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 March 31, 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
March 31, 1997: Common Stock, $1.00 Par Value --- 5,307,078.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 21,478 $ 26,892
Interest bearing deposits in other banks 197 90
Federal funds sold 23,511 19,364
Investment securities held to maturity - at amortized cost - 200,243 193,244
(fair value $198,558 and $194,257 respectively)
Investment securities available for sale - at fair value 172,025 165,287
Loans held for sale 3,704 3,142
Loans (net of unearned income of $574 and $572) 410,178 398,164
Less: Allowance for credit losses (5,248) (5,167)
-------- --------
Loans, net 404,930 392,997
Bank premises and equipment 15,292 15,471
Other real estate owned 501 501
Deferred tax assets 7,092 6,274
Mortgage sub-servicing rights 3,721 3,820
Intangible assets 4,676 4,799
Accrued interest receivable and other assets 9,917 9,193
-------- --------
Total Assets $ 867,287 $ 841,074
======== ========
LIABILITIES
Non-interest bearing deposits $ 89,972 $ 94,660
Interest bearing deposits 539,555 526,075
-------- --------
Total Deposits 629,527 620,735
Short-term borrowings 64,757 53,734
Long-term borrowings 92,644 85,275
Accrued expenses and other liabilities 7,393 8,631
-------- --------
Total Liabilities $ 794,321 $ 768,375
STOCKHOLDERS' EQUITY
Common stock - $1.00 par value, authorized:
10,000,000 shares, issued and outstanding;
5,307,078 and 5,303,166 shares for 1997
and 1996 respectively 5,307 5,303
Surplus 40,641 40,560
Retained earnings 27,809 26,331
Unrealized (depreciation) appreciation in certain debt and
equity securities (791) 505
-------- --------
Total Stockholders' Equity 72,966 72,699
Total Liabilities & Stockholders' Equity $ 867,287 $ 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
March 31,
(Dollars in thousands, except per share data) 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 9,105 $ 8,257
Interest on deposits in other banks 13 5
Interest on federal funds sold 251 293
Interest and dividends on investment securities:
Taxable interest and dividends 5,037 4,559
Tax exempt interest and dividends 1,089 933
-------- --------
Total interest income 15,495 14,047
Interest Expense:
Interest on deposits:
Time certificates of deposit of $100,000 or more 393 556
Other deposits 5,363 5,073
-------- --------
Total interest on deposits 5,756 5,629
Interest on short-term borrowings 720 524
Interest on long-term borrowings 1,284 725
-------- --------
Total interest expense 7,760 6,878
-------- --------
Net interest income 7,735 7,169
Provision for credit losses 57 0
-------- --------
Net interest income after provision for credit losses 7,678 7,169
-------- --------
Other Operating Income:
Service charges on deposit accounts 546 493
Trust department income 343 413
Gain on sale of securities 221 120
Gain on sale of mortgage loans 291 92
Other income 425 511
-------- --------
Total other operating income 1,826 1,629
-------- --------
Other Operating Expenses:
Salaries and employee benefits 3,718 3,305
Net occupancy expense of bank premises 623 566
Furniture and equipment expenses 438 410
FDIC insurance expense 19 24
Outside data processing expense 260 252
Amortization of mortgage sub-servicing rights 104 104
Amortization of other intangibles assets 123 123
Other expenses 1,120 1,113
-------- --------
Total other operating expenses 6,405 5,897
-------- --------
Income before income taxes 3,099 2,901
Income tax expense 824 826
-------- --------
Net Income $ 2,275 $ 2,075
======== ========
Per Share Data:
Net Income $ 0.43 $ 0.39
Cash Dividend Paid $ 0.15 $ 0.125
Average Shares Outstanding 5,307,998 5,269,619
</TABLE>
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
For the Period Ended
March 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,275 $ 2,075
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 440 337
Amortization of mortgage sub-servicing rights 104 104
Amortization of intangibles 123 123
Net accretion of purchase accounting adjustments (144) (190)
Provision for credit losses 57 0
Provision for deferred taxes 0 0
Proceeds from sales of investment securities - Trading 3,177 0
Purchases of investment securities - Trading (3,152) 0
Originations of loans held for sale (15,184) (5,364)
Proceeds from sales of loans held for sale 14,913 4,769
Net gain on sale of assets (512) (363)
Gain on sale of deposits 0 0
Net (increase) decrease in accrued interest receivable and other assets (723) 691
Net increase (decrease) in accrued expenses and other liabilities (1,240) (267)
Other - net 277 116
