CONFORMED COPY
--------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED September 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
par value $5.00
per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days:
Yes X No
--- ---
As of September 30, 1997, 1,071,119 shares of the registrant's common stock, par
value $5.00 per share, were outstanding.
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Consolidated Statements of Financial Condition as of September 30, 1997 and December 31, 1996 2
Consolidated Statements of Operations for the nine and three month periods
ended September 30, 1997 and 1996 3
Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and 1996 4
Note to Consolidated Financial Statements 5
</TABLE>
The unaudited consolidated financial statements as of and for the nine
and three months ended September 30, 1997 and September 30, 1996 have not been
audited but, in the opinion of management contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the financial
position and results of operations of the Company as of such date and for such
periods. The unaudited consolidated financial statements should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto appearing in the 10-K. The results of operations for the nine and
three months ended September 30, 1997 are not necessarily indicative of the
results of operations that may be expected for the year ending December 31, 1997
or any future periods.
1
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
Assets 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Cash and due from banks $ 7,102,156 $ 6,814,233
Federal funds sold 12,863,118 6,810,371
Interest-bearing deposits in other banks 100,000 100,000
Investment securities available-for-sale, at fair value 12,008,120 11,040,897
Investment securities held-to-maturity, at cost, fair value
of $1,962,535 in 1997 and $3,734,415 in 1996 1,955,272 3,726,535
Loans, net 61,396,300 56,982,848
Property and equipment, net 732,437 499,977
Premium paid for deposits acquired 883,265 982,067
Accrued interest receivable and other assets 961,817 879,782
- --------------------------------------------------------------------------------------------------------------
Total Assets $98,002,485 $87,836,710
==============================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand $21,379,354 $20,113,231
NOW and money market accounts 27,046,046 37,956,032
Savings 1,909,616 2,438,259
Certificates of deposit, under $100,000 22,036,565 13,672,085
Certificates of deposit, $100,000 and over 14,247,810 4,374,231
- --------------------------------------------------------------------------------------------------------------
Total deposits 86,619,391 78,553,838
Accrued interest payable and other liabilities 499,175 642,787
Federal funds purchased and repurchase agreements 1,797,367 -
Long-term debt 337,500 375,000
- --------------------------------------------------------------------------------------------------------------
Total Liabilities 89,253,433 79,571,625
- --------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $5; 10,000,000 shares authorized;
1,071,119 shares issued and outstanding at June 30, 1997
and December 31, 1996 5,355,595 5,355,595
Additional paid-in capital 4,051,325 4,035,209
ESOP Trust, 38,591 shares in 1997 and 42,878 shares (337,500) (375,000)
in 1996
Accumulated deficit (342,759) (802,960)
Unrealized gain on investment securities available-for-sale 22,391 52,241
- --------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 8,749,052 8,265,085
- --------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $98,002,485 $87,836,710
==============================================================================================================
</TABLE>
2
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine months Nine months Three months Three months
ended ended ended ended
(Unaudited) September 30, September 30, September 30, September 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest Income:
Loans $4,298,290 $3,553,777 $ 1,495,524 $ 1,285,824
Investment securities:
Available-for-sale 495,068 325,955 162,060 144,528
Held-to-maturity 118,397 204,661 34,178 65,036
Federal funds sold 234,493 501,043 149,423 173,576
Deposits in other banks 4,442 4,512 1,554 1,440
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income 5,150,690 4,589,948 1,842,739 1,670,404
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits:
NOW and money market accounts 724,745 739,311 223,856 289,463
Savings accounts 51,193 69,981 16,301 23,670
Certificates of deposit, under $100,000 723,046 663,146 329,046 214,814
Certificates of deposit, $100,000 and over 263,543 149,363 138,818 54,189
Interest on short-term borrowings 49,054 1,856 20,031 1,413
Interest on long-term debt 27,997 31,618 9,078 10,174
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,839,578 1,655,275 737,130 593,723
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 3,311,112 2,934,673 1,105,609 1,076,681
Provision for loan losses 103,102 125,060 32,267 73,000
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,208,010 2,809,613 1,073,342 1,003,681
Non-interest income:
Service charge income 129,505 140,748 47,609 48,275
Other income 75,617 75,319 20,307 10,510
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 205,122 216,067 67,916 58,785
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 1,288,366 1,200,447 445,343 412,738
