<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
-------------
Commission file number 0-13833
-------
GEORGE MASON BANKSHARES, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1303470
-------- ----------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
11185 Main Street, Fairfax, Virginia 22030
- ------------------------------------- -----
(Address of principal executive office) (Zip Code)
(Registrant's Telephone number, including area code) (703) 352-1100
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
$1.11 Par Value Common Capital Stock
(Title of class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 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 .
----- ----
The number of shares outstanding of the registrant's Common Stock ($1.11 Par
Value) was 4,999,445 shares at August 8, 1996.
<PAGE> 2
GEORGE MASON BANKSHARES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----------------------------- ----
<S> <C> <C>
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - June 30, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Income - Three months ended
June 30, 1996 and 1995; Six months ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Shareholders' Equity - Six months
ended June 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows - Six months ended
June 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements - June 30, 1996 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
<CAPTION>
PART II. OTHER INFORMATION
--------------------------
<S> <C> <C>
ITEM 6. Exhibits and Reports on Form 8-K
6(a). The following exhibits required to be files are filed herewith:
11 "Computation of Earnings per Common Share," is presented as
Note 6 on page 12 of the second quarter report on Form 10-Q. 12
27 Financial Data Schedule
6(b). Reports on Form 8-K.
No reports on Form 8-K were filed
during the quarter ended June 30, 1996.
SIGNATURES 30
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEORGE MASON BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $33,466 $34,639
Federal funds sold 9,000 15,000
Trading securities 0 5,693
Securities available-for-sale 253,541 187,581
Securities held-to-maturity 67,068 68,660
Mortgage loans held for resale 59,805 55,482
Loans, net of unearned discount and loan fees 332,304 299,558
Less: Allowance for loan losses (5,687) (5,529)
-----------------------------------
Loans, net 326,617 294,029
Bank premises and equipment, net 9,835 9,841
Accrued income receivable 4,738 4,406
Other assets 8,535 4,156
Other real estate 75 109
-----------------------------------
TOTAL ASSETS $772,680 $679,596
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $122,845 $116,699
Interest checking 44,925 48,300
Savings 156,593 146,413
Time 280,136 243,052
-----------------------------------
Total Deposits 604,499 554,464
Borrowed funds 102,455 60,747
Other liabilities 7,040 6,060
Dividends payable 548 398
-----------------------------------
TOTAL LIABILITIES 714,542 621,669
SHAREHOLDERS' EQUITY
Preferred stock 0 0
Common stock 5,549 5,289
Surplus 37,870 35,513
Retained earnings 18,486 16,415
Treasury stock and unearned ESOP 0 (42)
Unrealized holding (loss) gain on securities
available-for-sale (3,767) 752
-----------------------------------
TOTAL SHAREHOLDERS' EQUITY 58,138 57,927
-----------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $772,680 $679,596
===================================
BOOK VALUE PER SHARE* $11.63 $12.16
===================================
ACTUAL SHARES OUTSTANDING* 4,999 4,765
===================================
</TABLE>
See notes to condensed consolidated financial statements.
* Adjusted for the three-for-two stock split effective January 31, 1996.
<PAGE> 4
GEORGE MASON BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $9,349 $7,403 $18,662 $14,231
Interest on Federal funds sold and repurchase agreements 92 394 241 579
Interest on securities:
Taxable 4,080 3,575 7,877 6,959
Tax-exempt 281 229 608 456
-------------------------------------------------------------------
TOTAL INTEREST INCOME 13,802 11,601 27,388 22,225
INTEREST EXPENSE
Interest on deposits 5,126 4,450 10,037 8,177
Interest on borrowed funds 745 427 1,413 795
-------------------------------------------------------------------
TOTAL INTEREST EXPENSE 5,871 4,877 11,450 8,972
-------------------------------------------------------------------
NET INTEREST INCOME 7,931 6,724 15,938 13,253
PROVISION (RECOVERIES) FOR LOAN LOSSES 0 (82) 181 (47)
-------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,931 6,806 15,757 13,300
OTHER INCOME
Service charges 759 362 1,414 870
Gain on sales of securities available-for-sale 39 115 320 132
Gain on sales of mortgage loans held for resale 1,193 602 2,286 846
Other 340 377 784 422
-------------------------------------------------------------------
TOTAL OTHER INCOME 2,331 1,456 4,804 2,270
OTHER EXPENSES
Salaries and employee benefits 4,511 3,272 9,249 6,086
Occupancy expenses 753 583 1,515 1,127
Equipment expenses 532 389 1,076 711
Other operating expenses 2,177 2,045 4,377 3,849
-------------------------------------------------------------------
TOTAL OTHER EXPENSES 7,973 6,289 16,217 11,773
-------------------------------------------------------------------
INCOME BEFORE APPLICABLE INCOME TAXES 2,289 1,973 4,344 3,797
INCOME TAXES 667 574 1,303 1,098
-------------------------------------------------------------------
NET INCOME $1,622 $1,399 $3,041 $2,699
======== ======== ======== ========
EARNINGS PER SHARE* $0.32 $0.29 $0.60 $0.56
======== ======== ======== ========
CASH DIVIDENDS DECLARED PER SHARE * $0.11 $0.09 $0.21 $0.18
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING * 5,138 4,878 5,107 4,833
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
* Adjusted for the three-for-two stock split effective January 31, 1996.
<PAGE> 5
GEORGE MASON BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON TREASURY UNREALIZED
STOCK STOCK & GAIN (LOSS)
SHARES COMMON UNEARNED RETAINED ON
OUTSTANDING STOCK SURPLUS ESOP EARNINGS SECURITIES TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 4,537 $5,036 $34,135 $(101) $11,615 ($3,909) $46,776
Net Income 2,699 2,699
Common stock issuance 102 113 840 42 995
Cash dividends declared
($.18 per common share) (711) (711)
Change in unrealized holding
gain (loss) on securities
available-for-sale 3,392 3,392
--------------------------------------------------------------------------------
Balance, June 30, 1995 4,639 $5,149 $34,975 $ (59) $13,603 $ (517) $53,170
======== ======== ======= ======== ======== ======== ========
Balance, December 31, 1995 4,765 $5,289 $35,513 $ (42) $16,415 $ 752 $57,927
Net Income 3,041 3,041
Common stock issuance 234 260 2,357 42 2,659
Cash dividends declared
($.21 per common share) (970) (970)
Change in unrealized holding
(loss) gain on securities
available-for-sale (4,519) (4,519)
--------------------------------------------------------------------------------
Balance, June 30, 1996 4,999 $5,549 $37,870 $ - $18,486 $(3,767) $58,138
======= ======= ======= ======= ======= ======== =======
</TABLE>
See notes to condensed consolidated financial statements.
