options totaling 97,430 were
awarded as follows to the listed directors and advisory board directors.
Shares Underlying
Name Options Granted Exercise Price Termination Date
- ---- ----------------- -------------- ----------------
Michael Farnum 9,500 $9.125 8/26/2006
Alben G. Goldstein, M.D. 4,350 $9.125 8/26/2006
George Hill* 9,500 $9.125 8/26/2006
Zachary A. Kaye, M.D. 1,350 $9.125 8/26/2006
Letitia Marks* 5,230 $9.125 8/26/2006
Beth W. Newburger 1,450 $9.125 8/26/2006
J. Patrick Rowland 22,350 $9.125 8/26/2006
Richard Schwartz 10,350 $9.125 8/26/2006
William C. Sellery, Jr. 15,300 $9.125 8/26/2006
Terrie G. Spiro 2,650 $9.125 8/26/2006
St. Clair J. Tweedie 5,300 $9.125 8/26/2006
Nicholas Van Nelson* 10,100 $9.125 8/26/2006
*Advisory board director
Employment Contracts and Termination of Employment Agreements
In October 1996, Terrie G. Spiro and the Company executed a new
employment agreement. The following is a summary of the material terms of the
employment agreement. The term of employment was deemed to have commenced
January 1, 1996, and continues for a period of four years unless terminated.
After completion of the initial four years, the agreement will automatically be
extended for an additional year, and shall thereafter be extended on a
year-to-year basis unless either party gives six months prior notice of
intention to terminate. According to the terms of the employment agreement, Ms.
Spiro receives a base salary of $130,000 for 1996 (increasing to $140,000 in
1997) and benefits including, but not limited to, individual contributory health
insurance, term life insurance policy, the cost of annual dues to one country
club and one dining club membership. Ms. Spiro's employment agreement entitles
her to receive incentive stock options annually based upon certain performance
objectives. The employment agreement also provides for both short term and long
term incentive bonus compensation if, during each relevant period, the Bank
meets certain performance objectives, including but not limited to: (i) asset
quality; (ii) asset growth; and (iii) net income before taxes. In the event of a
hostile takeover or a change in control of the Company or the Bank, the
Company/Bank will pay to Ms. Spiro an amount equal to two (2) times base salary
and bonuses. The Company maintains a key-person insurance policy on the life of
Ms. Spiro. Upon Ms. Spiro's death, proceeds of $500,000 under the policy are
payable to the Company.
Stock Option Plan
During 1992, the Board of Directors of the Company adopted, and the
shareholders approved, the Tysons Financial Corporation Stock Option Plan (the
"Plan"). The Plan was amended in 1996 by the Board of Directors to comply with
revisions to Rule 166-3 promulgated under the Securities Exchange Act of 1934,
as amended, and to effect certain other technical changes. The Plan provides
that restricted stock and stock options may be granted for the purchase of up to
160,058 shares of Common Stock, subject to adjustment upon changes in
capitalization. The Plan is intended as an incentive for and as a means of
encouraging share ownership by certain persons who are employees or directors of
the Company or the Bank. Options may be granted to certain employees or
directors of the Company or the Bank or any subsidiary of the Company or the
Bank and may be granted either as incentive stock options (which qualify for
certain favorable tax consequences), or as non-qualified stock options. Options
may not be transferred except by will or by the laws of descent and distribution
or a Domestic Relations Order, and during an optionee's lifetime may be
exercised only by the optionee (or by his or her guardian or legal
representative, should one be appointed). See also the accompanying notes to the
financial statements "(10) Stock Option Plan".
