<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, 1997
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 5,066,426 shares at April 30, 1997.
<PAGE> 2
GEORGE MASON BANKSHARES, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION PAGE
- ----------------------------- ----
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Income - Three months ended
March 31, 1997 and 1996 4
Condensed Consolidated Statements of Shareholders' Equity - Three months
ended March 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows - Three months ended
March 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements - March 31, 1997 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
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 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, 1997.
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, DECEMBER 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $40,992 $41,158
Federal funds sold 5,000 23,800
-------------------------------------
Total cash and cash equivalents 45,992 64,958
Securities available-for-sale 316,508 280,859
Securities held-to-maturity 62,439 64,574
Mortgage loans held for resale 45,332 72,983
Loans, net of unearned discount and loan fees 398,160 373,613
Less: Allowance for loan losses (5,646) (5,659)
-------------------------------------
Loans, net 392,514 367,954
Bank premises and equipment, net 9,759 10,019
Accrued income receivable 5,063 4,480
Prepaid expenses and other assets 3,763 4,186
Deferred income taxes 2,908 2,059
Other real estate 398 398
-------------------------------------
TOTAL ASSETS $884,676 $872,470
=====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $130,196 $132,415
Interest checking 52,949 49,002
Savings 180,432 162,414
Time 371,101 349,763
-------------------------------------
Total Deposits 734,678 693,594
Borrowed funds 78,687 105,898
Other liabilities 6,456 7,979
Dividends payable 710 655
-------------------------------------
TOTAL LIABILITIES 820,531 808,126
SHAREHOLDERS' EQUITY
Preferred stock 0 0
Common stock 5,614 5,581
Surplus 38,869 38,472
Retained earnings 22,201 21,094
Unrealized holding loss on securities available-for-sale (2,539) (803)
-------------------------------------
TOTAL SHAREHOLDERS' EQUITY 64,145 64,344
-------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $884,676 $872,470
=====================================
BOOK VALUE PER SHARE $12.68 $12.80
=====================================
ACTUAL SHARES OUTSTANDING 5,058 5,028
=====================================
</TABLE>
See notes to condensed consolidated financial statements.
<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
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $8,933 $7,795
Interest on federal funds sold and repurchase agreements 161 149
Interest on securities:
Taxable 5,388 3,797
Tax-exempt 280 327
--------------- ---------------
TOTAL INTEREST INCOME 14,762 12,068
INTEREST EXPENSE
Interest on deposits 6,606 4,911
Interest on securities sold under agreements to repurchase and
other borrowed funds 802 668
--------------- ---------------
TOTAL INTEREST EXPENSE 7,408 5,579
--------------- ---------------
NET INTEREST INCOME 7,354 6,489
PROVISION FOR LOAN LOSSES 3 181
--------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,351 6,308
OTHER INCOME
Service charges 808 655
Gain on sales of securities available-for-sale 41 318
Gain on sales of mortgage loans held for resale 2,540 2,574
Other 248 444
--------------- ---------------
TOTAL OTHER INCOME 3,637 3,991
OTHER EXPENSES
Salaries and employee benefits 4,752 4,738
Occupancy 852 762
Equipment 543 544
Other operating expenses 2,205 2,200
--------------- ---------------
TOTAL OTHER EXPENSES 8,352 8,244
--------------- ---------------
INCOME BEFORE APPLICABLE INCOME TAXES 2,636 2,055
INCOME TAXES 820 636
--------------- ---------------
NET INCOME $1,816 $1,419
=============== ===============
NET INCOME PER COMMON SHARE $0.35 $0.28
=============== ===============
CASH DIVIDENDS DECLARED PER SHARE $0.14 $0.10
=============== ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 5,203 5,076
=============== ===============
</TABLE>
<PAGE> 5
GEORGE MASON BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON TREASURY
