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 June 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 June 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 June 30, 1997 and December 31, 1996 2
Consolidated Statements of Operations for the three and six month periods
ended June 30, 1997 and 1996 3
Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and 1996 4
Note to Consolidated Financial Statements 5
</TABLE>
The unaudited consolidated financial statements as of and for the six
and three months ended June 30, 1997 and June 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 realties of operations for the six and three months
ended June 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)
June 30, December 31,
Assets 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S><C>
Cash and due from banks $ 5,799,621 $ 6,814,233
Federal funds sold 6,973,200 6,810,371
Interest-bearing deposits in other banks 100,000 100,000
Investment securities available-for-sale, at fair value 7,906,067 11,040,897
Investment securities held-to-maturity, at cost, fair value
of $2,710,898 in 1997 and $3,734,415 in 1996 2,813,862 3,726,535
Loans, net 60,270,347 56,982,848
Property and equipment, net 615,851 499,977
Premium paid for deposits acquired 916,199 982,067
Accrued interest receivable and other assets 813,840 879,782
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $86,208,987 $87,836,710
======================================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand $19,593,801 $20,113,231
NOW and money market accounts 27,341,985 37,956,032
Savings 2,279,827 2,438,259
Certificates of deposit, under $100,000 17,569,862 13,672,085
Certificates of deposit, $100,000 and over 7,063,222 4,374,231
- ----------------------------------------------------------------------------------------------------------------------
Total deposits 73,848,697 78,553,838
Accrued interest payable and other liabilities 515,056 642,787
Federal funds purchased and repurchase agreements 2,918,718 -
Long-term debt 350,000 375,000
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities 77,632,471 79,571,625
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $5; 10,000,000 shares authorized;
1,071,119 shares issued and outstanding June 30, 1997
1,071,119 shares issued and outstanding in December 31, 1996 5,355,595 5,355,595
Additional paid-in capital 4,044,491 4,035,209
ESOP Trust, 40,021 shares in 1997 and 42,878 shares (350,000) (375,000)
in 1996
Accumulated deficit (473,947) (802,960)
Unrealized gain on investment securities available-for-sale 377 52,241
- ----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 8,576,516 8,265,085
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $86,208,987 $87,836,710
======================================================================================================================
</TABLE>
2
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Six months Six months Three months Three months
ended ended ended ended
(Unaudited) June 30, June 30, June 30, June 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S><C>
Interest Income:
Loans $2,802,766 $2,267,953 $1,440,915 $1,163,934
Investment securities:
Available-for-sale 333,008 181,427 143,118 95,688
Held-to-maturity 84,219 139,625 41,897 65,264
Federal funds sold 85,070 327,467 18,661 166,617
Deposits in other banks 2,888 3,072 1,479 1,485
- -------------------------------------------------------------------------------------------------------------------------
Total interest income 3,307,951 2,919,544 1,646,070 1,492,988
- -------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits:
NOW and money market accounts 500,889 449,848 233,450 224,849
Savings accounts 34,892 46,311 17,982 23,002
Certificates of deposit, under $100,000 394,000 448,332 206,448 226,628
Certificates of deposit, $100,000 and over 124,725 95,174 64,066 42,288
Interest on short-term borrowings 29,023 443 24,020 433
Interest on long-term debt 18,919 21,444 9,416 10,569
- -------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,102,448 1,061,552 555,382 527,779
- -------------------------------------------------------------------------------------------------------------------------
Net interest income 2,205,503 1,857,992 1,090,688 965,209
Provision for loan losses 70,835 52,060 28,334 52,060
- -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,134,668 1,805,932 1,062,354 913,149
Non-interest income:
Service charge income 81,896 92,473 40,122 41,726
Other income 55,310 64,809 27,771 35,057
- -------------------------------------------------------------------------------------------------------------------------
Total non-interest income 137,206 157,282 67,893 76,783
- -------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 843,023 787,709 429,554 396,912
Occupancy, equipment and depreciation 256,527 191,243 135,721 101,193
Operations expense 307,201 246,962 151,294 123,214
Administration expense 354,310 368,373 183,243 190,622