Occupancy, equipment and depreciation 451,540 275,067 195,013 . 83,824
Operations expense 481,368 390,961 174,167 143,997
Administration expense 492,464 530,333 138,154 161,962
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 2,713,738 2,396,808 952,677 802,521
- ------------------------------------------------------------------------------------------------------------------------------
Net income before income taxes 699,394 628,872 188,581 259,945
Income tax expense (benefit) 239,193 (202,823) 57,393 (30,823)
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 460,201 $ 831,695 $ 131,188 $ 290,768
- ------------------------------------------------------------------------------------------------------------------------------
Net income per weighted average share $ 0.42 1.04 $ 0.12 $ 0.28
Weighted average shares outstanding 1,107,703 800,818 1,131,889 1,025,857
Net income per fully diluted weighted average share $ 0.41 1.04 $ 0.12 $ 0.28
Fully diluted weighted average shares outstanding 1,133,513 800,818 1,134,942 1,025,857
</TABLE>
3
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months Nine months
(Unaudited) ended ended
- ----------------------------------------------------------------------------------------------------------------------------
September 30, 1997 September 30, 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 460,201 $ 831,695
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 223,416 177,914
Provision for loan losses 103,102 125,060
Income tax benefit - (202,823)
Compensation expense for ESOP Trust 53,616 37,500
Increase in accrued interest receivable and other assets (82,035) (335,194)
(Decrease) increase in accrued interest payable and other liabilities (143,612) 25,100
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 614,688 659,252
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of available-for-sale securities (6,739,441) (8,408,568)
Purchases of held-to-maturity securities - (995,000)
Proceeds from maturities and principal payments of
available-for-sale securities 5,713,566 2,249,009
Proceeds from maturities and principal payments of
held-to-maturity securities 1,757,658 2,354,723
Purchase of property and equipment (344,972) (147,376)
Net increase in loan portfolio (4,486,249) (8,188,617)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,099,438) (13,135,829)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock - 3,012,034
Net increase in deposits 8,065,553 22,270,474
Net increase in other borrowed funds 1,797,367 -
Repayments of long term debt (37,500) (37,500)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 9,825,420 25,245,008
- ----------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents 6,340,670 12,768,431
Cash and cash equivalents, beginning of period 13,624,604 14,399,076
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $19,965,274 $ 27,167,507
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 1,763,623 $ 1,631,774
Income taxes paid $ 15,421 $ 721
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(1) RECENT DEVELOPMENT
On July 25, 1997, the Company entered into an agreement and plan of
merger with MainStreet BankGroup Incorporated ("MainStreet") pursuant to which
all of the outstanding stock of the Company will be converted into the right to
receive common stock of MainStreet at the exchange ratio provided for in the
agreement and plan of merger. The consummation of the merger is subject to
regulatory and shareholder approval and the satisfaction of various other
customary conditions to closing. Upon consummation of the merger, the Company
will continue as a wholly owned subsidiary of MainStreet.
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
Quarterly 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 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
OVERVIEW
--------
The following discussion of the financial condition and results of
operations of Tysons Financial Corporation (the "Company") should be read in
conjunction with the Company's financial statements and 1996 annual report on
form 10-KSB. Results reflect the operations of the Company and Tysons National
Bank, the Company's wholly owned subsidiary ("the Bank") during the nine and
three month periods ended September 30, 1997 and 1996.
Net income before taxes for the nine months ended September 30, 1997
was $699,000, an increase of 11.1% over $629,000 for the same period of 1996.
Net income for the nine month period ended September 30, 1997 reached $460,000
which included tax expense of $239,000. Net income for the same period of 1996
was $832,000 which included a tax benefit of $203,000. Earnings per share for
the nine month period ended September 30, 1997 was $0.42 as compared to $1.04
over the same period of 1996. Return on average assets was 0.73% for the nine
month period ended September 30, 1997 and 1.44% for the same period of 1996.
Return on average equity was 7.22% for the nine month period ended September 30,
1997 as compared to 18.18% for the same period in 1996. Equity to average assets
was 10.34% for the first nine months of 1997 and 10.44% for the same period in
1996.
As of September 30, 1997 the Company's total assets were $98,002,000 as
compared to $87,837,000 as of December 31, 1996 which represented an increase of
11.6%. The increase in assets of $10,165,000 was primarily due to growth in
certificates of deposit and other deposits resulting from a deposit promotion to
increase customers.