* Adjusted for the three-for-two stock split effective January 31, 1996.
<PAGE> 6
GEORGE MASON BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED) SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1996 1995
---------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $3,041 $2,699
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Net amortization of securities 48 46
Depreciation 773 499
Provision (recovered provision) for loan losses 181 (47)
Gain on sale of securities available-for-sale (320) (132)
Benefit of deferred income taxes (49)
Change in assets and liabilities:
Increase in mortgage loans held for resale (4,323) (22,482)
(Increase) decrease in accrued income receivable,
other assets and other real estate (4,628) (620)
Increase in other liabilities 1,130 (1,230)
---------------------------------
Net cash used in operating activities (4,147) (21,267)
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale and maturities of available-for-sale securities 82,184 32,955
Proceeds from maturities of held-to-maturity securities 5,086 8,206
Proceeds from maturities of trading securities 5,693
Purchase of available-for-sale securities (153,041) (64,169)
Purchase of held-to-maturity securities (3,272) (7,167)
Net increase in loans (32,588) (1,962)
Purchase of property and equipment (767) (1,636)
---------------------------------
Net cash used in investing activities (96,705) (33,773)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 50,035 45,622
Net increase in borrowed funds 41,708 8,390
Net proceeds from sale of common stock 2,659 995
Dividends paid (723) (651)
---------------------------------
Net cash provided by financing activities 93,679 54,356
---------------------------------
Net decrease in cash and cash equivalents (7,173) (684)
Cash and cash equivalents at beginning of period 49,639 51,829
---------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $42,466 $51,145
============== ================
Interest paid $11,388 $9,103
=================================
Income taxes paid $1,426 $1,207
=================================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 7
GEORGE MASON BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
NOTE 1 - ORGANIZATION
George Mason Bankshares, Inc. (the "Company") is a Virginia bank holding
company that was formed in 1984 and is headquartered in Fairfax, Virginia. The
Company owns all of the outstanding stock of its subsidiary bank, George Mason
Bank, ("GMB"), which was incorporated in 1977 and opened for business in 1979.
George Mason Mortgage Corporation, ("GMMC") is a wholly owned subsidiary of
GMB. Additionally, the Company owns all of the outstanding stock of Mason
Holding Corporation, ("MHC") a bank holding company which acquired Palmer
National Bancorp, Inc. ("PNBI"), the holding company for The Palmer National
Bank ("PNB") on May 17, 1996. Each share of PNBI stock was converted into
1.08 shares of the Company's stock. Approximately 925,600 shares were
exchanged, and the merger was accounted for as a pooling of interests.
Accordingly, all financial data for the current and prior periods has been
restated to reflect the financial position and results of operations on a
consolidated basis from the earliest period presented.
NOTE 2- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
and six month periods ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
<PAGE> 8
NOTE 3
SECURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996
- ------------------------------------------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $18,197 $1 ($125) $18,073
U.S. Agencies and
Mortgage-Backed Securities 235,409 174 (5,251) 230,332
States and Political Subdivisions 1,973 9 (19) 1,963
Other Securities 3,099 77 (3) 3,173
------------------------------------------------
TOTAL $258,678 $261 ($5,398) $253,541
================================================
SECURITIES HELD-TO-MATURITY
U.S. Agencies and
Mortgage-Backed Securities $48,901 $344 ($560) $48,685
States and Political Subdivisions 18,167 215 (299) 18,083
------------------------------------------------
TOTAL $67,068 $559 ($859) $66,768
================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
- ------------------------------------------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $34,022 $275 ($16) $34,281
U.S. Agencies and
Mortgage-Backed Securities 140,698 1,306 (113) 141,891
States and Political Subdivisions 8,161 358 (7) 8,512
Other Securities 2,811 90 (4) 2,897
------------------------------------------------
TOTAL $185,692 $2,029 ($140) $187,581
================================================
SECURITIES HELD-TO-MATURITY
U.S. Agencies and
Mortgage-Backed Securities $53,633 $1,055 ($123) $54,565
States and Political Subdivisions 15,027 533 (27) 15,533
------------------------------------------------
TOTAL $68,660 $1,588 ($150) $70,098
================================================
</TABLE>
<PAGE> 9
NOTE 4
LOANS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $96,060 $91,268
Real Estate-Construction 31,328 32,614
Real Estate-Mortgage 144,343 131,789
Home Equity Lines 37,392 31,962
Consumer 24,142 12,874
-----------------------------
GROSS LOANS 333,265 300,507
-----------------------------
Less: Deferred loan fees and
unearned discount (961) (949)
-----------------------------
LOANS,NET OF UNEARNED DISCOUNT AND
DEFERRED LOAN FEES 332,304 299,558
-----------------------------
Allowance for loan losses (5,687) (5,529)
-----------------------------
LOANS,NET 326,617 294,029
-----------------------------
MORTGAGE LOANS HELD FOR RESALE 59,805 55,482
-----------------------------
TOTAL LOANS, NET $386,422 $349,511
=============================
</TABLE>
<PAGE> 10
NOTE 5
ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $5,704 $5,869 $5,529 $5,805
Provision charged to expense 0 (82) 181 (47)
Charge-offs:
Commercial and other 2 28 42 55
Consumer 8 7 21 9
Real Estate-Mortgage 40 0 40 0
Real Estate-Construction 0 0 0 0
------------------------------------------------------------------------
Total Charge-offs 50 35 103 64
Recoveries:
Commercial and other 4 (10) 26 30
Consumer 2 4 7 19
Real Estate-Mortgage 27 53 47 53
Real Estate-Construction 0 17 0 20
------------------------------------------------------------------------
Total Recoveries 33 64 80 122
Net Charge-Offs (Recoveries) 17 (29) 23 (58)
------------------------------------------------------------------------
BALANCE AT END OF PERIOD $5,687 $5,816 $5,687 $5,816
========================================================================
Average Total Loans(1) $317,789 $239,824 $310,390 $241,606
Total Loans at Period End (1) $332,304 $252,381 $332,304 $252,381
Ratio of net charge-offs (recoveries)
to average total loans 0.01% -0.01% 0.01% -0.02%
Ratio of allowance for
loan losses to total
loans at period end 1.71% 2.30% 1.71% 2.30%
</TABLE>
(1) Total Loans are reported net of unearned income and do not include mortgage
loans held for resale.
