FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1996
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Commission file number 0-20990
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Harbor Bankshares Corporation
- -----------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1786341
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
25 W. Fayette Street, Baltimore, Maryland 21201
- ----------------------------------------- -----
(address of principal executive offices) (zip code)
(410) 528-1800
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Registrant's telephone number, including area code
Not Applicable
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Former name, address and former fiscal year, if changed since last report.
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 preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X YES NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common stock, $.01 Par value--626,944 shares as of September 30, 1996
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1
<PAGE>
INDEX
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PART I FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Condition - September 30, 1996
(Unaudited) and December 31, 1995
Consolidated Statements of Income (Unaudited) - Three months
ended September 30, 1996 and 1995
Consolidated Statements of Income (Unaudited) - Nine months
ended September 30, 1996 and 1995
Consolidated Statement of Cash Flows (Unaudited) - Three
months ended September 30, 1996 and 1995
Consolidated Statement of Cash Flows (Unaudited) - Nine months
ended September 30, 1996 and 1995
Notes to Unaudited Consolidated Financial Statements.
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION
-----------------
Item I Legal Proceedings.
Item II Changes in Securities.
Item III Defaults upon Senior Securities.
Item IV Submission of Matters to a Vote of Security Holders.
Item V Other Information.
Item VI Exhibits and Reports on Form 8-K.
SIGNATURES:
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2
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Condition
<S> <C> <C>
Sept. 30 Dec. 31
1996 1995
(Unaudited)
Dollars in Thousands
ASSETS
Cash and Due from Banks $ 4,801 $ 6,682
Interest Bearing Deposits in Other Banks 6,913 7,518
Investment Securities:
Held to maturity (market values of $14,878 as of 15,016 9,437
9/30/96 and $9,654 as of 12/31/95)
Available for Sale 1,586 1,461
----- -----
Total Investment Securities 16,602 10,898
Federal Funds Sold ---- 4,308
Loans 82,360 78,238
Unearned Income (160) (129)
Reserve for Possible Loan Losses (908) (817)
---- ----
Net Loans 81,292 77,292
Property and Equipment - Net 1,004 806
Intangible Assets - Net 4,245 4,494
Accrued Interest Receivable and Other Assets 1,639 1,318
----- -----
TOTAL ASSETS $116,496 $113,316
-------- --------
LIABILITIES
Deposits:
Non-Interest Bearing Demand $ 9,632 $ 12,683
Interest Bearing Transaction Accounts 14,972 15,337
Savings 35,855 34,140
Time, $100,000 or more 10,509 11,348
Other Time 28,097 27,590
Total Deposits 99,065 101,098
Other Borrowed Money 2,000 ----
Accrued Interest and Other Liabilities 885 780
Notes Payable 5,796 5,796
----- -----
TOTAL LIABILITIES $107,746 $107,674
SHAREHOLDERS' EQUITY
Common stock-par value $.01 per share:
Authorized 10,000,000 shares; issued & outstanding 626,944
at 9/30/96 & 428,488 at 12/31/95 6 4
Capital Surplus 5,945 2,884
Retained Earnings 2,797 2,742
Net unrealized gains on available-for-sale securities 2 12
- --
TOTAL SHAREHOLDERS' EQUITY 8,750 5,642
----- -----
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $116,496 $113,316
======== ========
(See Notes to Unaudited Consolidated Financial Statements)
</TABLE>
3
<PAGE>
Consolidated Statements of Income Three Months
Ended September 30
1996 1995
(Unaudited)
Dollars in Thousands
Except per Share Data
INTEREST INCOME
