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, 1997
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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
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(State of other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
25 W. FAYETTE STREET, BALTIMORE, MARYLAND 21201
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(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, NON-VOTING, $.01 PAR VALUE - 33,333 SHARES AS OF SEPTEMBER 30,
1997
COMMON STOCK, $.01 PAR VALUE -- 643,882 SHARES AS OF SEPTEMBER 30, 1997
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<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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INDEX
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PART I FINANCIAL INFORMATION
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ITEM 1 Financial Statements
Consolidated Statements of Condition - September 30,
1997 (Unaudited) and December 31, 1996
Consolidated Statements of Income (Unaudited) Three
months Ended September 30, 1997 and 1996
Consolidated Statements of Income
(Unaudited) - Nine months Ended September
30, 1997 and 1996
Consolidated Statement of Cash Flows (Unaudited) -
Nine months Ended September 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
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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
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- 1 -
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
SEPT 30 DEC 31
1997 1996
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(UNAUDITED)
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DOLLARS IN THOUSANDS
<S> <C>
ASSETS
- ------
Cash and Due from Banks $ 4,589 $ 5,373
Interest Bearing Deposits in Other Banks 3,742 5,574
Investment Securities:
Held to maturity (market values of $15,006
as of 9/30/97 and $14,890 as of 12/31/96) 15,019 15,016
Available for Sale 11,440 1,569
--------- ---------
Total Investment Securities 26,459 16,585
Federal Funds Sold 15,719 10,929
Loans 78,776 85,509
Unearned Income (180) (167)
Reserve for Possible Loan Losses (850) (889)
--------- ---------
Net Loans 77,746 84,453
Property and Equipment - Net 1,351 1,058
Goodwill 3,914 4,163
Accrued Interest Receivable and Other Assets 1,896 1,516
--------- ---------
TOTAL ASSETS $ 135,416 $ 129,651
--------- ---------
LIABILITIES
Deposits:
Non-Interest Bearing Demand $ 11,832 $ 8,953
Interest Bearing Transaction Accounts 13,958 13,756
Savings 40,439 40,990
Time, $100,000 or more 20,864 17,381
Other Time 31,706 33,044
--------- ---------
Total Deposits 118,799 114,124
Accrued Interest and Other Liabilities 945 730
Notes Payable 5,796 5,796
--------- ---------
TOTAL LIABILITIES 125,540 120,650
SHAREHOLDERS' EQUITY
Common stock, non voting, - par value $.01 per share, 33,333 issued and
outstanding at 9/30/97 Common stock-par value $.01 per share: Authorized
10,000,000 shares; 643,882 issued and outstanding
at 9/30/97 and $633,444 at 12/31/96 6 6
Capital Surplus 6,251 5,720
Retained Earnings 3,478 3,283
Net unrealized gains on available-for-sale securities 141 (8)
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TOTAL SHAREHOLDERS' EQUITY 9,876 9,001
--------- ---------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $ 135,416 $ 129,651
--------- ---------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
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<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
September 30
1997 1996
---- ----
(Unaudited)
In Thousands
Except per Share Data
<S> <C>
INTEREST INCOME
Interest and Fees on Loans $2,196 $1,944
Interest on Investment Securities (Taxable) 350 255
Interest on Deposits in Other Banks 58 101
------ ------
$2,604 $2,300
Interest on Federal Funds Sold 150 15
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TOTAL INTEREST INCOME 2,754 2,315
INTEREST EXPENSE
Interest on Deposits
Savings 716 418
Interest Bearing Transaction Accounts 97 102
Time $100,000 or More 240 145
Other Time 64 257
Interest on Other Borrowed Money -- 27
Interest on Long Term Debt 79 78
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TOTAL INTEREST EXPENSE 1,196 1,027
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NET INTEREST INCOME 1,558 1,288
Provision for Possible Loan Losses 18 (20)
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NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 1,540 1,308
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 163 160
Other Income 126 54
------ ------
289 214
OTHER OPERATING EXPENSES
Salaries and Employee Benefits 657 550
Occupancy Expense of Premises 178 141
Equipment Expense 101 57
Data Processing Expense 144 100
Deposit Assessments and Related Fees 9 272
Goodwill Amortization 82 82
Other Expenses 310 238
