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<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 March 31, 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 4,028,893 shares at April 29, 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 - March 31, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Income - Three months ended
March 31, 1996 and 1995 4
Condensed Consolidated Statements of Shareholders' Equity - Three months
ended March 31, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows - Three months ended
March 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements - March 31, 1996 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
<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 filed are filed herewith:
11 "Computation of Earnings per Common Share," is presented as
Note 6 on page 12 of the first 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 March 31, 1996.
SIGNATURES 27
</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>
MARCH 31, 1996 DECEMBER 31, 1995
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $32,340 $29,275
Federal funds sold 2,000 9,000
Securities available-for-sale 195,635 167,558
Securities held-to-maturity 68,353 68,660
Mortgage loans held for resale 60,887 55,482
Loans, net of unearned discount and loan fees 240,366 237,010
Less: Allowance for loan losses (4,203) (4,040)
---------- -----------
Loans, net 236,163 232,970
Bank premises and equipment, net 9,234 9,237
Accrued income receivable 3,916 3,775
Other assets 3,139 1,590
Deferred income taxes 1,880 886
---------- -----------
TOTAL ASSETS $613,547 $578,433
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $102,678 $100,332
Interest checking 34,777 34,971
Savings 119,761 111,727
Time 237,375 228,530
---------- -----------
Total Deposits 494,591 475,560
Borrowed funds 64,854 48,862
Other liabilities 5,805 5,269
Dividends payable 401 398
---------- -----------
TOTAL LIABILITIES 565,651 530,089
SHAREHOLDERS' EQUITY
Preferred stock 0 0
Common stock 4,440 4,402
Surplus 26,559 26,198
Retained earnings 18,103 17,069
Unrealized holding (loss) gain on securities available-for-sale (1,206) 675
---------- -----------
TOTAL SHAREHOLDERS' EQUITY 47,896 48,344
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $613,547 $578,433
========== ===========
BOOK VALUE PER SHARE * $11.94 $12.15
========== ===========
ACTUAL SHARES OUTSTANDING * 4,011 3,977
========== ===========
</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 ENDED MARCH 31, 1996 MARCH 31, 1995
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $7,960 $5,706
Interest on federal funds sold and repurchase agreements 104 28
Interest on securities:
Taxable 3,476 2,969
Tax-exempt 327 227
-------- --------
TOTAL INTEREST INCOME 11,867 8,930
INTEREST EXPENSE
Interest on deposits 4,379 3,237
Interest on borrowed funds 559 286
-------- --------
TOTAL INTEREST EXPENSE 4,938 3,523
-------- --------
NET INTEREST INCOME 6,929 5,407
PROVISION FOR LOAN LOSSES 181 100
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,748 5,307
OTHER INCOME
Service charges 608 353
Gain on sales of securities available-for-sale 281 17
Gain on sales of mortgage loans held for resale 1,093 244
Other 311 100
-------- --------
TOTAL OTHER INCOME 2,293 714
OTHER EXPENSES
Salaries and employee benefits 4,160 2,272
Occupancy 531 345
Equipment 474 322
Other operating expenses 1,797 1,469
-------- --------
TOTAL OTHER EXPENSES 6,962 4,408
-------- --------
INCOME BEFORE APPLICABLE INCOME TAXES 2,079 1,613
INCOME TAXES 644 476
-------- --------
NET INCOME $1,435 $1,137
======== ========
NET INCOME PER COMMON SHARE* $0.34 $0.29
======== ========
CASH DIVIDENDS DECLARED PER SHARE * $0.10 $0.09
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING * 4,167 3,875
======== ========
</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
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON UNREALIZED
STOCK GAIN (LOSS)
SHARES* COMMON RETAINED ON
OUTSTANDING STOCK SURPLUS EARNINGS SECURITIES TOTAL
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 3,816 $4,223 $24,749 $13,138 ($3,114) $38,996
Net Income 1,137 1,137
Common stock issuance 42 46 225 271
Cash dividends
($.09 per common share) (360) (360)
Change in unrealized holding
gain (loss) on securities
available-for-sale 1,593 1,593
------------------------------------------------------------------------
Balance, March 31, 1995 3,858 $4,269 $24,974 $13,915 ($1,521) $41,637
========== ========== ========== ========== ========== ===========