Interest and Fees on Loans $1,944 $ 1,887
Interest on Investment Securities (Taxable) 255 119
Interest on Deposits in Other Banks 101 104
--- ---
2,300 2,110
Interest on Federal Funds Sold 15 41
-- --
TOTAL INTEREST INCOME 2,315 2,151
INTEREST EXPENSE
Interest on Deposits
Savings 418 359
Interest Bearing Transaction Accounts 102 101
Time $100,000 or More 145 123
Other Time 257 233
Interest on Other Borrowed Money 27 23
Interest on RTC Debt 78 84
-- --
TOTAL INTEREST EXPENSE 1,027 923
----- ---
NET INTEREST INCOME 1,288 1,228
Provision for Possible Loan Losses (20) 50
--- --
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 1,308 1,178
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 160 122
Other Income 54 33
-- --
214 155
OTHER OPERATING EXPENSES
Salaries and Employee Benefits 550 451
Occupancy Expense of Premises 141 113
Equipment Expense 57 51
Data Processing Expense 100 92
Deposit Assessments & Related Fees 272 21
Goodwill Amortization 82 83
Other Expenses 238 194
--- ---
1,440 1,005
INCOME BEFORE INCOME TAXES 82 328
Applicable Income Taxes 33 128
-- ---
NET INCOME $ 49 $ 200
----- ------
EARNINGS PER SHARE $ .08 $ .47
----- -------
AVERAGE COMMON SHARES OUTSTANDING 627 430
Dividend Declared per Share $ --- $ .10
(See Notes to Unaudited Consolidated Financial Statements)
4
<PAGE>
Consolidated Statements of Income Nine Months
Ended Sept. 30
1996 1995
(Unaudited)
Dollars in Thousands
Except per Share Data
INTEREST INCOME
Interest and Fees on Loans $5,685 $ 5,279
Interest on Investment Securities (Taxable) 685 463
Interest on Deposits in Other Banks 317 328
--- ---
6,687 6,070
Interest on Federal Funds Sold 90 199
-- ---
TOTAL INTEREST INCOME 6,777 6,269
INTEREST EXPENSE
Interest on Deposits
Savings 1,186 1,033
Interest Bearing Transaction Accounts 317 357
Time $100,000 or More 437 338
Other Time 821 601
Interest on Other Borrowed Money 60 78
Interest on RTC Debt 234 254
--- ---
TOTAL INTEREST EXPENSE 3,055 2,661
----- -----
NET INTEREST INCOME 3,722 3,608
Provision for Possible Loan Losses 40 150
-- ---
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 3,682 3,458
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 443 363
Other Income 114 106
--- ---
557 469
OTHER OPERATING EXPENSES
Salaries and Employee Benefits 1,589 1,333
Occupancy Expense of Premises 382 318
Equipment Expense 174 143
Data Processing Expense 279 251
Deposit Assessments & Related Fees 313 136
Goodwill Amortization 248 248
Other Expenses 651 582
--- ---
3,636 3,011
INCOME BEFORE INCOME TAXES 603 916
Applicable Income Taxes 246 360
--- ---
NET INCOME $ 357 $ 556
------ ------
EARNINGS PER SHARE $ .75 $ 1.29
------ -------
AVERAGE COMMON SHARES OUTSTANDING 478 430
Dividend Declared per Share $ .20 $ .20
(See Notes to Unaudited Consolidated Financial Statements)
5
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<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Three Months
Ended Sept. 30
<S> <C> <C>
1996 1995
(Unaudited)
Dollars in Thousands
Net Income $ 49 $ 200
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Possible Loan Losses (20) 50
Depreciation and Amortization 153 135
Increase in Interest Receivable and Other Assets (86) (130)
Increase in Interest Payable and Other Liabilities 90 57
------- --------
Net Cash Provided by Operating Activities 186 312
INVESTING ACTIVITIES
Net Decrease in Deposits at Other Banks 379 594
Purchase of Investments Securities --- (2,685)
Proceeds From Maturing of Investments Securities --- 8,573
Net (Increase) Decrease in Loans (695) 274
Purchase of Premises and Equipment (150) (114)
-------- ---------
Net Cash Used in Investing Activities (466) (6,642)
FINANCING ACTIVITIES
Net (Decrease) Increase in Non-Interest Bearing Transaction Accounts (347) 1,347
Net (Decrease) Increase in Interest Bearing Transaction Accounts (389) 1,160
Net Decrease in Savings Deposits (713) (892)
Net Increase in Time Deposits 435 1,523