5
<PAGE>
Total loans, net of allowance for loan losses, at September 30, 1997,
were $61,396,000 as compared to $56,983,000 at December 31, 1996, which
represented an increase of $4,413,000 or 7.7%. Changes in the balances of total
loans from December 31, 1996 to September 30, 1997 were comprised of increases
in commercial real estate of $2,701,000, residential real estate of $2,548,000,
commercial loans of $1,269,000 and consumer loans of $747,000. Real estate
construction loans decreased $2,793,000 for the first nine months of 1997. The
composition of the loan portfolio as of September 30, 1997 and December 31, 1996
is presented below.
Table 1: Composition of Loan Portfolio
- ---------------------------------------
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
-------------------- --------------------
($ in thousands) % of % of
Loan Category Amount Total Amount Total
- ------------- -------- ----- -------- -----
<S> <C>
Commercial $18,577 29.9 $17,308 30.0
Real estate-construction 1,462 2.3 4,255 7.4
Real estate-residential 15,481 24.9 12,933 22.4
Real estate-Commercial 16,573 26.6 13,872 24.0
Consumer 10,136 16.3 9,389 16.2
------- ----- ------- -----
Gross loans 62,229 100.0 57,757 100.0
Less: unearned income (109) (80)
------- -------
62,120 57,677
Allowance for loan losses (724) (694)
------- -----
Net loans $61,396 $56,983
------- -------
</TABLE>
Gross loans at September 30, 1997 totaled $62,229,000 for an increase
of 7.74% over the December 31, 1996 balance of $57,757,000. Average loans as a
percentage of average total earning assets increased to 77.1% as of September
30, 1997, as compared to 66.6% as of December 31, 1996 due to the growth in
loans. Table 2 below is a summary of the composition of earning assets as of
September 30, 1997, as compared to December 31, 1996.
Table 2: Summary of Earning Assets
- -----------------------------------
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
--------------------- ---------------------
($ in thousands) % of % of
Earning Assets Amount Total Amount Total
--------- ----- --------- -----
<S> <C>
Federal funds sold $12,863 14.4 $6,810 8.6
Interest bearing
deposits in banks 100 0.1 100 0.1
Investment securities
Available-for-sale 12,008 13.5 11,041 13.9
Held-to-maturity 1,956 2.2 3,727 4.7
Loans, net of unearned income 62,120 69.8 57,677 72.7
------ ---- ------ ----
Total earning assets $89,047 100.0 $79,355 100.0
------- ----- ------- -----
</TABLE>
Federal funds sold and cash and due from banks represent the Company's
cash and cash equivalents. Cash and cash equivalents at September 30, 1997
totaled $19,965,000 compared to $13,625,000 at December 31, 1996, representing
an increase of $6,340,000, or 46.5%. Federal funds sold increased $6,053,000
while cash and due from banks increased $287,000. The increase in federal funds
sold was primarily due to increased deposits of shorter term escrow funds that
could not be invested in longer term investments.
Total deposits were $86,619,000 at September 30, 1997, up from
$78,554,000 at December 31, 1996, representing an increase of 10.3%. The
increase of $8,065,000 was primarily the result of increased certificates of
deposit resulting from a deposit promotion. Non-interest bearing deposits
increased by $1,266,000 while interest-bearing deposit accounts increased
$6,799,000. Table 3 presents the composition of deposits on September 30, 1997
as compared to December 31, 1996.
6
Table 3: Deposit Summary
- -------------------------
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
--------------------- ---------------------
($ in thousands) % of % of
Amount Total Amount Total
-------- ----- ------- -----
<S> <C>
Non-interest bearing demand $21,379 24.7 $20,113 25.6
NOW and Money Market 27,046 31.2 37,956 48.3
Savings 1,910 2.2 2,439 3.1
Time, under $100,000 22,036 25.4 13,672 17.4
Time, $100,000 and over 14,248 16.5 4,374 5.6
------- ----- ------- -----
Total deposits $86,619 100.0 $78,554 100.0
------- ----- ------- ----
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------------------------------------
AND 1996.
---------
Net income for the three months ended September 30, 1997 was $131,000,
a $160,000 decrease from the $291,000 net income for the same quarter of 1996.