- -------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 1,761,061 1,594,287 899,812 811,941
- -------------------------------------------------------------------------------------------------------------------------
Net income before income taxes 510,813 368,927 230,435 177,991
Income tax expense (benefit) 181,800 (172,000) 81,400 (85,000)
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 329,013 $ 540,927 $ 149,035 $ 262,991
- -------------------------------------------------------------------------------------------------------------------------
Net income per weighted average share $ 0.30 0.78 $ 0.14 $ 0.34
Weighted average shares outstanding 1,094,437 689,144 1,093,343 770,503
Net income per fully diluted weighted average share $ 0.29 0.78 $ 0.13 $ 0.34
Fully diluted weighted average shares outstanding 1,137,377 689,144 1,138,091 770,503
</TABLE>
3
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited) Six months Six months
ended ended
- ----------------------------------------------------------------------------------------------------------------------
June 30, 1997 June 30, 1996
- ----------------------------------------------------------------------------------------------------------------------
<S><C>
Cash flows from operating activities:
Net income $ 329,013 $ 540,927
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 144,813 117,583
Provision for loan losses 70,835 52,060
Income tax benefit - (172,000)
Compensation expense for ESOP Trust 34,282 25,000
Decrease (increase) in accrued interest receivable and other assets 65,942 (67,317)
(Decrease) increase in accrued interest payable and other liabilities (127,730) 44,095
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 517,155 540,348
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of available-for-sale securities (1,236,525) (4,464,904)
Purchases of held-to-maturity securities - (995,000)
Proceeds from maturities and principal payments of
available-for-sale securities 4,296,546 899,382
Proceeds from maturities and principal payments of
held-to-maturity securities 894,829 2,025,639
Purchase of property and equipment (184,658) (104,625)
Net increase in loan portfolio (3,327,709) (7,065,218)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities 442,484 (9,704,726)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock - 3,012,034
Net (decrease) increase in deposits (4,705,141) 7,498,413
Net increase in other borrowed funds 2,918,718 -
Repayments of long term debt (25,000) (25,000)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (1,811,423) 10,485,447
- ----------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (851,784) 1,321,069
Cash and cash equivalents, beginning of period 13,624,604 14,399,076
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $12,772,820 $15,720,145
- ----------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 538,013 $ 1,048,922
Income taxes paid - -
- ----------------------------------------------------------------------------------------------------------------------
</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 six and
three month periods ended June 30, 1997 and 1996.
Net income before taxes for the six months ended June 30, 1997 was
$511,000, an increase of 38.5% over $369,000 for the same period of 1996. Net
income for the first half of 1997 reached $329,000 which included tax expense of
$182,000. Net income for the first half of 1996 included a tax benefit of
$172,000 and reached $541,000. Earnings per share for the six month period ended
June 30, 1997 was $0.30 as compared to $0.78 over the same period of 1996.
Return on average assets was 0.82% for the first six months of 1997 and 1.49%
for the same period of 1996. Return on average equity was 7.85% for the first
six months of 1997 as compared to 21.34% for the same period in 1997. Equity to
average assets was 10.56% for the first six months of 1997 and 10.60% for the
same period in 1996.
As of June 30, 1997 the Company's total assets were $86,209,000 as
compared to $87,837,000 as of December 31, 1996 which represented a decrease of
1.9%. The decline in assets of $1,628,000 was primarily due to a decrease in
certain escrow account balances in the first quarter and the subsequent second
quarter growth in
5
<PAGE>
deposits needed to replace the first quarter lower balances.
Total loans, net of allowance for loan losses, at June 30, 1997 were
$60,270,000 as compared to $56,983,000 at December 31, 1996, which represented
an increase of $3,287,000 or 5.8%. Changes in the balances of total loans from
December 31, 1996 to June 30, 1997 were comprised of increases in commercial
real estate of $1,538,000, residential real estate of $1,161,000 and consumer
loans of $983,000 with a smaller increase in commercial loans. Real estate
construction loans decreased $749,000 for the first six months of 1997. The
composition of the loan portfolio as of June 30, 1997 and December 31, 1996 is
presented below.