Net Decrease in Borrowed Money --- (5,500)
Proceeds from Issuance of Common Stock 425 ---
Payments of Cash Dividends (83) (127)
--------- -----------
Net Cash Provided by Financing Activities (672) 2,489
-------- -----------
Decrease in Cash and Cash Equivalents (952) 4,465
Cash and Cash Equivalents at Beginning of Period 5,753 2,836
------ --------
Cash and Cash Equivalents at End of Period $ 4,801 $ 7,301
-------- --------
(See Notes to Unaudited Consolidated Financial Statements)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Three Months
Ended Sept. 30
<S> <C> <C>
1996 1995
(Unaudited)
Dollars in Thousands
OPERATING ACTIVITIES
Net Income $ 357 $ 556
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Possible Loan Losses 40 150
Depreciation and Amortization 439 406
Increase in Interest Receivable and Other Assets (321) (39)
Increase in Interest Payable and Other Liabilities 105 295
------- ---------
Net Cash Provided by Operating Activities 620 1,368
INVESTING ACTIVITIES
Net Decrease in Deposits at Other Banks 605 1,755
Purchase of Investments Securities (8,129) (2,701)
Proceeds From Maturing of Investments Securities 2,427 9,573
Net Increase in Loans (4,040) (20,102)
Purchase of Premises and Equipment (389) (450)
-------- ---------
Net Cash Used in Investing Activities (9,526) (11,925)
FINANCING ACTIVITIES
Net Increase (Decrease) in Non-Interest Bearing Transaction Accounts (3,051) 1,359
Net Decrease in Interest Bearing Transaction Accounts (365) (1,310)
Net Increase (Decrease) in Savings Deposits 1,715 (3,557)
Net Increase (Decrease) in Time Deposits (332) 2,549
Net Increase in Borrowed Money 2,000 ----
Proceeds from Issuance of Common Stock 3,069 ----
Payments of Cash Dividends 320 (340)
-------- ---------
Net Cash Provided by Financing Activities 2,716 (1,299)
-------- ---------
Decrease in Cash and Cash Equivalents (6,190) (11,856)
Cash and Cash Equivalents at Beginning of Period 10,991 19,157
------ ---------
Cash and Cash Equivalents at End of Period $ 4,801 $ 7,301
-------- --------
(See Notes to Unaudited Consolidated Financial Statements)
</TABLE>
7
<PAGE>
Notes to Unaudited Consolidated Financial Statements
September 30, 1996
Note A Basis of Presentation:
---------------------
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all
the information and footnotes required for complete financial
statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair presentation have
been included. Operating results for the nine month period ended
September 30, 1996, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996. The
enclosed unaudited consolidated financial statements should be read
in conjunction with the consolidated financial statements and
footnotes thereto incorporated by reference in the Corporation's
Annual Report on Form 10-KSB for the year ended December 31, 1995.
Note B Accounting Changes:
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Effective January 1, 1996, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," SFAS No. 122, "Accounting for Mortgage Servicing
Rights - an Amendment of SFAS 65," and SFAS No. 123, "Accounting
for Stock Based Compensation." The adoption of these new accounting
pronouncements did not have a material impact on the financial
statements of the Corporation.
Note C New Accounting Pronouncements:
-----------------------------
In June of 1996, the Financial Accounting Standards Board issued
Statement 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, which provides new
accounting and reporting standards for sales, securitization and
servicing of receivables and other financial assets and
extinguishments of liabilities. The provisions of the Statement are
to be applied to transactions occurring after December 31, 1996.
The Corporation is currently reviewing the provisions of the
Statement to determine what, if any, impact there will be on the
Corporation.
