<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 September 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 5,025,868 shares at November 1, 1996.
<PAGE> 2
GEORGE MASON BANKSHARES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ----------------------------- ----
<S> <C>
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Income - Three months ended
September 30, 1996 and 1995; Nine months ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Shareholders' Equity - Nine months
ended September 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows - Nine months ended
September 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements - September 30, 1996 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. Exhibits and Reports on Form 8-K
6(a). The following exhibits required to be filed are filed herewith:
11 "Computation of Earnings per Common Share," is presented as
Note 6 on page 12 of the third quarter report on Form 10-Q. 12
27 Financial Data Schedule
6(b). Reports on Form 8-K
A report on Form 8-K was filed on July 25, 1996. The report on Form 8-K
covered the Press Release of George Mason Bankshares, Inc. issued on
July 16, 1996 announcing earnings for the second quarter and the first
half of 1996.
SIGNATURES 31
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEORGE MASON BANKSHARES, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $39,353 $34,639
Federal funds sold 25,000 15,000
Trading securities 0 5,693
Securities available-for-sale 277,957 187,581
Securities held-to-maturity 65,929 68,660
Mortgage loans held for resale 58,365 55,482
Loans, net of unearned discount and loan fees 362,562 299,558
Less: Allowance for loan losses (5,662) (5,529)
-------------------------------------
Loans, net 356,900 294,029
Bank premises and equipment, net 9,677 9,841
Accrued income receivable 5,397 4,406
Other assets 8,396 4,156
Other real estate 532 109
-------------------------------------
TOTAL ASSETS $847,506 $679,596
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $121,733 $116,699
Interest checking 45,380 48,300
Savings 161,613 146,413
Time 334,350 243,052
-------------------------------------
Total Deposits 663,076 554,464
Borrowed funds 114,817 60,747
Other liabilities 8,356 6,060
Dividends payable 603 398
-------------------------------------
TOTAL LIABILITIES 786,852 621,669
SHAREHOLDERS' EQUITY
Preferred stock 0 0
Common stock 5,567 5,289
Surplus 38,283 35,513
Retained earnings 19,692 16,415
Treasury stock and unearned ESOP 0 (42)
Unrealized holding (loss) gain on securities available-for-sale (2,888) 752
-------------------------------------
TOTAL SHAREHOLDERS' EQUITY 60,654 57,927
-------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $847,506 $679,596
=====================================
BOOK VALUE PER SHARE * $12.09 $12.16
=====================================
ACTUAL SHARES OUTSTANDING * 5,015 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 NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $8,735 $6,941 $24,641 $19,994
Interest on Federal funds sold and
repurchase agreements 139 226 380 805
Interest on securities:
Taxable 5,110 3,833 12,987 10,792
Tax-exempt 272 293 880 749
--------------------------------------------------------------------------------
TOTAL INTEREST INCOME 14,256 11,293 38,888 32,340
INTEREST EXPENSE
Interest on deposits 5,923 4,761 15,960 12,938
Interest on borrowed funds 1,137 564 2,550 1,359
--------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 7,060 5,325 18,510 14,297
--------------------------------------------------------------------------------
NET INTEREST INCOME 7,196 5,968 20,378 18,043
PROVISION (RECOVERIES) FOR LOAN LOSSES 0 (50) 181 (97)
--------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
(RECOVERIES) FOR LOAN LOSSES 7,196 6,018 20,197 18,140
OTHER INCOME
Service charges 687 551 2,101 1,362
Gain on sales of securities available-for-sale 8 89 328 221
Gain on sales of mortgage loans held for resale 2,533 2,167 7,575 4,191
Other 307 382 1,091 863
--------------------------------------------------------------------------------
TOTAL OTHER INCOME 3,535 3,189 11,095 6,637
OTHER EXPENSES
Salaries and employee benefits 4,833 4,176 14,082 10,262
Occupancy expenses 784 638 2,299 1,765
Equipment expenses 551 375 1,627 1,086
