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, 1997
Commission file number 0-20990
Harbor Bankshares Corporation
(Exact name of registrant as specified in its charter)
Maryland 52-1786341
(State of other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
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 -- 643,882 shares as of June 30, 1997
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
INDEX
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Statements of Condition - June
30, 1997 (Unaudited) and December 31, 1996
Consolidated Statements of Income
(Unaudited) Three months Ended June 30, 1997
and 1996
Consolidated Statements of Income
(Unaudited) - Six months Ended June 30, 1997
and 1996
Consolidated Statement of Cash Flows
(Unaudited) - Six months Ended June 30, 1997
and 1996
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 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
-2-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30 Dec 31
1997 1996
----- -----
(Unaudited)
Dollars in Thouands
<S> <C>
ASSETS
Cash and Due from Banks $ 3,170 $ 5,373
Interest Bearing Deposits in Other Banks 4,515 5,574
Investment Securities:
Held to maturity (market values of $15,881
as of 6/30/97 and $14,890 as of 12/31/96) 16,020 15,016
Available for Sale 4,547 1,569
------- -------
Total Investment Securities 20,567 16,585
Federal Funds Sold 9,160 10,929
Loans 84,273 85,509
Unearned Income (179) (167)
Reserve for Possible Loan Losses (827) (889)
------- -------
Net Loans 83,267 84,453
Property and Equipment - Net 1,369 1,058
Goodwill 3,997 4,163
Accrued Interest Receivable and Other Assets 1,821 1,516
------- -------
TOTAL ASSETS $ 127,866 $ 129,651
------- --------
LIABILITIES
Deposits:
Non-Interest Bearing Demand $ 10,003 $ 8,953
Interest Bearing Transaction Accounts 15,740 13,756
Savings 37,744 40,990
Time, $100,000 or more 17,433 17,381
Other Time 31,115 33,044
------- --------
Total Deposits 112,035 114,124
Accrued Interest and Other Liabilities 708 730
Notes Payable 5,796 5,796
------- --------
TOTAL LIABILITIES 118,539 120,650
SHAREHOLDERS' EQUITY
Common stock-par value $.01 per share:
Authorized 10,000,000 shares; 643,882 issued and outstanding
at 6/30/97 and $633,444 at 12/31/96. 6 6
Capital Surplus 5,751 5,720
Retained Earnings 3,595 3,283
Net unrealized gains on available-for-sale securities (25) (8)
------- --------
TOTAL SHAREHOLDERS' EQUITY 9,327 9,001
------- --------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $ 127,866 $ 129,651
------- -------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
-3-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months
Ended June 30
1997 1996
<S> <C>
INTEREST INCOME
Interest and Fees on Loans $ 4,024 $ 3,741
Interest on Investment Securities (Taxable) 612 430
Interest on Deposits in Other Banks 140 216
--------- -------
4,776 4,387
Interest on Federal Funds Sold 267 75
--------- -------
TOTAL INTEREST INCOME 5,043 4,462
INTEREST EXPENSE
Interest on Deposits
Savings 655 768
Interest Bearing Transaction Accounts 182 215
Time $100,000 or More 479 292
Other Time 865 564
Federal Funds Purchased -- 33
Interest on RTC Debt 155 156
--------- -------
TOTAL INTEREST EXPENSE 2,336 2,028
--------- -------
NET INTEREST INCOME 2,707 2,434
Provisions for Possible Loan Losses 36 60
--------- -------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 2,671 2,374
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 278 283
Other Income 273 60
--------- -------
551 343
OTHER OPERATING EXPENSES
Salaries and Employee Benefits 1,242 1,039
Occupancy Expense of Premises 327 241
Equipment Expense 173 117
Data Processing Expense 272 179
Deposit Assessments & Related Fees 17 41
Goodwill Amortization 166 166
Other Expenses 533 413
--------- -------
2,730 2,196
INCOME BEFORE INCOME TAXES 492 521
Applicable Income Taxes 178 213
--------- -------
NET INCOME 314 308
--------- -------
EARNINGS PER SHARE $ .49 $ .72
--------- -------
AVERAGE COMMON SHARES OUTSTANDING 64 428
Dividend Declared per Share $ .20 $ .20
</TABLE>
(See Notes to Unaudited Consolidated Financial Statements)
-4-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
June 30
1997 1996
---- ----
(Unaudited)
In Thousands
Except per Share Data
<S> <C>
INTEREST INCOME
Interest and Fees on Loans $ 2,013 $ 1,894
Interest on Investment Securities (Taxable) 324 242
Interest on Deposits in Other Banks 68 107
------- -------
$ 2,405 $ 2,243
Interest on Federal Funds Sold 146 10
------- -------
TOTAL INTEREST INCOME 2,551 2,253
INTEREST EXPENSE
Interest on Deposits
Savings 330 293
Interest Bearing Transaction Accounts 98 101
Time $100,000 or More 238 154
Other Time 444 375
Federal Funds Purchased -- 33
Interest on Notes Payable 79 76
------- -------
TOTAL INTEREST EXPENSE 1,189 1,032
------- -------
NET INTEREST INCOME 1,362 1,221
Provision for Possible Loan Losses 18 30
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 1,344 1,191
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 143 155
Other Income 72 37
------- -------
215 192
OTHER OPERATING EXPENSES
Salaries and Employee Benefits 644 529
Occupancy Expense of Premises 169 117
Equipment Expense 91 62
Data Processing Expense 140 94
