UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 31, 1996.
Commission File Number 0-20516
--------------------------------
MASON-DIXON BANCSHARES, INC.
------------------------------
(Exact name of Registrant as specified in its charter)
Maryland 52-1764929
---------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45 W. Main Street, Westminster, Maryland 21157
- ------------------------------------------ -------
(Address of principal executive offices) (Zip Code)
(410) 857-3400
----------------------
Registrant's telephone number including area code:
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 preceeding 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 on
June 30, 1996: Common Stock, $1.00 Par Value --- 5,290,255.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
June 30, December 31,
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 27,939 $ 16,102
Interest bearing deposits in other banks 160 413
Federal funds sold 10,982 16,588
Investment securities held to maturity - at amortized cost - 201,096 166,377
(fair value $199,049 and $168,370 respectively)
Investment securities available for sale - at fair value 165,980 174,135
Loans held for sale 1,714 1,662
Loans (net of unearned income of $935 and $688) 361,384 352,950
Less: Allowance for credit losses (4,928) (4,729)
-------- --------
Loans, net 356,456 348,221
Bank premises and equipment 15,401 15,588
Other real estate owned 397 447
Deferred tax assets 7,679 6,652
Mortgage sub-servicing rights 4,025 4,198
Intangible assets 5,046 5,292
Accrued interest receivable and other assets 10,561 10,106
-------- --------
Total Assets $ 807,436 $ 765,781
======== ========
LIABILITIES
Non-interest bearing deposits $ 91,946 $ 89,118
Interest bearing deposits 518,369 504,717
-------- --------
Total Deposits 610,315 593,835
Short-term borrowings 80,172 49,451
Long-term borrowings 40,641 49,129
Accrued expenses and other liabilities 8,014 6,770
-------- --------
Total Liabilities $ 739,142 $ 699,185
STOCKHOLDERS' EQUITY
Common stock - $1.00 par value, authorized:
10,000,000 shares, issued and outstanding;
5,290,255 and 5,258,040 shares for 1996
and 1995 respectively 5,290 5,258
Surplus 40,329 39,807
Retained earnings 23,465 20,645
Unrealized (depreciation) appreciation in certain debt and
equity securities (790) 886
-------- --------
Total Stockholders' Equity 68,294 66,596
Total Liabilities & Stockholders' Equity $ 807,436 $ 765,781
======== ========
Note: The balance sheet at December 31, 1995 has been derived from the audited financial statement at that date.
See notes to the consolidated financial statements.
</TABLE>
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED INCOME STATEMENT
<CAPTION>
Three Months Ending Six Months Ending
June 30, June 30,
(Dollars in thousands, except per share data) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 8,315 $ 4,569 $ 16,572 $ 8,990
Interest on deposits in other banks 20 2 25 4
Interest on federal funds sold 245 18 538 35
Interest and dividends on investment securities:
Taxable interest and dividends 4,945 4,251 9,504 8,393
Tax exempt interest and dividends 980 876 1,913 1,740
-------- -------- -------- --------
Total interest income 14,505 9,716 28,552 19,162
Interest Expense:
Interest on deposits:
Time certificates of deposit of $100,000 or more 399 381 955 639
Other deposits 5,249 3,247 10,322 6,423
-------- -------- -------- --------
Total interest on deposits 5,648 3,628 11,277 7,062
Interest on short-term borrowings 733 1,001 1,257 1,927
Interest on long-term borrowings 750 243 1,475 494
-------- -------- -------- --------
Total interest expense 7,131 4,872 14,009 9,483
-------- -------- -------- --------
Net interest income 7,374 4,844 14,543 9,679
Provision for credit losses 189 21 189 26
-------- -------- -------- --------
Net interest income after provision for credit losses 7,185 4,823 14,354 9,653
-------- -------- -------- --------
Other Operating Income:
Service charges on deposit accounts 515 310 1,008 606
Trust department income 373 334 786 543
Gain/(Loss) on sale of securities 55 (23) 175 29
Gain/(Loss) on sale of mortgage loans 60 54 152 59
Other income 409 244 920 484
-------- -------- -------- --------
Total other operating income 1,412 919 3,041 1,721
Other Operating Expenses:
Salaries and employee benefits 3,326 2,035 6,631 4,109
Occupancy expense of bank premises 537 215 1,103 433
