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 March 31, 1997
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--641,731 shares as of March 31, 1997.
- ------------------------------------------------------------------
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
INDEX
-----
PART I FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Condition - March 31, 1997
(Unaudited) and December 31, 1996
Consolidated Statements of Income (Unaudited) - Three months
ended March 31, 1997 and 1996
Consolidated Statement of Cash Flows (Unaudited) - Three
months ended March 31, 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 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
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
March 31 Dec 31
1997 1996
-------- ------
(Unaudited)
-----------
Dollars in Thouands
<S><C>
ASSETS
- ------
Cash and Due from Banks $ 5,112 $ 5,372
Interest Bearing Deposits in Other Banks 5,190 5,574
Investment Securities:
Held to maturity (market values of $13,806
as of 3/31/97 and $14,889 as of 12/31/96) 14,015 15,016
Available for Sale 3,517 1,569
------- -------
Total Investment Securities 17,532 16,585
Federal Funds Sold 11,606 10,929
Loans 82,499 85,509
Unearned Income (161) (167)
Reserve for Possible Loan Losses (884) (889)
------- -------
Net Loans 81,454 84,453
Property and Equipment - Net 1,083 1,058
Goodwill 4,080 4,163
Accrued Interest Receivable and Other Assets 1,675 1,517
------- -------
TOTAL ASSETS $ 127,732 $ 129,651
------- -------
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing Demand $ 8,980 $ 8,954
Interest Bearing Transaction Accounts 14,079 13,756
Savings 38,038 40,990
Time, $100,000 or more 17,825 17,380
Other Time 33,143 33,044
------- -------
Total Deposits $ 112,065 $ 114,124
Accrued Interest and Other Liabilities 721 730
Notes Payable 5,796 5,796
------- -------
TOTAL LIABILITIES $ 118,582 $ 120,650
SHAREHOLDERS' EQUITY
Common stock-par value $.01 per share:
Authorized 10,000,000 shares; 641,731 issued and outstanding
at 3/31/97 and $633,444 at 12/31/96. 6 6
Capital Surplus 5,720 5,720
Retained Earnings 3,466 3,283
Net unrealized gains on available-for-sale securities (42) (8)
------- -------
TOTAL SHAREHOLDERS' EQUITY $ 9,150 $ 9,001
------- -------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $ 127,732 $ 129,651
------- -------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
-3-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1995
---- ----
(Unaudited)
In Thousands
Except per Share Data
<S><C>
INTEREST INCOME
Interest and Fees on Loans $ 2,011 $ 1,847
Interest on Investment Securities (Taxable) 288 188
Interest on Deposits in Other Banks 72 109
----- -----
$ 2,371 $ 2,144
Interest on Federal Funds Sold 121 65
----- -----
TOTAL INTEREST INCOME 2,492 2,209
INTEREST EXPENSE
Interest on Deposits
Savings 325 275
Interest Bearing Transaction Accounts 84 114
Time $100,000 or More 241 138
Other Time 421 389
Interest on Notes Payable 76 80
----- -----
TOTAL INTEREST EXPENSE 1,147 996
----- -----
NET INTEREST INCOME 1,345 1,213
Provision for Possible Loan Losses 18 30
----- -----
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 1,327 1,183
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 294 128
Other Income 42 23
----- -----
OTHER OPERATING EXPENSES
Salaries and Employee Benefits 598 510
Occupancy Expense of Premises 158 122
Equipment Expense 82 55
Data Processing Expense 132 85
Deposit Assessments and Related Fees 8 17
Goodwill Amortization 83 82
Other Expenses 297 224
----- -----
1,358 1,095
INCOME BEFORE INCOME TAXES 305 239
Applicable Income Taxes 120 95
----- -----
NET INCOME $ 185 $ 144
----- -----
EARNINGS PER SHARE $ .29 $ .34
----- -----
AVERAGE COMMON SHARES
OUTSTANDING 642 428
Dividends Declared per Share $ .20 $ .20
</TABLE>
See notes to unaudited consolidated Financial Statements
-4-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31
1997 1995
---- ----
(Unaudited)
in Thousands
<S><C>
OPERATING ACTIVITIES
Net Income $ 185 $ 144
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 18 30
Depreciation and Amortization 166 139
(Increase) in Interest Receivable and Other Assets (158) (461)
(Decrease) Increase in Interest Payable and Other
Liabilities (9) 242
------ ------
Net Cash Provided by Operating Activities 160 94
INVESTING ACTIVITIES
Net Decrease (Increase) in Deposits at Other Banks 384 (172)
Purchase of Investments securities Held to Maturity (1,947) (5,705)
Proceeds from Maturing Investments securities Held to 1,000 1,000
Maturity
Sale of Loans 1,873 --
Net Decrease (Increase) in Loans 1,888 (2,056)
Purchase of Premises and Equipment (103) (88)
------ ------
Net Cash and Cash Equivalents Provided by
(Used in) Investing Activities 2,395 (7,021)
FINANCING ACTIVITIES
Net Increase (Decrease) in Non-Interest Bearing
Transaction Accounts 24 (2,816)
Net Increase in Interest Bearing Transaction Accounts 323 3,323
Net Decrease in Savings Deposits (2,952) (72)
Net Increase in Time Deposits 544 1,468
Payment of Cash Dividends (78) (167)
------ ------
Net Cash and Cash Equivalents (Used in) Provided by
Financing Activities (2,139) 1,736
------ ------
Increase (Decrease) in Cash and Cash Equivalents 16,302 (5,191)
Cash and Cash Equivalents at Beginning of Period 416 10,991
------ ------
Cash and Cash Equivalents at End of Period $ 16,718 $ 5,800
====== ======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
-5-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
Notes to Unaudited Consolidated Financial Statements
March 31, 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 three month
period ended March 31, 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 March 31, 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.
