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 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
June 30, 1997: Common Stock, $1.00 Par Value --- 5,075,120
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
June 30, December 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 40,021 $ 26,892
Interest bearing deposits in other banks 311 90
Federal funds sold 25,665 19,364
Investment securities held to maturity (HTM) - at amortized cost - 199,416 193,244
(fair value $198,585 and $194,257 respectively)
Investment securities available for sale (AFS) - at fair value 227,610 165,287
Loans held for sale 3,751 3,142
Loans (net of unearned income of $563 and $572) 435,595 398,164
Less: Allowance for credit losses (5,462) (5,167)
-------- --------
Loans, net 430,133 392,997
Bank premises and equipment 15,372 15,471
Other real estate owned 430 501
Deferred tax assets 5,927 6,274
Mortgage sub-servicing rights 3,621 3,820
Intangible assets 4,553 4,799
Accrued interest receivable and other assets 9,975 9,193
-------- --------
Total Assets $ 966,785 $ 841,074
======== ========
LIABILITIES
Non-interest bearing deposits $ 97,930 $ 94,660
Interest bearing deposits 550,275 526,075
-------- --------
Total Deposits 648,205 620,735
Short-term borrowings 109,597 53,734
Long-term borrowings 131,621 85,275
Accrued expenses and other liabilities 6,692 8,631
-------- --------
Total Liabilities $ 896,115 $ 768,375
STOCKHOLDERS' EQUITY
Common stock - $1.00 par value, authorized:
10,000,000 shares, issued and outstanding;
5,075,120 and 5,303,166 shares for 1997
and 1996 respectively 5,075 5,303
Surplus 35,856 40,560
Retained earnings 29,161 26,331
Unrealized (depreciation) appreciation in certain debt and
equity securities 578 505
-------- --------
Total Stockholders' Equity 70,670 72,699
Total Liabilities & Stockholders' Equity $ 966,785 $ 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 Six Months Ending
June 30, June 30,
(Dollars in thousands, except per share data) 1997 1996 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 9,507 $ 8,315 $ 18,612 $ 16,572
Interest on deposits in other banks 37 20 50 25
Interest on federal funds sold 331 245 582 538
Interest and dividends on investment securities:
Taxable interest and dividends 5,130 4,945 10,167 9,504
Tax exempt interest and dividends 1,120 980 2,209 1,913
-------- -------- -------- --------
Total interest income 16,125 14,505 31,620 28,552
Interest Expense:
Interest on deposits:
Time certificates of deposit of $100,000 or more 555 399 948 955
Other deposits 5,443 5,249 10,806 10,322
-------- -------- -------- --------
Total interest on deposits 5,998 5,648 11,754 11,277
Interest on short-term borrowings 1,023 733 1,743 1,257
Interest on long-term borrowings 1,335 750 2,619 1,475
-------- -------- -------- --------
Total interest expense 8,356 7,131 16,116 14,009
-------- -------- -------- --------
Net interest income 7,769 7,374 15,504 14,543
Provision for credit losses 51 189 108 189
-------- -------- -------- --------
Net interest income after provision for credit losses 7,718 7,185 15,396 14,354
-------- -------- -------- --------
Other Operating Income:
Service charges on deposit accounts 554 515 1,100 1,008
Trust department income 373 373 716 786
Gain on sale of securities 87 55 308 175
Gain on sale of mortgage loans 370 60 661 152
Other income 505 409 930 920
-------- -------- -------- --------
Total other operating income 1,889 1,412 3,715 3,041
-------- -------- -------- --------
Other Operating Expenses:
Salaries and employee benefits 3,866 3,326 7,584 6,631
Net occupancy expense of bank premises 625 537 1,248 1,103
Furniture and equipment expenses 487 431 925 841
FDIC insurance expense 19 46 38 70
Outside data processing expense 302 238 562 490
Amortization of mortgage sub-servicing rights 103 103 207 207
Amortization of other intangibles assets 124 124 247 247
Other expenses 1,194 984 2,314 2,097
-------- -------- -------- --------
Total other operating expenses 6,720 5,789 13,125 11,686
-------- -------- -------- --------
Income before income taxes 2,887 2,808 5,986 5,709
Income tax expense 738 743 1,562 1,569
-------- -------- -------- --------
Net Income $ 2,149 $ 2,065 $ 4,424 $ 4,140
======== ======== ======== ========
Per Share Data:
Net Income $ 0.41 $ 0.39 $ 0.84 $ 0.78
Cash Dividend Paid $ 0.15 $ 0.125 $ 0.30 $ 0.25
Average Shares Outstanding 5,286,543 5,282,741 5,297,207 5,276,180
</TABLE>
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
For the Period Ended
June 30,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,424 $ 4,140
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 815 683
Amortization of mortgage sub-servicing rights 207 207
Amortization of intangibles 246 247
Net accretion of purchase accounting adjustments (312) (380)
Provision for credit losses 108 189