Balance, December 31, 1995 3,977 $4,402 $26,198 $17,069 $675 $48,344
Net Income 1,435 1,435
Common stock issuance 34 38 361 399
Cash dividends
($.10 per common share) (401) (401)
Change in unrealized holding
(loss) gain on securities
available-for-sale (1,881) (1,881)
------------------------------------------------------------------------
Balance, March 31, 1996 4,011 $4,440 $26,559 $18,103 ($1,206) $47,896
========== ========== ========== ========== ========== ===========
</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) THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1995
------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,435 $1,137
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Net amortization of securities 57
Depreciation 324 215
Provision for loan losses 181 100
Gain on sale of securities available-for-sale (281) (17)
(Benefit) provision for deferred income taxes (39)
Change in assets and liabilities:
Increase in mortgage loans held for resale (5,405) (1,560)
(Increase) decrease in accrued income receivable,
other assets and other real estate (1,690) 495
Increase in other liabilities 539 916
---------- ---------
Net cash (used in) provided by operating activities (4,879) 1,286
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale and maturities of available-for-sale securities 48,614 3,692
Proceeds from maturities of held-to-maturity securities 3,236 873
Purchase of available-for-sale securities (79,465) (14,267)
Purchase of held-to-maturity securities (2,770) (1,495)
Net increase in loans (3,374) (842)
Purchase of property and equipment (321) (812)
---------- ---------
Net cash used in investing activities (34,080) (12,851)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 19,031 13,286
Net increase (decrease) in borrowed funds 15,992 (3,302)
Net proceeds from sale of common stock 399 271
Dividends paid (398) (305)
---------- ---------
Net cash provided by financing activities 35,024 9,950
---------- ---------
Net decrease in cash and cash equivalents (3,935) (1,615)
Cash and cash equivalents at beginning of period 38,275 33,452
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $34,340 $31,837
======== =========
Interest paid $4,957 $3,245
====== ======
Income taxes paid 160 0
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 7
GEORGE MASON BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 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 sole subsidiary, George Mason
Bank, (the "Bank"), which was incorporated in 1977 and opened for business in
1979. George Mason Mortgage Corporation, ("GMMC") is a wholly owned subsidiary
of the Bank.
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 months
ended March 31, 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>
MARCH 31, 1996
- - -----------------------------------------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $9,456 $38 $0 $9,494
U.S. Agencies and
Mortgage-Backed Securities 179,536 393 (1,846) 178,083
States and Political Subdivisions 5,497 140 (28) 5,609
Other Securities 2,378 71 0 2,449
-----------------------------------------------
TOTAL $196,867 $642 ($1,874) $195,635
===============================================
SECURITIES HELD-TO-MATURITY
U.S. Agencies and
Mortgage-Backed Securities $50,548 $629 ($382) $50,795
States and Political Subdivisions 17,805 333 (159) 17,979
-----------------------------------------------
TOTAL $68,353 $962 ($541) $68,774
===============================================
</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 $28,458 $253 ($7) $28,704
U.S. Agencies and
Mortgage-Backed Securities 127,350 1,158 (94) 128,414
States and Political Subdivisions 8,161 358 (7) 8,512
Other Securities 1,838 90 1,928
-----------------------------------------------
TOTAL $165,807 $1,859 ($108) $167,558
===============================================
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>
MARCH 31, DECEMBER 31,
1996 1995
- - ----------------------------------------------------------------------------
<S> <C> <C>
Commercial $76,925 $79,605
Real Estate-Construction 28,744 32,614
Real Estate-Mortgage 89,693 86,018
Home Equity Lines 30,661 28,910
Consumer 15,189 10,713
-----------------------------
GROSS LOANS 241,212 237,860
-----------------------------
Less: Deferred loan fees and
unearned discount (846) (850)
-----------------------------
LOANS,NET OF UNEARNED DISCOUNT AND
DEFERRED LOAN FEES 240,366 237,010
-----------------------------
Allowance for loan losses (4,203) (4,040)
-----------------------------
LOANS,NET 236,163 232,970
