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 June 30, 1996
-------------
Commission file number 0-20990
---------
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
--------------
Registrant's telephone number, including area code
Not Applicable
--------------
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--612,774 shares as of June 30, 1996
- ----------------------------------------------------------------
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
INDEX
-----
PART I FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Condition - June 30, 1996
(Unaudited) and December 31, 1995
Consolidated Statements of Income (Unaudited) - Three months
ended June 30, 1996 and 1995
Consolidated Statements of Income (Unaudited) - Six months
ended June 30, 1996 and 1995
Consolidated Statement of Cash Flows (Unaudited) - Six months
ended June 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:
2
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
<TABLE>
Consolidated Statements of Condition
<CAPTION>
June 30 Dec 31
1996 1995
------- ------
(Unaudited)
Dollars in Thousands
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 5,753 $ 6,682
Interest Bearing Deposits in Other Banks 7,292 7,518
Investment Securities:
Held to maturity (market values of $14,741 as of 15,014 9,437
6/30/96 and $9,654 as of 12/31/95)
Available for Sale 1,588 1,461
----- -----
Total Investment Securities 16,602 10,898
Federal Funds Sold ----- 4,308
Loans 81,866 78,238
Unearned Income (151) (129)
Reserve for Possible Loan Losses (871) (817)
---- ----
Net Loans 80,844 77,292
Property and Equipment - Net 848 806
Intangible Assets - Net 4,328 4,494
Accrued Interest Receivable and Other Assets 1,502 1,318
----- -----
TOTAL ASSETS $117,169 $113,316
LIABILITIES
Deposits:
Non-Interest Bearing Demand $ 9,979 $ 12,683
Interest Bearing Transaction Accounts 15,361 15,337
Savings 36,568 34,140
Time, $100,000 or more 10,975 11,348
Other Time 27,196 27,590
------ ------
Total Deposits 100,079 101,098
Federal Funds Purchased 2,000 ----
Accrued Interest and Other Liabilities 795 780
Notes Payable 5,796 5,796
----- -----
TOTAL LIABILITIES $108,670 $107,674
SHAREHOLDERS' EQUITY
Common stock-par value $.01 per share:
Authorized 10,000,000 shares;
issued & outstanding 612,774
at 6/30/96 & 428,488 at 12/31/95 6 4
Capital Surplus 5,530 2,829
Retained Earnings 2,959 2,797
Net unrealized gains on available-for-sale securities 4 12
--- ---
TOTAL SHAREHOLDERS' EQUITY 8,499 5,642
----- -----
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $117,169 $113,316
======== ========
</TABLE>
(See Notes to Unaudited Consolidated Financial Statements)
3
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
<TABLE>
Consolidated Statements of Income
<CAPTION>
Three Months
Ended June 30
1996 1995
---- ----
(Unaudited)
Dollars in Thousands
Except per Share Data
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $1,894 $ 1,876
Interest on Investment Securities (Taxable) 242 173
Interest on Deposits in Other Banks 107 110
--- ---
2,243 2,159
Interest on Federal Funds Sold 10 1
-- --
TOTAL INTEREST INCOME 2,253 2,160
INTEREST EXPENSE
Interest on Deposits
Savings 293 351
Interest Bearing Transaction Accounts 101 116
Time $100,000 or More 154 112
Other Time 375 197
Federal Funds Purchased 33 47
Interest on RTC Debt 76 86
-- --
TOTAL INTEREST EXPENSE 1,032 909
----- ---
NET INTEREST INCOME 1,221 1,251
Provision for Possible Loan Losses 30 50
-- --
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 1,191 1,201
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 155 116
Other Income 37 44
-- --
192 160
OTHER OPERATING EXPENSES
Salaries and Employee Benefits 529 438
Occupancy Expense of Premises 117 103
Equipment Expense 62 48
Data Processing Expense 94 87
Deposit Assessments & Related Fees 24 57
Goodwill Amortization 83 83
Other Expenses 192 209
--- ---
1,101 1,025
INCOME BEFORE INCOME TAXES 282 336
Applicable Income Taxes 118 131
--- ---
NET INCOME $ 164 $ 205
------ ------
EARNINGS PER SHARE $ .38 $ .48
------ ------
AVERAGE COMMON SHARES OUTSTANDING 428 430
Dividend Declared per Share $.20 $ .10
</TABLE>
(See Notes to Unaudited Consolidated Financial Statements)
4
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
<TABLE>
Consolidated Statements of Income
<CAPTION>
Six Months
Ended June 30
1996 1995
---- ----
(Unaudited)
Dollars in Thousands
Except per Share Data
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $3,741 $ 3,392
Interest on Investment Securities (Taxable) 430 344
Interest on Deposits in Other Banks 216 224
--- ---
4,387 3,960
Interest on Federal Funds Sold 75 158
-- ---
TOTAL INTEREST INCOME 4,462 4,118
INTEREST EXPENSE
Interest on Deposits
Savings 768 674
