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, 1997
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, 1997: Common Stock, $1.00 Par Value --- 5,073,022
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, 1997
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, 1997: Common Stock, $1.00 Par Value --- 5,073,022
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
September 30, December 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 24,101 $ 26,892
Interest bearing deposits in other banks 142 90
Federal funds sold 20,137 19,364
Investment securities held to maturity (HTM) - at amortized cost - 207,495 193,244
(fair value $208,812 and $194,257 respectively)
Investment securities available for sale (AFS) - at fair value 242,823 165,287
Loans held for sale 3,091 3,142
Loans (net of unearned income of $442 and $572) 449,260 398,164
Less: Allowance for credit losses (5,257) (5,167)
-------- --------
Loans, net 444,003 392,997
Bank premises and equipment 15,354 15,471
Other real estate owned 470 501
Deferred tax assets 5,338 6,274
Mortgage sub-servicing rights 3,516 3,820
Intangible assets 4,442 4,799
Accrued interest receivable and other assets 10,938 9,193
-------- --------
Total Assets $ 981,850 $ 841,074
======== ========
LIABILITIES
Non-interest bearing deposits $ 96,832 $ 94,660
Interest bearing deposits 551,847 526,075
-------- --------
Total Deposits 648,679 620,735
Short-term borrowings 116,673 53,734
Long-term borrowings 136,184 85,275
Accrued expenses and other liabilities 7,080 8,631
-------- --------
Total Liabilities $ 908,616 $ 768,375
STOCKHOLDERS' EQUITY
Common stock - $1.00 par value, authorized:
10,000,000 shares, issued and outstanding;
5,073,022 and 5,303,166 shares for 1997
and 1996 respectively 5,073 5,303
Surplus 35,826 40,560
Retained earnings 30,691 26,331
Unrealized (depreciation) appreciation in certain debt and
equity securities 1,644 505
-------- --------
Total Stockholders' Equity 73,234 72,699
Total Liabilities & Stockholders' Equity $ 981,850 $ 841,074
======== ========
Note: The balance sheet at December 31, 1996 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) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 10,047 $ 8,615 $ 28,659 $ 25,187
Interest on deposits in other banks 96 21 146 46
Interest on federal funds sold 254 258 836 796
Interest and dividends on investment securities:
Taxable interest and dividends 6,187 5,150 16,354 14,654
Tax exempt interest and dividends 1,136 1,021 3,345 2,934
-------- -------- -------- --------
Total interest income 17,720 15,065 49,340 43,617
Interest Expense:
Interest on deposits:
Time certificates of deposit of $100,000 or more 602 319 1,550 1,274
Other deposits 5,542 5,445 16,348 15,767
-------- -------- -------- --------
Total interest on deposits 6,144 5,764 17,898 17,041
Interest on short-term borrowings 1,602 652 3,345 1,909
Interest on long-term borrowings 2,164 1,087 4,783 2,562
-------- -------- -------- --------
Total interest expense 9,910 7,503 26,026 21,512
-------- -------- -------- --------
Net interest income 7,810 7,562 23,314 22,105
Provision for credit losses (12) 35 96 224
-------- -------- -------- --------
Net interest income after provision for credit losses 7,822 7,527 23,218 21,881
-------- -------- -------- --------
Other Operating Income:
Service charges on deposit accounts 560 544 1,660 1,552
Trust department income 380 315 1,096 1,101
Gain on sale of securities 26 92 334 267
Gain on sale of mortgage loans 518 177 1,179 329
Other income 470 358 1,400 1,278
-------- -------- -------- --------
Total other operating income 1,954 1,486 5,669 4,527
-------- -------- -------- --------
Other Operating Expenses:
Salaries and employee benefits 4,146 3,665 11,730 10,296
Net occupancy expense of bank premises 638 605 1,886 1,708
Furniture and equipment expenses 313 368 1,238 1,209
FDIC insurance expense 20 (67) 58 3
Outside data processing expense 273 392 835 882
Amortization of mortgage sub-servicing rights 104 104 311 311