The primary reason for the decrease was the change from a tax benefit of $31,000
in the third quarter of 1996 to a tax expense of $57,000 in the same period of
1997. This increased tax expense of $88,000 was due to the net operating loss
carryforward for the Company becoming fully recognized in 1996. The third
quarter of 1997 had additional rent expense over that of the same period of 1996
of $54,000 due to the addition of the McLean Branch in September of 1996, the
Fairfax City Branch in July of 1997 and the operations facility for lending and
lending support in July of 1997. Net interest income for the quarter ended
September 30, 1997 increased $29,000 or 2.7% over the same quarter of 1996 due
to increased volume of loans. This increase was partially offset by higher
interest rates on deposits to fund the loans due to a change in the mix of
deposits. During the same time period non-interest income increased $9,000 due
to an increase in loan fee income. In the third quarter of 1997 non-interest
expenses increased by $150,000 or 18.7% over the same period of 1996 due to
increased operational and facility costs as a result of growth.
A provision of $32,000 was made for loan losses in the third quarter of
1997. The allowance for loan losses at September 30, 1997 was 1.17% of
outstanding loans.
Net income per share was $0.12 for the three month period
ended September 30, 1997 compared to $0.28 per share for the same period of
1996. The decrease is due to the tax expense increase and the increased rent
expense mentioned above to position the Bank for growth and greater customer
service.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------------------------
AND 1996.
---------
The Company's net income for the nine months ended September 30, 1997
was $460,000, a $372,000 decrease from the $832,000 net income for the same
quarter of 1996. The primary reason for the decrease was the change from a tax
benefit of $203,000 in the first nine months of 1996 to a tax expense of
$239,000 in the same period of 1997. This increased tax expense of $442,000 was
due to the Company's net operating loss carryforward becoming fully recognized
in the last quarter of 1996. Net income before taxes of $699,000 for the first
nine months of 1997 as compared to $629,000 for the same period of 1996
represents an 11.1% increase. Net interest income for the nine month period
ended September 30, 1997 increased $376,000 or 12.8% over the same period of
1996 due to the increased volume of loans. During the same time period
non-interest income decreased $11,000 due to a reduction in overdraft and
returned check charges. In the first nine months of 1997, non-interest expenses
increased $317,000 or 13.2% over the same period of 1996 due to increased
operational and facility costs related to Company growth.
A provision of $103,000 was made for loan losses in the first nine
months of 1997 which primarily reflects loan portfolio growth. The allowance for
loan losses at September 30, 1997 was 1.17% of outstanding loans.
Net income per share was $0.42 for the nine month period ended
September 30, 1997 compared to $1.04 per share for the same period of 1996. The
decrease is due to the tax increase and increased number of weighted average
shares outstanding. At September 30, 1996 there were 800,818 weighted average
shares outstanding as compared to 1,107,703 at September 30, 1997. This increase
in shares outstanding is primarily the result of the June
7
<PAGE>
1996 stock offering.
NET INTEREST INCOME/MARGINS
---------------------------
The primary source of revenue for the Company is net interest income,
which is the difference between income earned on interest-earning assets, such
as loans and investment securities, and interest incurred on interest-bearing
liabilities, such as deposits and borrowings. The level of net interest income
is determined primarily by the average balances of interest-earning assets and
the various rate spreads between the interest-earning assets and the Company's
funding sources.
Net interest income was $3,311,000 for the nine month period ended
September 30, 1997, a 12.8% increase from the $2,935,000 earned during the same
period of 1996. Earning assets averaged $77,998,000 in the first nine months of
1997, a 10.4% increase as compared to $70,630,000 in the same quarter of 1996.
The increase in net interest income is due to the growth of the loan portfolio.
Average loans as a percentage of total average earning assets increased to 77.1%
in the third quarter of 1997 as compared with 66.6% in the same period of 1996.
Total average investment securities as a percent of total average earning assets
increased slightly for the nine month period ended September 30, 1997,
representing 16.2% as compared to 15.7% in 1996. Average federal funds sold in
the nine months ended September 30, 1997 decreased to 6.7% of total average
earning assets from 17.7% in the comparable period in 1996. The decrease in
federal funds sold was primarily due to the lower amount of volatile deposits at
September 30, 1997 as compared to September 30, 1996. Federal funds sold are
used to maintain liquidity for the volatile deposits as well as other liquidity
needs. The overall increase in average earning assets increased net interest
income for the Company in the nine months of 1997.