8
<PAGE>
Part I Financial Information:
---------------------
Item II Management's Discussion and Analysis of Financial Condition and
Results of Operations
Harbor Bankshares Corporation's earnings for the third quarter of
1996 totaled $49 thousand, a decrease of $151 thousand or 75.5%
when compared to the third quarter of 1995. Overhead expenses
related to the opening of a De-Novo branch facility by the
Corporation's subsidiary, The Harbor Bank of Maryland, and the one
time F.D.I.C. assessment fee of $237 thousand in order to
recapitalize the S.A.I.F. fund were the main reasons for the
decrease.
Year-to-date earnings as of September 30, 1996, were $357 thousand
or $.75 per share, reflecting a decrease of $199 thousand or 35.8%
when compared to the same period for 1995. Return on Average Assets
(ROAA) and Return on Average Shareholder's Equity (ROAE) were .31%
and 5.47%, respectively.
Net interest income increased by $114 thousand or 3.2%, when
compared to the same period last year. Total loan revenues were
$5.7 million reflecting an increase of $406 thousand or 7.7%, and
were 83.9% of total interest income. Total interest expense for the
period was $3.1 million. Time and savings deposits were the main
source of interest expense totaling $1.2 million each. Together
they represent 77.4% of total interest expense. Included in the
interest expense are $60 thousand of borrowed funds as well as $234
thousand of interest expense related to the borrowings of the
Corporation from the former Resolution Trust Corporation, now FDIC,
for the Interim Capital Assistance Program related to acquisitions
that took place during 1994.
The provision for possible credit losses was a $20 thousand
reversal for the third quarter of 1996 and $40 thousand
year-to-date. A recovery of $57 thousand during the third quarter,
led to the reversal of some of the reserves accrued during the
early part of the year. The year-to-date figure represents a
decrease of $110 thousand or 73.3% when compared to the previous
year. Charge-offs for 1996 remained low in comparison to the
industry, totaling $14 thousand with recoveries of $65 thousand.
These figures reflect the conservative lending policies of the
Corporation.
Other operating income increased by $88 thousand or 18.8% over the
year-to-date operating income in 1995. This increase was mainly
attributable to service charges and ATM transaction fees due to a
larger number of accounts and account activity.
9
<PAGE>
Part I Financial Information: (continued)
---------------------
Item II Management's Discussion and Analysis of Financial Condition and
Results of Operations - (continued)
Non-interest expense increased by $625 thousand or 20.8% to $ 3.6
million from $3.0 million in 1995. Salaries and employee benefits
increased by $256 thousand or 19.2%, reflecting additional staff
due to the expansion of one additional branch as well as support
staff and general salaries increases. Occupancy and equipment
expenses increased by $64 thousand and $31 thousand, respectively,
as a result of the expansion. Deposit assessments increased to $313
thousand mainly due to the one time FDIC assessment fee in the
amount of $237 thousand in an effort to recapitalize the SAIF
Insurance Fund. This fee was assessed due to the purchase of three
branches from failed savings and loans during 1994 and expensed as
of September 30, 1996. Goodwill amortization, at $248 thousand,
represents 6.8% of total non-interest expense. Other expenses
increased by $49 thousand or 11.9% due to the expansion and general
cost increase.
As of September 30, 1996, total deposits were $99.0 million,
reflecting a decrease of $2.0 million or 2.0% when compared to
1995. Net loans increased by $4.0 million or 5.2% to $81.2 million.
The loan increases were mainly reflected in the Commercial and Real
Estate categories. As of September 30, 1996, $2.0 million was
borrowed from the Federal Home Loan Bank to partially fund the loan
increases.
Shareholders equity increased by $3.1 million. During February
1996, the Corporation began to raise additional capital through a
stock offering of up to 350 thousand shares at a price of $15.00
per share. The offering had a minimum of 70 thousand shares. This
offering concluded as of June 30, 1996. Primary capital to total
assets was 7.5% as of September 30, 1996.