Table 1: Composition of Loan Portfolio
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
-------------------- --------------------
($ in thousands) % of % of
Loan Category Amount Total Amount Total
- ------------- -------- ----- -------- -----
<S><C>
Commercial $17,697 29.0 $17,308 30.0
Real estate-construction 3,506 5.7 4,254 7.4
Real estate-residential 14,094 23.1 12,933 22.4
Real estate-Commercial 15,410 25.2 13,872 24.0
Consumer 10,372 17.0 9,390 16.2
------ ---- ----- ----
Gross loans 61,079 100.0 57,757 100.0
Less: unearned income (75) (80)
---- ----
61,004 57,677
Allowance for loan losses (734) (694)
----- -----
Net loans $60,270 $56,983
------- -------
</TABLE>
Gross loans at June 30, 1997 totaled $61,079,000 for an increase of
5.75% over the December 31, 1996 balance of $57,757,000. The increases were in
all types of loans except for real estate construction loans which decreased
$748,000. Average loans as a percentage of average total earning assets
increased to 79.0% as of June 30, 1997, as compared to 67.6% as of December 31,
1996 due to the decrease in deposits and growth in loans. Table 2 below is a
summary of the composition of earning assets as of June 30, 1997, as compared to
December 31, 1996.
Table 2: Summary of Earning Assets
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
--------------------- ---------------------
($ in thousands) % of % of
Earning Assets Amount Total Amount Total
--------- ----- --------- -----
<S><C>
Federal funds sold $6,973 8.9 $6,810 8.6
Interest bearing
deposits in banks 100 0.1 100 0.1
Investment securities
Available-for-sale 7,906 10.1 11,041 13.9
Held-to-maturity 2,814 3.6 3,727 4.7
Loans, net of unearned
income 60,270 77.3 57,677 72.7
------ ---- ------ ----
Total earning assets $78,063 100.0 $79,355 100.0
------- ----- ------- -----
</TABLE>
Federal funds sold and cash and due from banks represent the Company's
cash and cash equivalents. Federal funds sold and cash and due from banks at
June 30, 1997 totaled $12,773,000 compared to $13,625,000 at December 31, 1996,
representing a decrease of $852,000, or 6.3%. Federal funds sold increased
$163,000 while cash and due from banks decreased $1,015,000.
6
<PAGE>
Total deposits were $73,849,000 at June 30, 1997, down from $78,554,000
at December 31, 1996, representing a decrease of 6.0%. The decrease of
$4,705,000 was primarily the result of decreased balances in certain customer
escrow accounts. Non-interest bearing deposits decreased by $519,000 while
interest-bearing deposit accounts decreased $4,186,000. Table 3 presents the
composition of deposits on June 30, 1997 as compared to December 31, 1996.
Table 3: Deposit Summary
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
-------------------- --------------------
($ in thousands) % of % of
Amount Total Amount Total
-------- ----- ------- -----
<S><C>
Non-interest bearing demand $19,594 26.5 $20,113 25.6
NOW and Money Market 27,342 37.0 37,956 48.3
Savings 2,280 3.1 2,439 3.1
Time, $100,000 and over 7,063 9.6 4,374 5.6
Time, under $100,000 17,570 23.8 13,672 17.4
------ ---- ------ ----
Total deposits $73,849 100.0 $78,554 100.0
------- ----- ------- -----
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996.
Net income for the three months ended June 30, 1997 was $149,000, a
$114,000 decrease from the $263,000 net income for the same quarter of 1996. The
primary reason for the decrease was the change from a tax benefit of $85,000 in
the second quarter of 1996 to a tax expense of $81,000 in the same period of
1997. This increased tax expense of $166,000 was due to the net operating loss
carryforward for the Company becoming fully recognized in the last quarter of
1996. Net income before taxes of $230,000 for the second quarter of 1997 as
compared to $178,000 for the same period of 1996 represents a 29.2% increase.
