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, 1998
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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 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
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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, NON-VOTING, $.01 PAR VALUE - 33,333 SHARES AS OF MARCH 31, 1998.
COMMON STOCK, $.01 PAR VALUE -- 653,204 SHARES AS OF MARCH 31, 1998
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
INDEX
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Consolidated Statements of Condition - March 31, 1998
(Unaudited) and December 31, 1997
Consolidated Statements of Income (Unaudited) Three months
Ended March 31,1998 and 1997
Consolidated Statement of Cash Flows (Unaudited) - Three
months Ended March 31,1998 and 1997
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
- 1 -
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
MARCH 31 DEC 31
1998 1997
-------- ------
(UNAUDITED)
DOLLARS IN THOUSANDS
<S><C>
ASSETS
Cash and Due from Banks $ 5,315 $ 8,630
Interest Bearing Deposits in Other Banks 2,531 3,124
Investment Securities:
Held to maturity (market values of $11,029
as of 3/31/98 and $15,020 as of 12/31/97) 11,016 15,017
Available for Sale 23,434 14,496
------- -------
Total Investment Securities 34,450 29,513
Federal Funds Sold 13,579 9,919
Loans 76,659 78,446
Unearned Income (176) (176)
Reserve for Possible Loan Losses (698) (654)
------- -------
Net Loans 75,785 77,616
Property and Equipment - Net 1,206 1,268
Goodwill 3,748 3,831
Accrued Interest Receivable and Other Assets 2,257 1,973
------- -------
TOTAL ASSETS $ 138,871 $ 135,874
------- -------
LIABILITIES
Deposits:
Non-Interest Bearing Demand $ 11,214 $ 10,926
Interest Bearing Transaction Accounts 16,871 14,137
Savings 43,075 42,759
Time, $100,000 or more 21,106 20,947
Other Time 29,859 30,166
------- -------
Total Deposits 122,125 118,935
Accrued Interest and Other Liabilities 670 842
Notes Payable 5,796 5,796
------- -------
TOTAL LIABILITIES 128,591 125,573
SHAREHOLDERS' EQUITY
Common stock, non voting, - par value $.01 per share:
Authorized 10,000,000 shares; 653,204 of common voting
and 33,333 of common non-voting issued and outstanding
at 3/31/98 and 641,731 at 12/31/97. 7 7
Capital Surplus 6,443 6,419
Retained Earnings 3,854 3,876
Net accumulated other comprehensive Income (24) (1)
------- -------
TOTAL SHAREHOLDERS' EQUITY 10,280 10,301
------- -------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $ 138,871 $ 135,874
------- -------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
- 2 -
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
---- ----
(Unaudited)
In Thousands
Except per Share Data
<S><C>
INTEREST INCOME
Interest and Fees on Loans $ 1,815 $ 2,011
Interest on Investment Securities (Taxable) 539 288
Interest on Deposits in Other Banks 40 72
------ ------
$ 2,394 $ 2,371
Interest on Federal Funds Sold 164 121
------ ------
TOTAL INTEREST INCOME 2,558 2,492
INTEREST EXPENSE
Interest on Deposits
Savings 350 325
Interest Bearing Transaction Accounts 89 84
Time $100,000 or More 261 241
Other Time 413 421
Interest on Notes Payable 78 76
------ ------
TOTAL INTEREST EXPENSE 1,191 1,147
------ ------
NET INTEREST INCOME 1,367 1,345
Provision for Possible Loan Losses 38 18
------ ------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 1,329 1,327
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 149 135
Other Income 188 201
------ ------
337 336
OTHER OPERATING EXPENSES
Salaries and Employee Benefits 649 598
Occupancy Expense of Premises 176 158
Equipment Expense 101 82
Data Processing Expense 149 132
Deposit Assessments and Related Fees 9 8
Goodwill Amortization 83 83
Other Expenses 288 297
------ ------
1,455 1,358
INCOME BEFORE INCOME TAXES 211 305
Applicable Income Taxes 71 120
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NET INCOME $ 140 $ 185
------ ------
BASIC EARNINGS PER SHARE $ .20 $ .29
DILUTED EARNINGS PER SHARE .19 .26
------ ------
AVERAGE COMMON SHARES
OUTSTANDING $ 684 $ 642
Dividends Declared per Share $ .25 $ .20
</TABLE>
(See notes to unaudited consolidated Financial Statements)
-3-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
---- -----
(Unaudited)
Dollars in Thousands
<S><C>
OPERATING ACTIVITIES
Net Income $ 140 $ 185
Adjustments to Reconcile Net Income to Net Cash
and Cash Equivalents Provided by Operating
Activities:
Gain on sale of securities (26) ---
Gains on sale of loans (2) (42)
Provision for Possible Loan Losses 38 18
Depreciation and Amortization 185 166
Increase in Interest Receivable and Other Assets (284) (158)
Decrease in Interest Payable and Other
Liabilities (171) (9)
------- -------
Net Cash Provided (used in) by Operating Activities (120) 160
INVESTING ACTIVITIES
Net Decrease in Deposits at Other Banks 593 384
Purchase of Investments securities available for sale (14,000) (1,947)
Proceeds from Called Investments securities Held
to maturity. 4,000 1,000
Proceeds from Sale of Securities available for sale 1,839 ---
Proceeds from Called Securities available for sale 3,000 ---