Interest income on loans of $4,298,000 for the nine months ended
September 30, 1997 represented an increase of $744,000, or 20.9% from $3,554,000
for the same period of 1996, constituting the largest dollar increase in
interest income and reflecting an increase in the average balance of loans to
$60,142,000 for the nine months ended September 30, 1997 from $47,072,000 for
the same period of 1996. The net interest spread, which is the difference
between the yield on earning assets and the cost of interest-bearing
liabilities, decreased to 4.52% in the first nine months of 1997 from 4.58% in
the same period of 1996. The lower net interest spread was attributable to the
increased cost of funds due to the mix of deposits shifting from lower cost
moneymarket funds to higher cost certificates of deposit.
NON-INTEREST INCOME
-------------------
Non-interest income consists of revenues generated from service charges
on deposit accounts, as well as servicing fees on loans, wire transfer fees,
official check fees, and collection fees.
Non-interest income in the nine months of 1997 was $205,000, a decrease
of $11,000, or 5.1%, from $216,000 for the same period of 1996. The decrease was
primarily due to lower overdraft and returned check activity. Deposit service
charges accounted for 63.1% and 65.1% of total non-interest income for the nine
months ended September 30, 1997 and 1996, respectively.
NON-INTEREST EXPENSE
--------------------
Non-interest expense totaled $2,714,000 for the nine month period ended
September 30, 1997, as compared to $2,397,000 for the same period of 1996;
representing an increase of $317,000, or 13.2%. Although total non-interest
expense increased during the nine months of 1997, non-interest expense as a
percentage of average total assets increased only 0.1% to 3.2% for the nine
month period ended September 30, 1997 as compared to 3.1% for the same period of
1996.
Salaries and employee benefits continued to account for the largest
component of non-interest expense, comprising 47.5% of total non-interest
expenses for the first nine months of 1997 and 50.1% in for the same period of
1996. Salaries and employee benefits increased by $88,000, or 7.3%, for the nine
month period ended September 30, 1997 as compared to the same period of 1996.
The increase was mainly attributable to increased staffing as a
8
<PAGE>
result of the addition of the McLean and Fairfax City branches.
Operations expense increased $90,000, or 23.1%, from the first nine
months of 1996 as compared to the same period of 1997 primarily due to increased
data processing, ATM charges, and supply costs. All of the increases are volume
driven.
Occupancy and equipment expenses increased by $176,000, or 64.2%. The
increase was due to the addition of the McLean Branch, Fairfax City Branch and
lending facilities space and additional equipment purchases and upgrades
necessary to service the Bank's customer base.
Administrative expense decreased by $38,000 or 7.1% primarily due to
decreased FDIC insurance. The FDIC insurance rate decreased once the Bank became
"well capitalized" in June 1996. FDIC insurance for the first nine months of
1997 was $7,000 as compared to $36,000 for the same period of 1996. Consulting
fees also decreased as some previously outsourced services were performed
internally.
INCOME TAXES
------------
The Company recognized net income tax expense of $239,000 in the first
nine months of 1997, as compared to an income tax benefit of $203,000 in the
same period of 1996. The net operating loss carryforward related to the start-up
of the Company was completely utilized for accounting purposes in the last
quarter of 1996. This accounted for a $442,000 change in net income from
September 30, 1996 to September 30, 1997. Net income before taxes increased by
$70,000 for the nine month period ended September 30, 1997, as compared to the
same period of 1996.
LOAN QUALITY
------------
The Bank attempts to manage the risk characteristics of its loan
portfolio through various control processes, such as credit evaluation of
borrowers, establishment of lending limits and application of lending
procedures, including the holding of adequate collateral and the maintenance of
compensating balances. However, the Bank seeks to rely primarily on the cash
flow of its borrowers as the principal source of repayment. Although credit
policies are designed to minimize risk, management recognizes that loan losses
will occur and that the amount of these losses will fluctuate depending on the
risk characteristics of the loan portfolio as well as general and regional
economic conditions.
The allowance for loan losses represents a reserve for potential losses
in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with a
particular emphasis on non-accruing, past due and other loans that management
believes require special attention. As of September 30, 1997, the Company had
loans for $58,000 in non-accrual loans as compared to $193,000 as of December
31, 1996 and $95,000 as of June 30, 1996.