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1,481 1,440
INCOME BEFORE INCOME TAXES 348 82
Applicable Income Taxes 126 33
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NET INCOME $ 222 $ 49
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EARNINGS PER SHARE $ .34 $ .08
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AVERAGE COMMON SHARES
OUTSTANDING 659 627
Dividends Declared per Share $ -- $ .20
</TABLE>
(See notes to unaudited consolidated Financial Statements)
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<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1997 1996
---- ----
(Unaudited)
In Thousands
Except per Share Data
<S> <C>
INTEREST INCOME
Interest and Fees on Loans $6,220 $5,685
Interest on Investment Securities (Taxable) 962 685
Interest on Deposits in Other Banks 198 317
------ ------
$7,380 $6,687
Interest on Federal Funds Sold 417 90
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TOTAL INTEREST INCOME 7,797 6,777
INTEREST EXPENSE
Interest on Deposits
Savings 1,371 1,186
Interest Bearing Transaction Accounts 279 317
Time $100,000 or More 719 437
Other Time 929 821
Interest on Other Borrowed Money -- 60
Interest on Long Term Debt 234 234
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TOTAL INTEREST EXPENSE 3,532 3,055
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NET INTEREST INCOME 4,265 3,722
Provision for Possible Loan Losses 54 40
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 4,211 3,682
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 441 443
Other Income 399 114
------ ------
840 557
OTHER OPERATING EXPENSES
Salaries and Employee Benefits 1,899 1,589
Occupancy Expense of Premises 505 382
Equipment Expense 274 174
Data Processing Expense 416 279
Deposit Assessments and Related Fees 26 313
Goodwill Amortization 248 248
Other Expenses 843 651
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4,211 3,636
INCOME BEFORE INCOME TAXES 840 603
Applicable Income Taxes 304 246
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NET INCOME $ 536 $ 357
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EARNINGS PER SHARE $ .82 $ .75
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AVERAGE COMMON SHARES
OUTSTANDING 649 478
Dividends Declared per Share $ .20 $ .20
</TABLE>
(See notes to unaudited consolidated Financial Statements)
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<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months
Ended Sept. 30
1997 1996
---- ----
(Unaudited)
Dollars in Thousands
<S> <C>
OPERATING ACTIVITIES $ 222 $ 49
Net Income
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Provisions for Possible Loan Losses 18 20
Depreciation and Amortization 184 153
Increase in Interest Receivable and Other Assets (75) (86)
Increase in Interest Payable and Other Liabilities 237 90
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Net Cash Provided by Operating Activities 586 226
INVESTING ACTIVITIES
Net Increase in Deposits at Other Banks 773 379
Purchase of Investments Securities (8,892) --
Proceeds From Maturing of Investments Securities 3,000 --
Net Decrease in Loans 5,419 (735)
Purchase of Premises and Equipment (93) (150)
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Net Cash Used in Investing Activities 207 (506)
FINANCING ACTIVITIES
Net (Decrease) Increase in Non-Interest Bearing
Transaction Accounts 1,829 (347)
Net (Decrease) in Interest Bearing Transaction Accounts (1,782) (389)
Net Increase (Decrease) in Savings Deposits 2,695 (713)
Net Increase in Time Deposits 4,022 435
Proceeds from Issuance of Common Stock 500 425
Payments of Cash Dividends (79) (83)
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Net Cash Provided by Financing Activities 7,185 (672)
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Decrease in Cash and Cash Equivalents 7,978 (952)
Cash and Cash Equivalents at Beginning of Period 12,330 5,753
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Cash and Cash Equivalents at End of Period $20,308 $4,801
</TABLE>
(See Notes to Unaudited Consolidated Financial Statements)
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<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1997 1996
---- ----
(Unaudited)
Dollars In Thousands
<S> <C>
OPERATING ACTIVITIES
Net Income $ 536 $ 357
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 54 40
Depreciation and Amortization 527 439
(Increase) in Interest Receivable and Other Assets (280) (321)
Increase in Interest Payable and Other
Liabilities 215 105
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Net Cash Provided by Operating Activities 1,094 620
INVESTING ACTIVITIES
Net Decrease in Deposits at Other Banks 1,832 605
Purchase of Investments securities (14,874) (8,129)
Proceeds from callable or Maturing Investments
securities 5,000 2,427
Sale of Loans 1,873 --
Net (Increase) Decrease in Loans 4,700 (4,040)