50
<PAGE>
The Plan is administered by a committee consisting of at least two
members of the Board of Directors. Insofar as discretionary options or shares of
restricted stock are granted to persons who are subject to Section 16 of the
Exchange Act, the committee will consist of at least two directors who within
the preceding year have not received discretionary grants under the Plan. The
committee determines the employees and directors who will receive options or
restricted stock and, based on each such person's position and current and
potential contribution to the Company or the Bank, the amount of restricted
stock or the number of shares that will be covered by their options. The
committee also determines the periods of time (not exceeding ten years from the
date of grant in the case of an incentive stock option) during which options
will be Exercisable and determines whether termination of an optionee's
employment under various circumstances would terminate options granted under the
Plan to that person. In addition, the committee determines the restriction
period and vesting conditions, the consequences of any termination of
employment, and the other terms of any grant of restricted stock. The option
price per share is an amount determined by the Committee but will not be less
than 100% of the fair market value per share on the date of grant for incentive
stock options. The option price is payable in full upon exercise. The Company
and the Bank receive no consideration upon the granting of an option.
The Board of Directors has the right at any time to terminate or amend
the Plan without shareholder approval , but no such action may terminate, except
for certain amendments, options already granted or otherwise affect the rights
of any optionee under any outstanding option without the optionee's consent. The
Board of Directors must obtain shareholder approval to adopt any amendment of
the Plan that would (i) increase the total number of shares issuable pursuant to
incentive stock options under the Plan or materially increase the total number
of shares of Common Stock subject to options, (ii) change or modify the class of
employees eligible to receive incentive stock options that may participate in
the Plan or materially change or modify the class of persons that may
participate, or (iii) otherwise materially increase the benefits accruing to
participants thereunder.
Employee Stock Ownership Plan
Effective January 1, 1993, the Company established the Tysons Financial
Corporation Employee Stock Ownership Plan (the "ESOP") for all eligible
employees. The ESOP covers all salaried employees of the Company or its
subsidiaries, 21 years of age or older, who work a minimum of 1,000 hours per
year and who have completed at least one year of service with the Company.
Contributions are at the discretion of, and determined annually by, the Board of
Directors based on the Company's performance. Contributions are not to exceed
the maximum amount deductible under the applicable section of the Internal
Revenue Code of 1986 (the "Code"). Contributions under the ESOP will be used to
purchase Common Stock which is allocated to participants on the basis of the
participant's compensation for the year compared to total compensation of all
eligible employees. An employee's interest in the amount contributed becomes 20%
vested after three years of service and increases incrementally to become 100%
vested after seven years of service.
During the second quarter of 1994, the ESOP purchased shares of the
Company's Common Stock using $500,000 of funds borrowed from a director of the
Company. The long-term borrowing of $500,000 requires quarterly principal
payments of $12,500 and quarterly interest payments of prime plus 2% with a lump
sum payment in June 1998. As of December 31, 1996, the outstanding balance of
the loan was $375,000.
[The remainder of this page is intentionally left blank]
51
<PAGE>
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the ownership of the Company's Common
Stock as of February 28, 1997, by each director, by directors and executive
officers as a group, and by each person known to the Company to own beneficially
more than 5% of such Common Stock.
<TABLE>
<CAPTION>
Number of Percent
Name of Beneficial Owner Shares Owned (1) of Class (2)