For significant problem loans, management's review consists of
evaluation of the financial strengths of the borrower, the related collateral,
and the effects of economic conditions. Specific reserves against the remaining
loan portfolio are based on analysis of historical loan loss ratios, loan
charge-offs, delinquency trends, and previous collection experience, along with
an assessment of the effects of external economic conditions.
The provision for loan losses is a charge to earnings in the current
period to replenish the allowance and maintain it at a level management has
determined to be adequate. The Company made a provision for loan losses for the
first nine months of 1997 of $103,000 as compared to $125,000 in the same period
of 1996. The provision for losses reflects growth in the portfolio.
As of September 30, 1997 the allowance for loan losses was 1.17% of
outstanding loans, which decreased slightly from the 1.20% at December 31, 1996.
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
9
<PAGE>
collectibility of certain loans, management also considers the fair value of any
underlying collateral. However, management's determination of the appropriate
allowance level is based upon a number of assumptions about future events, which
are believed to be reasonable, but which may or may not prove valid. Thus, there
can be no assurance that charge-offs in future periods will not exceed the
allowance for loan loss or that additional increases in the loan loss allowance
will not be required.
Non-performing loans are defined as non-accrual and renegotiated loans.
When real estate acquired by foreclosure or assets repossessed and held for sale
are included with non-performing loans, such category is reported as
non-performing assets. Non-performing assets as of September 30, 1997 consisted
of loans for $58,000 and other assets for $279,000. The increase in
nonperforming assets was comprised of $144,000 in repossessed autos and $135,000
in other receivables. The other receivables were collected subsequent to
September 30, 1997. The non-performing loans were classified for regulatory
purposes as substandard, and as such, management had allocated a portion of its
allowance for possible loan losses for future potential loss. There were $95,000
in non-performing loans and in other assets as of September 30, 1996.
The Company had impaired loans with an unpaid principal balance of
$58,000 at September 30, 1997. These loans are on nonaccrual and have related
impairment reserves of $3,000.
As a result of management's ongoing review of the loan portfolio, loans
are classified as non-accrual when collection of full principal and interest
under the original terms is not expected. These loans are classified as
non-accrual, even though the presence of collateral or the borrower's financial
strength may be sufficient to provide for ultimate repayment. Interest on
non-accrual loans is recognized only when received.
CAPITAL RESOURCES
-----------------
Stockholders' equity was $8,749,000 as of September 30, 1997 as
compared to $8,265,000 as of December 31, 1996. The $484,000 increase, or 5.9%,
was primarily the result of net income of $460,000. The remaining change in
stockholders' equity was due to a payment on the long-term liability relating to
the Employee Stock Ownership Plan and a $30,000 reduction in the unrealized gain
on investment securities available-for-sale. No dividends have been declared by
the Company since its inception. In addition, no stock warrants have been
exercised and no options under the Stock Option Plan have been exercised.
Under the Federal Reserve's capital regulations, for as long as the
Company's assets are under $150 million, the Company's capital ratios are
reviewed on a bank-only basis. The Bank exceeded its capital adequacy
requirements as of September 30, 1997 and December 31, 1996. 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.
10
<PAGE>
The Bank's Executive Committee which oversees the asset/liability
management function meets periodically to monitor and manage the structure of
the balance sheet, control interest rate exposure, and evaluate pricing
strategies for the Company. The asset mix of the balance sheet is continually
evaluated in terms of several variables: yield, credit quality, appropriate
funding sources and liquidity. Management of the liability mix of the balance
sheet focuses on expanding the various funding sources.
At September 30, 1997 the Company had an asset sensitive gap (more
assets than liabilities subject to repricing within the stated timeframe) of
$8,685,000 which represents 9.8% of earning assets over a 30 day period. This
suggests that if interest rates were to increase over this period, the net
interest margin would improve, and if interest rates were to decrease, the net
interest margin would decline. Since all interest rates and yields do not adjust
at the same velocity, the gap is only a general indicator of interest rate
sensitivity. The analysis presents only a static view of the timing of
maturities and repricing opportunities, without taking into consideration that
changes in interest rates do not affect all assets and liabilities equally. Net
interest income may be impacted by other significant factors in a given interest
rate environment, including changes in the volume and mix of earning assets and
interest-bearing liabilities.