Amortization of other intangibles assets 111 123 358 370
Other expenses 1,112 1,088 3,426 3,185
-------- -------- -------- --------
Total other operating expenses 6,717 6,278 19,842 17,964
-------- -------- -------- --------
Income before income taxes 3,059 2,735 9,045 8,444
Income tax expense 771 631 2,333 2,200
-------- -------- -------- --------
Net Income $ 2,288 $ 2,104 $ 6,712 $ 6,244
======== ======== ======== ========
Per Share Data:
Net Income $ 0.45 $ 0.40 $ 1.29 $ 1.18
Cash Dividend Paid $ 0.15 $ 0.13 $ 0.45 $ 0.38
Average Shares Outstanding 5,069,413 5,290,506 5,220,441 5,280,990
</TABLE>
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
For the Period Ended
September 30,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,712 $ 6,243
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 1,190 1,027
Amortization of mortgage sub-servicing rights 311 311
Amortization of intangibles 357 370
Net accretion of purchase accounting adjustments (312) (571)
Provision for credit losses 96 224
Provision for deferred taxes 314 20
Proceeds from sales of investment securities - Trading 3,177 2,000
Purchases of investment securities - Trading (3,152) (2,000)
Originations of loans held for sale (31,788) (16,013)
Proceeds from sales of loans held for sale 33,019 15,032
Net gain on sale of assets (1,514) (749)
Net (increase) decrease in accrued interest receivable and other assets (1,745) 99
Net increase (decrease) in accrued expenses and other liabilities (1,645) 477
Other - net 325 301
------- -------
Net cash provided by operating activities 5,345 6,771
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities - HTM 14,455 22,674
Proceeds from sales of investment securities - HTM 0 0
Purchases of investment securities - HTM (28,784) (51,323)
Proceeds from maturities of investment securities - AFS 18,541 21,554
Proceeds from sales of investment securities - AFS 55,212 63,354
Purchases of investment securities - AFS ******** (92,644)
Net (increase) decrease in loans (50,828) (22,664)
Capital expenditures (1,073) (1,452)
Proceeds from sales of assets 0 641
------- -------
Net cash used by investing activities ******** (59,860)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 27,992 33,603
Net increase (decrease) in short-term borrowings 62,939 (6,293)
Proceeds from long-term borrowings 114,402 68,419
Repayments of long-term borrowings (63,493) (26,786)
Issuance of additional shares of common stock 449 635
Repurchase of common stock (5,413) 0
Dividends paid (2,352) (2,009)
------- -------
Net cash provided by financing activities 134,524 67,569
------- -------
Net (decrease) increase in cash and cash equivalents (1,966) 14,480
Cash and cash equivalents at beginning of year 46,346 33,103
------- -------
Cash and cash equivalents at end of period $ 44,380 $ 47,583
======= =======
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, 1997 AND 1996
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, 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)
Net income (4th quarter 1996) 0 0 2,192 -
Issuance of additional shares of common stock 8 156 0 -
Cash dividend @ $.14 per share 0 0 (741) -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 923
------- ------- ------- -------
Balance at December 31, 1996 5,303 40,560 26,331 505
Net income (1st nine months 1997) 0 0 6,712 -
Issuance of additional shares of common stock 20 429 0 -
Repurchase of shares of common stock (250) (5,163) 0 -
Cash dividend @ $.45 per share 0 0 (2,352) -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 1,139
------- ------- ------- -------
Balance at September 30, 1997 $ 5,073 $ 35,826 $ 30,691 $ 1,644
======= ======= ======= =======
</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. Certain amounts for prior periods have been reclassified to conform to current period presentation.
These statements should be read in conjunction with the financial statements and notes thereto included in the
Company's 1996 Annual Report on Form 10-K.
