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 September 30, 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
September 30, 1996: Common Stock, $1.00 Par Value --- 5,294,866.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
September 30, December 31,
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 26,395 $ 16,102
Interest bearing deposits in other banks 158 413
Federal funds sold 21,031 16,588
Investment securities held to maturity - at amortized cost - 199,080 166,377
(fair value $197,512 and $168,370 respectively)
Investment securities available for sale - at fair value 175,499 174,135
Loans held for sale 2,642 1,662
Loans (net of unearned income of $966 and $688) 375,933 352,950
Less: Allowance for credit losses (4,856) (4,729)
-------- --------
Loans, net 371,077 348,221
Bank premises and equipment 15,571 15,588
Other real estate owned 472 447
Deferred tax assets 7,453 6,652
Mortgage sub-servicing rights 3,923 4,198
Intangible assets 4,923 5,292
Accrued interest receivable and other assets 10,543 10,106
-------- --------
Total Assets $ 838,767 $ 765,781
======== ========
LIABILITIES
Non-interest bearing deposits $ 90,382 $ 89,118
Interest bearing deposits 537,056 504,717
-------- --------
Total Deposits 627,438 593,835
Short-term borrowings 43,159 49,451
Long-term borrowings 90,762 49,129
Accrued expenses and other liabilities 7,247 6,770
-------- --------
Total Liabilities $ 768,606 $ 699,185
STOCKHOLDERS' EQUITY
Common stock - $1.00 par value, authorized:
10,000,000 shares, issued and outstanding;
5,294,866 and 5,258,040 shares for 1996
and 1995 respectively 5,295 5,258
Surplus 40,404 39,807
Retained earnings 24,880 20,645
Unrealized (depreciation) appreciation in certain debt and
equity securities (418) 886
-------- --------
Total Stockholders' Equity 70,161 66,596
Total Liabilities & Stockholders' Equity $ 838,767 $ 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 Nine Months Ending
September 30, September 30,
(Dollars in thousands, except per share data) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 8,615 $ 7,538 $ 25,187 $ 16,527
Interest on deposits in other banks 21 5 46 9
Interest on federal funds sold 258 441 796 477
Interest and dividends on investment securities:
Taxable interest and dividends 5,150 4,447 14,654 12,840
Tax exempt interest and dividends 1,021 879 2,934 2,618
-------- -------- -------- --------
Total interest income 15,065 13,310 43,617 32,471
Interest Expense:
Interest on deposits:
Time certificates of deposit of $100,000 or more 319 329 1,274 967
Other deposits 5,445 4,750 15,767 11,173
-------- -------- -------- --------
Total interest on deposits 5,764 5,079 17,041 12,140
Interest on short-term borrowings 652 1,179 1,909 3,106
Interest on long-term borrowings 1,087 288 2,562 782
-------- -------- -------- --------
Total interest expense 7,503 6,546 21,512 16,028
-------- -------- -------- --------
Net interest income 7,562 6,764 22,105 16,443
Provision for credit losses 35 25 224 52
-------- -------- -------- --------
Net interest income after provision for credit losses 7,527 6,739 21,881 16,391
-------- -------- -------- --------
Other Operating Income:
Service charges on deposit accounts 544 534 1,552 1,141
Trust department income 315 270 1,101 813
Gain/(Loss) on sale of securities 92 31 267 60
Gain/(Loss) on sale of mortgage loans 177 39 329 98
Other income 358 290 1,278 774
-------- -------- -------- --------
Total other operating income 1,486 1,164 4,527 2,886
-------- -------- -------- --------
Other Operating Expenses:
Salaries and employee benefits 3,665 3,096 10,296 7,205
Occupancy expense of bank premises 605 479 1,708 912
Furniture & equipment expenses 368 378 1,209 861
FDIC insurance expense (67) (41) 3 385
Outside data processing expense 392 218 882 675
Amortization of mortgage sub-servicing rights 104 69 311 69
Amortization of other intangibles assets 123 88 370 88
Other expenses 1,088 851 3,185 1,975
-------- -------- -------- --------
Total other operating expenses 6,278 5,138 17,964 12,170
-------- -------- -------- --------
Income before income taxes 2,735 2,765 8,444 7,107
Income tax expense 631 765 2,200 1,795
-------- -------- -------- --------
Net Income $ 2,104 $ 2,000 $ 6,244 $ 5,312
======== ======== ======== ========
Per Share Data:
Net Income $ 0.40 $ 0.40 $ 1.18 $ 1.16
Cash Dividend Paid $ 0.13 $ 0.12 $ 0.38 $ 0.36
Average Shares Outstanding 5,290,506 5,059,690 5,280,990 4,574,893
</TABLE>
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
For the Period Ended
September 30,
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,243 $ 5,312
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,027 644
Provision for credit losses 224 51
Provision for deferred taxes 20 0
Increase in accrued interest receivable and other assets 209 (1,105)
Proceeds from sales of investment securities - Trading 2,000 4,344
Purchases of investment securities - Trading (2,000) (4,329)
Originations of loans held for sale (16,013) (3,485)
Proceeds from sales of loans held for sale 15,032 3,693
Net gain on sale of assets (749) (129)
Other - net 778 1,856
------- -------
Net cash provided (used) by operating activities 6,771 6,852
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities - HTM 22,674 12,988
Proceeds from sales of investment securities - HTM 0 0
Purchases of investment securities - HTM (51,323) (22,919)
Proceeds from maturities of investment securities - AFS 21,554 8,807
Proceeds from sales of investment securities - AFS 63,354 31,217
Purchases of investment securities - AFS (92,644) (41,935)
(Increase) decrease in loans (22,664) (11,823)
Capital expenditures (1,452) (2,454)
Acquisition of subsidiaries, net of cash 0 10,883
Proceeds from sales of fixed assets 641 22
------- -------
Net cash provided (used) by investing activities (59,860) (15,214)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 33,603 1,397
Net (decrease) increase in long-term borrowings 41,633 1,314
Net increase (decrease) in short-term borrowings (6,293) 22,034
Issuance of additional shares of common stock 635 13,552
Repurchase of common stock 0 0
Dividends paid (2,009) (1,666)
------- -------
Net cash provided (used) by financing activities 67,569 36,631
------- -------
Net (decrease) increase in cash and cash equivalents 14,480 28,269
Cash and cash equivalents at beginning of year 33,103 12,566
------- -------
Cash and cash equivalents at end of period $ 47,583 $ 40,835
======= =======
See notes to the consolidated financial statements.