STOCK STOCK &
SHARES COMMON UNEARNED RETAINED
OUTSTANDING STOCK SURPLUS ESOP EARNINGS
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 4,755 $ 5,278 $ 35,523 $ (42) $ 16,416
Net Income 1,419
Common stock issuance 33 37 323
Cash dividends declared
($.10 per common share) (479)
Change in unrealized holding
gain (loss) on securities
available-for-sale
-----------------------------------------------------------------------------------------
Balance, March 31, 1996 4,788 $ 5,315 $ 35,846 $ (42) $ 17,356
=========== =============== ============== ========== =============
Balance, December 31, 1996 5,028 $ 5,581 $ 38,472 $ - $ 21,094
Net Income 1,816
Common stock issuance 30 33 397 -
Cash dividends declared
($.14 per common share) (709)
Change in unrealized holding
gain (loss) on securities
available-for-sale
------------------------------------------------------------------------------------------
Balance, March 31, 1997 5,058 $ 5,614 $ 38,869 $ - $ 22,201
=========== =============== ============== ========== =============
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON
SECURITIES TOTAL
----------------------------------------
<S> <C> <C>
Balance, December 31, 1995 $752 $ 57,927
Net Income 1,419
Common stock issuance 360
Cash dividends declared
($.10 per common share) (479)
Change in unrealized holding
gain (loss) on securities
available-for-sale (1,929) (1,929)
----------------------------------------
Balance, March 31, 1996 $ (1,177) $ 57,298
=========== ==============
Balance, December 31, 1996 $ (803) $ 64,344
Net Income 1,816
Common stock issuance 430
Cash dividends declared
($.14 per common share) (709)
Change in unrealized holding
gain (loss) on securities
available-for-sale (1,736) (1,736)
----------------------------------------
Balance, March 31, 1997 $ (2,539) $ 64,145
=========== ==============
</TABLE>
See notes to condensed consolidated financial statements.
<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,
1997 1996
----------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,816 $1,419
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Net amortization of securities 160 81
Depreciation 443 393
Provision for loan losses 3 181
Gain on sale of securities available-for-sale (41) (318)
(Benefit) provision for deferred income taxes 28 (39)
Change in assets and liabilities:
(Increase) decrease in mortgage loans held for resale 27,651 (6,474)
(Increase) in accrued income receivable,
other assets and other real estate (160) (2,129)
Increase (decrease) in other liabilities (1,523) 712
----------------------------------------------
Net cash (used in) provided by operating activities 28,377 (6,174)
----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale and maturities of available-for-sale securities 10,843 52,737
Proceeds from maturities of held-to-maturity securities 2,944 3,236
Purchase of available-for-sale securities (47,985) (79,465)
Purchase of held-to-maturity securities (2,051) (2,770)
Net increase in loans (24,560) (7,704)
Purchase of property and equipment (183) (323)
----------------------------------------------
Net cash used in investing activities (60,992) (34,289)
----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 41,084 18,300
Net increase (decrease) in borrowed funds (27,211) 12,206
Net proceeds from sale of common stock 430 360
Dividends paid (654) (476)
----------------------------------------------
Net cash provided by financing activities 13,649 30,390
----------------------------------------------
Net decrease in cash and cash equivalents (18,966) (10,073)
Cash and cash equivalents at beginning of period 64,958 49,639
----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $45,992 $39,566
================== ================
Interest paid $7,277 $5,619
==============================================
Income taxes paid 165 200
==============================================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 7
GEORGE MASON BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
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
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. 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, 1996.