Note 3. Investment Securities
<CAPTION>
Held-to-Maturity Available-for-Sale
Sept 30, Sept 30, Sept 30, Sept 30,
(Dollars in thousands) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and agency notes $ 45,829 $ 51,495 $ 37,796 $ 11,995
Obligations of U.S. government agencies 15,224 19,182 132,185 128,949
Obligations of states and political subdivisions 84,752 76,238 0 0
Collateralized mortgage obligations 61,442 52,165 55,055 30,256
Other securities 248 0 15,109 4,993
Unrealized gains(losses) 0 0 2,678 (694)
-------- -------- -------- --------
Total Investment Securities $ 207,495 $ 199,080 $ 242,823 $ 175,499
======== ======== ======== ========
</TABLE>
<TABLE>
Note 4. Loans (Net of Unearned Income)
<CAPTION>
Sept 30, Sept 30,
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Construction and Land Development $ 27,925 $ 20,853
Residential Real Estate - Mortgages 182,628 155,732
Commercial Real Estate - Mortgages 134,851 98,453
Commercial 80,220 82,082
Consumer 23,636 18,813
-------- --------
Total Loans $ 449,260 $ 375,933
======== ========
</TABLE>
<TABLE>
Note 4. Allowance for Credit Losses
<CAPTION>
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $ 5,167 $ 4,729
Provision for the year 96 224
Recoveries on loans 343 284
------- -------
Total 5,606 5,237
Less loans charged off 349 381
------- -------
Balance at September 30 $ 5,257 $ 4,856
======= =======
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 $2.288
million for the third quarter of 1997, an increase of 9% over the $2.104
million reported for the third quarter of 1996. On a per share basis, net
income equaled $.45 for the third quarter of 1997 compared to $.40 for 1996,
up 13%.
For the nine months ended September 30, 1997, earnings totaled $6.712
million representing an increase of 8% from the $6.244 for the nine months
ended September 30, 1996. Earnings per share for the nine month period
totaled $1.29, up from $1.18 for the same period of 1996.
STATEMENT OF CONDITION
Total assets as of September 30, 1997 were $982 million, up 20% from last
year and up 17% from December 31, 1996. The significant growth was due to
increases in loan outstandings, as well as increased investment securities
which resulted from a leverage strategy engaged in the second quarter. On
June 6, Mason-Dixon completed the issuance of $20 million of Preferred
Securities of the Mason-Dixon Capital Trust, a Trust established by Mason-
Dixon for financing purposes. These securities are classified as long-term
borrowings for balance sheet purposes but the proceeds qualify as Tier 1
Capital of Mason-Dixon for regulatory purposes. A portion of the proceeds
(capital) was used to engage in a leverage strategy, which involves increased
levels of investments and borrowings, which earn a positive net interest
margin. Loans outstanding have increased $51 million or 13% since year end
while investment securities grew by $92 million (23%). Of the total growth in
investments, $60 million is attributable to the leverage strategy. Deposits
increased $28 million or 5% largely due to growth in certificates of deposits.
Borrowings, in total, increased by $114 million, which includes the preferred
securities of $20 million as well as higher borrowings associated with the
leverage strategy of $60 million. Stockholders' equity decreased $.5 million.
Earnings added $6.8 million to stockholders' equity, while cash dividends have
reduced equity by $2.4 million. Increases in market value of securities
classified as available for sale were $1.1 million since year end. Finally,
Mason-Dixon repurchased and retired 232,495 shares of common stock from a
stockholder group. These shares were repurchased at a price per share of
$21.625 which reduced stockholders' equity by just over $5 million.
INCOME STATEMENT - THIRD QUARTER
Net interest income increased by $258 thousand (3%) due to growth in
earning assets. The net interest margin on earning assets decreased to 3.55%,
reflecting the lower levels of stockholders equity, narrow spreads on the $60
million leveraged investments, as well as the interest expense associated with
the Preferred Securities.
Total other operating income increased 32% or $468 thousand. Service
charge income increased by $16 thousand due to increased volume, as well as
price increases on certain services. Gains on sales of mortgage loans grew by
$341 thousand due to expansion of the Mortgage Banking Division of Carroll
County Bank and Trust Company (Mason-Dixon Bancshares Mortgage Company).
Trust Division income grew by $65 thousand due to growth in accounts under
management. Securities gains decreased by $66 thousand. Other operating
income increased by $112 thousand which reflects increased revenue from the
sales of annuities and mutual funds.