-----------------------------
MORTGAGE LOANS HELD FOR RESALE 60,887 55,482
-----------------------------
TOTAL LOANS, NET $297,050 $288,452
=============================
</TABLE>
<PAGE> 10
NOTE 5
ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995
--------------------------------------
<S> <C> <C>
BALANCE AT BEGINNING OF PERIOD $4,040 $3,808
Provision charged to expense 181 100
Charge-offs:
Commercial and other 40 27
Consumer 8 2
Real Estate-Mortgage 0 0
Real Estate-Construction 0 0
----------- ------------
Total Charge-offs 48 29
Recoveries:
Commercial and other 5 30
Consumer 5 14
Real Estate-Mortgage 20 0
Real Estate-Construction 0 3
----------- ------------
Total Recoveries 30 47
Net Charge-Offs (Recoveries) 18 (18)
----------- ------------
BALANCE AT END OF PERIOD $4,203 $3,926
=========== ============
Average Total Loans(1) $238,508 $192,330
Total Loans at Period End (1) $240,366 $196,357
Ratio of net charge-offs (recoveries)
to average total loans 0.01% -0.01%
Ratio of allowance for
loan losses to total
loans at period end 1.75% 2.00%
</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
MARCH 31, TOTAL DECEMBER 31, TOTAL
1996 LOANS 1995 LOANS
------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $443 31.9% $447 33.5%
Consumer 226 6.3% 191 4.5%
Real Estate-Mortgage 1,720 49.9% 1,890 48.3%
Real Estate-Construction 583 11.9% 729 13.7%
Unallocated 1,231 N/A 783 N/A
------------------------------------------------------------
Total $4,203 100.0% $4,040 100.0%
============================================================
</TABLE>
<PAGE> 12
NOTE 6
EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 MARCH 31, 1995
- - ---------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY NET INCOME PER SHARE:
Net income $1,435 $1,137
Stock and stock equivalents (average shares):
Common shares outstanding 3,995 3,827
Stock options (a) 172 40
--------- ---------
Total stock and stock equivalents 4,167 3,867
--------- ---------
PRIMARY NET INCOME PER SHARE $0.34 $0.29
========= =========
FULLY DILUTED NET INCOME PER SHARE:
Net income $1,435 $1,137
Stock and stock equivalents (average shares):
Common shares outstanding 3,995 3,827
Stock options (b) 201 48
--------- ---------
Total stock and stock equivalents 4,196 3,875
--------- ---------
FULLY DILUTED NET INCOME PER SHARE $0.34 $0.29
========= =========
</TABLE>
(a) Shares were assumed to be repurchased at the average closing stock prices
for the three month periods ended March 31, 1996 and 1995.
(b) Shares were assumed to be repurchased at the March 29, 1996 closing price.
<PAGE> 13
NOTE 7- SUBSEQUENT EVENT
The Company has entered into a definitive agreement for the acquisition of
Palmer National Bancorp, Inc., ("Palmer"). Palmer is a bank holding company
with banking facilities in the District of Columbia and a mortgage banking
office in Montgomery County, Maryland and total assets of approximately $100
million. Under the agreement, Palmer will be merged into a separate subsidiary
of the Company. Each share of Palmer stock will be exchanged for 1.08 shares
of the Company's common stock. The transaction is subject to shareholder and
regulatory approvals. The transaction is anticipated to close in the second
quarter of 1996.
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL SUMMARY
Net income for the three months ended March 31, 1996 increased by
26.2% to $1.44 million or $.34 per share compared to $1.14 million or $.29 per
share for the first quarter of 1995 (as adjusted for a three-for-two stock
split to shareholders of record on January 31, 1996). Returns on average assets
and average equity for the first quarter of 1996 were 1.01% and 11.76%,
respectively, compared to 1.04% and 11.67% for the same period in 1995.
Contributing to the increase in earnings for the first quarter were
improvements in net interest income, increased gains on loans held for resale,
increased gains on securities sales 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 and other overhead
costs.
The Company continued to experience significant growth as total
assets increased to $613.5 million at March 31, 1996 compared to $578.4 million
at December 31, 1995 representing an increase of $35.1 million or 6.1%. Loan
demand continued to improve as loans (net of unearned income) increased by $3.4
million to $240.4 million at March 31, 1996 compared to $237.0 million at
year-end 1995. Total deposits were $494.6 million at the end of the quarter
compared to $475.6 million at December 31, 1995, representing an increase of
4.0%.