Provision for deferred taxes 318 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 (24,067) (8,710)
Proceeds from sales of loans held for sale 24,119 8,657
Net gain on sale of assets (994) (420)
Gain on sale of deposits 0 0
Net (increase) decrease in accrued interest receivable and other assets (782) (110)
Net increase (decrease) in accrued expenses and other liabilities (1,939) 1,244
Other - net 307 200
------- -------
Net cash provided by operating activities 2,475 5,967
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities - HTM 7,409 12,863
Proceeds from sales of investment securities - HTM 0 0
Purchases of investment securities - HTM (13,629) (46,557)
Proceeds from maturities of investment securities - AFS 12,427 16,019
Proceeds from sales of investment securities - AFS 48,880 55,091
Purchases of investment securities - AFS ******** (66,890)
Net (increase) decrease in loans (37,150) (8,169)
Capital expenditures (716) (933)
Proceeds from sales of assets 0 639
------- -------
Net cash used by investing activities ******** (37,937)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 27,614 16,480
Net increase (decrease) in short-term borrowings 55,863 30,721
Proceeds from long-term borrowings 109,402 18,419
Repayments of long-term borrowings (63,056) (26,907)
Issuance of additional shares of common stock 231 555
Repurchase of common stock (5,163) 0
Dividends paid (1,594) (1,320)
------- -------
Net cash provided by financing activities 123,297 37,948
------- -------
Net (decrease) increase in cash and cash equivalents 19,651 5,978
Cash and cash equivalents at beginning of year 46,346 33,103
------- -------
Cash and cash equivalents at end of period $ 65,997 $ 39,081
======= =======
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, 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 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)
Net income (3rd and 4th quarters 1996) 0 0 4,296 -
Issuance of additional shares of common stock 13 231 0 -
Cash dividend @ $.27 per share 0 0 (1,430) -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 1,295
------- ------- ------- -------
Balance at December 31, 1996 5,303 40,560 26,331 505
Net income (1st six months 1997) 0 0 4,424 -
Issuance of additional shares of common stock 11 220 0 -
Repurchase of shares of common stock (239) (4,924) 0 -
Cash dividend @ $.30 per share 0 0 (1,594) -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 73
------- ------- ------- -------
Balance at June 30, 1997 $ 5,075 $ 35,856 $ 29,161 $ 578
======= ======= ======= =======
</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
June 30, June 30, June 30, June 30,
(Dollars in thousands) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and agency notes $ 45,142 $ 54,278 $ 32,998 $ 13,059
Obligations of U.S. government agencies 16,214 20,180 132,215 121,052
Obligations of states and political subdivisions 83,317 75,087 0 0
Collateralized mortgage obligations 54,475 51,551 54,653 30,043
Other securities 268 0 6,802 3,092
Unrealized gains(losses) 0 0 942 (1,266)
-------- -------- -------- --------
Total Investment Securities $ 199,416 $ 201,096 $ 227,610 $ 165,980
======== ======== ======== ========
</TABLE>
<TABLE>
Note 4. Loans (Net of Unearned Income)
<CAPTION>
June 30, June 30,
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Construction and Land Development $ 25,656 $ 17,546
Residential Real Estate - Mortgages 179,520 145,742
Commercial Real Estate - Mortgages 122,487 97,567
Commercial 85,308 84,268
Consumer 22,624 16,261
-------- --------
Total Loans $ 435,595 $ 361,384
======== ========
</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 108 189
Recoveries on loans 306 231
------- -------
Total 5,581 5,149
Less loans charged off 119 221
------- -------
Balance at June 30 $ 5,462 $ 4,928
======= =======
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 $2.149
million for the second quarter of 1997, an increase of 4% over the $2.065
million reported for the second quarter of 1996. On a per share basis, net
income equaled $.41 for the second quarter of 1997 compared to $.39 for 1996.
For the six months ended June 30, 1997, earnings totaled $4.424 million
representing an increase of 7% from the $4.140 for the six months ended June
30, 1996. Earnings per share for the six period totaled $.84, up from $.78
for the same period of 1996.
STATEMENT OF CONDITION
Total assets as of June 30, 1997 were $967 million, up 20% from last year
and up 15% 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 $37 million or 9% since year end
while investment securities grew by $68 million (19%). Of the total growth in
investments, $60 million is attributable to the leverage strategy. Deposits
increased $27 million or 4% largely due to growth in certificates of deposits.
Borrowings, in total, increased by $102 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 $2 million.