Furniture & equipment expenses 431 241 841 483
FDIC insurance expense 46 213 70 426
Outside data processing expense 238 208 490 457
Amortization of mortgage sub-servicing rights 103 0 207 0
Amortization of other intangibles assets 124 0 247 0
Other expenses 984 582 2,097 1,124
-------- -------- -------- --------
Total other operating expenses 5,789 3,494 11,686 7,032
-------- -------- -------- --------
Income before income taxes 2,808 2,248 5,709 4,342
Income tax expense 743 546 1,569 1,030
-------- -------- -------- --------
Net Income $ 2,065 $ 1,702 $ 4,140 $ 3,312
======== ======== ======== ========
Per Share Data:
Net Income $ 0.39 $ 0.39 $ 0.78 $ 0.77
Cash Dividend Paid $ 0.125 $ 0.120 $ 0.250 $ 0.240
Average Shares Outstanding 5,282,741 4,329,425 5,276,180 4,328,477
</TABLE>
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
For the Period Ended
June 30,
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,140 $ 3,312
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 683 353
Provision for credit losses 189 26
Provision for deferred taxes 20 0
Increase in accrued interest receivable and other assets (36) (253)
Proceeds from sales of investment securities - Trading 2,000 1,510
Purchases of investment securities - Trading (2,000) (1,500)
Originations of loans held for sale (8,710) (1,805)
Proceeds from sales of loans held for sale 8,657 1,335
Net gain on sale of assets (420) (37)
Other - net 1,444 5
------- -------
Net cash provided (used) by operating activities 5,967 2,946
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities - HTM 12,863 6,868
Proceeds from sales of investment securities - HTM 0 0
Purchases of investment securities - HTM (46,557) (10,777)
Proceeds from maturities of investment securities - AFS 16,019 5,133
Proceeds from sales of investment securities - AFS 55,091 19,059
Purchases of investment securities - AFS (66,890) (29,424)
(Increase) decrease in loans (8,169) (3,161)
Capital expenditures (933) (1,192)
Proceeds from sales of fixed assets 639 0
------- -------
Net cash provided (used) by investing activities (37,937) (13,494)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 16,480 (2,399)
Net (decrease) increase in long-term borrowings (8,488) (4,743)
Net increase (decrease) in short-term borrowings 30,721 19,150
Issuance of additional shares of common stock 555 51
Repurchase of common stock 0 0
Dividends paid (1,320) (1,039)
------- -------
Net cash provided (used) by financing activities 37,948 11,020
------- -------
Net (decrease) increase in cash and cash equivalents 5,978 472
Cash and cash equivalents at beginning of year 33,103 12,566
------- -------
Cash and cash equivalents at end of period $ 39,081 $ 13,038
======= =======
See notes to the consolidated financial statements.
</TABLE>
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Unrealized
Appreciation
in certain Debt
Common Retained and Equity
(Dollars in thousands) Stock Surplus Earnings Securities
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 4,326 $ 26,734 $ 15,669 $ (3,956)
Net income (1st, six months 1995) 0 0 3,312 -
Issuance of additional shares of common stock 3 48 0 -
Cash dividend @ $.24 per share 0 0 (1,039) -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 3,633
------- ------- ------- -------
Balance at June 30, 1995 4,329 26,782 17,942 (323)
Net income (3rd and 4th quarters 1995) 0 0 3,987 -
Issuance of additional shares of common stock 13 203 0 -
Cash dividend @ $.245 per share 0 0 (1,284) -
Acquisition of Bank Maryland Corp 916 12,822 0 -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 1,209
------- ------- ------- -------
Balance at December 31, 1995 5,258 39,807 20,645 886
Net income (1st six months 1996) 0 0 4,140 -
Issuance of additional shares of common stock 32 522 0 -
Cash dividend @ $.25 per share 0 0 (1,320) -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 (1,676)
------- ------- ------- -------
Balance at June 30, 1996 $ 5,290 $ 40,329 $ 23,465 $ (790)
======= ======= ======= =======
</TABLE>
MASON-DIXON BANCSHARES, INC.
<TABLE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The foregoing financial statements are unaudited, however, in the opinion of Management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of the financial statements have been
included. A summary of the Corporation's significant accounting policies is attached.