<PAGE> 8
NOTE 3
SECURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1997
- -----------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $9,256 $0 ($35) $9,221
U.S. Government Agencies and Corporations 42,493 11 (399) 42,105
States and Political Subdivisions 2,629 7 (32) 2,604
Mortgage-Backed Securities 262,434 85 (3,051) 259,468
Other Securities 3,110 0 0 3,110
-----------------------------------------------------------
TOTAL $319,922 $103 ($3,517) $316,508
===========================================================
SECURITIES HELD-TO-MATURITY
U.S. Government Agencies and Corporations $2,935 $270 ($1) $3,204
States and Political Subdivisions 19,085 339 (85) 19,339
Mortgage-Backed Securities 40,419 183 (263) 40,339
-----------------------------------------------------------
TOTAL $62,439 $792 ($349) $62,882
===========================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $10,010 $12 ($11) $10,011
U.S. Government Agencies and Corporations 24,247 54 (49) 24,252
States and Political Subdivisions 1,316 14 (6) 1,324
Mortgage-Backed Securities 243,274 646 (1,420) 242,500
Other Securities 2,772 0 0 2,772
-----------------------------------------------------------
TOTAL $281,619 $726 ($1,486) $280,859
===========================================================
SECURITIES HELD-TO-MATURITY
U.S. Government Agencies and Corporations $4,671 $56 $0 $4,727
States and Political Subdivisions 18,818 448 (68) 19,198
Mortgage-Backed Securities 41,085 523 (176) 41,432
-----------------------------------------------------------
TOTAL $64,574 $1,027 ($244) $65,357
===========================================================
</TABLE>
<PAGE> 9
NOTE 4
LOANS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $106,876 $100,986
Real Estate-Construction 33,692 32,203
Real Estate-Mortgage 166,610 156,958
Home Equity Lines 44,930 44,141
Consumer 46,760 40,083
--------------------------------------------
GROSS LOANS 398,868 374,371
--------------------------------------------
Less: Deferred loan fees and
unearned discount (708) (758)
--------------------------------------------
LOANS,NET OF UNEARNED DISCOUNT AND
DEFERRED LOAN FEES 398,160 373,613
--------------------------------------------
Allowance for loan losses (5,646) (5,659)
--------------------------------------------
LOANS,NET 392,514 367,954
--------------------------------------------
MORTGAGE LOANS HELD FOR RESALE 45,332 72,983
--------------------------------------------
TOTAL LOANS, NET $437,846 $440,937
============================================
</TABLE>
<PAGE> 10
NOTE 5
ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
-----------------------------------------
<S> <C> <C>
BALANCE AT BEGINNING OF PERIOD $5,659 $5,529
Provision charged to expense 3 181
Charge-offs:
Commercial and other 30 92
Consumer 0 16
Real Estate-Mortgage 0 4
Real Estate-Construction 0 0
-----------------------------------------
Total Charge-offs 30 112
Recoveries:
Commercial and other 12 87
Consumer 2 16
Real Estate-Mortgage 0 0
Real Estate-Construction 0 3
-----------------------------------------
Total Recoveries 14 106
Net Charge-Offs (Recoveries) 16 6
-----------------------------------------
BALANCE AT END OF PERIOD $5,646 $5,704
=========================================
Average Total Loans(1) $383,290 $256,814
Total Loans at Period End (1) $398,160 $307,262
Ratio of net charge-offs (recoveries)
to average total loans 0.00% 0.00%
Ratio of allowance for
loan losses to total
loans at period end 1.42% 1.86%
</TABLE>
(1) Total Loans are reported net of unearned income and do not include mortgage
loans held for resale
<PAGE> 11
<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
1997 LOANS 1996 LOANS
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $1,000 26.8% $934 27.0%
Real Estate-Construction 359 8.4% 511 8.6%
Real Estate-Mortgage 1,255 41.8% 2,337 41.9%
Home Equity Loans 319 11.3% 313 11.8%
Consumer 827 11.7% 256 10.7%
Unallocated 1,886 N/A 1,308 N/A
-------------------------------------------------------------------------
Total $5,646 100.0% $5,659 100.0%
=========================================================================
</TABLE>
<PAGE> 12
NOTE 6
EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997 MARCH 31, 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY NET INCOME PER SHARE:
Net income $1,816 $1,419
Stock and stock equivalents (average shares):
Common shares outstanding 5,044 4,772
Stock options (a) 159 304
----------------------------------
Total stock and stock equivalents 5,203 5,076
----------------------------------
PRIMARY NET INCOME PER SHARE $0.35 $0.28
==================================
FULLY DILUTED NET INCOME PER SHARE:
Net income $1,816 $1,419
Stock and stock equivalents (average shares):
Common shares outstanding 5,044 4,772
Stock options (b) 151 348
----------------------------------
Total stock and stock equivalents 5,195 5,120
----------------------------------
FULLY DILUTED NET INCOME PER SHARE $0.35 $0.28
==================================
</TABLE>
(a) Shares were assumed to be repurchased at the average closing stock prices
for the three month periods ended March 31, 1997 and 1996.
(b) Shares were assumed to be repurchased at the March 29, 1997 closing price.