Other operating expenses 1,939 1,882 6,316 5,731
--------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 8,107 7,071 24,324 18,844
--------------------------------------------------------------------------------
INCOME BEFORE APPLICABLE INCOME TAXES 2,624 2,136 6,968 5,933
INCOME TAXES 815 608 2,118 1,706
--------------------------------------------------------------------------------
NET INCOME $1,809 $1,528 $4,850 $4,227
========== ========== ========== ==========
EARNINGS PER SHARE * $0.35 $0.31 $0.95 $0.87
========== ========== ========== ==========
CASH DIVIDENDS DECLARED PER SHARE * $0.12 $0.09 $0.33 $0.27
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING * 5,148 4,959 5,116 4,875
========== ========== ========== ==========
</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 4,227 4,227
Common stock issuance 349 387 1,102 39 1,528
Cash dividends declared
($.27 per common share) (1,077) (1,077)
Change in unrealized holding
gain (loss) on securities
available-for-sale 3,790 3,790
---------------------------------------------------------------------------------------------------
Balance, September 30, 1995 4,886 $ 5,423 $ 35,237 $ (62) $ 14,765 $ (119) $ 55,244
========== ========== ========== ========== ========== ========== ==========
Balance, December 31, 1995 4,765 $ 5,289 $ 35,513 $ (42) $ 16,415 $ 752 $ 57,927
Net Income 4,850 4,850
Common stock issuance 250 278 2,770 42 3,090
Cash dividends declared
($.33 per common share) (1,573) (1,573)
Change in unrealized holding
(loss) gain on securities
available-for-sale (3,640) (3,640)
---------------------------------------------------------------------------------------------------
Balance, September 30, 1996 5,015 $ 5,567 $ 38,283 $ - $ 19,692 $ (2,888) $ 60,654
=========== =========== =========== ========== ========== ========== ==========
</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)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
-----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $4,850 $4,227
Adjustments to reconcile net income to net cash used in
operating activities:
Net amortization of securities 230 (59)
Depreciation 985 718
Provision (recovered provision) for loan losses 181 (97)
Gain on sales of securities available-for-sale (328) (221)
Benefit of deferred income taxes (24)
Change in assets and liabilities:
Increase in mortgage loans held for resale (2,883) (41,723)
(Increase) decrease in accrued income receivable,
other assets and other real estate (5,630) 464
Increase in other liabilities 2,501 2,984
-----------------------------------
Net cash used in operating activities (118) (33,707)
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale and maturities of available-for-sale securities 101,793 65,620
Proceeds from maturities of held-to-maturity securities 6,241 12,967
Proceeds from maturities of trading securities 5,693
Purchase of available-for-sale securities (196,335) (106,265)
Purchase of held-to-maturity securities (3,272) (8,716)
Net increase in loans (62,871) (24,803)
Purchase of bank premises and equipment (821) (2,261)
-----------------------------------
Net cash used in investing activities (149,572) (63,458)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 108,612 59,764
Net increase in borrowed funds 54,070 20,687
Net proceeds from sale of common stock 3,090 1,528
Dividends paid (1,368) (1,040)
-----------------------------------
Net cash provided by financing activities 164,404 80,939
-----------------------------------
Net increase (decrease) in cash and cash equivalents 14,714 (16,226)
Cash and cash equivalents at beginning of period 49,639 51,829
-----------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $64,353 $35,603
===================================
Interest paid $17,715 $13,752
===================================
Income taxes paid $2,275 $1,890
===================================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 7
GEORGE MASON BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 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 nine month periods ended September 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. Certain reclassifications were made to the prior
period financial statements to conform with the current presentation.