------- -------
Net cash provided by operating activities 411 2,031
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities - HTM 2,890 4,923
Proceeds from sales of investment securities - HTM 0 3,998
Purchases of investment securities - HTM (9,907) (23,320)
Proceeds from maturities of investment securities - AFS 7,235 7,732
Proceeds from sales of investment securities - AFS 33,695 39,126
Purchases of investment securities - AFS (49,684) (37,382)
Net (increase) decrease in loans (12,083) 1,264
Capital expenditures (260) (579)
Purchase of mortgage servicing rights 0 0
Proceeds from sales of assets 0 639
Sale of deposits 0 0
Acquisition of subsidiaries, net of cash acquired 0 0
------- -------
Net cash used by investing activities (28,114) (3,599)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 8,864 20,306
Net increase (decrease) in short-term borrowings 11,022 11,236
Proceeds from long-term borrowings 20,000 18,419
Repayments of long-term borrowings (12,631) (21,043)
Issuance of additional shares of common stock 182 368
Repurchase of common stock (97) 0
Dividends paid (797) (659)
------- -------
Net cash provided by financing activities 26,543 28,627
------- -------
Net (decrease) increase in cash and cash equivalents (1,160) 27,059
Cash and cash equivalents at beginning of year 46,346 33,103
------- -------
Cash and cash equivalents at end of period $ 45,186 $ 60,162
======= =======
See notes to the consolidated financial statements.
</TABLE>
MASON-DIXON BANCSHARES, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 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 quarter 1996) 0 0 2,075 -
Issuance of additional shares of common stock 22 345 0 -
Cash dividend @ $.125 per share 0 0 (659) -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 (582)
------- ------- ------- -------
Balance at March 31, 1996 5,280 40,152 22,061 304
Net income (2nd, 3rd, 4th quarters 1996) 0 0 6,361 -
Issuance of additional shares of common stock 23 408 0 -
Cash dividend @ $.395 per share 0 0 (2,091) -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 201
------- ------- ------- -------
Balance at December 31, 1996 5,303 40,560 26,331 505
Net income (1st quarter 1997) 0 0 2,275 -
Issuance of additional shares of common stock 9 173 0 -
Repurchase of shares of common stock (5) (92) 0 -
Cash dividend @ $.15 per share 0 0 (797) -
Change in value in certain debt and equity
securities (net of tax effect) 0 0 0 (1,296)
------- ------- ------- -------
Balance at March 31, 1997 $ 5,307 $ 40,641 $ 27,809 $ (791)
======= ======= ======= =======
</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
March 31, March 31, March 31, March 31,
(Dollars in thousands) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and agency notes $ 45,147 $ 44,217 $ 2,998 $ 8,111
Obligations of U.S. government agencies 17,507 21,416 129,010 119,489
Obligations of states and political subdivisions 81,986 70,755 0 0
Collateralized mortgage obligations 55,314 45,404 35,117 31,174
Other securities 289 0 6,189 3,368
Unrealized gains(losses)* 0 0 (1,289) 495
-------- -------- -------- --------
Total Investment Securities $ 200,243 $ 181,792 $ 172,025 $ 162,637
======== ======== ======== ========
* 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>
March 31, March 31,
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Construction and Land Development $ 23,365 $ 16,262
Residential Real Estate - Mortgages 173,740 139,343
Commercial Real Estate - Mortgages 113,305 91,060
Commercial 78,352 87,803
Consumer 21,416 17,378
-------- --------
Total Loans $ 410,178 $ 351,846
======== ========
</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 57 0
Recoveries on loans 122 59
------- -------
Total 5,346 4,788
Less loans charged off 98 70
------- -------
Balance at March 31 $ 5,248 $ 4,718
======= =======
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 $2.275
million for the first quarter of 1997 or $.43 per share, an increase of 10%
from last year's reported first quarter of $2.075 million. Earnings per share
for the first quarter of 1996 were $.39. The increase in net income for the
first quarter was driven by increases in net interest income of $566,000 and
higher non-interest income of $197,000. Offsetting these increases was a
higher provision for credit losses of $57,000 and higher non-interest expenses
of $508,000. The annualized return on average assets was 1.08% for the first
quarter of 1997 while the annualized return on average stockholders' equity
was 12.67%. These ratios for the first quarter of 1996 were 1.09% and 12.39%
respectively.