<PAGE> 11
NOTE 5A
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES PERCENT OF PERCENT OF
(DOLLARS IN THOUSANDS) LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
JUNE 30, TOTAL DECEMBER 31, TOTAL
1996 LOANS 1995 LOANS
---------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $1,124 28.4% $706 30.3%
Consumer 314 7.3% 224 4.3%
Real Estate-Mortgage 2,662 54.9% 3,041 54.5%
Real Estate-Construction 504 9.4% 729 10.9%
Unallocated 1,083 N/A 829 N/A
---------------------------------------------------------
TOTAL $5,687 100.0% $5,529 100.0%
=========================================================
</TABLE>
<PAGE> 12
NOTE 6
EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS END SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER SHARE:
Net income $1,622 $1,399 $3,041 $2,699
Stock and stock equivalents (average shares):
Common shares outstanding 4,971 4,820 4,948 4,786
Stock options (a) 167 58 159 47
------------------------------ ----------------------------
Total stock and stock equivalents 5,138 4,878 5,107 4,833
------------------------------ ----------------------------
PRIMARY NET INCOME PER SHARE $0.32 $0.29 $0.60 $0.56
============================== ============================
FULLY DILUTED NET INCOME PER SHARE:
Net income $1,622 $1,399 $3,041 $2,699
Stock and stock equivalents (average shares):
Common shares outstanding 4,971 4,820 4,948 4,786
Stock options (b) 167 63 159 63
------------------------------ ----------------------------
Total stock and stock equivalents 5,138 4,883 5,107 4,849
------------------------------ ----------------------------
FULLY DILUTED NET INCOME PER SHARE $0.32 $0.29 $0.60 $0.56
============================== ============================
</TABLE>
(a) Shares were assumed to be repurchased at the average closing stock prices
for the three month and six months periods ended June 30, 1996 and 1995.
(b) Shares were assumed to be repurchased at the June 28, 1996 closing price.
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Effective May 17, 1996, Palmer National Bancorp, Inc., the holding
company for Palmer National Bank, merged into Mason Holding Corporation, a
subsidiary of George Mason Bankshares, Inc. The merger was accounted for as a
pooling of interests. Accordingly, all financial data for the current and
prior periods has been restated to reflect the financial position and results
of operations on a consolidated basis from the earliest period presented.
FINANCIAL SUMMARY
Net income for the three months ended June 30, 1996 increased by
15.9% over the same period last year, despite $262 thousand in non-recurring
merger expenses. Net income totalled $1.62 million or $.32 per share for the
quarter compared to $1.40 million or $.29 per share for the second quarter of
1995. Returns on average assets and average equity for the second quarter of
1996 were .93% and 10.67%, respectively, compared to .98% and 10.48% for the
same period in 1995. Net income for the first six months of 1996 was $3.04
million compared to $2.70 million for the first half of 1995, representing an
increase of 12.7%. Year-to-date merger expenses totalled $368 thousand.
Earnings per share for the comparable six month periods of 1996 and 1995 were
$.60 and $.56, respectively.
Contributing to the increase in earnings for the second quarter and
first six months of 1996 were improvements in net interest income, increased
gains on sales of mortgage loans held for resale, and growth in service charges
and other fees. The improvements in earnings were partially offset by
increases in the provision for loan losses, salaries and employee benefits,
merger related expenses and other overhead costs incurred in support of the
Company's growth strategy.
The Company continued to experience significant growth as total
assets increased to $772.7 million at June 30, 1996 compared to $679.6 million
at December 31, 1995 representing an increase of $93.1 million or 13.7%. Loan
demand continued to improve as loans (net of unearned income) increased by
$32.7 million to $332.3 million at June 30, 1996 compared to $299.6 million at
year-end 1995. Total deposits were $604.5 million at the end of the quarter
compared to $554.5 million at December 31, 1995, representing an increase of
9.0%.
Shareholders' equity at June 30, 1996 totalled $58.1 million
compared to $57.9 million at December 31, 1995. Book value per share of common
stock on June 30, 1996 was $11.63 per share compared to $12.16 per share at
December 31, 1995. The decrease in the book value per share was attributable
to a decline in the fair value of the securities available-for-sale portfolio.
<PAGE> 14
EARNINGS ANALYSIS
NET INTEREST INCOME
Net interest income is the Company's primary source of earnings and
represents the difference between interest and fees earned on earning assets
and the interest expense paid on deposits and other interest bearing
liabilities. Net interest income on a fully taxable equivalent basis totalled
$8.1 million for the second quarter of 1996 compared to $6.9 million for the
second quarter of 1995, while net interest income for the first six months of
1996 totalled $16.3 million compared to $13.5 million for the same period in
1995, representing an increase of 20.3%. The improvements in net interest
income were attributable to a higher volume of earning assets which was
partially offset by a tightening of the spread between interest rates earned on
loans, securities, federal funds sold and other investments, and the rates paid
on deposits and borrowed funds. TABLE 2 and TABLE 2A present the Company's
analysis of changes in interest income and interest expense relating to volume
and rate for the periods indicated.