-6-
<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 earnings for the first quarter
of 1997 totalled $185 thousand, an increase of 32.6% over the
first quarter of 1996. The overhead expenses which increased
due to the establishment of an ATM network in Baltimore City
were offsetted with an increase on net interest income and
other incomes which included $42 thousand of gains in sale of
loans. Return on average assets (ROAA) and return on average
shareholders equity (ROAE) during the first quarter were .58
percent and 8.13 percent, respectively.
Net Interest Income increased by $132 thousand or 10.88 per
cent over last year's first quarter. Interest and fees on
loans increased by $164 thousand or 8.88 percent. Interest on
investment securities increased by $100 thousand or 53.19
percent. Both of these categories were the main contributors
to the increase in interest income. Interest expense increased
by $151 thousand or 15.16 percent reflecting higher interest
rates.
The provision for possible loan losses was $18 thousand for
thefirst quarter of 1997, compared to $30 thousand for the
first quarter of 1996. Charge-off's during the first quarter
of 1997 were $24 thousand, mainly in the credit card category
with recoveries of $1 thousand.
Other operating income increased by $185 thousand or 122.52
percent. This increase was mainly attributed to fees generated
through the ATM network established during the later part of
1996 which totaled $64 thousand for the first quarter and a
gain in the sales of real estsate loans of $42 thousand. No
security gains or losses were experienced during the first
quarter of 1997. Non-interest expense increased by $263
thousand or 24.02 percent. Salaries and benefits expenses
increased by $88 thousand or 17.25 percent reflecting the cost
of additional staff as well as salarie increases. Occupancy
and equipment expenses increased by 29.51 percent and 49.09
percent to $158 thousand and $82 thousand respectively.
Mainly, as a result of the ATM network. Data processing fees
increased by $74 thousand or 87.06 percent due to the
maintenance cost of the ATM network and expanded services
offered to customers such as telephone banking. Goodwill
amortization, at $83 thousand, remained the same as the
previous year first quarter. Other expenses increased by $73
thousand or 32.59 percent as a result of expansion and growth
of the Corporation.
-7-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
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 $5 thousand for the first quarter of 1997. This loss
is reflected in the consolidated financial statements.
As of March 31, 1997, total deposits were $112.1 million
reflecting a decrease of $2.1 million or 1.80 percent when
compared to December 31, 1996 non-interest bearing deposits
remain flat at $8.9 million. Savings and time deosits
decreased by $2.4million or 2.63 percent while interest
bearing transaction accunts increased by $323 thousand or 2.35
percent. The Corporation plans to continue its growth through
business development and expansion of its branch network. A
new branch facility will be opening in the Inner Harbor area
of Baltimore City during the second quarter of 1997. Net loans
decreased by $3.0 million or 3.68 percent due to the sale of
$1.8 million in real estate loans and high volume of pay offs
also in the real estate category.
Shareholders equity, increased by $149 thousand or 1.66
percent to $9.1 million at March 31, 1997. Primary capitol as
a percent of total assets for The Harbor Bank of Maryland was
8.60 percent.
The Corporation's stock is traded privately. During this first
quarter of 1997, only a few trades were registered, ranging
from a low of $13.00 per share to a high of $15.00 per share.
-8-
<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
-------------------------------------------
The 1997 Annual Meeting of the Stockholders
of Harbor Bankshares Corporation was held on April
23, 1997.
The stockholders elected the following
nominees to the Corporation's Board of Directors to
serve for a three year term. The following shows the
separate tabulation of votes for each nominee:
Number of Votes
---------------
For Against
--- -------
Nathaniel Higgs 392,331 202
Delores G. Kelley 392,533 -0-
Erich March 392,533 -0-
Stanley W. Tucker 392,533 -0-
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 March 31, 1997.
-9-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
EXHIBIT II
----------
Statement Regarding Computation of Per Share Earnings
Basic and fully diluted earnings per share of $.29 and $.28 for the three months
ending March 31, 1997 and $.34 and $.33 for the three months ending March 31,
1996 were computed by dividing net income of $185,000 for 1997 and $144,000 for
1996 by the average number of shares of common stock outstanding during 1997 of
641,741and 648,244, and during 1996 of 428,488 and 435,001.
-10-
<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: __________ _____________________________________
Teodoro J. Hernandez
Treasurer
-11-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 5,112
<INT-BEARING-DEPOSITS> 5,190
<FED-FUNDS-SOLD> 11,606
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,517
<INVESTMENTS-CARRYING> 14,015
<INVESTMENTS-MARKET> 13,806
<LOANS> 82,338
<ALLOWANCE> 884
<TOTAL-ASSETS> 127,732
<DEPOSITS> 112,065
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,006
<LONG-TERM> 5,796
0
0
<COMMON> 6
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 127,732
<INTEREST-LOAN> 2,011
<INTEREST-INVEST> 288
<INTEREST-OTHER> 193
<INTEREST-TOTAL> 2,492
<INTEREST-DEPOSIT> 1,071
<INTEREST-EXPENSE> 1,147
<INTEREST-INCOME-NET> 1,345
<LOAN-LOSSES> 18
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,358
<INCOME-PRETAX> 305
<INCOME-PRE-EXTRAORDINARY> 305
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185
<EPS-PRIMARY> .29
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.65
<LOANS-NON> 531
<LOANS-PAST> 1,108
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,557
<ALLOWANCE-OPEN> 889
<CHARGE-OFFS> 24
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 884
<ALLOWANCE-DOMESTIC> 884
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 676
</TABLE>