<PAGE> 8
NOTE 3
SECURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $35,096 $2 ($84) $35,014
U.S. Agencies and
Mortgage-Backed Securities 241,793 144 (3,995) 237,942
States and Political Subdivisions 2,086 15 (9) 2,092
Other Securities 2,831 78 0 2,909
------------------------------------------------------
TOTAL $281,806 $239 ($4,088) $277,957
======================================================
SECURITIES HELD-TO-MATURITY
U.S. Agencies and
Mortgage-Backed Securities $47,312 $417 ($369) $47,360
States and Political Subdivisions 18,617 327 (140) 18,804
------------------------------------------------------
TOTAL $65,929 $744 ($509) $66,164
======================================================
</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>
SEPTEMBER 30, DECEMBER 31,
1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $100,333 $91,268
Real Estate-Construction 33,222 32,614
Real Estate-Mortgage 155,586 131,789
Home Equity Lines 40,247 31,962
Consumer 34,046 12,874
----------------------------------
GROSS LOANS 363,434 300,507
----------------------------------
Less: Deferred loan fees and
unearned discount (872) (949)
----------------------------------
LOANS,NET OF UNEARNED DISCOUNT AND
DEFERRED LOAN FEES 362,562 299,558
----------------------------------
Allowance for loan losses (5,662) (5,529)
----------------------------------
LOANS,NET 356,900 294,029
----------------------------------
MORTGAGE LOANS HELD FOR RESALE 58,365 55,482
----------------------------------
TOTAL LOANS, NET $415,265 $349,511
==================================
</TABLE>
<PAGE> 10
NOTE 5
ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT BEGINNING OF PERIOD $5,687 $5,816 $5,529 $5,805
Provision charged to expense 0 (50) 181 (97)
Charge-offs:
Commercial and other 84 12 86 68
Consumer 13 13 21 21
Real Estate-Mortgage 0 0 40 0
Real Estate-Construction 0 0 0 0
---------------------------------------------------------------------------------------------
Total Charge-offs 97 25 147 89
Recoveries:
Commercial and other 32 4 30 34
Consumer 9 4 11 23
Real Estate-Mortgage 31 39 58 92
Real Estate-Construction 0 0 0 20
---------------------------------------------------------------------------------------------
Total Recoveries 72 47 99 169
Net Charge-Offs (Recoveries) 25 (22) 48 (80)
---------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD $5,662 $5,788 $5,662 $5,788
=============================================================================================
Average Total Loans(1) $349,947 $267,992 $323,648 $255,168
Total Loans at Period End (1) $362,562 $271,242 $362,562 $271,242
Ratio of net charge-offs (recoveries)
to average total loans 0.01% -0.01% 0.01% -0.03%
Ratio of allowance for
loan losses to total
loans at period end 1.56% 2.13% 1.56% 2.13%
</TABLE>
(1) Total Loans are reported net of unearned income and do not include mortgage
loans held for resale.
<PAGE> 11
NOTE 5A
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
SEPTEMBER 30, TOTAL DECEMBER 31, TOTAL
1996 LOANS 1995 LOANS
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $1,392 27.6% $706 30.3%
Consumer 240 9.4% 224 4.3%
Real Estate-Mortgage 2,907 53.9% 3,041 54.5%
Real Estate-Construction 490 9.1% 729 10.9%
Unallocated 633 N/A 829 N/A
-----------------------------------------------------------
TOTAL $5,662 100.0% $5,529 100.0%
===========================================================
</TABLE>
<PAGE> 12
NOTE 6
EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER SHARE:
Net income $1,809 $1,528 $4,850 $4,227
Stock and stock equivalents (average shares):
Common shares outstanding 5,002 4,866 4,965 4,812
Stock options (a) 146 93 151 63
----------------------------- ---------------------------------
Total stock and stock equivalents 5,148 4,959 5,116 4,875
----------------------------- ---------------------------------
PRIMARY NET INCOME PER SHARE $0.35 $0.31 $0.95 $0.87
============================= =================================
FULLY DILUTED NET INCOME PER SHARE:
Net income $1,809 $1,528 $4,850 $4,227
Stock and stock equivalents (average shares):
Common shares outstanding 5,002 4,866 4,965 4,812
Stock options (b) 146 103 151 103
----------------------------- ---------------------------------
Total stock and stock equivalents 5,148 4,969 5,116 4,915
----------------------------- ---------------------------------
FULLY DILUTED NET INCOME PER SHARE $0.35 $0.31 $0.95 $0.86
============================= =================================
</TABLE>
(a) Shares were assumed to be repurchased at the average closing stock prices
for the three months and nine months ended September 30, 1996 and 1995.
(b) Shares were assumed to be repurchased at the September 30, 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 September 30, 1996 increased
by 18.4% over the same period last year as net income totalled $1.81 million or
$.35 per share for the quarter compared to $1.53 million or $.31 per share for
the third quarter of 1995. Returns on average assets and average equity for
the third quarter of 1996 were .92% and 11.50%, respectively, compared to .99%
and 11.04% for the same period in 1995. Net income for the first nine months
of 1996 increased by 14.7% despite $401 thousand in merger related expenses.
Year-to-date net income totalled $4.85 million compared to $4.23 million for
the same period in 1995. Earnings per share for the comparable nine month
periods of 1996 and 1995 were $.95 and $.87, respectively.
Contributing to the increase in earnings for the third quarter and
first nine 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 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 $847.5 million at September 30, 1996 compared to $679.6
million at December 31, 1995 representing an increase of $167.9 million or
24.7%. Loan demand continued to improve as loans (net of unearned income)
increased by $63.0 million to $362.6 million at September 30, 1996 compared to
$299.6 million at year-end 1995. Total deposits were $663.1 million at the end
of the quarter compared to $554.5 million at December 31, 1995, representing
an increase of 19.6%.