Shareholders' equity at March 31, 1996 totalled $47.9 million compared
to $48.3 million at December 31, 1995. Book value per share of common stock on
March 31, 1996 was $11.94 per share compared to $12.15 per share at December
31, 1995. The decrease in equity was primarily attributable to a decline in
the fair value of the securities available-for-sale portfolio.
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
$7.1 million for the first quarter of 1996 compared to $5.5 million for the
first quarter of 1995. The improvements in net interest income were
attributable to a higher volume of earning assets which was partially offset by
a continued tightening of the spread between interest rates earned on loans,
securities, federal funds sold and other investments, and the rates paid on
deposits and purchased funds. TABLE 2 presents the Company's analysis of
changes in interest income and interest expense relating to volume and rate for
the period indicated.
<PAGE> 15
The Company's net interest margin for the quarter ended March 31,1996
decreased to 5.32% from 5.37% for the same period in 1995. The drop in the net
interest margin percentage was attributable to the Company's cost of funds
increasing at a faster pace than the increase in the yield on earning assets
and the impact of a declining prime rate.
The increase in the Company's cost of funds was the result of a
shift of approximately $10 million from money market accounts, which were
paying a lower rate of interest to savings accounts and certificates of deposit
which were paying a substantially higher rate. In addition, the majority of
new accounts were certificates of deposit and savings accounts.
In the first three months of 1996, average earning assets increased by
$118.2 million or 28.2% to $536.9 million compared to $418.7 million for the
first three months of 1995. Average total loans (including mortgage loans held
for resale), the largest component of earning assets, grew to $287.0 million
for the first three months of 1996 compared to $206.2 million for the first
three 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 $379.2 million in the first three months of 1996
from $302.0 million for the same period in 1995, representing an increase of
25.6%. Average demand deposits rose by 24.8% to $87.0 million for the first
three months of 1996 from $69.7 million during the same period last year.
TABLE 1 presents 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
MARCH 31, 1996 MARCH 31, 1995
------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Interest-Earning Assets:
Securities:
U.S. Treasury Securities $17,489 $247 5.68% $40,416 $522 5.24%
Federal Agency and
Mortgage-Backed Securities 199,876 3,183 6.40% 151,951 2,418 6.45%
State and Political
Subdivision Securities (1) 24,835 487 7.89% 15,592 344 8.95%
Other Investments 1,910 63 13.27% 2,727 29 4.31%
------------------------------------------------------------------------------------
Total Securities 244,110 3,980 6.56% 210,686 3,313 6.38%
Loans: (3)
Commercial (1) 80,248 2,107 10.56% 93,650 2,353 10.19%
Real Estate-Construction 31,004 726 9.42% 36,618 1,330 14.73%
Real Estate-Mortgage (2) 163,230 4,918 12.12% 69,761 1,895 11.02%
Consumer 12,517 232 7.45% 6,128 146 9.66%
--------------------------------------- --------------------------------------
Total Loans 286,999 7,983 11.19% 206,157 5,724 11.26%
Federal Funds Sold 5,794 75 5.21% 1,856 28 6.12%
--------------------------------------- --------------------------------------
Total Interest-Earning Assets 536,903 12,038 9.02% 418,699 9,065 8.78%
Noninterest-Earning Assets:
Cash and Due from Banks 20,961 18,790
Other Assets 16,697 10,952
Allowance for Loan Losses (4,112) (3,833)
Deferred Loan Fees (1,200) (922)
--------------- ------------
Total Noninterest-Earning Assets 32,346 24,987
--------------- ------------
Total Assets $569,249 $443,686
=============== ============
</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
MARCH 31, 1996 MARCH 31, 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 $34,627 $179 2.08% $32,752 $217 2.69%
Money Market Deposits 76,874 565 2.96% 87,001 697 3.25%
Savings Deposits 37,091 406 4.40% 13,296 99 3.02%
Certificates of Deposit
$100,000 and over 55,399 745 5.41% 28,815 377 5.31%
Certificates of Deposit 175,246 2,484 5.70% 140,146 1,847 5.34%
---------------------------------- ----------------------------------------
Total Interest-Bearing Deposits 379,237 4,379 4.64% 302,010 3,237 4.35%
Purchased Funds 48,470 559 4.64% 26,706 286 4.34%
---------------------------------- ----------------------------------------