<PAGE> 13
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share," which is required to be adopted for the periods
ended December 31, 1997. At that time the Company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in primary earnings per share for the first
quarter ended March 31, 1997 and March 31, 1996 of $.01 per share and $.02 per
share, respectively. The impact of Statement No. 128 on the calculation of
fully diluted earnings per share for these quarters is not expected to be
material.
<PAGE> 14
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 combined basis from the earliest period presented.
FINANCIAL SUMMARY
Net income for the three months ended March 31, 1997 increased by
28.0% to $1.82 million or $.35 per share compared to $1.42 million or $.28 per
share for the first quarter of 1996. Return on average assets and average
equity for the first quarter of 1997 were .88% and 11.19%, respectively,
compared to .86% and 9.87% for the same period in 1996.
Total assets increased to $884.7 million at March 31, 1997 compared to
$872.5 million at December 31, 1996 an increase of $12.2 million or 1.4%. Loan
demand continued to improve as loans (net of unearned income) increased by
$24.5 million or 6.6%. Total deposits were $734.7 million at the end of the
first quarter compared to $693.6 million at December 31, 1996 representing an
increase of 5.9%.
Shareholders' equity at March 31, 1997 totalled $64.1 million compared
to $64.3 million at December 31, 1996. Book value per share of common stock on
March 31, 1997 was $12.68 per share compared to $12.80 per share at December
31, 1996. 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
$7.5 million for the first quarter of 1997 compared to $6.7 million for the
first quarter of 1996. The improvement in net interest income was
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
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, 1997
decreased to 3.83% from 4.31% for the same period in 1996. The drop in the net
interest margin percentage was attributable to a decline in the yield on
earning assets of 31 basis points combined with an increase in the cost to
fund earnings assets of 17 basis points. The decrease in the yield on earning
assets was the result of a decline in the yield on loans while the increase in
the cost of funds was attributable to a shift in the deposit mix from money
market accounts to higher cost certificates of deposit.
In the first three months of 1997, average earning assets increased by
$166.7 million or 26.5% to $796.0 million compared to $629.2 million for the
first three months of 1996. Average total loans (including mortgage loans held
for resale), the largest component of earning assets, grew to $424.3 million
for the first three months of 1997 compared to $351.6 million for the first
three months of 1996. 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 $581.3 million in the first three months of 1997
from $441.4 million for the same period in 1996, representing an increase of
31.7%. Average demand deposits rose by 8.6% to $111.6 million for the first
three months of 1997 from $102.8 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, 1997 MARCH 31, 1996
---------------- ----------------
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 $9,619 $136 5.73% $22,253 $310 5.65%
Federal Agency and
Mortgage-Backed Securities 326,063 5,203 6.47% 212,811 3,388 6.46%
State and Political
Subdivision Securities (1) 20,896 399 7.74% 24,835 487 7.95%
Other Investments 2,863 49 6.94% 8,452 108 5.18%
--------------------------------------------------------------------------------------
Total Securities 359,441 5,787 6.53% 268,351 4,293 6.49%
Loans: (3)
Commercial (1) 103,038 2,451 9.65% 99,948 2,565 10.41%
Real Estate-Construction 33,251 789 9.62% 31,004 726 9.50%
Real Estate-Mortgage (2) 244,908 4,930 8.16% 205,527 4,281 8.45%
Consumer 43,070 797 7.50% 15,105 282 7.57%
----------------------------------------- -----------------------------------------
Total Loans 424,267 8,967 8.57% 351,584 7,854 9.06%
Federal Funds Sold 12,276 161 5.32% 9,309 120 5.23%
----------------------------------------- -----------------------------------------
Total Interest-Earning Assets 795,984 14,915 7.60% 629,244 12,267 7.91%
Noninterest-Earning Assets:
Cash and Due from Banks 27,243 24,540
Other Assets 19,712 20,220
Allowance for Loan Losses (5,654) (5,610)
Deferred Loan Fees (733) (1,299)