Shareholders' equity at September 30, 1996 totalled $60.7 million
compared to $57.9 million at December 31, 1995. Book value per share of common
stock on September 30, 1996 was $12.09 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
$7.4 million for the third quarter of 1996 compared to $6.1 million for the
third quarter of 1995, while net interest income on a fully taxable equivalent
basis for the first nine months of 1996 totalled $20.9 million compared to
$18.4 million for the same period in 1995, representing an increase of 13.2%.
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 September
30, 1996 decreased to 3.92% from 4.19% for the third quarter of 1995. The
decline in the net interest margin for the third quarter was the result of a
decline in the yield on earning assets of 16 basis points which was compounded
by a 11 basis point increase in the cost to fund these earning assets. The net
interest margin for the first nine months of 1996 declined to 4.13% compared to
4.56% for the same period in 1995. The drop in the net interest margin
percentage for the first nine months of the year was also attributable to an
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 $12 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 nine months of 1996, average earning assets increased
by $132.1 million or 24.4% to $674.0 million compared to $541.9 million for
the first nine months of 1995. Average total loans (including mortgage loans
held for resale), the largest component of earning assets, grew to $368.1
million for the first nine months of 1996 compared to $278.3 million for the
first nine 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 $475.2 million in the first nine months
of 1996 from $388.9 million for the same period in 1995, representing an
increase of 22.2%.
<PAGE> 15
Average demand deposits rose by 17.3% to $103.1 million for the first nine
months of 1996 from $87.9 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> 16
AVERAGE BALANCES AND INTEREST RATES (TAX EQUIVALENT BASIS)
(DOLLARS IN THOUSANDS)
TABLE 1
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 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 $25,157 $370 5.85% $39,447 $515 5.18%
Federal Agency and
Mortgage-Backed Securities 287,876 4,622 6.39% 194,333 3,157 6.45%
State and Political
Subdivision Securities (1) 20,514 400 7.76% 20,431 419 8.14%
Other Investments 2,959 88 11.83% 4,728 113 9.48%
------------------------------------------------------------------------------------------
Total Securities 336,506 5,480 6.48% 258,939 4,204 6.44%
Trading Account 0 0 N/A 5,543 76 5.44%
Loans: (3)
Commercial (1) 102,858 2,328 9.00% 97,190 2,490 10.16%
Real Estate-Construction 36,932 761 8.20% 32,440 840 10.27%
Real Estate-Mortgage (2) 226,268 5,090 8.95% 166,970 3,480 8.27%
Consumer 28,769 594 8.21% 5,733 160 11.07%
---------------------------------------- ---------------------------------------------
Total Loans 394,827 8,773 8.84% 302,333 6,970 9.15%
Federal Funds Sold 12,741 169 5.28% 12,822 188 5.82%
---------------------------------------- ---------------------------------------------
Total Interest-Earning Assets 744,074 14,422 7.71% 579,637 11,438 7.83%
Noninterest-Earning Assets:
Cash and Due from Banks 26,039 23,634
Other Assets 21,863 18,655
Allowance for Loan Losses (5,676) (5,815)
Deferred Loan Fees (1,483) (867)
---------------- --------------
Total Noninterest-Earning Assets 40,743 35,607
---------------- --------------
Total Assets $784,817 $615,244
================ ==============
</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> 17
AVERAGE BALANCES AND INTEREST RATES (TAX EQUIVALENT BASIS)
(DOLLARS IN THOUSANDS)
TABLE 1 (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 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 $44,481 $241 2.16% $43,177 $255 2.34%
Money Market Deposits 99,768 758 3.02% 116,427 919 3.13%
Savings Deposits 62,663 679 4.31% 25,000 269 4.27%
Certificates of Deposit
$100,000 and over 79,363 1,032 5.17% 56,612 801 5.61%
Certificates of Deposit 233,483 3,213 5.47% 172,081 2,518 5.81%
------------------------------------- --------------------------------------------
Total Interest-Bearing Deposits 519,758 5,923 4.53% 413,297 4,762 4.57%
Borrowed Funds 90,367 1,137 5.01% 48,831 565 4.59%
------------------------------------- --------------------------------------------