The Company's net interest margin for the quarter ended June 30,
1996 decreased to 4.92% from 5.11% for the second quarter of 1995. The decline
in the net interest margin for the second quarter was the result of a decline
in the yield on earning assets of 25 basis points which was partially offset by
a 5 basis point reduction in the cost to fund these earning assets. The net
interest margin for the first six months of 1996 declined to 5.07% compared to
5.22% for the same period in 1995. The drop in the net interest margin
percentage was attributable to a small increase in the Company's cost of funds
combined with a decrease in the yield on earning assets. The increase in the
Company's cost of funds was partially the result of a shift of approximately
$10 million from money market accounts, which were paying a lower rate of
interest to savings accounts, customer repurchase agreements and certificates
of deposit which were paying a substantially higher rate. In addition, the
majority of new funds received were in certificates of deposit, savings
accounts and customer repurchase agreements.
In the first six months of 1996, average earning assets increased
by $123.5 million or 23.6% to $645.6 million compared to $522.2 million for
the first six months of 1995. Average total loans (including mortgage loans
held for resale), the largest component of earning assets, grew to $361.5
million for the first six months of 1996 compared to $266.1 million for the
first six months of 1995. The growth in earning assets was primarily funded by
an increase in certificates of deposit and savings accounts as average interest
bearing deposits increased to $452.7 million in the first six months of 1996
from $376.5 million for the same period in 1995, representing an increase of
20.2%. Average demand deposits rose by 18.5% to $101.6 million for the first
six months of 1996 from $85.7 million during the same period last year. TABLE
1 and TABLE 1A present an analysis of average earning assets, interest bearing
liabilities and demand deposits with the related components of net interest
income on a fully taxable equivalent basis.
<PAGE> 15
AVERAGE BALANCES AND INTEREST RATES (TAX EQUIVALENT BASIS)
(DOLLARS IN THOUSANDS)
TABLE 1
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-Earning Assets:
Securities:
U.S. Treasury Securities $16,478 $240 5.86% $42,683 $624 5.86%
Federal Agency and
Mortgage-Backed Securities 241,652 3,772 6.28% 170,775 2,809 6.60%
State and Political
Subdivision Securities (1) 20,315 406 8.04% 17,200 343 8.00%
Other Investments 3,310 53 6.44% 2,706 40 5.93%
---------------------------------------------- ------------------------------------------
Total Securities 281,755 4,471 6.38% 233,364 3,816 6.56%
Trading Account 2,751 30 4.39% 5,448 104 7.66%
Loans: (3)
Commercial (1) 97,845 2,635 10.83% 117,248 2,929 10.02%
Real Estate-Construction 33,931 664 7.87% 37,917 1,168 12.36%
Real Estate-Mortgage (2) 219,995 5,681 10.39% 113,356 3,183 11.26%
Consumer 19,542 391 8.05% 6,422 158 9.87%
---------------------------------------------- ------------------------------------------
Total Loans 371,313 9,371 10.15% 274,943 7,438 10.85%
Federal Funds Sold 6,197 92 5.97% 26,246 394 6.02%
---------------------------------------------- ------------------------------------------
Total Interest-Earning Assets 662,016 13,964 8.48% 540,001 11,752 8.73%
Noninterest-Earning Assets:
Cash and Due from Banks 25,691 21,576
Other Assets 17,786 16,844
Allowance for Loan Losses (5,693) (5,890)
Deferred Loan Fees (1,549) (812)
------------- ---------------
Total Noninterest-Earning Assets 36,235 31,718
------------- ---------------
Total Assets $698,251 $571,719
============= ===============
</TABLE>
(1) Interest income from tax-exempt securities and tax-exempt loans is
included on a taxable-equivalent basis using a 34% tax rate.
(2) Includes Mortgage Loans Held for Resale and Home Equity Lines of Credit.
(3) For the purpose of these computations, nonaccruing loans are included
in the daily average loan amounts outstanding.
<PAGE> 16
AVERAGE BALANCES AND INTEREST RATES (TAX EQUIVALENT BASIS)
(DOLLARS IN THOUSANDS)
TABLE 1 (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest Checking Deposits $45,140 $236 2.10% $44,610 $292 2.63%
Money Market Deposits 105,478 781 2.98% 115,417 950 3.30%
Savings Deposits 53,494 571 4.29% 19,861 205 4.14%
Certificates of Deposit
$100,000 and over 68,736 913 5.34% 38,999 585 6.02%
Certificates of Deposit 192,863 2,625 5.47% 173,103 2,418 5.60%
--------------------------------------------- -------------------------------------------
Total Interest-Bearing Deposits 465,711 5,126 4.43% 391,990 4,450 4.55%
Borrowed Funds 65,576 745 4.57% 38,235 427 4.48%
--------------------------------------------- -------------------------------------------
Total Interest-Bearing Liabilities 531,287 5,871 4.44% 430,225 4,877 4.55%
Noninterest-Bearing Liabilities:
Total Demand Deposits 100,500 86,896
Other Liabilities 7,343 3,258
------------- --------------
Total Noninterest-Bearing
Liabilities 107,843 90,154
------------- --------------
Total Liabilities 639,130 520,379
Shareholders' Equity 59,121 51,340
------------- --------------
Total Liabilities and Shareholders'
Equity $698,251 $571,719
============= ==============
Interest Spread 4.05% 4.18%
--------------------------------------------- -------------------------------------------
Net Interest Margin $8,093 4.92% $6,875 5.11%
============================================= ===========================================
Cost to Fund Earning Assets 3.57% 3.62%
=========== ===========
</TABLE>
Note: Average balances are calculated on a daily average basis. Allowance for
loan losses is excluded from calculation of average balances and average
rates, as appropriate. Nonaccruing loans are included in the average
loan balance.