--------------- -------------
Total Noninterest-Earning Assets 40,568 37,851
--------------- -------------
Total Assets $836,552 $667,095
=============== =============
</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, 1997 MARCH 31, 1996
--------------- --------------
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 $50,261 $257 2.07% $47,339 $245 2.10%
Money Market Deposits 91,335 687 3.05% 108,417 808 3.02%
Savings Deposits 79,507 848 4.33% 40,482 429 4.30%
Certificates of Deposit
$100,000 and over 80,343 1,060 5.35% 61,908 837 5.48%
Certificates of Deposit 279,898 3,754 5.44% 183,244 2,592 5.74%
------------------------------------ --------------------------------------
Total Interest-Bearing Deposits 581,344 6,606 4.61% 441,390 4,911 4.51%
Purchased Funds 71,025 802 4.58% 58,300 668 4.65%
------------------------------------ --------------------------------------
Total Interest-Bearing Liabilities 652,369 7,408 4.61% 499,690 5,579 4.53%
Noninterest-Bearing Liabilities:
Total Demand Deposits 111,573 102,755
Other Liabilities 7,666 6,142
------------- --------------
Total Noninterest-Bearing
Liabilities 119,239 108,897
------------- --------------
Total Liabilities 771,608 608,587
Shareholders' Equity 64,944 58,508
------------- --------------
Total Liabilities and Shareholders'
Equity $836,552 $667,095
============= ==============
Interest Spread 3.00% 3.38%
-------------------- ----------------------
Net Interest Margin $7,507 3.83% $6,688 4.31%
==================== ======================
Cost to fund earning assets 3.77% 3.60%
========= ==========
</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, 1997 TO THE
(DOLLARS IN THOUSANDS) THREE MONTHS ENDED
TABLE 2 MARCH 31, 1996
CHANGE DUE TO:
---------------------------------
TOTAL
INCREASE
(DECREASE) RATE VOLUME
------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Securities:
U.S. Treasury Securities ($174) $2 ($176)
Federal Agency and
Mortgage-Backed Securities 1,815 $12 $1,803
State and Political
Subdivision Securities (1) (88) ($11) ($77)
Other Investments (59) $12 ($71)
---------------
Total Securities 1,494 $37 $1,457
Loans: (3)
Commercial (1) (114) ($193) $79
Real Estate-Construction 63 $10 $53
Real Estate-Mortgage (2) 649 ($171) $820
Consumer 515 ($7) $522
---------------
Total Loans 1,113 ($510) $1,624
Federal Funds Sold 41 $3 $38
---------------
TOTAL INTEREST INCOME 2,648 ($602) $3,251
---------------
Interest expense:
Interest-Bearing Deposits:
Interest Checking Deposits 12 ($3) $15
Money Market Deposits (121) $6 ($127)
Savings Deposits 419 $5 $414
Certificates of Deposit
$100,000 and over 223 ($26) $249
Certificates of Deposit 1,162 ($205) $1,367
---------------
Total Interest-Bearing Deposits 1,695 $138 $1,557
PURCHASED FUNDS 134 ($12) $146
---------------
TOTAL INTEREST EXPENSE 1,829 $124 $1,705
---------------
NET INTEREST INCOME $819 ($953) $1,772
===============
</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 $3 thousand for the quarter
ended March 31, 1997. This compares to a $181 thousand provision for the first
quarter of 1996. 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 1997 totalled $2.54 million compared to $2.57 million for the same period
last year.
GAIN ON SALES OF SECURITIES AVAILABLE-FOR-SALE
Gain on sales of securities available-for-sale totalled $41 thousand
for the first three months of 1997 compared to $318 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 management
considerations.
OTHER NONINTEREST INCOME
Service charges on deposit accounts and other noninterest income for
the first quarter of 1997 remained relatively stable compared to the first
quarter of 1996. Service charges and other noninterest income totalled $1.06
million for the first quarter of 1997 compared to $1.10 million for the same
period in 1996. The Company currently derives most of its other noninterest
income from checking, money market and NOW accounts.
NONINTEREST EXPENSES
Total noninterest expenses consisting of employee related costs,
occupancy and other overhead increased by only 1.3% for the first three months
of 1997 compared to the same quarter last year despite the opening of three
branch offices in 1996 and one branch office in the first quarter of 1997. The
Company incurred $106 thousand in nonrecurring merger expenses in the first
quarter of 1996.
CAPITAL RESOURCES
Shareholders' equity on March 31, 1997 was $64.1 million compared to
$64.3 million on December 31, 1996.