Total Interest-Bearing Liabilities 610,125 7,060 4.60% 462,128 5,327 4.57%
Noninterest-Bearing Liabilities:
Total Demand Deposits 106,788 92,171
Other Liabilities 8,165 6,574
------------- -------------
Total Noninterest-Bearing
Liabilities 114,953 98,745
------------- -------------
Total Liabilities 725,078 560,873
Shareholders' Equity 59,739 54,371
------------- -------------
Total Liabilities and Shareholders'
Equity $784,817 $615,244
============= =============
Interest Spread 3.12% 3.26%
------------------------------------- --------------------------------------------
Net Interest Margin $7,362 3.92% $6,111 4.19%
===================================== ============================================
Cost to Fund Earning Assets 3.77% 3.65%
=========== ===========
</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> 18
RATE AND VOLUME ANALYSIS (TAX EQUIVALENT BASIS)
(DOLLARS IN THOUSANDS)
TABLE 2
<TABLE>
<CAPTION>
FROM THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 TO THE
THREE MONTHS ENDED
SEPTEMBER 30, 1995
CHANGE DUE TO:
-----------------------------
TOTAL
INCREASE
(DECREASE) RATE VOLUME
---------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Securities:
U.S. Treasury Securities ($145) $42 ($187)
Federal Agency and
Mortgage-Backed Securities 1,465 (55) 1,520
State and Political
Subdivision Securities (1) (19) (21) 2
Other Investments (25) 17 (42)
------------------
Total Securities 1,276 17 1,259
Trading Account (76) 0 (76)
Loans: (3)
Commercial (1) (162) (307) 145
Real Estate-Construction (79) (195) 116
Real Estate-Mortgage (2) 1,610 374 1,236
Consumer 434 (209) 643
------------------
Total Loans 1,803 (329) 2,132
Federal Funds Sold (19) (18) (1)
------------------
Total interest income 2,984 (261) 3,245
------------------
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits (14) (22) 8
Money Market Deposits (161) (30) (131)
Savings Deposits 410 5 405
Certificates of Deposit
$100,000 and over 231 (91) 322
Certificates of Deposit 695 (203) 898
------------------
Total Interest-Bearing Deposits 1,161 (66) 1,227
Borrowed Funds 572 91 481
------------------
Total interest expense 1,733 27 1,706
------------------
Net interest income $1,251 ($483) $1,734
==================
</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> 19
AVERAGE BALANCES AND INTEREST RATES (TAX EQUIVALENT BASIS)
(DOLLARS IN THOUSANDS)
TABLE 1A
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 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 $21,310 $920 5.77% $43,077 $1,696 5.26%
Federal Agency and
Mortgage-Backed Securities 247,593 11,782 6.36% 176,305 8,588 6.51%
State and Political
Subdivision Securities (1) 21,883 1,293 7.89% 17,759 1,106 8.33%
Other Investments 3,050 218 9.55% 4,521 242 7.16%
---------------------------------------------------------------------------------------
Total Securities 293,836 14,213 6.46% 241,662 11,632 6.44%
Trading Account 2,763 67 3.24% 5,444 299 7.34%
Loans: (3)
Commercial (1) 99,947 7,540 10.08% 109,385 8,282 10.12%
Real Estate-Construction 30,439 2,151 9.44% 35,643 3,338 12.52%
Real Estate-Mortgage (2) 216,283 13,758 8.50% 127,060 7,971 8.39%
Consumer 21,441 1,276 7.95% 6,207 472 10.17%
------------------------------------------ ----------------------------------------
Total Loans 368,110 24,725 8.97% 278,295 20,063 9.64%
Federal Funds Sold 9,241 380 5.49% 16,481 742 6.02%
------------------------------------------ ----------------------------------------
Total Interest-Earning Assets 673,950 39,385 7.81% 541,882 32,736 8.08%
Noninterest-Earning Assets:
Cash and Due from Banks 25,423 22,440
Other Assets 24,463 15,858
Allowance for Loan Losses (5,660) (5,847)
Deferred Loan Fees (1,467) (909)
-------------- -------------
Total Noninterest-Earning Assets 42,759 31,542
-------------- -------------
Total Assets $716,709 $573,424
============== =============
</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> 20
AVERAGE BALANCES AND INTEREST RATES (TAX EQUIVALENT BASIS)
(DOLLARS IN THOUSANDS)
TABLE 1A (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 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 $45,099 $723 2.14% $44,108 $836 2.53%
Money Market Deposits 104,537 2,347 3.00% 116,277 2,789 3.21%
Savings Deposits 52,251 1,679 4.29% 20,853 603 3.87%
Certificates of Deposit
$100,000 and over 71,931 2,805 5.21% 43,227 1,829 5.66%