<PAGE> 17
RATE AND VOLUME ANALYSIS (TAX EQUIVALENT BASIS)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) FROM THE THREE MONTHS ENDED
TABLE 2 JUNE 30, 1996 TO THE
THREE MONTHS ENDED
JUNE 30, 1995
CHANGE DUE TO:
---------------------------
TOTAL
INCREASE
(DECREASE) RATE VOLUME
---------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Securities:
U.S. Treasury Securities ($384) ($1) ($383)
Federal Agency and
Mortgage-Backed Securities 963 (203) 1,166
State and Political 0
Subdivision Securities (1) 63 1 62
Other Investments 13 4 9
----------------
Total Securities 655 (136) 791
Trading Account (74) (23) (51)
Loans: (3)
Commercial (1) (294) 191 (485)
Real Estate-Construction (504) (381) (123)
Real Estate-Mortgage (2) 2,498 (496) 2,994
Consumer 233 (90) 323
----------------
Total Loans 1,933 (674) 2,607
Federal Funds Sold (302) (1) (301)
----------------
Total interest income 2,212 (443) 2,655
----------------
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits (56) (59) 3
Money Market Deposits (169) (87) (82)
Savings Deposits 366 19 347
Certificates of Deposit
$100,000 and over 328 (118) 446
Certificates of Deposit 207 (69) 276
----------------
Total Interest-Bearing Deposits 676 (161) 837
Borrowed Funds 318 13 305
----------------
Total interest expense 994 (152) 1,146
----------------
Net interest income $1,218 ($335) $1,553
================
</TABLE>
** Variances are computed on a line-by-line basis and are non-additive.
The increase or decrease due to a change in average volume has been
determined by multiplying the change in average volume by the average rate
during the preceding period, and the increase or decrease due to a change
in average rate has been determined by multiplying the current average
volume by the change in average rate.
(1) Interest income from tax-exempt securities and tax-exempt loans is
included on a taxable-equivalent basis using a 34% tax rate.
(2) Includes Mortgage Loans Held for Resale and Home Equity Lines of Credit.
(3) For the purpose of these computations, nonaccruing loans are included
in the daily average loan amounts outstanding.
<PAGE> 18
AVERAGE BALANCES AND INTEREST RATES (TAX EQUIVALENT BASIS)
(DOLLARS IN THOUSANDS)
TABLE 1A
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
---------------- ----------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-Earning Assets:
Securities:
U.S. Treasury Securities $19,365 $550 5.71% $44,423 $1,181 5.36%
Federal Agency and
Mortgage-Backed Securities 227,231 7,160 6.34% 167,143 5,446 6.57%
State and Political
Subdivision Securities (1) 22,574 893 7.96% 16,400 687 8.45%
Other Investments 3,096 100 6.50% 2,704 104 7.76%
------------------------------------------------------------------------------------
Total Securities 272,266 8,703 6.43% 230,670 7,418 6.49%
Trading Account 4,160 67 3.24% 5,393 223 8.34%
Loans: (3)
Commercial (1) 99,328 5,212 10.55% 115,584 5,793 10.11%
Real Estate-Construction 29,732 1,390 9.40% 37,271 2,498 13.52%
Real Estate-Mortgage (2) 215,517 11,424 10.66% 106,773 5,667 10.70%
Consumer 16,886 682 8.12% 6,447 312 9.76%
--------------------------------------- -----------------------------------------
Total Loans 361,463 18,708 10.41% 266,075 14,270 10.82%
Federal Funds Sold 7,753 241 6.25% 20,052 579 5.82%
--------------------------------------- -----------------------------------------
Total Interest-Earning Assets 645,642 27,719 8.63% 522,190 22,490 8.69%
Noninterest-Earning Assets:
Cash and Due from Banks 25,121 21,833
Other Assets 19,195 15,974
Allowance for Loan Losses (5,651) (5,863)
Deferred Loan Fees (1,439) (931)
----------- -----------
Total Noninterest-Earning Assets 37,226 31,013
----------- -----------
Total Assets $682,868 $553,203
=========== ===========
</TABLE>
(1) Interest income from tax-exempt securities and tax-exempt loans is included
on a taxable-equivalent basis using a 34% tax rate.
(2) Includes Mortgage Loans held for Resale and Home Equity Lines of Credit.
(3) For the purpose of these computations, nonaccruing loans are included in the
daily average loan amounts outstanding.
<PAGE> 19
AVERAGE BALANCES AND INTEREST RATES (TAX EQUIVALENT BASIS)
(DOLLARS IN THOUSANDS)
TABLE 1A (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
---------------- ----------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest Checking Deposits $45,411 $482 2.13% $44,582 $582 2.63%
Money Market Deposits 106,947 1,589 2.99% 116,882 1,869 3.22%
Savings Deposits 46,988 1,000 4.28% 18,746 333 3.58%
Certificates of Deposit
$100,000 and over 66,165 1,773 5.39% 36,424 1,029 5.70%
Certificates of Deposit 187,205 5,193 5.58% 159,853 4,363 5.50%
--------------------------------------- --------------------------------------
Total Interest-Bearing Deposits 452,716 10,037 4.46% 376,487 8,176 4.38%
Borrowed Funds 61,938 1,413 4.59% 36,599 791 4.36%
--------------------------------------- --------------------------------------
Total Interest-Bearing Liabilities 514,654 11,450 4.47% 413,086 8,967 4.38%
Noninterest-Bearing Liabilities:
Total Demand Deposits 101,600 85,734
Other Liabilities 6,928 3,927
-------------- -------------
Total Noninterest-Bearing
Liabilities 108,528 89,661
-------------- -------------
Total Liabilities 623,182 502,747
Shareholders' Equity 59,686 50,456
-------------- -------------
Total Liabilities and Shareholders'
Equity $682,868 $553,203
============== =============
Interest Spread 4.17% 4.31%
--------------------------------------- --------------------------------------
Net Interest Margin $16,269 5.07% $13,523 5.22%
======================================= ======================================
Cost to Fund Earning Assets 3.57% 3.46%
========== ===========
</TABLE>
Note: Average balances are calculated on a daily average basis. Allowance for
loan losses is excluded from calculation of average balances and average
rates, as appropriate. Nonaccruing loans are included in the average
loan balance.