- ------------------------ ---------------- ------------
<S> <C>
Joel M. Birken 12,050 1.12%
8133 Leesburg Pike, Suite 900
Vienna, VA 22182
Michael Farnum 30,931(3) 2.85%
1138 Swinks Mill Road
McLean, VA 22102
Alben G. Goldstein, M.D. 19,582(4) 1.81%
6305 Castle Place
Falls Church, VA 22044
Zachary A. Kaye, M.D. 10,036(5) 0.93%
14904 Jeff Davis Highway
Woodbridge, VA 22191
Beth W. Newburger 14,504(6) 1.35%
880 South Pickett Street
Alexandria, VA 22304
J. Patrick Rowland 75,290(7) 6.79%
1023 15th St. NW, 7th Floor
Washington, D.C. 20005
Richard Schwartz 46,517(8) 4.26%
880 South Pickett Street
Alexandria, VA 22304
William C. Sellery, Jr. 62,818(9) 5.70%
1023 15th St. NW, 7th Floor
Washington, D.C. 20005
Terrie G. Spiro 41,828(10) 3.79%
8200 Greensboro Drive, Suite 100
McLean, VA 22102
St. Clair J. Tweedie 41,117(11) 3.77
2665 Marcey Rd.
Arlington, VA 22207
Tysons Financial ESOP Trust (12) 57,171 5.34%
8200 Greensboro Drive, Suite 100
McLean, VA 22102
Stephen A. Wannall 9,000 0.84%
3025 Hamaker Ct.
Fairfax, VA 22031
52
<PAGE>
Officers and directors as a group of 17 430,142(13) 34.48%
- ------------------------------------------
(1) Information relating to beneficial ownership of Common Stock is based
upon "beneficial ownership" concepts set forth in rules of the SEC
under Section 13(d) of the Securities Exchange Act of 1934. Under these
rules, a person is deemed to be a "beneficial owner" of a security if
that person has or shares "voting power," which includes the power to
vote or direct the voting of such security, or "investment power,"
which includes the power to dispose or to direct the disposition of
such security. A person is also deemed to be a beneficial owner of any
security of which that person has the right to acquire beneficial
ownership within sixty days. Under the rules, more than one person may
be deemed to be a beneficial owner of the same securities, and a person
may be deemed to be a beneficial owner of securities as to which he has
no beneficial interest. For instance, beneficial ownership includes
spouses, minor children and other relatives residing in the same
household, and trusts, partnerships, corporations or deferred
compensation plans which are affiliated with the principal. Included in
the amount of shares beneficially owned are shares issuable upon the
exercise of stock purchase warrants that were issued to the organizers
of the Bank and the Company. The stock purchase warrants entitle the
holder of the warrants to purchase Common Stock at $10.00 per share at
any time during the term of the warrant. The warrants became
exercisable on January 2, 1992, and have a term of ten years from July
1, 1991, the date the Bank opened for business. In the event of a
capital call upon the Bank, the OCC will require the warrants to be
exercised at a price no less than current book value or be forfeited.
(2) Percent is calculated by treating shares subject to options or warrants
held by the named individual for whom the percentage is calculated
which are exercisable within the next 60 days as if outstanding, but
treating shares subject to warrants or options held by others as not
outstanding.
(3) Includes warrants to purchase 4,054 shares and options to purchase
9,500 shares.
(4) Includes warrants to purchase 5,160 shares and options to purchase
4,350 shares.
(5) Includes warrants to purchase 3,686 shares and options to purchase
1,350 shares.
(6) Includes warrants to purchase 4,054 shares and options to purchase
1,450 shares.
(7) Includes warrants to purchase 14,743 shares and options to purchase
22,350 shares.
(8) Includes warrants to purchase 10,688 shares and options to purchase
10,350 shares.
(9) Includes warrants to purchase 14,743 shares and options to purchase
15,300 shares.
(10) Includes warrants to purchase 7,371 shares and options to purchase
25,205 shares.
(11) Includes warrants to purchase 14,743 shares and options to purchase
5,300 shares.
(12) Pursuant to the documents governing the ESOP, each participant in the
ESOP is entitled to direct the trustees as to the manner in which the
Common Stock which is allocated to such participant is to be voted. In
the absence of such instruction, the trustees shall vote all Company
Stock held by it as part of the ESOP assets at such time and in such
manner as the Executive Committee shall direct. Terrie G. Spiro,
President and Principal Executive Officer and Director, and Janet A
Valentine, Principal Financial and Accounting Officer, function as
co-trustees and the Executive Committee of the ESOP.