Certificates of Deposit 201,409 8,406 5.57% 164,426 6,881 5.60%
-------------------------------------- --------------------------------------------
Total Interest-Bearing Deposits 475,227 15,960 4.49% 388,891 12,938 4.45%
Borrowed Funds 71,296 2,550 4.78% 40,721 1,356 4.45%
-------------------------------------- --------------------------------------------
Total Interest-Bearing Liabilities 546,523 18,510 4.52% 429,612 14,294 4.45%
Noninterest-Bearing Liabilities:
Total Demand Deposits 103,130 87,904
Other Liabilities 7,352 4,586
----------- -------------
Total Noninterest-Bearing
Liabilities 110,482 92,490
----------- -------------
Total Liabilities 657,005 522,102
Shareholders' Equity 59,704 51,322
----------- -------------
Total Liabilities and Shareholders
Equity $716,709 $573,424
=========== =============
Interest Spread 3.29% 3.63%
-------------------------------------- --------------------------------------------
Net Interest Margin $20,875 4.13% $18,442 4.56%
====================================== ============================================
Cost to Fund Earning Assets 3.67% 3.53%
======== ========
</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> 21
RATE AND VOLUME ANALYSIS (TAX EQUIVALENT BASIS)
(DOLLARS IN THOUSANDS)
TABLE 2A
<TABLE>
<CAPTION>
FROM THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 TO THE
NINE MONTHS ENDED
SEPTEMBER 30, 1995
CHANGE DUE TO:
----------------------------
TOTAL
INCREASE
(DECREASE) RATE VOLUME
--------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Securities:
U.S. Treasury Securities ($776) $81 ($857)
Federal Agency and
Mortgage-Backed Securities 3,194 (279) 3,473
State and Political
Subdivision Securities (1) 187 (70) 257
Other Investments (24) 55 (79)
-----------------
Total Securities 2,581 70 2,511
Trading Account (232) (85) (147)
Loans: (3)
Commercial (1) (742) (27) (715)
Real Estate-Construction (1,187) (700) (487)
Real Estate-Mortgage (2) 5,787 190 5,597
Consumer 804 (354) 1,158
-----------------
Total Loans 4,662 (1,813) 6,475
Federal Funds Sold (362) (36) (326)
-----------------
Total interest income 6,649 (1,329) 7,978
-----------------
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits (113) (132) 19
Money Market Deposits (442) (160) (282)
Savings Deposits 1,076 168 908
Certificates of Deposit
$100,000 and over 976 (239) 1,215
Certificates of Deposit 1,525 (23) 1,548
-----------------
Total Interest-Bearing Deposits 3,022 150 2,872
Borrowed Funds 1,194 176 1,018
-----------------
Total interest expense 4,216 326 3,890
-----------------
Net interest income $2,433 ($2,062) $4,495
=================
</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> 22
PROVISION FOR LOAN LOSSES
No provision for loan losses was required for the three months
ended September 30, 1996. This compares to a recovery of the provision of $50
thousand for the same quarter last year. The provision for loan losses for the
first nine months of 1996 totaled $181 thousand compared to a recovery of the
provision of $97 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 third
quarter of 1996 totalled $2.53 million compared to $2.17 million for the same
period last year, an increase of $366 thousand or 16.9%. Gain on sales of
loans held for resale for the first nine months of 1996 increased to $7.58
million from $4.19 million for the same period last year, representing an
increase of 80.7%. 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 sold in the secondary
market.
GAIN ON SALES OF SECURITIES AVAILABLE-FOR-SALE
Gain on sales of securities available-for-sale totalled $328
thousand for the first nine months of 1996 compared to $221 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 third quarter of 1996
totalled $687 thousand compared to $551 thousand for the third quarter of 1995,
an increase of 24.7%. Service charge income for the first nine months of 1996
increased to $2.1 million compared to $1.4 million for the same period last
year an increase of 54.3%. 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> 23
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 $24.3 million for the first nine
months of 1996, compared to $18.8 million for the same period in 1995,
representing an increase of $5.5 million or 29.1%. Noninterest expenses for
the third quarter of 1996 totalled $8.1 million compared to $7.1 million for
the third quarter of 1995, representing an increase of 14.7%.