Net interest income for the quarter ended June 30, 1997 increased $126,000 or
13.1% over the same quarter of 1996 due to increased volume of loans. During the
same time period non-interest income decreased $9,000 due to a reduction in
overdraft and return check charges. In the second quarter of 1997 non-interest
expenses increased by $88,000 or 10.8% over the same period of 1996 due to
increased operational and facility costs of additional customers and the McLean
branch which opened in September of 1996.
In view of the loan growth for 1997 and the fact that there was no
deterioration in the Bank's loan portfolio, a provision of $28,000 was made for
loan losses in the second quarter of 1997. The allowance for loan losses at June
30, 1997 was 1.20% of outstanding loans.
Net income per share was $0.14 for the three month period
ended June 30, 1997 compared to $0.34 per share for the same period of 1996. The
decrease is due to the tax expense increase of $166,000 and increased number of
weighted average shares outstanding. At June 30, 1996 there were 770,503
weighted average shares outstanding as compared to 1,093,343 at June 30, 1997.
This increase in shares outstanding is primarily the result of the June 1996
stock offering.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996.
The Company's net income for the six months ended June 30, 1997 was
$329,000, a $212,000 decrease from the $541,000 net income for the same quarter
of 1996. The primary reason for the decrease was the change from a tax benefit
of $172,000 in the first six months of 1996 to a tax expense of $182,000 in the
same period of 1997. This increased tax expense of $354,000 was due to the net
operating loss carryforward for the Company becoming fully recognized in the
last quarter of 1996. Net income before taxes of $511,000 for the first six
months of 1997 as compared to $369,000 for the same period of 1996 represents a
38.5% increase. Net interest income for the six month period ended June 30, 1997
increased $348,000 or 18.7% over the same period of 1996 due to the increased
volume of loans. During the same time period non-interest income decreased
$20,000 due to a reduction in overdraft and return check charges. In the first
six months of 1997 non-interest expenses increased $167,000 or 10.5% over the
same period of 1996 due to increased operational and facility costs of
additional customers and the
7
<PAGE>
McLean branch which opened in September of 1996.
In view of the loan growth for 1997 and the fact that there was no
deterioration in the Bank's loan portfolio, a provision of $71,000 was made for
loan losses in the first six months of 1997. The allowance for loan losses at
June 30, 1997 was 1.20% of outstanding loans.
Net income per share was $0.30 for the six month period ended June 30,
1997 compared to $0.78 per share for the same period of 1996. The decrease is
due to the tax increase of $354,000 and increased number of weighted average
shares outstanding. At June 30, 1996 there were 689,144 weighted average shares
outstanding as compared to 1,094,437 at June 30, 1997. This increase in shares
outstanding is primarily the result of the June 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 $2,206,000 for the six month period ended June
30, 1997, a 18.7% increase from the $1,858,000 earned during the same period of
1996. Earning assets averaged $74,822,000 in the first six months of 1997, a
11.6% increase as compared to $67,074,000 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 79.0%
in the second half of 1997 as compared with 67.6% in the same period of 1996.
Total average investment securities as a percent of total average earning assets
increased slightly for the six month period ended June 30, 1997; representing
17.3% as compared to 15.0% in 1996. Average federal funds sold in the six months
ended June 30, 1997 decreased to 3.7% of total average earning assets from 18.3%
in the comparable period in 1996. The decrease in federal funds sold was
primarily due to the lower amount of volatile deposits at June 30, 1997 as
compared to June 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
second quarter of 1997.
Interest income on loans of $2,803,000 for the six months ended June
30, 1997 represented an increase of $535,000, or 23.6% from $2,268,000 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 $59,136,000 for
the six months ended June 30, 1997 from $44,716,000 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, increased to 4.79% in the
first half of 1997 from 4.57% in the same period of 1996. The higher net
interest spread was attributable to the increase in loans as a percentage of
earning assets from 67.6% for the six months ended June 30, 1996 as compared to
79.0% for the same period of 1997. As balances were moved from lower yielding
federal funds sold to loans, the yield on earning assets increased.
NON-INTEREST INCOME
Non-interest income consists of revenues generated from service charges
on deposit accounts, as well as servicing fees on loans, wire transfer fees,
official check fees, and collection fees.