Note 3. Investment Securities
<CAPTION>
Held-to-Maturity Available-for-Sale
June 30, June 30, June 30, June 30,
(Dollars in thousands) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & agency notes $ 54,278 $ 17,503 $ 13,059 $ 0
Obligations of U.S. government agencies 20,180 59,946 121,052 73,045
Obligations of states & political subdivisions 75,087 64,555 0 0
Collateralized mortgage obligations 51,551 54,428 30,043 25,996
Other securities 0 0 3,092 2,232
Unrealized gains(losses)* 0 (1,000) (1,266) 474
-------- -------- -------- --------
Total Investment Securities $ 201,096 $ 195,432 $ 165,980 $ 101,747
======== ======== ======== ========
* Unrealized losses in Held to Maturity are the result of a transfer of securities previously classified as
Available for Sale. In accordance with SFAS No. 115, the unrealized losses associated with the securities
were transferred as of the transfer date and are being amortized accordingly.
</TABLE>
<TABLE>
Note 4. Loans (Net of Unearned Income)
<CAPTION>
June 30, June 30,
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Construction and Land Development $ 17,546 $ 11,374
Residential Real Estate - Mortgages 145,742 103,290
Commercial Real Estate - Mortgages 97,567 60,458
Commercial 84,268 14,014
Consumer 16,261 9,747
-------- --------
Total Loans $ 361,384 $ 198,883
======== ========
</TABLE>
<TABLE>
Note 4. Allowance for Credit Losses
<CAPTION>
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $ 4,729 $ 2,627
Provision for the year 189 26
Recoveries on loans 231 62
------- -------
Total 5,149 2,715
Less loans charged off 221 59
------- -------
Balance at June 30 $ 4,928 $ 2,656
======= =======
The appropriateness of the allowance for possible credit losses is determined based on a quarterly detailed
review of the loan portfolio, off-balance sheet commitments, and recent economic projections.
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MASON-DIXON BANCSHARES, INC.
SUMMARY
Mason-Dixon Bancshares, Inc. (Mason-Dixon) reported net income of $2.065
million for the second quarter of 1996 or $.39 per share, an increase of 21%
from last years reported second quarter of $1.702 million. The increase in
earnings was primarily attributable to the earnings of an additional bank
subsidiary (Bank of Maryland) which was acquired on July 17, 1995 through a
merger with Bank Maryland Corp. This acquisition requires the application of
purchase accounting rules, therefore earnings of the new bank subsidiary are
included in the consolidated results from the date of acquisition. Prior
period results are not restated. Earnings were also improved by reductions in
FDIC insurance premiums and higher levels of securities gains.
For the six months ended June 30, 1996, earnings totaled $4.140 million,
or $.78 per share. Earnings for the first six months of 1995 were $3.312
million or $.77 per share. Again, the increase in earnings is largely
attributable to the addition of the new subsidiary.
STATEMENT OF CONDITION
Total assets were $807 million at June 30, 1996, 5.4% higher than December
31, 1995. Most of the increase was due to the growth in deposits (2.8%) and
borrowings (22.6%) which have been deployed in the investment portfolio. Loan
outstandings increased $8.4 million or 2.4%. Deferred tax assets increased by
$348 thousand due to changes in tax benefits attributable to securities
classified as available for sale. Mortgage servicing and sub-servicing rights
and intangible assets declined due to normal scheduled amortization.
Stockholders' equity increased $1.7 million from year end. Earnings added
$4.1 million to stockholders equity, while additional share issuances added
$554 thousand. Cash dividends paid reduced equity by $1.3 million. Total
shares outstanding increased to 5,290,255 primarily due to shares issued for
employee benefit plans and dividend reinvestment.
INCOME STATEMENT - SECOND QUARTER
For the first quarter, net income totaled $2.065 million compared to last
year's second quarter. The primary contributor to the increase in earnings
was the addition of Bank of Maryland, which contributed $470 thousand in net
income for the second quarter. Earnings per share were $.39, equal to the
same period last year.
Net interest income increased $2.5 million or 52% from last year due to
the addition of Bank of Maryland. The net interest margins on earning assets
was 4.29%, down somewhat from 4.33% for the second quarter of 1995. Continued
aggressive loan pricing has contributed to the decrease in the margin.
Total other operating income increased by $493 thousand or 54%. Other
operating income for Bank of Maryland provided $245 thousand of the increase.
Other increases for the second quarter resulted from increases in Trust
Division income ($39 thousand), gains on sales of securities ($78 thousand),
and higher commissions on mutual fund and annuities sales ($111 thousand).
Other operating expenses were $2.3 million higher for the second quarter
of 1996. The operating expenses of Bank of Maryland were $2.1 million.
Increases in operating expenses related to higher salary and benefit costs and
higher occupancy expenses were offset somewhat by declines in FDIC insurance
premiums.