<PAGE> 20
RATE AND VOLUME ANALYSIS (TAX EQUIVALENT BASIS)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) FROM THE SIX MONTHS ENDED
TABLE 2A JUNE 30, 1996 TO THE
SIX MONTHS ENDED
JUNE 30, 1995
CHANGE DUE TO:
-------------------------
TOTAL
INCREASE
(DECREASE) RATE VOLUME
-------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Securities:
U.S. Treasury Securities ($631) $35 ($666)
Federal Agency and
Mortgage-Backed Securities 1,714 (244) 1,958
State and Political
Subdivision Securities (1) 206 (53) 259
Other Investments (4) (19) 15
----------
Total Securities 1,285 (53) 1,338
Trading Account (156) (105) (51)
Loans: (3)
Commercial (1) (581) 234 (815)
Real Estate-Construction (1,108) (603) (505)
Real Estate-Mortgage (2) 5,757 (15) 5,772
Consumer 370 (135) 505
----------
Total Loans 4,438 (678) 5,116
Federal Funds Sold (338) 17 (355)
----------
Total interest income 5,229 (88) 5,317
----------
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits (100) (111) 11
Money Market Deposits (280) (121) (159)
Savings Deposits 667 165 502
Certificates of Deposit
$100,000 and over 744 (96) 840
Certificates of Deposit 830 83 747
----------
Total Interest-Bearing Deposits 1,861 206 1,655
Borrowed Funds 622 74 548
----------
Total interest expense 2,483 278 2,205
----------
Net interest income $2,746 ($451) $3,197
=========
</TABLE>
** Variances are computed on a line-by-line basis and are non-additive.
The increase or decrease due to a change in average volume has been
determined by multiplying the change in average volume by the average rate
during the preceding period, and the increase or decrease due to a change
in average rate has been determined by multiplying the current average
volume by the change in average rate.
(1) Interest income from tax-exempt securities and tax-exempt loans is
included on a taxable-equivalent basis using a 34% tax rate.
(2) Includes Mortgage Loans Held for Resale and Home Equity Lines of Credit.
(3) For the purpose of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding.
<PAGE> 21
PROVISION FOR LOAN LOSSES
No provision for loan losses was required for the three months
ended June 30, 1996. This compares to a recovery of the provision of $82
thousand for the same quarter last year. The provision for loan losses for the
first six months of 1996 totaled $181 thousand compared to a recovery of the
provision of $47 thousand for the same period last year. A more detailed
discussion of nonperforming assets and the allowance for loan losses appears in
the "Asset Quality" section.
GAIN ON SALES OF MORTGAGE LOANS HELD FOR RESALE
Gain on sales of mortgage loans held for resale for the second
quarter of 1996 totalled $1.19 million compared to $602 thousand for the same
period last year, an increase of $591 thousand or 98.2%. Gain on sales of loans
held for resale for the first six months of 1996 increased to $2.29 million
from $846 thousand for the same period last year, representing an increase of
170.2%. The increased activity in loans held for resale is attributable to the
strategic expansion of GMMC which originates loans for single family, owner
occupied residences which are to be sold in the secondary market.
GAIN ON SALES OF SECURITIES AVAILABLE-FOR-SALE
Gain on sales of securities available-for-sale totalled $320
thousand for the first six months of 1996 compared to $132 thousand for the
same period last year. The securities were sold in response to changes in
market interest rates, liquidity needs and other general asset/liability
considerations.
OTHER NONINTEREST INCOME
Service charges on deposit accounts for the second quarter of 1996
totalled $759 thousand compared to $362 thousand for the second quarter of
1996, an increase of 109.7%. Service charge income for the first six months of
1996 increased to $1.4 million compared to $870 thousand for the same period
last year an increase of 62.5%. The increase in service charge income was
primarily attributable to the Company's growing deposit base. The Company
currently derives most of its service fee income from checking, money market and
NOW accounts.
<PAGE> 22
NONINTEREST EXPENSES
In support of the Company's strategic growth, total noninterest
expenses consisting of employee related costs, occupancy expenses, merger
related expenses and other overhead totalled $16.2 million for the first six
months of 1996, compared to $11.8 million for the same period in 1995,
representing an increase of $4.4 million or 37.8%. Noninterest expenses for
the second quarter of 1996 totalled $8.0 million compared to $6.3 million for
the second quarter of 1995, representing an increase of 26.8%.
The single largest increase in year-to-date noninterest expenses
was attributable to commissions and salaries expense at GMMC. GMMC opened
three new offices during 1995 and recently opened its first Maryland office in
Montgomery County. GMMC's employee related expenses totalled $4.2 million for
the first six months of 1996, compared to $1.7 million for the first six months
of 1995, an increase of 141.8%. This $2.5 million increase in salary expense at
GMMC, accounted for 55.6% of the total increase in noninterest expenses.
Additionally, the Company incurred significant merger related costs in
conjunction with the acquisition of PNBI. Year-to-date merger related expenses
totalled $368 thousand of which $262 thousand were incurred in the second
quarter. Other increased expenses in 1996 were attributable to the opening of
two new banking centers during the latter part of 1995, two new banking center
during 1996, the opening of an off-site automated teller machine ("ATM") and
the addition of qualified personnel to provide operational support.
CAPITAL RESOURCES
Shareholders' equity on June 30, 1996 was $58.1 million compared to
$57.9 million on December 31, 1995.
Factors contributing to the increase in shareholders' equity were
the retention of net income, as well as new shares issued through the Company's
employee stock plans and the dividend reinvestment plan, reduced by the
Company's regular quarterly cash dividend and unrealized losses sustained in
the securities available-for-sale portfolio. The primary factor contributing to
the decline in equity was the unrealized losses sustained in the securities
available-for-sale portfolio. The decline in the unrealized holding gain (loss)
on securities available-for-sale amounted to $4.5 million (net of tax) from
December 31, 1995 to June 30, 1996. The effect of the unrealized losses in
the securities available-for-sale portfolio reduced book value by $.75 per
share on June 30, 1996. For a detailed discussion of the impact on earnings
from holding below market securities, see" Asset/Liability Management."
Cash dividends declared for the first six months of 1996 amounted
to $.21 per share compared to $.18 per share for the first half of 1995.
At June 30, 1996, the Company's Tier 1 and total risk-based
capital ratios were 12.77% and 13.95%, respectively, compared to 13.70% and
14.95% at December 31, 1995. The Company's leverage
<PAGE> 23
ratio was 8.84% at June 30, 1996 compared to 8.76% at December 31, 1995. The
Company's capital structure places it above the Federal Reserve Board's
guidelines, as the Company maintains a strong capital base to take advantage of
business opportunities while ensuring that it has the resources to protect
against the risks inherent in its business. TABLE 3 details the various
components of shareholders' equity.