Total Interest-Bearing Liabilities 427,707 4,938 4.64% 328,716 3,523 4.35%
Noninterest-Bearing Liabilities:
Total Demand Deposits 87,034 69,715
Other Liabilities 5,444 5,751
---------- ---------
Total Noninterest-Bearing
Liabilities 92,478 75,466
---------- ---------
Total Liabilities 520,185 404,182
Shareholders' Equity 49,064 39,504
---------- ---------
Total Liabilities and Shareholders'
Equity $569,249 $443,686
========== =========
Interest Spread 4.38% 4.43%
---------------------------------- ----------------------------------------
Net Interest Margin $7,100 5.32% $5,542 5.37%
================================== ========================================
Cost to fund earning assets 3.70% 3.41%
======== =======
</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)
<TABLE>
<CAPTION>
FROM THE THREE MONTHS ENDED
MARCH 31, 1996 TO THE
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED
TABLE 2 MARCH 31, 1995
CHANGE DUE TO:
----------------------------
TOTAL
INCREASE
(DECREASE) RATE VOLUME
--------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Securities:
U.S. Treasury Securities ($275) $21 ($296)
Federal Agency and
Mortgage-Backed Securities 765 2 763
State and Political
Subdivision Securities (1) 143 (61) 204
Other Investments 34 43 (9)
-----------------
Total Securities 667 141 526
Loans: (3)
Commercial (1) (246) 91 (337)
Real Estate-Construction (604) (400) (204)
Real Estate-Mortgage (2) 3,023 484 2,539
Consumer 86 (66) 152
-----------------
Total Loans 2,259 14 2,245
Federal Funds Sold 47 (12) $59
-----------------
Total Interest Income 2,973 414 2,559
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits (38) (50) 12
Money Market Deposits (132) (51) (81)
Savings Deposits 307 130 177
Certificates of Deposit
$100,000 and over 368 20 348
Certificates of Deposit 637 174 463
-----------------
Total Interest-Bearing Deposits 1,142 314 828
Purchased Funds 273 40 233
-----------------
Total Interest Expense 1,415 354 1,061
-----------------
Net Interest Income $1,558 ($7) $1,565
=================
</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
PROVISION FOR LOAN LOSSES
The provision for loan losses totaled $181 thousand for the quarter
ended March 31, 1996. This compares to a $100 thousand provision for the first
quarter of 1995. 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 first quarter
of 1996 totalled $1.09 million compared to $244 thousand for the same period
last year, an increase of $849 thousand. 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. GMMC opened three new offices during 1995. The positive
contributions of the new offices are reflected in the increased gains on
mortgage loans held for resale.
GAIN ON SALES OF SECURITIES AVAILABLE-FOR-SALE
Gain on sales of securities available-for-sale amounted $281 thousand
compared to $17 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 first quarter of 1996
totalled $608 thousand compared to $353 thousand for the same period in 1995 an
increase of 72.2%. The Company currently derives most of its other noninterest
income from checking, money market and NOW accounts.
NONINTEREST EXPENSES
In support of the Company's continued growth, total noninterest
expenses consisting of employee related costs, occupancy and other overhead
totalled $7.0 million for the first three months of 1996, compared to $4.4
million for the same period in 1995, representing an increase of $2.6 million
or 57.9%.
The increased expenses in 1996 were primarily attributable to the
opening of two new banking centers during the latter part of 1995, one new
banking center during 1996, the expansion of GMMC as previously mentioned, the
opening of an off-site automated teller machine ("ATM") and the addition of
<PAGE> 20
qualified personnel to provide operational support. Additionally, the Company
incurred legal and professional fees in conjunction with the pending Palmer
acquisition.
CAPITAL RESOURCES
Shareholders' equity on March 31, 1996 was $47.9 million compared to
$48.3 million on December 31, 1995.
Factors contributing to the changes 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. The primary factor contributing to
the decline in equity was the unrealized losses sustained in the securities
available-for-sale portfolio. The change in the unrealized holding gain (loss)
on securities available-for-sale amounted to $1.9 million from December 31, 1995
to March 31, 1996. The effect of the decline in market value of the securities
available-for-sale reduced book value per share by $.45. For a detailed
discussion of the impact on earnings from holding below market securities, see"
Asset/Liability Management."