(13) Includes total warrants of 79,242 and stock options of 97,155 of which
all are outstanding.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no agreements in existence or anticipated between any
Director or officer of the Bank or the Company relating to the premises,
furnishings, equipment, fixtures or any other property or service of the Bank or
the Company. During 1996 certain directors and executive officers were indebted
to the Bank. This indebtedness resulted from loans made in the ordinary course
of business on substantially the same terms (including interest rates
53
<PAGE>
and collateral) as those prevailing at the time for comparable transactions
with unrelated parties and did not involve more than the normal
risk of collectibility or present other unfavorable features. As of December
31, 1996, loans to directors and executive officers of the Company, and their
affiliates, including loans guaranteed by such persons and unfunded
commitments made, aggregated $1,370,073, or approximately 16.6% of
stockholders' equity of the Company.
In June 1994, the Company funded its ESOP with a loan provided by a
director of the Company. The original amount of the loan totaled $500,000 and
terms of the loan include quarterly principal payments of $12,500 and quarterly
interest payments at prime plus 2% with a final payment on June 1, 1998. In
management's opinion, the loan is at market terms. The outstanding balance at
December 31, 1996 was $375,000.
Joel M. Birken, a Director of the Company, is a shareholder in the law
firm of Rees, Broome & Diaz, P.C., which regularly acts as counsel to the
Company and the Bank. During the years ended 1995 and 1996, Rees, Broome & Diaz,
P.C. performed legal services for the Bank and was paid $99,490 and $112,156,
respectively.
[The remainder of this page is intentionally left blank]
54
<PAGE>
PART IV
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3(a) Articles of Incorporation (incorporated by
reference to Exhibit 3(a) to the Company's
Registration Statement No. 33-33051-A on
Form S-18).
3(b) By-laws of the Company amended through May 27, 1992
(incorporated by reference to the exhibits
to the Tysons Financial Corporation Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1992).
4 Common stock certificate.
10(a) Consulting agreement between the Bank and Terrie G.
Spiro (incorporated by reference to
Exhibit 10(a) to the Company's
Registration Statement No. 33-33051-A on
Form S-18).
10(b) Organizers' Agreement (incorporated by reference
to Exhibit 10(b) to the Company's
Registration Statement No. 33-33051-A on
Form S-18).
10(c) Employment Agreement between the Company and
Terrie G. Spiro (incorporated by
reference to Exhibit 10(c) to the
Company's Registration Statement No.
33-33051-A on Form S-18)(superseded by
exhibit 10(m)).
10(d) Lease Terms Letter (incorporated by reference
to Exhibit 10(d) to the Company's
Registration Statement No. 33-33051-A on
Form S-18).
10(e) Escrow Agreement (incorporated by reference to
Exhibits 10(e), 10e.1 and 10e.2 to the
Company's Registration Statement No.
33-33051-A on Form S-18).
10(f) Consolidation Agreement (incorporated by reference
to Exhibit 10(f) to the Company's
Registration Statement No. 33-33051-A on
Form S-18).
10(g) Stock Option Plan of the Company
(incorporated by reference to the exhibits
to the Tysons Financial Corporation Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1992)(superseded by
Exhibit 10(r)).
10(h) Employee Stock Ownership Plan of the Company
(incorporated by reference to the exhibits
to the Tysons Financial Corporation Annual
Report on Form 10-KSB for the fiscal year
ended December 31, 1993).
10(i) Amended Employment Agreement between the Company
and Terrie G. Spiro (incorporated by
reference to the exhibits to the Tysons
Financial Corporation Annual Report on Form
10-KSB for the fiscal year ended December
31, 1992).
10(j) Lease Agreement dated October 12, 1992, between
the Company and Eighty-Two Hundred
Greensboro Associates (incorporated by
reference to the exhibits to the Tysons
Financial Corporation Annual Report on Form
10-KSB for the fiscal year ended December
31, 1992).
10(k) Purchase and Assumption Agreement dated as of
February 2, 1995, between Tysons National
Bank and Suburban Bank of Virginia, N.A.,
and joined in by the Company and Suburban
Bancshares, Inc. (incorporated by reference
to the exhibits to the Tysons Financial
Corporation Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994).