<PAGE> 24
SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TABLE 3 JUNE 30, DECEMBER 31,
1996 1995
---------------------------------------
<S> <C> <C>
TIER 1 CAPITAL:
Common Stock $5,549 $5,289
Surplus 37,870 35,513
Retained Earnings 18,486 16,415
Treasury stock and unearned ESOP (42)
Unrealized holding (losses) gains on securities
available-for-sale (3,767) 752
---------------------------------------
Total Shareholders' Equity 58,138 57,927
Less: unrealized holding losses (gains) on securities
available-for-sale 3,767 (752)
Less: disallowed intangibles (230) (256)
---------------------------------------
TOTAL TIER 1 CAPITAL 61,675 56,919
TIER 2 CAPITAL:
Qualifying allowance for loan losses 5,687 5,195
---------------------------------------
TOTAL TIER 2 CAPITAL 5,687 5,195
---------------------------------------
TOTAL RISK-BASED CAPITAL $67,362 $62,144
=======================================
Risk Weighted Assets $482,846 $415,559
=======================================
RATIOS:
Tier 1 Capital to risk weighted assets 12.77% 13.70%
Tier 2 Capital to risk weighted assets 1.18% 1.25%
---------------------------------------
Total risk-based capital ratio 13.95% 14.95%
=======================================
Leverage Ratio-Tier 1 Capital to quarterly
average assets less intangibles 8.84% 8.76%
=======================================
</TABLE>
<PAGE> 25
ASSET QUALITY
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's view as to
the amount necessary to absorb potential losses in the loan portfolio. The
amount of the provision charged to expense each period is dependent upon an
assessment of the loan portfolio quality, current economic trends and
conditions, evaluation of specific client compositions, past loan experience
and the level of net charge-offs during the period.
The ratio of allowance for loan losses to total loans at June 30,
1996 was 1.71% compared to 1.85% at December 31, 1995. The coverage multiple
of allowance for loan losses to nonperforming loans was 1.79 at June 30, 1996
compared to 1.47 at December 31, 1995. Management believes that the
allowance for loan losses at June 30, 1996 is adequate to cover credit losses
inherent in the loan portfolio. Loans classified as loss, doubtful,
substandard or special mention are adequately reserved for and are not expected
to have a material impact beyond what has been reserved.
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets, consisting of nonaccrual loans, restructured
loans and other real estate decreased by $624 thousand to $3.3 million at June
30, 1996 compared to $3.9 million at December 31, 1995. Nonperforming assets
to total assets at June 30, 1996 were .42% compared to .57% at December 31,
1995.
Nonaccrual loans, the single largest category of nonperforming
assets, are those loans on which the accrual of interest has been discontinued.
Commercial loans are generally placed on nonaccrual status when either
principal or interest is past due 90 days or more, or when management believes
the collection of principal or interest is in doubt. Nonaccrual loans decreased
to $2.4 million at June 30, 1996 from $3.0 million at December 31, 1995.
Past due loans are defined as those loans which are 90 days or
more past due as to principal and interest but are still accruing interest
because they are well secured and are in the process of collection. The
Company did not have any past due loans on June 30, 1996 or December 31, 1995.
TABLE 4 details nonperforming assets, past due loans and asset
quality ratios.
<PAGE> 26
CREDIT QUALITY
(DOLLARS IN THOUSANDS)
TABLE 4
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------------------------------
<S> <C> <C>
Nonaccrual Loans $2,442 $3,024
Restructured Loans 736 744
---------------------------------
TOTAL NONPERFORMING LOANS 3,178 3,768
Other Real Estate 75 109
---------------------------------
TOTAL NONPERFORMING ASSETS 3,253 3,877
Loans past due 90 days or
more and accruing interest 0 0
---------------------------------
TOTAL NONPERFORMING ASSETS AND
LOANS PAST DUE 90 DAYS OR MORE $3,253 $3,877
=================================
Total Loans at Period End (1) $332,304 $299,558
Allowance for Loan Losses 5,687 5,529
Total Assets 772,680 679,596
ASSET QUALITY RATIOS:
Allowance for Loan Losses to
Period End Loans 1.71% 1.85%
Allowance for Loan losses to
Nonperforming Loans (Multiple) 1.79X 1.47X
Total Nonperforming Loans
to Total Loans 0.96% 1.26%
Total Nonperforming Assets to
Total Assets 0.42% 0.57%
Nonperforming Assets to Total
Loans plus Other Real Estate 0.98% 1.29%
Nonperforming Assets and Loans Past
Due 90 days or more to Total Loans
and Other Real Estate 0.98% 1.29%
</TABLE>
(1) Total Loans are reported net of unearned income and do not include mortgage
loans held for resale.
<PAGE> 27
ASSET/LIABILITY MANAGEMENT
LIQUIDITY AND INTEREST RATE SENSITIVITY ANALYSIS
The primary function of asset/liability management is to maintain
adequate levels of liquidity while minimizing fluctuations in net interest
margin as a percentage of total assets.
At June 30, 1996 cash, cash equivalents, trading securities and
securities available-for-sale totalled $296.0 million compared to
$242.9 million at December 31, 1995. The cash flows from the securities and
loan portfolios are relatively predictable and satisfy the Company's need for
liquidity. In addition, the Company's strong capital position, a large core
deposit base, the quality of assets and continued earnings power will ensure
that the Company's long term liquidity needs are met. To further satisfy
liquidity needs, the Bank maintains lines of credit with the Federal Home Loan
Bank of Atlanta and a number of larger regional and money-center financial
institutions.
An important element of asset/liability management is the
monitoring of the Company's sensitivity to interest rate movements. In order to
measure the effect of interest rates on the Company's net interest income,
management takes into consideration the expected cash flows from the securities
and loan portfolios as well as the expected magnitude of the repricing of
specific asset and liability categories by assigning earnings change ratios to
individual balance sheet items. The Company evaluates interest sensitivity
risk and then formulates guidelines to manage this risk based upon their
outlook regarding the economy, forecasted interest rate movements and other
business factors. Management uses the securities portfolio, which consists
predominantly of fixed rate securities, to hedge against changes in the loan
portfolio, which is mostly floating rate, as well as changes in deposit rates,
which are both variable and fixed. Therefore, any negative impact of holding
below market securities should be offset by increases in earnings in the loan
portfolio and corresponding increases in the market value of fixed rate
liabilities. Also, the securities portfolio, which has an average life of less
than four years, provides a steady stream of cash flows which are reinvested at
current market rates, which in turn helps to manage long term exposure to
interest rate changes. Management's goal is to maximize and stabilize the net
interest margin by limiting exposure to interest rate changes.