Cash dividends declared for the first quarter of 1996 amounted to $.10
per share compared to $.09 per share for the first quarter of 1995.
At March 31, 1996, the Company's Tier 1 and total risk-based capital
ratios were 12.54% and 13.62%, respectively, compared to 13.29% and 14.42% at
December 31, 1995. The Company's leverage ratio was 8.59% at March 31, 1996
compared to 8.70% 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> 21
SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TABLE 3 MARCH 31 DECEMBER 31,
1996 1995
-------------------------------
<S> <C> <C>
TIER 1 CAPITAL:
Common Stock 4,440 4,402
Surplus 26,559 26,198
Retained Earnings 18,103 17,069
Unrealized holding gains (losses) on securities
available-for-sale (1,206) 675
---------- -----------
Total Shareholders' Equity 47,896 48,344
Less: unrealized holding (gains)losses on securities
available-for-sale 1,206 (675)
Less: disallowed intangibles (243) (256)
---------- -----------
Total Tier 1 Capital 48,859 47,413
TIER 2 CAPITAL:
Qualifying allowance for loan losses 4,203 4,040
---------- -----------
Total Tier 2 Capital 4,203 4,040
---------- -----------
TOTAL RISK-BASED CAPITAL $53,062 $51,453
========== ===========
Risk Weighted Assets $389,496 $356,730
========== ===========
RATIOS:
Tier 1 Capital to risk weighted assets 12.54% 13.29%
Tier 2 Capital to risk weighted assets 1.08% 1.13%
---------- -----------
Total risk-based capital ratio 13.62% 14.42%
========== ===========
Leverage Ratio-Tier 1 Capital to quarterly
average assets less intangibles 8.59% 8.70%
========== ===========
</TABLE>
<PAGE> 22
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 March
31, 1996 was 1.75% compared to 1.70% at December 31, 1995. The coverage
multiple of allowance for loan losses to nonperforming loans was 1.67 at March
31, 1996 compared to 1.11 at December 31, 1995. Management believes that the
allowance for loan losses at March 31, 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 $1.1 million to $2.5 million at March
31, 1996 compared to $3.6 million at December 31, 1995. Nonperforming assets
to total assets at March 31, 1996 were .41% compared to .63% 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 $1.9 million at March 31, 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 March 31, 1996 or December 31, 1995.
TABLE 4 details nonperforming assets, past due loans and asset
quality ratios.
<PAGE> 23
CREDIT QUALITY
(DOLLARS IN THOUSANDS)
TABLE 4
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
-------------------------
<S> <C> <C>
Nonaccrual Loans $1,876 $2,993
Restructured Loans 636 636
--------- ----------
TOTAL NONPERFORMING LOANS 2,512 3,629
Other Real Estate 0 0
--------- ----------
TOTAL NONPERFORMING ASSETS 2,512 3,629
loans past due 90 days or
more and accruing interest 0 0
--------- ----------
TOTAL NONPERFORMING ASSETS AND
LOANS PAST DUE 90 DAYS OR MORE $2,512 $3,629
========= ==========
Total Loans at Period End (1) $240,366 $237,010
Allowance for Loan Losses 4,203 4,040
Total Assets 613,547 578,433
ASSET QUALITY RATIOS:
Allowance for Loan Losses to
Period end Loans 1.75% 1.70%
Allowance for Loan losses to
Nonperforming Loans (Multiple) 1.67 X 1.11 X
Total Nonperforming Loans
to Total Loans 1.05% 1.53%
Total nonperforming Assets to
Total Assets 0.41% 0.63%
Nonperforming Assets to Total
Loans plus Other Real Estate 1.05% 1.53%
Nonperforming Assets and Loans Past
Due 90 days or more to Total Loans
and Other Real Estate 1.05% 1.53%
</TABLE>
(1) Total Loans are reported net of unearned income and
do not include mortgage loans held for resale
<PAGE> 24
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 March 31, 1996 cash, cash equivalents and securities
available-for-sale totalled $230.0 million compared to $205.8 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 March 31, 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> 25
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 March 31, 1996, the Company had a negative
beta adjusted gap of $22.0 million or (3.59)% 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> 26