Deposit Assessments and Related Fees 9 24
Goodwill Amortization 83 83
Other Expenses 236 192
------- -------
1,372 1,101
INCOME BEFORE INCOME TAXES 187 282
Applicable Income Taxes 58 118
------- -------
NET INCOME $ 129 $ 164
------- -------
EARNINGS PER SHARE $ .20 $ .38
------- -------
AVERAGE COMMON SHARES
OUTSTANDING 641 428
Dividends Declared per Share $ -- $ .20
</TABLE>
(See notes to unaudited consolidated Financial Statements)
-5-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
1997 1996
---- -----
(Unaudited)
in Thousands
<S> <C>
OPERATING ACTIVITIES
Net Income $ 314 $ 308
Adjustments to Reconcile Net Income to Net Cash
and Cash Equivalents Provided by Operating
Activities:
Gains on sale of loans 42 ---
Provision for Possible Loan Losses 36 60
Depreciation and Amortization 343 286
(Increase) in Interest Receivable and Other Assets (305) (235)
(Decrease) Increase in Interest Payable and Other
Liabilities (22) 15
------ ------
Net Cash Provided by Operating Activities 408 434
INVESTING ACTIVITIES
Net Decrease in Deposits at Other Banks 1,059 226
Purchase of Investments securities (5,982) (8,129)
Proceeds from callable or Maturing Investments
securities 2,000 2,427
Sale of Loans 1,873 ---
Net Increase in Loans (588) (3,296)
Purchase of Premises and Equipment (495) (288)
------ ------
Net Cash and Cash Equivalents Provided by (2,133) (9,060)
(Used in) Investing Activities
FINANCING ACTIVITIES
Net Increase (Decrease) in Non-Interest Bearing
Transaction Accounts 1,050 (2,704)
Net Increase in Interest Bearing Transaction Accounts 1,984 24
Net Increase (Decrease) in Savings Deposits (3,246) 2,428
Net Decrease in Time Deposits (1,877) (767)
Net Increase in Other Borrowings --- 2,000
Payment of Cash Dividends (158) (237)
Proceeds from Issuance of Common Stock --- 2,644
Net Cash and Cash Equivalent (Used in)
------ ------
Provided by Financing Activities (2,247) 3,388
------ ------
Decrease in Cash and Cash Equivalents (3,972) (5,238)
Cash and Cash Equivalents at Beginning of Period 16,302 10,991
------ ------
Cash and Cash Equivalents at End of Period $ 12,330 $ 5,753
====== ======
</TABLE>
(See Notes to Unaudited Consolidated Financial Statements)
-6-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
June 30, 1997
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 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, 1997, are not necessarily indicative of the
results that may be expected for the year ending December 31,
1997. The enclosed unaudited consolidated financial statements
should be read in conjuncton 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, 1996.
Note B: Accounting Changes
In June 1996, the Financial Accounting Standards Board issued
Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." The
Corporation was required to adopt this standard for
transactions occurring after December 31, 1996. The impact of
adopting Statement No. 125 did not have a material effect on
the Corporation's financial position and results of operations
for the quarter ending June 30, 1997.
Note C: During February 1997, the Financial Accounting Standards Board
("FASB") issued Statement 128 "Earnings per Share" (Statement
128), which established a new calculation for earnings per
share showing both the "Basic" and "Diluted" earnings per
share effective for periods ending after December 15, 1997.
Basic earnings per share will be calculated using only
weighted average shares outstanding with no dilutive impact
from common stock equivalents while the diluted earnings per
share calculation is similar to the current fully diluted
earnings per share calculation. In 1998, all prior period
earnings per share wil be restated to be consistent with the
new requirements. The adoption of Statement No. 128 will not
have a material impact on the Corporation's consolidated
earnings per share.
-7-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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 1997 totaled $129 thousand, a decrease of $35
thousand or 21.3 percent when compared to the second quarter
of 1996. Overhead expenses from the opening of a De-Novo
branch facility by the Corporation's subsidiary, The Harbor
Bank of Maryland, and the support of the operations of a newly
established Mortgage Division, and ATM Network, were the main
reason for the decrease.
Year-to-date earnings as of June 30, 1997, were $314 thousand
or $.49 per share reflecting an increase in income of $6
thousand or 1.9 per cent, but a decrease in earnings per share
of $.23 cents or 31.9 percent. During 1996, the Corporation
had a common stock offering which closed during the second
quarter of 1996. This offering increased the number of
outstanding shares by 198,481 shares. Return on Average Assets
(ROAA) and Return on Average Shareholder's Equity (ROAE) were
.49 percent and 6.84 percent respectively.
Net interest income increased by $273 thousand or 11.2 percent
when compared to the same period last year. Total loan
revenues were $4.0 million reflecting an increase of $283
thousand or 7.6 percent. Loan revenues were 79.7 percent of
total interest income. Total interest expense for the period
was $2.3 million.