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 $6.4 million for
the first nine months of 1996, compared to $3.4 million for the first nine
months of 1995, an increase of 89.3%. This $3.0 million increase in salary
expense at GMMC, accounted for 55.2% 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 $401 thousand of which $33 thousand were incurred in the
third 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 centers 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 September 30, 1996 was $60.7 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 decline in the unrealized
holding gain (loss) on securities available-for-sale amounted to $3.6 million
(net of tax) from December 31, 1995 to September 30, 1996. The effect of the
unrealized losses in the securities available-for-sale portfolio reduced book
value by $.58 per share on September 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 nine months of 1996 amounted
to $.33 per share compared to $.27 per share for the first nine months of
1995.
<PAGE> 24
At September 30, 1996, the Company's Tier 1 and total risk-based
capital ratios were 12.33% and 13.43%, respectively, compared to 13.70% and
14.95% at December 31, 1995. The Company's leverage ratio was 8.07% at
September 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> 25
SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TABLE 3 SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------------------------
<S> <C> <C>
TIER 1 CAPITAL:
Common Stock $5,567 $5,289
Surplus 38,283 35,513
Retained Earnings 19,692 16,415
Treasury stock and unearned ESOP 0 (42)
Unrealized holding (loss) gain on securities
available-for-sale (2,888) 752
--------------------------------
Total Shareholders' Equity 60,654 57,927
Less: unrealized holding loss (gain) on securities
available-for-sale 2,888 (752)
Less: disallowed intangibles (217) (256)
--------------------------------
TOTAL TIER 1 CAPITAL 63,325 56,919
TIER 2 CAPITAL:
Qualifying allowance for loan losses 5,662 5,195
--------------------------------
TOTAL TIER 2 CAPITAL 5,662 5,195
--------------------------------
TOTAL RISK-BASED CAPITAL $68,987 $62,114
================================
Risk Weighted Assets $513,683 $415,559
================================
RATIOS:
Tier 1 Capital to risk weighted assets 12.33% 13.70%
Tier 2 Capital to risk weighted assets 1.10% 1.25%
--------------------------------
Total risk-based capital ratio 13.43% 14.95%
================================
Leverage Ratio-Tier 1 Capital to quarterly
average assets less intangibles 8.07% 8.76%
================================
</TABLE>
<PAGE> 26
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 September
30, 1996 was 1.56% compared to 1.85% at December 31, 1995. The coverage
multiple of allowance for loan losses to nonperforming loans was 2.03 at
September 30, 1996 compared to 1.47 at December 31, 1995. Management
believes that the allowance for loan losses at September 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 $556 thousand to $3.3 million at
September 30, 1996 compared to $3.9 million at December 31, 1995.
Nonperforming assets to total assets at September 30, 1996 were .39% 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 $2.1 million at September 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 had past due loans of $339 thousand on September 30, 1996 and did not
have any past due loans on December 31, 1995.
TABLE 4 details nonperforming assets, past due loans and asset
quality ratios.
<PAGE> 27
CREDIT QUALITY
(DOLLARS IN THOUSANDS)
TABLE 4
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------------------------------
<S> <C> <C>
Nonaccrual Loans $2,056 $3,024
Restructured Loans 733 744
--------------------------------------
TOTAL NONPERFORMING LOANS 2,789 3,768
Other Real Estate 532 109
--------------------------------------
TOTAL NONPERFORMING ASSETS 3,321 3,877
Loans past due 90 days or
more and accruing interest 339 0
--------------------------------------
TOTAL NONPERFORMING ASSETS AND
LOANS PAST DUE 90 DAYS OR MORE $3,660 $3,877
======================================
Total Loans at Period End (1) $362,562 $299,558
Allowance for Loan Losses 5,662 5,529
Total Assets 847,506 679,596
ASSET QUALITY RATIOS:
Allowance for Loan Losses to
Period End Loans 1.56% 1.85%
Allowance for Loan losses to
Nonperforming Loans (Multiple) 2.03 X 1.47 X
Total Nonperforming Loans
to Total Loans 0.77% 1.26%
Total Nonperforming Assets to
Total Assets 0.39% 0.57%
Nonperforming Assets to Total
Loans plus Other Real Estate 0.91% 1.29%
Nonperforming Assets and Loans Past
Due 90 days or more to Total Loans
and Other Real Estate 1.01% 1.29%
</TABLE>
(1) Total Loans are reported net of unearned income and do not include mortgage
loans held for resale.