Earnings added $4.4 million to stockholders equity, while cash dividends have
reduced equity by $1.6 million. Increases in market value of securities
classified as available for sale were $73 thousand 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 - SECOND QUARTER
Net interest income increased by $395 thousand (6%) due to growth in
earning assets. The net interest margin on earning assets decreased slightly
to 4.09%, reflecting the lower levels of stockholders equity, as well as the
interest expense associated with the Preferred Securities which were not
permanently deployed until late in the quarter.
Total other operating income increased 34% or $477 thousand. Service
charge income increased by $39 thousand due to increased volume, as well as
price increases on certain services. Gains on sales of mortgage loans grew by
$310 thousand due to expansion of the Mortgage Banking Division of Carroll
County Bank and Trust Company (Mason-Dixon Bancshares Mortgage Company).
Trust Division income was unchanged. Securities gains increased by $32
thousand. Other operating income increased by $96 thousand which reflect
increased revenue from the sales of annuities and mutual funds.
Total other operating expenses increased by $931 thousand or 16% due to
the expansion of the Mortgage Banking Division, and increases in professional
fees. Increased expenses associated with the growth in mortgage operations
approximated $317 thousand, while professional fees increased $165 thousand.
INCOME STATEMENT - YEAR-TO-DATE
For the first six months of 1997, net interest income increased $961
thousand or 7%. The net interest margin for the period was 4.14%, compared to
4.29% for the first six months of 1996. Average earning assets increased by
12% for the comparable period.
Other operating income increased $674 thousand or 22%. Service charge
income increased by $92 thousand due to increased account volume as well as
price increases on certain services. Gains on sales of securities increased by
$133 thousand. Gains on sales of mortgage loans increased $509 thousand as
the volume of loans originated and sold has increased significantly since the
expansion of mortgage operations in 1996.
Other operating expenses increased $1.439 million or 12%. Increased
expenses of mortgage operations approximated $570 thousand, while increased
professional fees totaled $420 thousand. Excluding the effects of increases in
mortgage and professional fees, expenses grew by less than 4%.
CAPITAL ADEQUACY
As discussed in the statement of condition analysis, Capital adequacy was
enhanced during the quarter as the issuance of the Preferred Securities added
$20 million to Tier 1 Capital. While a portion of the proceeds was used to
repurchase and retire common shares, all measures of regulatory capital were
increased significantly. At the end of the quarter, the Company's capital
leverage ratio was 9.45%, up from 7.68% last quarter. Tier 1 and Total Risk-
based ratios were also substantially higher, 15.12% and 16.14% respectively
compared to 12.84% and 13.88% at March 31, 1997. 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 increased levels of
regulatory capital are now 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 second quarter, Mason-Dixon had an estimated one year
negative gap of $43.0 million on a consolidated basis, which totaled about 4%
of assets. The negative one year gap at the end of the first quarter was $60
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. JUNE 30, 1997 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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 40,021,000
<INT-BEARING-DEPOSITS> 311,000
<FED-FUNDS-SOLD> 25,665,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 199,416,000
<INVESTMENTS-CARRYING> 427,026,000
<INVESTMENTS-MARKET> 426,195,000
<LOANS> 435,595,000
<ALLOWANCE> 5,462,000
<TOTAL-ASSETS> 966,784,926
<DEPOSITS> 648,205,000
<SHORT-TERM> 109,597,000
<LIABILITIES-OTHER> 6,692,000
<LONG-TERM> 131,621,000
0
0
<COMMON> 5,075,000
<OTHER-SE> 65,595,000
<TOTAL-LIABILITIES-AND-EQUITY> 966,785,000
<INTEREST-LOAN> 18,612,000
<INTEREST-INVEST> 12,376,000
<INTEREST-OTHER> 632,000
<INTEREST-TOTAL> 31,620,000
<INTEREST-DEPOSIT> 11,754,000
<INTEREST-EXPENSE> 16,116,000
<INTEREST-INCOME-NET> 15,396,000
<LOAN-LOSSES> 108,000
<SECURITIES-GAINS> 308,000
<EXPENSE-OTHER> 13,125,000
<INCOME-PRETAX> 5,986,000
<INCOME-PRE-EXTRAORDINARY> 4,424,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,424,000
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
<YIELD-ACTUAL> 4.14
<LOANS-NON> 2,157,000
<LOANS-PAST> 388,000
<LOANS-TROUBLED> 219,000
<LOANS-PROBLEM> 14,336,626
<ALLOWANCE-OPEN> 5,167,000
<CHARGE-OFFS> 119,000
<RECOVERIES> 306,000
<ALLOWANCE-CLOSE> 5,462,000
<ALLOWANCE-DOMESTIC> 5,462,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