Total other operating expenses increased by $439 thousand or 7% due to the
expansion of the Mortgage Banking Division, which added approximately $225
thousand of the increase. 1996 totals included a $150 thousand restructuring
charge for the consolidation of certain back-office functions. Excluding the
effects of the increase in Mortgage Banking expenses and the restructuring
charge in 1996, expenses increased by $364 thousand or 6%.
INCOME STATEMENT - YEAR-TO-DATE
For the first nine months of 1997, net interest income increased $1.209
million or 6%. The net interest margin for the period was 3.96%, compared to
4.32% for the first nine months of 1996. Average earning assets increased by
15% for the comparable period.
Other operating income increased $1.142 million or 25%. Service charge
income increased by $108 thousand due to increased account volume as well as
price increases on certain services. Gains on sales of securities increased
by $67 thousand. Gains on sales of mortgage loans increased $850 thousand as
the volume of loans originated and sold has increased significantly since the
expansion of mortgage operations in 1996.
Other operating expenses increased $1.878 million or 11%. Increased
expenses of mortgage operations approximated $645 thousand, while increased
professional fees totaled $420 thousand. Excluding the effects of increases
in mortgage and professional fees, expenses grew by less than 5%.
CAPITAL ADEQUACY
At the end of the quarter, the Company's capital leverage ratio was 8.73%,
down from 9.45% last quarter. Tier 1 and Total Risk-based ratios were 14.83%
and 15.76% respectively compared to 15.12% and 16.14% at September 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.
These levels of regulatory capital are available to support future growth of
Mason-Dixon.
During the first quarter of 1997, Mason-Dixon discontinued issuing
additional shares through its dividend reinvestment and stock purchase plan.
Shares needed to satisfy the plan are now being purchased in the open market.
Mason-Dixon has this flexibility within operating procedures of the plan and
may, at any time, issue shares to satisfy plan needs.
INTEREST RATE SENSITIVITY
At the end of the third quarter, Mason-Dixon had an estimated one year
negative gap of $27 million on a consolidated basis, which totaled about 3% of
assets. The negative one year gap at the end of the second quarter was $43
million. 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. Management believes the overall rate sensitivity position is
appropriate for current rate conditions.
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 12, 1997 /s/ Thomas K. Ferguson
By: Thomas K. Ferguson
President/Chief Executive Officer
August 12, 1997 /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, 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 24,101,000
<INT-BEARING-DEPOSITS> 142,000
<FED-FUNDS-SOLD> 20,137,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 207,495,000
<INVESTMENTS-CARRYING> 450,318,000
<INVESTMENTS-MARKET> 451,635,000
<LOANS> 449,260,000
<ALLOWANCE> 5,257,000
<TOTAL-ASSETS> 981,850,000
<DEPOSITS> 648,679,000
<SHORT-TERM> 116,673,000
<LIABILITIES-OTHER> 7,080,000
<LONG-TERM> 136,184,000
0
0
<COMMON> 5,073,000
<OTHER-SE> 68,161,000
<TOTAL-LIABILITIES-AND-EQUITY> 981,850,000
<INTEREST-LOAN> 28,659,000
<INTEREST-INVEST> 19,699,000
<INTEREST-OTHER> 982,000
<INTEREST-TOTAL> 49,340,000
<INTEREST-DEPOSIT> 17,898,000
<INTEREST-EXPENSE> 26,026,000
<INTEREST-INCOME-NET> 23,218,000
<LOAN-LOSSES> 96,000
<SECURITIES-GAINS> 334,000
<EXPENSE-OTHER> 19,842,000
<INCOME-PRETAX> 9,045,000
<INCOME-PRE-EXTRAORDINARY> 6,712,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,712,000
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.29
<YIELD-ACTUAL> 3.96
<LOANS-NON> 2,163,000
<LOANS-PAST> 1,165,000
<LOANS-TROUBLED> 217,000
<LOANS-PROBLEM> 18,874,631
<ALLOWANCE-OPEN> 5,167,000
<CHARGE-OFFS> 349,000
<RECOVERIES> 343,000
<ALLOWANCE-CLOSE> 5,257,000
<ALLOWANCE-DOMESTIC> 5,257,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