STATEMENT OF CONDITION
Total assets equalled $867 million for growth of 3% from December 31,
1996. Loans increased to $410 million from $398 million while total
investment securities increased to $372 million from $359 million for the same
period. The growth in assets was funded through higher deposits which
increased by $9 million to total $630 million, higher short-term borrowings
(up $10 million to $65 million), and long-term borrowings (up $7 million to
$93 million). Growth in loans was fueled by continued business development
efforts, and the expansion of Mason-Dixon's mortgage banking operations.
Loans increased at both banking affiliates of Mason-Dixon. (Carroll County
Bank and Trust Company and Bank of Maryland).
Deposits also grew at both affiliate banks from December 31, 1996 with
most growth being realized in time and savings deposits.
Stockholders' equity increased to $73.0 million from $72.7 million at year
end. Earnings after taxes added $2.3 million to total stockholders' equity
and cash dividends paid reduced equity by $797 thousand. The quarter ended
with unrealized depreciation on securities classified as available for sale of
$791 thousand compared to unrealized appreciation of $505 thousand at year end
for an overall reduction to equity of $1.3 million. Note that the change
reflects current market value and not actual realized losses. The losses
would only be realized if the securities were actually sold. Total shares
outstanding at quarter end were 5,307,078 up from 5,303,166 at year end
primarily due to shares issued through compensation and benefit plans.
INCOME STATEMENT
Net income increased 10% to $2.275 million compared to the first quarter
of 1996 of $2.075 million.
Net interest income increased $566 thousand due primarily to growth in
earning assets. The net interest margin decreased to 4.19% from 4.33%.
Other operating income increased $197 thousand. Service charges increased
$53 thousand due to increased volume of accounts as well as fee income
increases on certain services. Trust division income decreased by $70
thousand as last year's first quarter income was augmented by an accounting
system change which raised income levels in last year's first quarter. Gains
on sales of securities totaled $221 thousand compared to $120 thousand for the
first quarter of 1996. Gains on sales of mortgage loans increased by more
than 200% and totaled $291 thousand. The increase was due to higher loan
origination volume for 1997. Other sources of other operating income
decreased $86 thousand. Included in 1996's first quarter was a non-recurring
gain of $151 thousand realized from the sale of a former branch site of
Carroll County Bank and Trust Company.
Other operating expenses increased $508 thousand of 9% compared to the
first quarter of 1996. Increased expenses relating to the expanded mortgage
banking operations added approximately $230 thousand to operating expenses.
Otherwise, expenses increased $278 thousand or 5%. Most of the increased
expenses were in salaries and benefits which included the increased expenses
from expanding the mortgage banking operations.
CAPITAL ADEQUACY
Capital adequacy remained strong at the end of the first quarter of 1997
and well in excess of regulatory standards which assess capital levels. The
capital leverage ratio improved to 7.68% from 7.58% at December 31, 1996. The
total capital ratio decreased to 13.88% from 13.93%. While the Tier 1 capital
ratio slightly decreased to 12.84% from 12.88%. Regulatory minimums, to
qualify as "well capitalized," are 5% for capital leverage, 6% for the Tier 1
capital ratio, and 10% for the total capital ratio.
Levels of qualifying capital increased as stockholders' equity increased
while intangible assets and certain deferred tax assets which are disallowed
for capital purposes, decreased.
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. The decision to
discontinue issuing shares and further increase stockholders' equity reflects
the current strength of Mason-Dixon's capital position and management's
ongoing goals of enhancing earnings per share and returns on average
stockholders' equity.
INTEREST RATE SENSITIVITY
At the end of the first quarter, Mason-Dixon had an estimated one year
negative gap of $60 million compared to a negative $79 million at December 31,
1996. The negative gap as a percentage of period end assets was 7% and 9%
respectively.
As a general rule, a negative gap will have the effect of decreasing net
interest income during periods of rising interest rates as higher volumes of
interest sensitive liabilities will reprice at higher levels than rate
sensitive assets.
Management believes the overall rate sensitivity position is appropriate
for current rate conditions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of stockholders was held on Saturday, April 19, 1997.