Non-interest income in the six months of 1997 was $137,000, an decrease
of $20,000, or 12.7%, from $157,000 for the same period of 1996. The decrease
was primarily due to lower overdraft and return check activity. Deposit service
charges accounted for 59.7% and 58.8% of total non-interest income for the six
months ended June 30, 1997 and 1996, respectively.
8
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense totaled $1,761,000 for the six month period ended
June 30, 1997, as compared to $1,594,000 for the same period of 1996;
representing an increase of $167,000, or 10.5%. Although total non-interest
expense increased during the first half of 1997, non-interest expense as a
percentage of average total assets remained at 2.2% for the six month periods
ended June 30, 1997 and 1996.
Salaries and employee benefits continued to account for the largest
component of non-interest expense, comprising 47.9% of total non-interest
expenses for the first half of 1997 and 49.4% in for the same period of 1996.
Salaries and employee benefits increased by $55,000, or 7.0%, for the six month
period ended June 30, 1997 as compared to the same period of 1996. The increase
was mainly attributable to increased staffing as a result of the addition of the
McLean branch.
Operations expense increased $60,000, or 24.3%, from the first half of
1996 as compared to the first half 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 $66,000, or 34.6%. The
increase was due to the addition of the McLean Branch rent expense and
additional equipment purchases and upgrades necessary to service the Bank's
customer base.
Administrative expense decreased by $14,000 or 3.8% 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 half of 1997 was
$5,000 as compared to $31,000 for the same period of 1996.
INCOME TAXES
The Company recognized a net income tax expense of $182,000 in the
first half of 1997, as compared to an income tax benefit of $172,000 in the same
period of 1996. The net operating loss carryforward related to the start-up of
the Company became completely utilized for accounting purposes in the last
quarter of 1996. This accounted for $354,000 of the $212,000 change in net
income from June 30, 1996 to June 30, 1997. Net income before taxes increased by
$142,000 for the six month period ended June 31, 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 June 30, 1997, the Company had loans
for $81,000 in non-accrual loans as compared to $193,000 as of December 31, 1996
and $114,000 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
9
<PAGE>
maintain it at a level management has determined to be adequate. The Company
made a provision for loan losses for the first half of 1997 of $71,000 as
compared to $52,000 in the first half of 1996. The Bank's total loan balances
increased with no decreases in the loan quality and therefore management
determined the above provision was appropriate.
As of June 30, 1997 the allowance for loan losses was 1.20% of
outstanding loans, which remained unchanged from 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 collectibility of
certain loans, management also considers the fair value of any underlying
collateral. However, management's determination of the appropriate allowance
level is based upon a number of assumptions about future events, which are
believed to be reasonable, but which may or may not prove valid. Thus, there can
be no assurance that charge-offs in future periods will not exceed the allowance
for loan loss or that additional increases in the loan loss allowance will not
be required.
Non-performing loans are defined as non-accrual and renegotiated loans.
When real estate acquired by foreclosure and held for sale is included with
non-performing loans, such category is reported as non-performing assets.
Non-performing assets as of June 30, 1997 consisted of loans for $81,000. The
non-performing loans were classified for regulatory purposes as substandard, and
as such, management had allocated a portion of its allowance for possible loan
losses for future potential loss. There were $114,000 in non-performing loans as
of June 30, 1996.
The Company had impaired loans with an unpaid principal balance of
$61,000 at June 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 $8,577,000 as of June 30, 1997 as compared to
$8,265,000 as of December 31, 1996. The $312,000 increase, or 3.8%, was
primarily the result of net income of $329,000. 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 $52,000 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 June 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
10
<PAGE>
which are subject to interest-rate repricing within a given time period,
including both floating rate or adjustable rate instruments and instruments
which are approaching maturity.
In theory, interest rate risk can be diminished by maintaining a
nominal level of interest rate sensitivity. In practice, this is made difficult
by a number of factors, including cyclical variations in loan demand, different
impacts on interest-sensitive assets and liabilities when interest rates change,
and the availability of funding sources. Accordingly, the Company undertakes to
manage the interest-rate sensitivity gap by adjusting the maturity of and
establishing rate prices on the earning asset portfolio and certain
interest-bearing liabilities to keep it in line with management's expectations
relative to market interest rates. Management generally attempts to maintain a
balance between rate-sensitive assets and liabilities as the exposure period is
lengthened to minimize the overall interest rate risk to the Company.