<PAGE> 20
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 loss on
securities available-for-sale portfolio amounted to $1.7 million from December
31, 1996 to March 31, 1997. The effect of the decline in market value of the
securities available-for-sale reduced book value per share by $0.34. 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 1997 amounted to $.14
per share compared to $.10 per share for the first quarter of 1996.
At March 31, 1997, the Company's Tier 1 and total risk-based capital
ratios were 12.8% and 13.9%, respectively, compared to 12.3% and 13.4% at
December 31, 1996. The Company's leverage ratio was 8.0% at March 31, 1997
compared to 7.6% at December 31, 1996. 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,
1997 1996
-----------------------------------
<S> <C> <C>
TIER 1 CAPITAL:
Common Stock $5,614 $5,581
Surplus 38,869 38,472
Retained Earnings 22,201 21,094
Unrealized holding loss on securities
available-for-sale (2,539) (803)
-----------------------------------
Total Shareholders' Equity 64,145 64,344
Plus: Unrealized holding loss on securities
available-for-sale 2,539 803
Less: disallowed intangibles (191) (204)
-----------------------------------
Total Tier 1 Capital 66,493 64,943
TIER 2 CAPITAL:
Qualifying allowance for loan losses 5,646 5,659
-----------------------------------
Total Tier 2 Capital 5,646 5,659
-----------------------------------
TOTAL RISK-BASED CAPITAL $72,139 $70,602
===================================
Risk Weighted Assets $519,379 $527,449
===================================
RATIOS:
Tier 1 Capital to risk weighted assets 12.8% 12.3%
Tier 2 Capital to risk weighted assets 1.1% 1.1%
-----------------------------------
Total risk-based capital ratio 13.9% 13.4%
===================================
Leverage Ratio-Tier 1 Capital to quarterly
average assets less intangibles 8.0% 7.6%
===================================
</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 loss experience and the
level of net charge-offs during the period.
The ratio of allowance for loan losses to total loans at March 31,
1997 was 1.42% compared to 1.51% at December 31, 1996. The coverage multiple
of allowance for loan losses to nonperforming loans was 3.84 at March 31, 1997
compared to 3.58 at December 31, 1996. Management believes that the allowance
for loan losses at March 31, 1997 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 $110 thousand to $1.87 million at
March 31, 1997 compared to $1.98 million at December 31, 1996. Nonperforming
assets to total assets at March 31, 1997 were .21% compared to .23% at December
31, 1996.
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 $1.47 million at March 31, 1997 from $1.49 million at December 31,
1996.
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. Past due loans
totalled $1.1 million at March 31, 1997. 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,
1997 1996
---------------------------------------------
<S> <C> <C>
Nonaccrual Loans $1,472 $1,487
Restructured Loans 0 95
---------------------------------------------
TOTAL NONPERFORMING LOANS 1,472 1,582
Other Real Estate 398 398
---------------------------------------------
TOTAL NONPERFORMING ASSETS 1,870 1,980
Loans past due 90 days or
more and accruing interest 1,060 0
---------------------------------------------
TOTAL NONPERFORMING ASSETS AND
LOANS PAST DUE 90 DAYS OR MORE $2,930 $1,980
=============================================
Total Loans at Period End (1) $398,160 $373,613
Allowance for Loan Losses 5,646 5,659
Total Assets 884,676 872,470
ASSET QUALITY RATIOS:
Allowance for Loan Losses to
Period end Loans 1.42% 1.51%
Allowance for Loan losses to
Nonperforming Loans (Multiple) 3.84 X 3.58 X
Total Nonperforming Loans
to Total Loans 0.37% 0.42%
Total Nonperforming Assets to
Total Assets 0.21% 0.23%
Nonperforming Assets to Total
Loans plus Other Real Estate 0.47% 0.53%
Nonperforming Assets and Loans Past
Due 90 days or more to Total Loans
and Other Real Estate 0.74% 0.53%
</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, 1997 cash, cash equivalents and securities
available-for-sale totalled $362.5 million compared to $345.8 million at
December 31, 1996. 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 contains
fixed and variable rate assets. 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, 1997. 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. Therefore, in addition to the