During June 1996, the Corporation's subsidiary, The Harbor Bank of
Maryland, established a financial services subsidiary with the
purpose of selling mutual funds, insurance, and other financial
products. The name of the subsidiary is Harbor Financial Services
and has been capitalized by an investment of $80 thousand. As of
September 30, 1996, Harbor Financial Services showed a net loss of
$31 thousand.
During the third quarter of 1996, through its subsidiary, The
Harbor Bank of Maryland, the Corporation established an ATM network
with fifteen ATMs in partnership with Stop, Shop & Save, a super
market chain based in Baltimore City, bringing the total of ATMs
operated by the Bank to nineteen.
10
<PAGE>
Part I Financial Information (continued):
---------------------
Item II Management's Discussion and Analysis of Financial Condition and
Results of Operations - (continued)
The Corporation paid a cash dividend of $.20 per share on February
19, 1996. This dividend is equivalent to the total amount of
dividends paid in 1995.
The Corporation's stock is traded privately. After the stock
offering concluded, only a few trades have been made.
Harbor Bankshares Corporation, through its subsidiary, The Harbor
Bank of Maryland, continues its commitment to serve the community
where its branches are located.
Part II Other Information:
-----------------
Item I Legal Proceedings
The Corporation and its subsidiary, at times and in the ordinary
course of business, are subject to legal actions. Management does
not believe the outcome of such matters will have a material
adverse effect on the results of operations or financial condition
of the Corporation.
Item II Changes in Securities
None.
Item III Defaults Upon Senior Securities
None.
Item IV Submission of Matters to a Vote of Security Holders
None.
Item V Other Information
None.
11
<PAGE>
Part II Other Information (continued):
-----------------
The Company did not file any report on Form 8-K for the period
ending September 30, 1996.
Item VI Exhibits and Reports on Form 8-K
Exhibit II - Statement Regarding Computation of per Share Earnings
12
<PAGE>
EXHIBIT II
Statement Regarding Computation of Per Share Earnings
Earnings per share of $.75 for the nine months ending September 30, 1996,
and $1.29 for the nine months ending September 30, 1995, were computed by
dividing net income of $357 thousand for 1996, and $556 thousand for 1995 by the
average number of shares of common stock outstanding during 1996 of 478,491 and
during 1995 of 429,709.
13
<PAGE>
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.
HARBOR BANKSHARES CORPORATION
Date ________ /S/ Joseph Haskins, Jr.
-----------------------
Joseph Haskins, Jr.
President and Chief Executive Officer
Date 10/28/96 /S/ Teodoro J. Hernandez
-------- ------------------------
Teodoro J. Hernandez
Treasurer
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form
10-QSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000889608
<NAME> Harbor Bankshares Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,801
<INT-BEARING-DEPOSITS> 6,913
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,586
<INVESTMENTS-CARRYING> 15,016
<INVESTMENTS-MARKET> 14,878
<LOANS> 82,200
<ALLOWANCE> 908
<TOTAL-ASSETS> 116,496
<DEPOSITS> 99,065
<SHORT-TERM> 2,000
<LIABILITIES-OTHER> 885
<LONG-TERM> 5,796
0
0
<COMMON> 6
<OTHER-SE> 8,744
<TOTAL-LIABILITIES-AND-EQUITY> 116,496
<INTEREST-LOAN> 5,685
<INTEREST-INVEST> 685
<INTEREST-OTHER> 407
<INTEREST-TOTAL> 6,777
<INTEREST-DEPOSIT> 2,761
<INTEREST-EXPENSE> 3,055
<INTEREST-INCOME-NET> 3,722
<LOAN-LOSSES> 40
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,636
<INCOME-PRETAX> 603
<INCOME-PRE-EXTRAORDINARY> 603
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 357
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
<YIELD-ACTUAL> 5.06
<LOANS-NON> 523
<LOANS-PAST> 1,104
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,199
<ALLOWANCE-OPEN> 817
<CHARGE-OFFS> 14
<RECOVERIES> 65
<ALLOWANCE-CLOSE> 908
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 640
</TABLE>