The data in TABLE 5 reflects repricing or expected maturities of
various assets and liabilities at June 30, 1996. This gap represents the
difference between interest-sensitive assets and liabilities in a specific time
interval. Interest sensitivity gap analysis presents a position that existed
at one particular point in time, does not take into consideration potential
cash flows and assumes that assets and liabilities with similar repricing
characteristics will reprice to the same degree. Therefore, the Company's
static gap position is not necessarily indicative of the impact of changes in
interest rates on net interest income.
<PAGE> 28
Therefore, in addition to the traditional "static gap presentation," TABLE 5
also presents interest sensitivity on an adjusted basis using Beta
coefficients. Essentially, the Beta adjustments recognize that assets and
liabilities do not reprice to the same degree. The Beta adjustments reflect
the tendency for movements in bank deposit rates to lag movements in open
market rates. It also recognizes that changes in bank money market, interest
checking and savings rates do not move to the same degree as open market
rates. On a cumulative one year basis at June 30, 1996, the Company had a
negative beta adjusted gap of $14.0 million or (1.82)% excess interest
sensitive liabilities over interest sensitive assets. A negative gap position
indicates that the Company's earnings will be enhanced in a falling rate
environment and earnings will be negatively impacted in a rising rate
environment. Management believes that its current gap position effectively
insulates the Bank from significant interest rate risk exposure.
<PAGE> 29
INTEREST RATE GAP ANALYSIS
(DOLLARS IN THOUSANDS)
TABLE 5
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------------------------------------
1-90 91-180 181-365 1-5 Over 5
INTEREST-SENSITIVE ASSETS: Days Days Days Years Years
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal Funds Sold $9,000 $0 $0 $0 $0
Securities 9,652 14,785 12,881 221,213 67,215
Mortgage Loans Held for Resale 59,805 0 0 0 0
Loans 177,525 6,607 20,656 99,717 27,799
----------------------------------------------------------------------------
Total 255,982 21,392 33,537 320,930 95,014
----------------------------------------------------------------------------
Cumulative Totals 255,982 277,374 310,911 631,841 726,855
INTEREST-SENSITIVE LIABILITIES:
Interest Checking Accounts 44,925 0 0 0 0
Savings Accounts 57,599 0 0 0 0
Money Market Deposit Accounts 98,994 0 0 0 0
Certificate of Deposits 53,539 63,464 62,365 91,541 9,239
Repurchase Agreements & Federal Funds 74,209 0 0 0 0
FHLB - Advances 0 20,000 500 4,000 0
U.S. Demand Notes 3,747 0 0 0 0
----------------------------------------------------------------------------
Totals 333,013 83,464 62,865 95,541 9,239
----------------------------------------------------------------------------
Cumulative Totals 333,013 416,477 479,342 574,883 584,122
----------------------------------------------------------------------------
Gap ($77,031) ($62,072) ($29,328) $225,389 $85,775
============================================================================
Cumulative Gap ($77,031) ($139,103) ($168,431) $56,958 $142,733
============================================================================
Adjustments:
Beta Adjustments
Interest Checking (beta factor .15) 38,186 0 0 0 0
Savings Accounts (beta factor .10) 51,839 0 0 0 0
Money Market Accounts (beta factor .35) 64,346 0 0 0 0
----------------------------------------------------------------------------
Cumulative Beta Adjusted Gap $77,340 $15,268 ($14,060) $211,329 $297,104
============================================================================
As Reported Information:
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 76.87% 66.60% 64.86% 109.91% 124.44%
Cumulative Gap/Total Assets -9.97% -18.00% -21.80% 7.37% 18.47%
Beta Adjusted Information:
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 143.29% 105.83% 95.67% 150.26% 169.13%
Cumulative Gap/Total Assets 10.01% 1.98% -1.82% 27.35% 38.45%
</TABLE>
<PAGE> 30
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereto duly authorized.
GEORGE MASON BANKSHARES, INC.
(Registrant)
Date: August 13, 1996 /s/ Bernard H. Clineburg
--------------- ----------------------------------------
Bernard H. Clineburg
President and Chief Executive Officer
Date: August 13, 1996 /s/ James J. Consagra, Jr.
--------------- ----------------------------------------
James J. Consagra, Jr.
Treasurer, Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE
30, 1996, FORM 10-Q FOR GEORGE MASON BANKSHARES, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 33,466
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 253,541
<INVESTMENTS-CARRYING> 67,068
<INVESTMENTS-MARKET> 66,768
<LOANS> 332,304
<ALLOWANCE> (5,687)
<TOTAL-ASSETS> 772,680
<DEPOSITS> 604,499
<SHORT-TERM> 102,455
<LIABILITIES-OTHER> 7,588
<LONG-TERM> 0
0
0
<COMMON> 5,549
<OTHER-SE> 52,589
<TOTAL-LIABILITIES-AND-EQUITY> 772,680
<INTEREST-LOAN> 18,662
<INTEREST-INVEST> 8,485
<INTEREST-OTHER> 241
<INTEREST-TOTAL> 27,388
<INTEREST-DEPOSIT> 10,037
<INTEREST-EXPENSE> 11,450
<INTEREST-INCOME-NET> 15,938
<LOAN-LOSSES> 181
<SECURITIES-GAINS> 320
<EXPENSE-OTHER> 16,217
<INCOME-PRETAX> 4,344
<INCOME-PRE-EXTRAORDINARY> 4,344
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,041
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
<YIELD-ACTUAL> 5.07
<LOANS-NON> 2,442
<LOANS-PAST> 0
<LOANS-TROUBLED> 736
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,529
<CHARGE-OFFS> 103
<RECOVERIES> 80
<ALLOWANCE-CLOSE> 5,687
<ALLOWANCE-DOMESTIC> 5,687
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,083
</TABLE>