The purpose of the meeting was to vote on the election to Class II directors
and on a stockholder proposal submitted by Barbara S. Floyd. The stockholder
proposal sought to require the directors of Mason-Dixon to investigate in a
specified manner expressions of interest by potential acquirors of Mason-
Dixon. The stockholder proposal also sought to require the directors of
Mason-Dixon to hold the interests of the stockholders paramount over other
factors enumerated in Article 7 of Mason-Dixon's articles of incorporation
(social, legal, and economic effects on employees, customers, depositors and
communities served) in evaluating expressions of interest by potential
acquirors of Mason-Dixon.
The vote pertaining to the election of the Class II directors was as
follows:
David S. Donald H. Patricia A. R. Neal
Babylon, Jr. Campbell Dorsey Hoffman
For 4,428,781 4,449,172 4,403,196 4,445,685
Withheld 430,022 409,631 455,607 413,118
The following Class I and Class III directors continue to serve as of the
date of the stockholder meeting: Henry S. Baker, Jr., Miriam F. Beck, William
B. Dulany, Thomas K. Ferguson, S. Ray Hollinger, Edwin W. Shauck, James C.
Snyder, and Stevenson B. Yingling.
The vote pertaining to the adoption of the stockholder proposal was as
follows:
For 643,723
Against 3,506,086
Abstained 128,837
Broker Non-Votes 580,157
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained under Legal Proceedings in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, is incorporated by
reference herein. Except as set forth below, there have been no material
developments in such legal proceedings subsequent to the date of that
information.
On April 2, 1997, Mason-Dixon filed a Motion for Injunctive Relief and
Civil Contempt due to Defendants' alleged violation of the Court's February
28, 1997, order, based on press releases issued by Defendants and proxy
materials filed by Defendants with the Securities and Exchange Commission. At
the hearing, the Court ordered that a letter be issued to the SEC to be filed
with the Defendants' proxy materials and Defendants voluntarily changed
certain statements in their proxy materials. The Defendants' proxy materials
were not mailed to Mason-Dixon shareholders. On April 7, 1997, the Court
ordered Mason-Dixon to send a clarifying letter to shareholders regarding the
description of the Key Employees Retention Plan in Mason-Dixon's proxy
materials for its 1997 annual meeting.
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.
May 14, 1997 /s/ Thomas K. Ferguson
By: Thomas K. Ferguson
President/Chief Executive Officer
May 14, 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. MARCH 31,1997 FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 21,478,000
<INT-BEARING-DEPOSITS> 197,000
<FED-FUNDS-SOLD> 23,511,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 200,243,000
<INVESTMENTS-CARRYING> 372,268,000
<INVESTMENTS-MARKET> 370,583,000
<LOANS> 410,178,000
<ALLOWANCE> 5,248,000
<TOTAL-ASSETS> 867,287,000
<DEPOSITS> 629,527,000
<SHORT-TERM> 64,757,0000
<LIABILITIES-OTHER> 7,393,000
<LONG-TERM> 92,644,000
0
0
<COMMON> 5,307,000
<OTHER-SE> 67,659,000
<TOTAL-LIABILITIES-AND-EQUITY> 267,287,000
<INTEREST-LOAN> 9,105,000
<INTEREST-INVEST> 6,126,000
<INTEREST-OTHER> 264,000
<INTEREST-TOTAL> 15,495,000
<INTEREST-DEPOSIT> 5,756,000
<INTEREST-EXPENSE> 7,760,000
<INTEREST-INCOME-NET> 7,678,000
<LOAN-LOSSES> 57,000
<SECURITIES-GAINS> 221,000
<EXPENSE-OTHER> 6,405,000
<INCOME-PRETAX> 3,099,000
<INCOME-PRE-EXTRAORDINARY> 2,275,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,275,000
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
<YIELD-ACTUAL> 4.19
<LOANS-NON> 2,317,000
<LOANS-PAST> 602,000
<LOANS-TROUBLED> 255,000
<LOANS-PROBLEM> 12,438,434
<ALLOWANCE-OPEN> 5,167,000
<CHARGE-OFFS> 98,000
<RECOVERIES> 122,000
<ALLOWANCE-CLOSE> 5,248,000
<ALLOWANCE-DOMESTIC> 5,248,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