INTEREST RATE GAP ANALYSIS
(DOLLARS IN THOUSANDS)
TABLE 5
<TABLE>
<CAPTION>
MARCH 31, 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 $2,000 $0 $0 $0 $0
Securities 10,277 7,825 18,146 160,280 68,691
Mortgage Loans Held for Resale 60,887 0 0 0 0
Loans 158,701 4,368 8,846 51,835 16,616
-----------------------------------------------------------------------------------
Total 231,865 12,193 26,992 212,115 85,307
-----------------------------------------------------------------------------------
Cumulative Totals 231,865 244,058 271,050 483,165 568,472
INTEREST-SENSITIVE LIABILITIES:
- - ---------------------------------------
Interest Checking Accounts 34,777 0 0 0 0
Savings Accounts 44,259 0 0 0 0
Money Market Deposit Accounts 75,502 0 0 0 0
Certificate of Deposits 43,737 52,557 82,019 49,015 10,047
Repurchase Agreements 56,902 0 0 0 0
FHLB - Advances 500 0 500 4,000 0
U.S. Demand Notes 2,952 0 0 0 0
-----------------------------------------------------------------------------------
Totals 258,629 52,557 82,519 53,015 10,047
-----------------------------------------------------------------------------------
Cumulative Totals 258,629 311,186 393,705 446,720 456,767
-----------------------------------------------------------------------------------
Gap ($26,764) ($40,364) ($55,527) $159,100 $75,260
===================================================================================
Cumulative Gap ($26,764) ($67,128) ($122,655) $36,445 $111,705
===================================================================================
Adjustments:
Beta Adjustments
Interest Checking (beta factor .30) 24,344 0 0 0 0
Savings Accounts (beta factor .30) 30,981 0 0 0 0
Money Market Accounts (beta factor .40) 45,301 0 0 0 0
-----------------------------------------------------------------------------------
Cumulative Beta Adjusted Gap $73,862 $33,498 ($22,029) $137,071 $212,331
===================================================================================
As Reported Information:
- - ---------------------------------------
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 89.65% 78.43% 68.85% 108.16% 124.46%
Cumulative Gap/Total Assets -4.36% -10.94% -19.99% 5.94% 18.21%
Beta Adjusted Information:
- - ---------------------------------------
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 146.75% 115.91% 92.48% 139.61% 159.62%
Cumulative Gap/Total Assets 12.04% 5.46% -3.59% 22.34% 34.61%
</TABLE>
<PAGE> 27
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: May 10, 1996 /s/ Bernard H. Clineburg
------------ -------------------------------------
Bernard H. Clineburg
President and Chief Executive Officer
Date: May 10, 1996 /s/ James J. Consagra, Jr.
------------ -------------------------------------
James J. Consagra, Jr.
Treasurer, Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary information extracted from the March 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 32,340
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 195,635
<INVESTMENTS-CARRYING> 68,353
<INVESTMENTS-MARKET> 68,774
<LOANS> 240,366
<ALLOWANCE> (4,203)
<TOTAL-ASSETS> 613,547
<DEPOSITS> 494,591
<SHORT-TERM> 64,854
<LIABILITIES-OTHER> 6,206
<LONG-TERM> 0
0
0
<COMMON> 4,452
<OTHER-SE> 43,444
<TOTAL-LIABILITIES-AND-EQUITY> 613,547
<INTEREST-LOAN> 7,960
<INTEREST-INVEST> 3,803
<INTEREST-OTHER> 104
<INTEREST-TOTAL> 11,867
<INTEREST-DEPOSIT> 4,379
<INTEREST-EXPENSE> 4,938
<INTEREST-INCOME-NET> 6,929
<LOAN-LOSSES> 181
<SECURITIES-GAINS> 281
<EXPENSE-OTHER> 6,962
<INCOME-PRETAX> 2,079
<INCOME-PRE-EXTRAORDINARY> 2,079
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,435
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
<YIELD-ACTUAL> 5.32
<LOANS-NON> 1,876
<LOANS-PAST> 0
<LOANS-TROUBLED> 636
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,040
<CHARGE-OFFS> 48
<RECOVERIES> 30
<ALLOWANCE-CLOSE> 4,203
<ALLOWANCE-DOMESTIC> 4,203
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,231
</TABLE>
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