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to provide sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. These funds can be obtained by converting assets to cash or by
attracting new deposits. The Bank seeks to rely primarily on core deposits from
customers to provide stable and cost-effective sources of funding to support
asset growth. Other sources of funds available to the Bank include short-term
borrowings, primarily in the form of federal funds purchased. In the normal
course of business, the Bank enters into various off balance sheet credit
facilities with its customers, including commitments to extend credit at a
future date and letters of credit. Since many of the commitments can be expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. At September 30, 1997 the Bank
had $341,000 in letters of credit and $11,656,000 in unfunded loan commitments.
Average liquid assets (cash and amounts due from banks,
interest-bearing deposits in other banks, federal funds sold, investment
securities and other short-term investments) were 30.3% of average deposits for
the first nine months of 1997, as compared to 39.7% for the same period of 1996.
Average loans were 81.6% of average deposits for the first nine months of 1997,
as compared to 67.8% for the same period of 1996. Average deposits were 94.5% of
average earning assets for the nine months ended September 30, 1997 as opposed
to 98.5% for the same period of 1996.
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 $12,008,000 and
$11,137,000 as of September 30, 1997 and 1996, respectively.
NEW ACCOUNTING STANDARDS
------------------------
During 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130
establishes standards for reporting and display of comprehensive income and its
components (revenue, expenses, gains and losses) in a full set of general
purpose financial statements. SFAS 130 is effective for financial statements for
periods beginning after December 15, 1997.
During June of 1997, the FASB issued Statements of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS 131). SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
statements for periods beginning after December 15, 1997.
PART II
11
<PAGE>
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Recent Development
On July 25, 1997, the Company entered into an agreement and plan of
merger with MainStreet BankGroup Incorporated ("MainStreet") pursuant to which
all of the outstanding stock of the Company will be converted into the right to
receive common stock of MainStreet at the exchange ratio provided for in the
agreement and plan of merger. The consummation of the merger is subject to
regulatory and shareholder approval and the satisfaction of various other
customary conditions to closing. Upon consummation of the merger, the Company
will continue as a wholly owned subsidiary of MainStreet.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits required by Item 601 Regulation S-B:
Exhibit 11: Computation of Per Share Earnings
Exhibit 27: Financial Data Schedule
B. Reports on Form 8-K:
None.
12
<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: November 14, 1997
13
Exhibit 11
Computation of Per Share Earnings
<TABLE>
<CAPTION>
For the Nine Months For the Quarter
Ended September 30, Ended September
----------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C>
Number of shares of common stock
outstanding (weighted average) 1,071,119 847,508 1,071,119 1,071,119
Shares held in ESOP trust
(weighted average) 40,973 45,976 39,544 45,262
Increase for common stock
equivalents 77,557 714 100,314 -
Weighted average number of shares
outstanding during the period 1,107,703 800,818 1,131,889 1,025,857
Fully diluted weighted average number of
shares outstanding during the period 1,133,513 800,818 1,134,942 1,025,857
Income for the period $ 460,201 $831,695 $ 131,188 $ 290,768
Income per share:
Primary $ 0.42 $ 1.04 $ 0.12 $ 0.28
Fully diluted $ 0.41 $ 1.04 $ 0.12 $ 0.28
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information derived from Tysons
Financial Corporation's unaudited financial statements for the nine months ended
September 30, 1997, and is qualified in its entirety by reference to such
financial statements and the notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,102,156
<SECURITIES> 14,063,392
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 732,437
<DEPRECIATION> 0
<TOTAL-ASSETS> 98,002,485
<CURRENT-LIABILITIES> 0
<BONDS> 337,500
0
0
<COMMON> 5,355,595
<OTHER-SE> 4,051,325
<TOTAL-LIABILITY-AND-EQUITY> 86,208,987
<SALES> 0
<TOTAL-REVENUES> 5,355,812
<CGS> 0
<TOTAL-COSTS> 2,221,274
<OTHER-EXPENSES> 492,464
<LOSS-PROVISION> 103,102
<INTEREST-EXPENSE> 1,839,578
<INCOME-PRETAX> 699,394
<INCOME-TAX> 239,193
<INCOME-CONTINUING> 460,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 460,201
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.41
</TABLE>