Interest Bearing Transaction Accounts 215 256
Time $100,000 or More 292 215
Other Time 564 368
Federal Funds Purchased 33 55
Interest on RTC Debt 156 170
--- ---
TOTAL INTEREST EXPENSE 2,028 1,738
----- -----
NET INTEREST INCOME 2,434 2,380
Provision for Possible Loan Losses 60 100
-- ---
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 2,374 2,280
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 283 241
Other Income 60 73
-- --
343 314
OTHER OPERATING EXPENSES
Salaries and Employee Benefits 1,039 882
Occupancy Expense of Premises 241 205
Equipment Expense 117 92
Data Processing Expense 179 159
Deposit Assessments & Related Fees 41 114
Goodwill Amortization 166 166
Other Expenses 413 388
--- ---
2,196 2,006
INCOME BEFORE INCOME TAXES 521 588
Applicable Income Taxes 213 232
--- ---
NET INCOME $ 308 $ 356
------ ------
EARNINGS PER SHARE $ .72 $ .82
----- ------
AVERAGE COMMON SHARES OUTSTANDING 428 430
Dividend Declared per Share $ .20 $ .20
</TABLE>
(See Notes to Unaudited Consolidated Financial Statements)
5
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
Six Months
Ended June 30
1996 1995
---- ----
(Unaudited)
Dollars in Thousands
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 308 $ 356
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Possible Loan Losses 60 100
Depreciation and Amortization 286 271
Decrease (Increase) in Interest Receivable and Other Assets (235) 91
Increase in Interest Payable and Other Liabilities 15 238
-- ---
Net Cash Provided by Operating Activities 434 1,056
INVESTING ACTIVITIES
Net Decrease in Deposits at Other Banks 226 1,161
Purchase of Investments Securities (8,129) (16)
Proceeds From Maturity of Investments Securities 2,427 1,000
Net Increase in Loans (3,345) (20,376)
Purchases of Premises and Equipment (239) (336)
---- ----
Net Cash Used in Investing Activities (9,060) (18,567)
FINANCING ACTIVITIES
Net Increase (Decrease) in Non-Interest Bearing Transaction Accounts (2,704) 12
Net Increase (Decrease) in Interest Bearing Transaction Accounts 24 (2,470)
Net Increase (Decrease) in Savings Deposits 2,428 (2,665)
Net Increase (Decrease) in Time Deposits (767) 1,026
Net Increase in Federal Funds Purchased 2,000 5,500
Payments of Cash Dividends (237) (213)
Proceeds from Issuance of Common Stock 2,644 ----
----- -----
Net Cash Provided by Financing Activities 3,388 1,190
----- -----
Decrease in Cash and Cash Equivalents (5,238) (16,321)
Cash and Cash Equivalents at Beginning of Period 10,991 19,157
------ ------
Cash and Cash Equivalents at End of Period $ 5,753 $ 2,836
-------- --------
</TABLE>
(See Notes to Unaudited Consolidated Financial Statements)
6
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
Notes to Unaudited Consolidated Financial Statements
June 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 six month period ended
June 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:
------------------
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 Company is currently reviewing the provisions of the Statement
to determine what, if any, impact there will be on the Company.
7
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
Notes to Unaudited Consolidated Financial Statements
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 second quarter of
1996 totaled $164 thousand, a decrease of $41 thousand or 20.0%
when compared to the second 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, was the main
reason for the decrease.
Year-to-date earnings as of June 30, 1996, were $308 thousand or
$.72 per share, reflecting a decrease of $48 thousand or 13.5% when
compared to the same period for 1995. Return on Average Assets
(ROAA) and Return on Average Shareholder's Equity (ROAE) were .54%
and 11.18%, respectively.
Net interest income increased by $54 thousand or 2.3%, when
compared to the same period last year. Total loan revenues were
$3.7 million reflecting an increase of $349 thousand or 10.3%, and
were 83.8% of total interest income. Total interest expense for the
period was $2.0 million. Time and savings deposits were the main
source of interest expense totaling $856 and $768 thousand,
respectively. Together they represent 80.0% of total interest
expense. Included in the interest expense are $33 thousand of
borrowed funds as well as $156 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 $30 thousand for the
second quarter of 1996 and $60 thousand year-to-date. The
year-to-date figure represents a decrease of $40 thousand or 40.0%
when compared to the previous year. Charge-offs for 1996 remained
low in comparison to the industry, totaling $14 thousand with
recoveries of $8 thousand. These figures reflect the conservative
lending policies of the Corporation.