Purchase of Premises and Equipment (588) (389)
-------- --------
Net Cash and Cash Equivalents Provided by (2,057) (9,526)
(Used in) Investing Activities
FINANCING ACTIVITIES
Net Increase (Decrease) in Non-Interest Bearing
Transaction Accounts 2,879 (3,051)
Net Increase (Decrease) in Interest Bearing
Transaction Accounts 202 (365)
Net Increase (Decrease) in Savings Deposits (551) 1,715
Net Increase (Decrease) in Time Deposits 2,145 (332)
Net Increase in Other Borrowings -- 2,000
Payment of Cash Dividends (236) (320)
Proceeds from Issuance of Common Stock 530 3,069
Net Cash and Cash Equivalent (Used in)
-------- --------
Provided by Financing Activities 4,969 2,716
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Decrease in Cash and Cash Equivalents 4,006 (6,190)
Cash and Cash Equivalents at Beginning of Period 16,302 10,991
-------- --------
Cash and Cash Equivalents at End of Period $ 20,308 $ 4,801
======== ========
</TABLE>
(See Notes to Unaudited Consolidated Financial Statements)
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<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine month
period ended September 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
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 will 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.
Note C: During June 1997, the Financial Accounting Standards Board
("FASB") issued statement 130 "Reporting Comprehensive
Income". The statement establishes standards for disclosing
comprehensive income and its components in a full set of
financial statements. Comprehensive income is defined as the
change in equity from transactions and other events and
circumstances from non-owner sources. This statement is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
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<PAGE>
Note D: During June 1997, the Financial Accounting Standards Board
("FASB") issued statement 131 "Disclosure about Segments of an
Enterprise and Related information". This Statement
establishes standards for disclosing information about
operating segments in financial statements. Operating segments
are components of a business about which separate financial
information is available that is evaluated by management in
deciding how to allocate resources and in assessing
performance. For year-end disclosure, this Statement is
effective for fiscal years beginning after December 15, 1997.
Management has not determined yet whether additional
disclosure will be necessary under the requirements of SFAS
no. 131.
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<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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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 1997 totaled $222 thousand, an increase of $173 thousand or
353.0 percent when compared to the third quarter of 1996.
During the third quarter of 1996, an assessment fee of $237
thousand was paid to the FDIC in order to recapitalize the
S.A.I.F. fund. This assessment was the main reason for the
drop in 1996 earnings.
Year-to-date earnings as of September 30, 1997, were $536
thousand or $.82 per share, reflecting an increase of $179
thousand or 50.1 percent when compared to the same period for
1996. Annualized return on Average Assets (ROAA) and Return on
Average Shareholder's Equity (ROAE) were .55 percent and 7.66
percent, respectively.
Net interest income increased by $543 thousand or 17.7 percent
when compared to the same period last year. Total loan
revenues were $6.2 million reflecting an increase of $535
thousand or 9.4 percent. Included in the loan interest income
is $328 thousand, representing unearned discount due to the
sale and exchange of Real Estate loans for FNMA securities.
Total loan revenues were 79.7 percent of total interest
income. Total interest expense for the period was $3.5
million. Time and savings deposits were the main source of
interest expense totaling $3.0 million. Together they
represent 84.9 percent of total interest expense. Included in
the interest expense is $234 thousand of interest related to
borrowings of the Corporation from the FDIC, for the Interim
Capital Assistance Program related to acquisitions that took
place during 1994.
The provision for possible credit losses was $18 thousand for
the third quarter and $54 thousand year-to-date. Charge-offs
as of September 30, 1997 were $102 thousand with recoveries of
$10 thousand. The loan loss reserves to outstanding loans
ratio was 1.08 percent as of period end.
Other operating income increased by $283 thousand over the
year-to-date operating income in 1996. This increase was
mainly attributed to ATM transaction fees which totaled $209
thousand as of period end. Included in other operating income
is a gain of $42 thousand due to the sale of Real Estate
loans.