INCOME STATEMENT - YEAR-TO-DATE
Net income increased $828 thousand or 25%. Net income of Bank of Maryland
added $868 thousand. Net interest income increased $4.9 million or 50% due to
the addition of Bank of Maryland ($5.5 million).
Other operating income was $1.3 million higher. Bank of Maryland
contributed $483 thousand while other increases were realized in Trust
Division revenue ($243 thousand), higher gains on sales of securities ($146
thousand), higher gains on sales of mortgage loans ($93 thousand), higher
gains on sales of fixed assets ($153 thousand). Other operating expenses were
up $4.7 million with Bank of Maryland accounting for $4.4 million of the
increase.
CAPITAL ADEQUACY
Capital adequacy continued strong ending the second quarter due to
increases in equity and decreases in intangible assets which are disallowed in
computing regulatory capital.
At the end of the quarter, the Company's capital leverage ratio was 7.52%,
down from 7.53% at March 31, 1996. Tier 1 and Total Risk-based ratios were
13.87% and 15.02% respectively. March 31, 1996 ratios were 13.50% and 14.61%.
Regulatory minimums to qualify as "well capitalized" are 5% for capital
leverage, 6% for Tier 1 Risk-based, and 10% for Total Risk-based capital.
During the third quarter of 1995, Mason-Dixon introduced a dividend
reinvestment plan and small stock offering plan to existing shareholders. The
institution of this plan is expected to increase levels of capital in the
future. In addition, as the carrying values of mortgage sub-servicing rights
and goodwill are amortized, there will be lower reductions to regulatory
capital. All of these factors should allow for Mason-Dixon's continued
growth, while increasing regulatory capital ratios.
INTEREST RATE SENSITIVITY
At the end of the second quarter, Mason-Dixon had an estimated one year
negative gap of $27.5 million on a consolidated basis, which totaled about 3%
of assets. This compared to a negative one year gap of $14 million at the end
of the first quarter of 1996. This position would reflect a low level of
interest rate risk and would indicate longer term earnings would decrease
somewhat with higher levels of interest rates. The effects of the merger in
July 1995 should provide for stable earnings in periods of volatile interest
rate changes as well as market value adjustments on securities which are now a
lower percentage of assets and equity.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MASON-DIXON BANCSHARES, INC.
August 15, 1996 /s/ Thomas K. Ferguson
By: Thomas K. Ferguson
President/Chief Executive Officer
August 15, 1996 /s/ Mark A. Keidel
By: Mark A. Keidel
Vice President/Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE
MASON-DIXON BANCSHARES, INC. JUNE 30, 1996 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 27,939,000
<INT-BEARING-DEPOSITS> 518,369,000
<FED-FUNDS-SOLD> 10,982,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 165,980,000
<INVESTMENTS-CARRYING> 367,076,000
<INVESTMENTS-MARKET> 365,029,000
<LOANS> 361,384,000
<ALLOWANCE> 4,928,000
<TOTAL-ASSETS> 807,436,000
<DEPOSITS> 610,315,000
<SHORT-TERM> 80,172,000
<LIABILITIES-OTHER> 8,014,000
<LONG-TERM> 40,641,000
0
0
<COMMON> 5,290,000
<OTHER-SE> 63,004,000
<TOTAL-LIABILITIES-AND-EQUITY> 807,436,000
<INTEREST-LOAN> 16,572,000
<INTEREST-INVEST> 11,417,000
<INTEREST-OTHER> 563,000
<INTEREST-TOTAL> 28,552,000
<INTEREST-DEPOSIT> 11,277,000
<INTEREST-EXPENSE> 14,009,000
<INTEREST-INCOME-NET> 14,543,000
<LOAN-LOSSES> 189,000
<SECURITIES-GAINS> 175,000
<EXPENSE-OTHER> 11,686,000
<INCOME-PRETAX> 5,709,000
<INCOME-PRE-EXTRAORDINARY> 4,140,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,140,000
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
<YIELD-ACTUAL> 4.34
<LOANS-NON> 2,432,000
<LOANS-PAST> 383,000
<LOANS-TROUBLED> 10,029,000
<LOANS-PROBLEM> 1,944,000
<ALLOWANCE-OPEN> 4,729,000
<CHARGE-OFFS> 221,000
<RECOVERIES> 231,000
<ALLOWANCE-CLOSE> 4,928,000
<ALLOWANCE-DOMESTIC> 4,928,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