traditional "static gap presentation," TABLE 5 also presents interest
sensitivity
<PAGE> 25
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 gives recognition to the
fact 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, 1997, the Company had a negative beta adjusted gap of $107.2
million or (12.1)% 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, 1997
-----------------------------------------------------------------------------------------
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 $5,000 $0 $0 $0 $0
Securities 15,084 20,348 34,902 236,560 74,699
Mortgage Loans Held for Resale 45,332 0 0 0 0
Loans 194,365 2,154 5,424 157,971 38,246
-----------------------------------------------------------------------------------------
Total 259,781 22,502 40,326 394,531 112,945
-----------------------------------------------------------------------------------------
Cumulative Totals 259,781 282,283 322,609 717,140 830,085
INTEREST-SENSITIVE LIABILITIES:
- -------------------------------------
Interest Checking Accounts 52,949 0 0 0 0
Savings Accounts 88,134 0 0 0 0
Money Market Deposit Accounts 92,298 0 0 0 0
Certificates of Deposit 210,237 46,089 48,713 62,745 3,317
Repurchase Agreements 71,015 0 0 0 0
FHLB - Advances 500 0 500 3,000 0
U.S. Demand Notes 3,672 0 0 0 0
----------------------------------------------------------------------------------------
Totals 518,805 46,089 49,213 65,745 3,317
----------------------------------------------------------------------------------------
Cumulative Totals 518,805 564,894 614,107 679,852 683,169
----------------------------------------------------------------------------------------
Gap ($259,024) ($23,587) ($8,887) $328,786 $109,628
========================================================================================
Cumulative Gap ($259,024) ($282,611) ($291,498) $37,288 $146,916
========================================================================================
Adjustments:
Beta Adjustments
Interest Checking (beta factor .15) 45,007 0 0 0 0
Savings Accounts (beta factor .10) 79,321 0 0 0 0
Money Market Accounts (beta factor .35) 59,994 0 0 0 0
----------------------------------------------------------------------------------------
Cumulative Beta Adjusted Gap ($74,703) ($98,290) ($107,177) $221,609 $331,237
========================================================================================
As Reported Information:
- -------------------------------------
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 50.07% 49.97% 52.53% 105.48% 121.51%
Cumulative Gap/Total Assets -29.28% -31.95% -32.95% 4.21% 16.61%
Beta Adjusted Information:
- -------------------------------------
Interest-Sensitive Assets/Interest-
Sensitive Liabilites (Cumulative): 77.67% 74.17% 75.06% 144.72% 166.40%
Cumulative Gap/Total Assets -8.44% -11.11% -12.11% 25.05% 37.44%
</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 13, 1997 /s/ Bernard H. Clineburg
------------ ---------------------------------------------
Bernard H. Clineburg
President and Chief Executive Officer
Date: May 13, 1997 /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
SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE MARCH 31, 1997 FORM
10Q 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 40,992
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 316,508
<INVESTMENTS-CARRYING> 62,439
<INVESTMENTS-MARKET> 62,882
<LOANS> 398,560
<ALLOWANCE> 5,646
<TOTAL-ASSETS> 884,676
<DEPOSITS> 734,678
<SHORT-TERM> 78,687
<LIABILITIES-OTHER> 7,166
<LONG-TERM> 0
0
0
<COMMON> 5,614
<OTHER-SE> 58,531
<TOTAL-LIABILITIES-AND-EQUITY> 884,676
<INTEREST-LOAN> 8,933
<INTEREST-INVEST> 5,668
<INTEREST-OTHER> 161
<INTEREST-TOTAL> 14,762
<INTEREST-DEPOSIT> 6,606
<INTEREST-EXPENSE> 7,408
<INTEREST-INCOME-NET> 7,354
<LOAN-LOSSES> 3
<SECURITIES-GAINS> 41
<EXPENSE-OTHER> 8,352
<INCOME-PRETAX> 2,636
<INCOME-PRE-EXTRAORDINARY> 2,636
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,816
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
<YIELD-ACTUAL> 3.83
<LOANS-NON> 1,472
<LOANS-PAST> 1,060
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,659
<CHARGE-OFFS> 30
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 5,646
<ALLOWANCE-DOMESTIC> 5,646
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,886
</TABLE>