</TABLE>
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 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 nine months 1995) 0 0 5,312 -
Acquisition of Bank Maryland Corp 893 12,502 0 -
Issuance of additional shares of common stock 10 146 0 -
Cash dividend @ $.36 per share 0 0 (1,666) -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 3,508
------- ------- ------- -------
Balance at September 30, 1995 5,229 39,382 19,315 (448)
Net income (4th quarter 1995) 0 0 1,987 -
Acquisition of Bank Maryland Corp (additional shares) 23 320 0 -
Issuance of additional shares of common stock 6 105 0 -
Cash dividend @ $.125 per share 0 0 (657) -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 1,334
------- ------- ------- -------
Balance at December 31, 1995 5,258 39,807 20,645 886
Net income (1st nine months 1996) 0 0 6,244 -
Issuance of additional shares of common stock 37 597 0 -
Cash dividend @ $.38 per share 0 0 (2,009) -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 (1,304)
------- ------- ------- -------
Balance at September 30, 1996 $ 5,295 $ 40,404 $ 24,880 $ (418)
======= ======= ======= =======
</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
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(Dollars in thousands) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities & agency notes $ 51,495 $ 42,166 $ 11,995 $ 8,992
Obligations of U.S. government agencies 19,182 57,345 128,949 73,946
Obligations of states & political subdivisions 76,238 64,813 0 0
Collateralized mortgage obligations 52,165 57,090 30,256 21,837
Other securities 0 0 4,993 2,807
Unrealized gains(losses)* 0 (959) (694) 437
-------- -------- -------- --------
Total Investment Securities $ 199,080 $ 220,455 $ 175,499 $ 108,019
======== ======== ======== ========
* 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>
Sept. 30, Sept. 30,
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Construction and Land Development $ 20,853 $ 16,333
Residential Real Estate - Mortgages 155,732 140,906
Commercial Real Estate - Mortgages 98,453 88,641
Commercial 82,082 77,036
Consumer 18,813 17,452
-------- --------
Total Loans $ 375,933 $ 340,368
======== ========
</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 224 52
Recoveries on loans 284 262
------- -------
Total 5,237 2,941
Less loans charged off 381 335
Allowance applicable to loans of purchased company 0 2,241
------- -------
Balance at September 30 $ 4,856 $ 4,847
======= =======
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 $2.104
million for the third quarter of 1996, an increase of 5% over the $2.000
million reported for the third quarter of 1995.
For the nine months ended September 30, 1996, earnings totaled $6.244
million representing an increase of 18% from the $5.312 for the nine months
ended September 30, 1995. Earnings per share for the third quarter were $.40,
equal to the third quarter of 1995. For the nine month period, earnings per
share were up $.02, totaling $1.18 versus $1.16 last year.
STATEMENT OF CONDITION
Total assets as of September 30, 1996 were $839 million, up 12% from last
year and up 10% from December 31, 1995. Loans outstanding have increased $23
million or 7% since year end while investment securities grew by $34 million
(10%). Deposits increased $34 million or 6% largely due to growth in
certificates of deposits. Borrowings, in total, increased by $35 million.
The mix of borrowings has been shifted as long-term borrowings are now $91
million versus $49 million at year end. The mix reflects the increased use of
Federal Home Loan Bank borrowings which offer longer term structures compared
to Repurchase Agreements and other short-term funding options.
Stockholders' equity totaled $70 million as of September 30, 1996, up $3.6
million from December 31, 1995. Earnings have added $6.2 million to
stockholders equity, while cash dividends have reduced equity by $2.0 million.
Declines in market value of securities classified as available for sale have
declined by $1.3 million since year end. Finally, $634 thousand has been
added to stockholders equity through the issuance of 37 thousand shares for
employee benefit and dividend reinvestment plans.