Other operating income increased by $29 thousand or 9.2% over the
year-to-date operating income in 1995. This increase was mainly
attributable to service charges due to a larger number of accounts
and account activity.
8
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
Notes to Unaudited Consolidated Financial Statements
Part I Financial Information:
----------------------
Item II Management's Discussion and Analysis of Financial Condition and
Results of Operations - (continued)
Non-interest expense increased by $190 thousand or 9.5% to $ 2.2
million from $2.0 million in 1995. Salaries and employee benefits
increased by $157 thousand or 17.8%, 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 $36 thousand and $25 thousand, respectively,
as a result of the expansion. Deposit assessments decreased by $73
thousand due to reduced FDIC assessments. Goodwill amortization, at
$166 thousand represents 7.6% of total non-interest expense. Other
expenses increased by $25 thousand or 6.4% due to the expansion and
general cost increase.
As of June 30, 1996, total deposits were $100.1 million, reflecting
a decrease of $1.0 million or 1.0% when compared to 1995, due to a
seasonal drop in deposits. Net loans increased by $3.6 million or
4.6% to $81.9 million. The loan increases were mainly reflected in
the Commercial and Real Estate categories. As of June 30, 1996,
$2.0 million was borrowed from the Federal Home Loan Bank to
partially fund the loan increases.
Shareholders equity increased by $2.9 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. As of that date, 184,311
shares were sold and the net proceeds of $2.6 million were included
in the stockholders equity totals. Additional commitments to
purchase shares were received after June 30, 1996, bringing the
total amount of shares sold to 197,482 shares. Primary capital to
total assets was 7.3% as of June 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 was capitalized by an investment of $60 thousand. As of June
30, 1996, Harbor Financial showed a net loss of $12 thousand.
9
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
Notes to Unaudited Consolidated Financial Statements
Part I Financial Information:
----------------------
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 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
Item V Other Information
None.
10
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
Notes to Unaudited Consolidated Financial Statements
Part II Other Information: (continued)
----------------
The Company did not file any report on Form 8-K for the period
ending June 30, 1996.
Item VI Exhibits and Reports on Form 8-K
Exhibit II - Statement Regarding Computation of per Share Earnings
11
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
EXHIBIT II
Statement Regarding Computation of Per Share Earnings
Earnings per share of $.72 for six months ending June 30, 1996, and $.82
for the six months ending June 30, 1996, were computed by dividing net income of
$308,000 for 1996, and $356,000 for 1995 by the average number of shares of
common stock outstanding during 1996 of 428,488 and during 1995 of 429,709.
12
<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 8/5/96 s/Joseph Haskins, Jr.
------ ---------------------
Joseph Haskins, Jr.
President and Chief Executive Officer
Date 8/5/96 s/Teodoro J. Hernandez
------ -----------------------
Teodoro J. Hernandez
Treasurer
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,753
<INT-BEARING-DEPOSITS> 7,292
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,588
<INVESTMENTS-CARRYING> 15,014
<INVESTMENTS-MARKET> 14,741
<LOANS> 81,715
<ALLOWANCE> 871
<TOTAL-ASSETS> 117,169
<DEPOSITS> 100,079
<SHORT-TERM> 2,000
<LIABILITIES-OTHER> 795
<LONG-TERM> 5,796
0
0
<COMMON> 6
<OTHER-SE> 8,493
<TOTAL-LIABILITIES-AND-EQUITY> 117,169
<INTEREST-LOAN> 1,894
<INTEREST-INVEST> 242
<INTEREST-OTHER> 117
<INTEREST-TOTAL> 2,253
<INTEREST-DEPOSIT> 923
<INTEREST-EXPENSE> 1,032
<INTEREST-INCOME-NET> 1,221
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,101
<INCOME-PRETAX> 282
<INCOME-PRE-EXTRAORDINARY> 282
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164
<EPS-PRIMARY> .38
<EPS-DILUTED> 0
<YIELD-ACTUAL> 482
<LOANS-NON> 394
<LOANS-PAST> 341
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 583
<ALLOWANCE-OPEN> 853
<CHARGE-OFFS> 13
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 871
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 681
</TABLE>