Time and savings deposits were the main source of interest
expense totaling $1.3 million and $655 thousand, respectively.
Together, they represent 85.6 percent of total interest
expense. Included in the interest expense are $155 thousand of
interest related to the borrowings of the Corporation from the
former Resolution Trust Corporation, now, FDIC, for the
Interim Capital Assistance Programs related to acquisitions
that took place during 1994.
The provision for possible credit losses was $18 thousand for
the second quarter of 1997 and $36 thousand year-to-date.
Charge-offs for 1997 were $109 thousand with recoveries of $11
thousand. Charge-offs for credit cards and related plans were
$58 thousand, representing 53.2 percent of total charge-offs
for the period.
Other operating income increased by $208 thousand or 60.6
percent. This increase is mainly attributed to ATM fees
transactions, which were $135 thousand or 24.5 percent of
other operating income. The Corporation also realized a gain
in the sale of Real Estate loans of $42 thousand. Additional
income in the service charges and other fees areas also
contributed to the increase.
Non-interest expense increased by $534 thousand or 12.0
percent to $2.7 million from $2.2 million in 1996. Salaries
and employee benefits increased by $203 thousand or 19.5
percent, reflecting additional staff due to expansions of a
new branch facility and newly established areas. Occupancy and
equipment expenses increased by $86 thousand and $56 thousand,
respectively, as a result of the
-8-
<PAGE>
expansion. Data processing fees increased by $93 thousand,
mainly as a result of the establishment of the ATM network.
Goodwill amortization, at $166 thousand, represents 6.08
percent of total non-interest expense. Other expenses
increased by $96 thousand or 21.1 percent due to the
expansions and general cost increase.
As of June 30, 1997, total deposits were $112.0 million,
reflecting a decrease of $2.1 million or 1.8 percent when
compared to 1996. Net loans decreased by $1.2 million or 1.4
percent due to a sale of $1.8 million of Real Estate loans.
Investment Securities increased by $4.0 million or 24.0
percent mainly in the available for sale category which
increased by $3.0 million, representing 74.4 percent of the
total increase in Investment Securities. There were no
borrowings outstanding as of June 30, 1997.
During 1996, the Corporation's subsidiary, The Harbor Bank of
Maryland, established Harbor Financial Services, a subsidiary
of the Bank. This company deals with the sale of insurance,
mutual funds, brokerage services, etc. and had an operating
loss of $21 thousand as of the second quarter of 1997. This
loss is reflected in the consolidated financial statements.
The Corporations stock is traded privately. As of June 30,
1997, only a few trades were registered ranging from the low
of $13.00 per share to a high of $15.00 per share. During
February 1997, the Corporation paid a stock dividend
equivalent to $.20 cents per share. This dividend is
equivalent to the cash dividend paid during 1996.
-9-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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
None
Item V. Other Information
None
Item VI. Exhibits and Reports on Form 8-K
Exhibit II - Statement Regarding Computation
of per Share Earnings
The Company did not file any report on Form
8-K for the period ending June 30, 1997.
-10-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
EXHIBIT II
Statement Regarding Computation of Per Share Earnings
Basic and fully diluted earnings per share of $.49 and $.48 for the six months
ending June 30, 1997 and $.73 and $.71 for the six months ending June 30, 1996
were computed by dividing net income of $314,000 for 1997 and $308,000 for 1996
by the average number of shares of common stock outstanding during 1997 of
643,882and 650,326, and during 1996 of 428,488 and 434,932.
-11-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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:
________________ _____________________________________
Joseph Haskins, Jr.
President and Chief Executive Officer
Date: 8/8/97
________________ _____________________________________
Teodoro J. Hernandez
Treasurer
-12-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 3,170
<INT-BEARING-DEPOSITS> 4,515
<FED-FUNDS-SOLD> 9,160
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,547
<INVESTMENTS-CARRYING> 16,020
<INVESTMENTS-MARKET> 15,881
<LOANS> 84,094
<ALLOWANCE> 827
<TOTAL-ASSETS> 127,866
<DEPOSITS> 112,035
<SHORT-TERM> 0
<LIABILITIES-OTHER> 708
<LONG-TERM> 5,796
0
0
<COMMON> 6
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 127,866
<INTEREST-LOAN> 4,024
<INTEREST-INVEST> 612
<INTEREST-OTHER> 410
<INTEREST-TOTAL> 5,046
<INTEREST-DEPOSIT> 2,181
<INTEREST-EXPENSE> 2,336
<INTEREST-INCOME-NET> 2,707
<LOAN-LOSSES> 36
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,694
<INCOME-PRETAX> 492
<INCOME-PRE-EXTRAORDINARY> 492
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 314
<EPS-PRIMARY> $.73
<EPS-DILUTED> $.71
<YIELD-ACTUAL> 4.67
<LOANS-NON> 279
<LOANS-PAST> 2,404
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,430
<ALLOWANCE-OPEN> 889
<CHARGE-OFFS> 109
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 827
<ALLOWANCE-DOMESTIC> 827
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 593
</TABLE>