The Bank's Executive Committee which oversees the asset/liability
management function meets periodically to monitor and manage the structure of
the balance sheet, control interest rate exposure, and evaluate pricing
strategies for the Company. The asset mix of the balance sheet is continually
evaluated in terms of several variables: yield, credit quality, appropriate
funding sources and liquidity. Management of the liability mix of the balance
sheet focuses on expanding the various funding sources.
At June 30, 1997 the Company had an asset sensitive gap (more assets
than liabilities subject to repricing within the stated timeframe) of $9,252,000
which represents 11.8% 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 June 30, 1997 the Bank had
$341,000 in letters of credit and $13,322,000 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 28.9% of average deposits for
the first half of 1997, as compared to 39.5% for the same period of 1996.
Average loans were 83.6% of average deposits for the first half of 1997, as
compared to 67.0% for the first half of 1996. Average deposits were 94.5% of
average earning assets for the six months ended June 30, 1997 as opposed to
99.5% 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 $7,906,000 and
$8,517,000 as of June 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.
11
<PAGE>
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
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
The Company held its annual meeting of shareholders on June 11,
1997. The following directors of the Company were re-elected at the
meeting: J. Patrick Rowland, Richard Schwartz, and Terrie G. Spiro. The
following chart indicates the number of votes for, against, and abstaining
with respect to each individual elected.
Director For Against Abstaining
- -------- --- ------- ----------
J. Patrick Rowland 792,378 20,000 0
Richard Schwartz 792,378 20,000 0
Terrie G. Spiro 812,378 0 0
Immediately after the elections at the meeting, the following
persons served as directors of the Company: Class I directors were Joel M.
Birken, Zachary A. Kaye, M.D., Alben A. Goldstein, and Stephen A. Wannall.
Class II directors were Michael Farnum, Beth W. Newburger, William C.
Sellery, Jr., and St. Clair J. Tweedie. Class III directors were J. Patrick
Rowland, Richard Schwartz, and Terrie G. Spiro.
In addition to the election of directors, the Company's stockholders
voted at the annual meeting to ratify and approve the Company's independent
public accountants. The accounting firm, KPMG Peat Marwick LLP, nominated by
management received the following votes: For 788,078 , Against 3,300, and
Abstaining 21,000.
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
12
<PAGE>
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
Exhibit 99: Additional Exhibit
B. Reports on Form 8-K:
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TYSONS FINANCIAL CORPORATION
----------------------------
(Registrant)
BY: /s/Terrie G. Spiro ,
-----------------------
Terrie G. Spiro, President, Principal
Executive Officer, and Director
BY: /s/Janet A. Valentine,
----------------------
Janet A. Valentine, Principal Financial
and Accounting Officer
Date: August 14, 1997
14
<PAGE>
Exhibit 11
Computation of Per Share Earnings
<TABLE>
<CAPTION>
For the Six Months Ended For the Quarter Ended
---------------------------------- ----------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
<S><C>
Number of shares of common stock
outstanding (weighted average) 1,071,119 735,703 1,071,119 802,786
Shares held in ESOP trust
(weighted average) 41,688 47,405 40,974 46,691
Increase for common stock
equivalents 65,006 846 63,198 14,408
Weighted average number of shares
outstanding during the period 1,094,437 689,144 1,093,343 770,503
Fully diluted weighted average number of
shares outstanding during the period 1,137,377 689,144 1,138,091 770,503
Income for the period $ 329,013 $ 540,927 $ 149,035 $ 262,991
Income per share:
Primary $ 0.30 $ 0.78 $ 0.14 $ 0.34
Fully diluted $ 0.29 $ 0.78 $ 0.13 $ 0.34
</TABLE>
15
Exhibit 99
TYSONS FINANCIAL CORPORATION
Rebecca J. Jenkins, MainStreet BankGroup Incorporated
Executive Vice President & Secretary (540)666-3272
Terrie G. Spiro, Tysons Financial Corporation
President & Chief Executive Officer (703) 556-6235
Friday, July 25, 1997
MAINSTREET BANKGROUP EXPANDS
INTO NORTHERN VIRGINIA
MARTINSVILLE, VA. JULY 25, 1997. MainStreet BankGroup Incorporated announced
today that it has signed a definitive agreement to acquire Tysons Financial
Corporation, headquartered in McLean, Virginia, subject to regulatory approval
and approval by the shareholders of Tysons Financial Corporation. Tysons
Financial Corporation (NASDAQ "TYFC") is the parent company of Tysons National
Bank which was organized and opened for business in 1991. Tysons currently has
four locations in the thriving Northern Virginia and greater Washington, D.C.