55
<PAGE>
10(l) Agreement for Information Technology Services dated
July 16, 1993 between Electronic Data
Systems Corporation and Tysons National
Bank (incorporated by reference to Exhibit
10(l) to the Tysons Financial Corporation
Annual Report for the fiscal year ended
December 31, 1995).
10(m) Employment Agreement between the Company and Terrie
G. Spiro (incorporated by reference to
Exhibit 10 to the Company Form 10-QSB for
the quarter ended September 30, 1996).
10(r) Stock Option Plan of the Company
(incorporated by reference to Exhibit to the
Company's registration Statements on Form
S-8).
21 Subsidiaries of the Company (incorporated by
reference from the Tysons Financial
Corporation Annual Report on Form 10-K for
the fiscal year ended December 31, 1990,
Exhibit 21).
27 Financial Data Schedule
(b) Report on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of
the year ended December 31, 1996.
[The remainder of this space is intentionally left blank.]
56
<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: March 19, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Joel M. Birken
- --------------------------- Director March 19, 1997
Joel M. Birken
/s/ Michael Farnum
- --------------------------- Director March 19, 1997
Michael Farnum
/s/ Alben G. Goldstein
- --------------------------- Director March 19, 1997
Alben G. Goldstein
/s/ Zachary A. Kaye
- -------------------------- Director March 19, 1997
Zachary A. Kaye
/s/ Beth W. Newburger
- --------------------------- Director March 19, 1997
Beth W. Newburger
/s/ J. Patrick Rowland
- --------------------------- Director March 19, 1997
J. Patrick Rowland
/s/ Richard Schwartz
- --------------------------- Director March 19, 1997
Richard Schwartz
/s/ William C. Sellery, Jr.
- --------------------------- Director March 19, 1997
William C. Sellery, Jr.
/s/ Terrie G. Spiro President, March 19, 1997
- --------------------------- Principal Executive
Terrie G. Spiro Officer, and Director
/s/ St. Clair J. Tweedie
- --------------------------- Director March 19, 1997
St. Clair J. Tweedie
/s/ Janet A. Valentine Principal
- --------------------------- Financial and
Janet A. Valentine Accounting Officer March 19, 1997
/s/ Stephen A. Wannall
- --------------------------- Director March 19, 1997
Stephen A. Wannall
58
</TABLE>
EXHIBIT 11
Computation of Per Share Earnings
<TABLE>
<CAPTION>
For the Years December 31,
1996 1995
-----------------------------
<S> <C>
Number of shares of common stock
outstanding (weighted average) 668,619 668,619
Shares issued in stock offering (weighted average) 234,792 -
Shares held in ESOP trust (weighted average) 45,975 51,693
Weighted average number of shares
outstanding during the period 857,436 616,926
Fully diluted weighted average
number of shares outstanding during the period 857,436 616,926
Income for the period $1,061,824 $567,598
Income per share:
Primary $1.23 $0.92
Fully Diluted $1.23 $0.92
</TABLE>
59
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information derived from Tysons
Financial Corporation's audited financial statements for the twelve months
ended December 31, 1996, and is qualified in its entirety by reference to
such financial statements and the notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,814,233
<SECURITIES> 14,867,432
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 499,977
<DEPRECIATION> 0
<TOTAL-ASSETS> 87,836,710
<CURRENT-LIABILITIES> 0
<BONDS> 375,000
0
0
<COMMON> 8,265,085
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 87,836,710
<SALES> 0
<TOTAL-REVENUES> 6,556,092
<CGS> 0
<TOTAL-COSTS> 2,813,913
<OTHER-EXPENSES> 354,731
<LOSS-PROVISION> 172,193
<INTEREST-EXPENSE> 2,227,449
<INCOME-PRETAX> 987,806
<INCOME-TAX> (74,018)
<INCOME-CONTINUING> 1,061,824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1.23 <<<<PLEASE VERIFY - ERROR>>>>
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