Non-interest expense increased by $575 thousand or 15.8
percent to $4.2 million from $3.6 million in 1996. Salaries
and employee benefits increased by $310 thousand or 19.5
percent, reflecting additional staff due to expansion of one
additional branch as well as support staff and general salary
increases. Occupancy and equipment expense increased by $123
thousand and $100 thousand, respectively, as a result of
upgrade of equipment, and the expansion of a new branch
facility and the establishment of ATM Network. Data Processing
expense
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<PAGE>
increased by $137 thousand or 49.1 percent reflecting the
increased cost due to the ATM Network establishment. Deposit
Assessments and related fees decreased by $287 thousand,
reflecting the one time assessment fee of $237 thousand
expensed during 1996. Goodwill amortization, at $248 thousand,
represents 5.9 percent of total non-interest expense. Other
expenses increased by $ 192 thousand or 29.4 percent due to
the expansions and general cost increases.
As of September 30, 1997, total deposits were $118.8 million,
reflecting an increase of $4.7 million. Time deposits of $100
thousand or more increased by $3.4 million or 20.0 percent.
Net loans decreased by $6.7 million, reflecting a sale of Real
Estate loans of $1.8 million and the exchange of $5.6 million
of Real Estate loans for FNMA securities. This exchange took
place during September 1997.
Shareholders equity increased by $875 thousand. During August
1997, 33,333 shares of non-voting common stock were issued to
the FNMA Corporation at $15.00 per share. Total proceeds from
this sale were $500 thousand. Primary capital to total assets
was 7.29% as of September 30, 1997.
Harbor Financial Services, the subsidiary of the Harbor Bank
of Maryland established with the purpose of selling mutual
funds, insurance and other financial products, had a net
operating loss of $33 thousand as of September 30, 1997.
The Corporations stock is traded privately. As of September
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.
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<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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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 filed a Report on Form 8-K on
August 18, 1997, reflecting a change in
Accounting Firm. Coopers & Lybran L.L.P.
replaced Ernst and Young L.L.P.
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<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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EXHIBIT II
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Basic and fully diluted earnings per share of $.81 and $.80 for the nine months
ending September 30, 1997 and $.72 and $.71 for the nine months ending September
30, 1996 were computed by dividing net income of $536,000 for 1997 and $357,000
for 1996 by the average number of shares of common stock outstanding during 1997
of 658,736 and 665,180, and during 1996 of 495,350 and 501,863.
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<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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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: 11-5-97 /s/ Joseph Haskins, Jr.
--------------------------------------
Joseph Haskins, Jr.
President and Chief Executive Officer
Date: 11-5-97 /s/ Teodoro J. Hernandez
--------------------------------------
Teodoro J. Hernandez
Treasurer
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<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,589
<INT-BEARING-DEPOSITS> 3,742
<FED-FUNDS-SOLD> 15,719
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,440
<INVESTMENTS-CARRYING> 15,019
<INVESTMENTS-MARKET> 15,006
<LOANS> 78,596
<ALLOWANCE> 850
<TOTAL-ASSETS> 135,416
<DEPOSITS> 118,799
<SHORT-TERM> 0
<LIABILITIES-OTHER> 945
<LONG-TERM> 0
0
0
<COMMON> 7
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 135,416
<INTEREST-LOAN> 6,220
<INTEREST-INVEST> 962
<INTEREST-OTHER> 615
<INTEREST-TOTAL> 7,797
<INTEREST-DEPOSIT> 3,298
<INTEREST-EXPENSE> 3,532
<INTEREST-INCOME-NET> 4,265
<LOAN-LOSSES> 54
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,211
<INCOME-PRETAX> 840
<INCOME-PRE-EXTRAORDINARY> 536
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 536
<EPS-PRIMARY> .81
<EPS-DILUTED> .80
<YIELD-ACTUAL> 5.10
<LOANS-NON> 1,278
<LOANS-PAST> 1,209
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,302
<ALLOWANCE-OPEN> 889
<CHARGE-OFFS> 103
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 850
<ALLOWANCE-DOMESTIC> 850
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 673
</TABLE>