INCOME STATEMENT - THIRD QUARTER
The increase in net income for the third quarter was primarily
attributable to the earnings contributed by the Bank of Maryland, which
contributed $522 thousand in the third quarter 1996 versus $476 thousand in
the third quarter 1995.
Net interest income increased by $798 thousand (12%) due to the addition
of Bank of Maryland as well as other growth in earning assets. The net
interest margin on earning assets improved slightly to 4.32% reflecting
balanced growth of loans and investments.
Total other operating income increased 28% or $322 thousand. Gains on
sales of mortgage loans grew by $138 thousand due to expansion of the Mortgage
Banking Division of Carroll County Bank and Trust Company (Mason-Dixon
Bancshares Mortgage Company). Trust Division income increased $45 thousand.
Securities gains increased by $61 thousand. Other operating income increased
by $68 thousand which reflect increased revenue from the sales of annuities
and mutual funds.
Total other operating expenses increased by $1.140 million or 22% due to
the addition of Bank of Maryland, as well as the expansion of the Mortgage
Banking Division.
INCOME STATEMENT - YEAR-TO-DATE
Earnings for the first nine months also continue to reflect the effects of
the acquisition of Bank of Maryland. Bank of Maryland earnings for the first
nine months were $1.390 million. Bank of Maryland earnings for 1995 were only
included in consolidated results from July 17, 1995 and totaled $476 thousand.
All categories of income and expenses reflect the addition of Bank of Maryland
for all nine months of 1996 and approximately two and one-half months for
1995.
Total other operating income also reflects growth in Trust Division
revenue of $288 thousand, higher gains on sales of securities of $207
thousand, and higher gains on sales of mortgage loans of $231 thousand.
Total other operating expenses increased $5.794 million with Bank of
Maryland adding $5.057 million of the increase. Other increases resulted due
to expansion of the Mortgage Banking Division and related salaries and
benefits.
CAPITAL ADEQUACY
Capital adequacy continued strong at the end of the third quarter as
equity continues to grow and intangible assets decreased.
At the end of the quarter, the Company's capital leverage ratio was 7.43%,
down somewhat from 7.52% last quarter. Tier 1 and Total Risk-based ratios
were 13.56% and 14.64% respectively compared to 13.87% and 15.02% at June 30,
1996. 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 and small stock offering plan to existing shareholders. The
institution of this plan will increase levels of equity and capital adequacy
as shares are issued by the Company on a quarterly basis. At any time, Mason-
Dixon can terminate the plan or purchase shares in the open market which would
suspend increases in equity for share issuance. In addition, as the carrying
value of mortgage sub-servicing rights and goodwill are amortized, there will
be lower deductions to regulatory capital. All of these factors should allow
for Mason-Dixon's continue growth, while maintaining high levels of capital
adequacy.
INTEREST RATE SENSITIVITY
At the end of the third quarter, Mason-Dixon had an estimated one year
negative gap of $37.0 million on a consolidated basis, which totaled about 4%
of assets. The negative one year gap at the end of the second quarter was
$27.5. This position reflects a low level of interest rate risk and would
indicate longer term earnings would decrease somewhat with higher levels of
interest rates.
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.
November 15, 1996 /s/ Thomas K. Ferguson
By: Thomas K. Ferguson
President/Chief Executive Officer
November 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. SEPTEMBER 30, 1996 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 26,395,000
<INT-BEARING-DEPOSITS> 158,000
<FED-FUNDS-SOLD> 21,031,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 199,080,000
<INVESTMENTS-CARRYING> 374,579,000
<INVESTMENTS-MARKET> 373,011,000
<LOANS> 375,933,000
<ALLOWANCE> 4,856,000
<TOTAL-ASSETS> 838,767,000
<DEPOSITS> 627,438,000
<SHORT-TERM> 43,159,000
<LIABILITIES-OTHER> 7,247,000
<LONG-TERM> 90,762,000
0
0
<COMMON> 5,295,000
<OTHER-SE> 64,866,000
<TOTAL-LIABILITIES-AND-EQUITY> 838,767,000
<INTEREST-LOAN> 25,187,000
<INTEREST-INVEST> 17,588,000
<INTEREST-OTHER> 842,000
<INTEREST-TOTAL> 43,617,000
<INTEREST-DEPOSIT> 17,041,000
<INTEREST-EXPENSE> 21,512,000
<INTEREST-INCOME-NET> 21,881,000
<LOAN-LOSSES> 224,000
<SECURITIES-GAINS> 267,000
<EXPENSE-OTHER> 17,964,000
<INCOME-PRETAX> 8,444,000
<INCOME-PRE-EXTRAORDINARY> 6,244,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,244,000
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 4.32
<LOANS-NON> 3,194,000
<LOANS-PAST> 1,756,000
<LOANS-TROUBLED> 13,158,000
<LOANS-PROBLEM> 3,778,000
<ALLOWANCE-OPEN> 4,729,000
<CHARGE-OFFS> 381,000
<RECOVERIES> 284,000
<ALLOWANCE-CLOSE> 4,856,000
<ALLOWANCE-DOMESTIC> 4,856,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