region, serving the small to medium-sized business market. At the end of the
second quarter 1997, Tysons reported total assets of $86.2 million. This action
complements MainStreet's previously announced transaction with Commerce Bank in
College Park, Maryland.
Under the terms of the agreement, MainStreet has agreed to pay the equivalent of
$14.50 per share for each outstanding share of Tysons Financial Corporation in
the form of MainStreet common stock, subject to adjustment under certain
conditions. Similarly, MainStreet has agreed to purchase Tysons' outstanding
directors' options for the difference between the exercise price per option and
$14.50 in the form of MainStreet common stock. Also MainStreet has agreed to
assume the outstanding employee stock options of Tysons Financial Corporation.
In conjunction with the signing of the definitive agreeement, Tysons Financial
Corporation had granted to MainStreet an option to acquire, up to 19.9% of
Tysons' common stock under certain circumstances. This transaction represents
approximately, 19.8 times Tysons' trailing 12 month earnings through June 31,
1997 and further reflects a value of approximately 2.3 times Tysons' tangible
book value at June 30, 1997.
This acquisition will be accounted for as a purchase and earnings from Tysons
Financial Corporation will be included in MainStreet's consolidated numbers from
the date of acquisition forward. The transaction will not be consummated prior
to December 31, 1997.
Terrie G. Spiro, President and Chief Executive Officer of Tysons Financial
Corporation commented "We are delighted to be joining the MainStreet family of
community bankers. Our affiliation with MainStreet will enhance our future
growth in Northern Virginia and greater Washington, D.C. markets. Additionally,
we will be better able to meet the financial needs of our business customers and
the communities we serve and, most importantly, Tysons National Bank will
maintain its local identity in the market."
Michael R. Brenan, Chairman and Chief Executive Officer of MainStreet BankGroup
stated "This acquisition reinforces our strategic initiative to continue to
build our franchise in the dynamic and expanding markets from Richmond to
Northern Virginia and the Washington, D.C. area. We look forward to Tysons
joining our organization and helping us build for the future."
MainStreet BankGroup Incorporated is a multi-community bank holding company
having eight banking affiliates (35 offices) and a nationally chartered trust
company with total consolidated assets of $1.4 billion.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information derived from Tysons
Financial Corporation's unaudited financial statements for the six months ended
June 30, 1997, and is qualified in its entirety by reference to such financial
statements and the notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,799,621
<SECURITIES> 10,719,925
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 615,851
<DEPRECIATION> 0
<TOTAL-ASSETS> 86,208,987
<CURRENT-LIABILITIES> 0
<BONDS> 350,000
0
0
<COMMON> 5,355,595
<OTHER-SE> 4,044,491
<TOTAL-LIABILITY-AND-EQUITY> 86,208,987
<SALES> 0
<TOTAL-REVENUES> 3,445,157
<CGS> 0
<TOTAL-COSTS> 1,453,860
<OTHER-EXPENSES> 307,201
<LOSS-PROVISION> 70,835
<INTEREST-EXPENSE> 1,102,448
<INCOME-PRETAX> 510,813
<INCOME-TAX> 181,800
<INCOME-CONTINUING> 329,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 329,013
<EPS-PRIMARY> $0.30
<EPS-DILUTED> $0.29
</TABLE>