<PAGE> 28
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 September 30, 1996, cash, cash equivalents, trading securities
and securities available-for-sale totalled $342.3 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, 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 variable portion of the loan
portfolio and corresponding increases in the market value of fixed rate
liabilities. Also, the securities portfolio, which has an average life of
approximately three 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 September 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
<PAGE> 29
income. 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 September 30, 1996, the Company had a negative
beta adjusted gap of $44.3 million or (5.23)% 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> 30
INTEREST RATE GAP ANALYSIS
(DOLLARS IN THOUSANDS)
TABLE 5
<TABLE>
<CAPTION>
SEPTEMBER 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 $25,000 $0 $0 $0 $0
Securities 7,716 21,826 45,505 205,237 63,602
Mortgage Loans Held for Resale 58,365 0 0 0 0
Loans 188,167 7,592 15,293 125,132 26,378
--------------------------------------------------------------------------------
Total 279,248 29,418 60,798 330,369 89,980
--------------------------------------------------------------------------------
Cumulative Totals 279,248 308,666 369,464 699,833 789,813
INTEREST-SENSITIVE LIABILITIES:
- ----------------------------------------
Interest Checking Accounts 45,380 0 0 0 0
Savings Accounts 67,382 0 0 0 0
Money Market Deposit Accounts 94,231 0 0 0 0
Certificate of Deposits 200,841 43,807 11,320 75,093 3,289
Repurchase Agreements & Federal Funds 88,399 101 0 0 0
FHLB - Advances 20,500 0 500 3,500 0
U.S. Demand Notes 1,817 0 0 0 0
--------------------------------------------------------------------------------
Totals 518,550 43,908 11,820 78,593 3,289
--------------------------------------------------------------------------------
Cumulative Totals 518,550 562,458 574,278 652,871 656,160
--------------------------------------------------------------------------------
Gap ($239,302) ($14,490) $48,978 $251,776 $86,691
================================================================================
Cumulative Gap ($239,302) ($253,792) ($204,814) $46,962 $133,653
================================================================================
Adjustments:
Beta Adjustments
Interest Checking (beta factor .15) 38,573 0 0 0 0
Savings Accounts (beta factor .10) 60,644 0 0 0 0
Money Market Accounts (beta factor .35) 61,250 0 0 0 0
--------------------------------------------------------------------------------
Cumulative Beta Adjusted Gap ($78,835) ($93,325) ($44,347) $207,429 $294,120
================================================================================
As Reported Information:
- ----------------------------------------
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 53.85% 54.88% 64.34% 107.19% 120.37%
Cumulative Gap/Total Assets -28.24% -29.95% -24.17% 5.54% 15.77%
Beta Adjusted Information:
- ----------------------------------------
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 77.98% 76.78% 89.28% 142.13% 159.34%
Cumulative Gap/Total Assets -9.30% -11.01% -5.23% 24.48% 34.70%
</TABLE>
<PAGE> 31
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: November 12, 1996 /s/ Bernard H. Clineburg
------------------ ---------------------------------------
Bernard H. Clineburg
President and Chief Executive Officer
Date: November 12, 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
SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 39,353
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 25,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 277,957
<INVESTMENTS-CARRYING> 65,929
<INVESTMENTS-MARKET> 66,164
<LOANS> 362,562
<ALLOWANCE> (5,662)
<TOTAL-ASSETS> 847,506
<DEPOSITS> 663,076
<SHORT-TERM> 114,817
<LIABILITIES-OTHER> 8,959
<LONG-TERM> 0
0
0
<COMMON> 5,567
<OTHER-SE> 55,087
<TOTAL-LIABILITIES-AND-EQUITY> 847,506
<INTEREST-LOAN> 24,641
<INTEREST-INVEST> 13,867
<INTEREST-OTHER> 380
<INTEREST-TOTAL> 38,888
<INTEREST-DEPOSIT> 15,960
<INTEREST-EXPENSE> 18,510
<INTEREST-INCOME-NET> 20,378
<LOAN-LOSSES> 181
<SECURITIES-GAINS> 328
<EXPENSE-OTHER> 24,324
<INCOME-PRETAX> 6,968
<INCOME-PRE-EXTRAORDINARY> 6,968
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,850
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
<YIELD-ACTUAL> 4.13
<LOANS-NON> 2,056
<LOANS-PAST> 339
<LOANS-TROUBLED> 733
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,529
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<ALLOWANCE-CLOSE> 5,662
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<ALLOWANCE-UNALLOCATED> 633
</TABLE>