Proceeds from the sale of loans 459 1,873
Net Decrease in Loans 1,644 1,188
Purchase of Premises and Equipment (43) (103)
------- -------
Net Cash and Cash provided by (2,508) 2,395
(Used in) Investing Activities
FINANCING ACTIVITIES
Net Increase in Non-Interest Bearing
Transaction Accounts 288 24
Net Increase in Interest Bearing
Transaction Accounts 2,734 323
Net Increase (Decrease) in Savings Deposits 316 (2,952)
Net Increase (Decrease) in Time Deposits (148) 544
Acquisition of Common Stock 24 ---
Payment of Cash Dividends (241) (78)
------- -------
Net Cash (Used in)
Provided by Financing Activities 2,973 (2,139)
------- -------
Increase (Decrease) in Cash and Cash Equivalents 345 (416)
Cash and Cash Equivalents at Beginning of Period 18,549 16,302
------- -------
Cash and Cash Equivalents at End of Period $ 18,894 $ 16,718
======= =======
</TABLE>
(See Notes to Unaudited Consolidated Financial Statements)
-4-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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 three month period ended March 31, 1998,
are not necessarily indicative of the results that may be expected
for the year ending December 31, 1998. 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, 1997.
Note B: Comprehensive Income
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.
Presented below is a reconciliation of net income to comprehensive
income indicating the component of other comprehensive income:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
<S><C>
Net Income $140 $185 A Per Income
Statement
-Other Comprehensive Income:
Unrealized Holding Gains (Losses)
Arising During the Period (65) (68) Calculated C-B
-Less: Reclassified Adjustment for
gains included in Net Income (26) -- B Per cash flow -
Gains/losses in
Net Income
Other Comprehensive Income, Before
Tax (39) (68) C Gross up after
Considering tax
(D+E)
Income Tax Expense Related to items
of Other Comprehensive Income 15 26 D 38.62%
Effective Rate
Calculated
Other Comprehensive Income (24) (42) E Per movement in
Unrealized
Account in
Equity
Comprehensive Income 116 143
</TABLE>
-5-
<PAGE>
Note C: Accounting Changes
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.
-6-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
EXHIBIT II
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
The Corporation adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") on December 31, 1997. SFAS No. 128
requires the Corporation to change the method of computing, presenting and
disclosing earnings per share information. Accordingly, all prior period data
presented has been restated to conform to the provisions of SFAS No. 128. Under
the revised provisions of the new standard, primary earnings per share has been
replaced with basic earnings per share. Basic earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
for the period. Basic earnings per share does not include the effect of
potentially dilutive transactions or conversions. Additionally, under the
standard, diluted earnings per share replaces fully diluted earnings per share
from prior years. This computation reflects the potential dilution of earnings
per share under the treasury stock method which could occur if contracts to
issue common stock were exercised, such as stock options, and shared in
corporate earnings.
The following table presents a summary of per share data and amounts for the
period indicated:
<TABLE>
<CAPTION>
QTR. ENDED QUALIFYING BASIC EPS BASIC DILUTIVE DILUTED EPS DILUTED
MARCH 31, NET INCOME SHARES EPS SHARES SHARES EPS
- ---------- ---------- --------- ----- -------- ----------- -------
<S><C>
1998 $ 139,537 686,537 $.20 50,865 737,402 $ .19
1997 $ 185,405 641,731 $.29 62,338 704,069 $ .26
</TABLE>
-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 earnings for the first quarter
of 1998 totaled $140 thousand, a decrease of $45 thousand or
24.3 percent when compared to the first quarter of 1997.
Overhead expenses related to the expansions that took place
during the later part of 1997 resulted in the decrease in
earnings. Return on average Assets (ROAA) and return on
average shareholders equity (ROAE) during the first quarter
were 0.41 percent and 5.43 percent, respectively.
Net interest income increased by $22 thousand or 1.63 percent
over last year's first quarter. Interest and fees on loans
decreased by $196 thousand or 9.74 percent reflecting the sale
of loans throughout the later part of 1997. Interest on
investment securities increased by $251 thousand or 87.15
percent reflecting the investment of the proceeds from the
sale of loans and the deposit growth in that area. Interest
expense increased by $44 thousand or 3.84 percent mainly due
to the deposit growth in the interest bearing liabilities
categories. The interest on the long term debt increased only
by 2.63 percent to $78 thousand from $76 thousand during the
first quarter of 1997.
The provision for possible loan losses was $38 thousand for
the first quarter of 1998, compared to $18 thousand for the
first quarter of 1997. The $20 thousand increase represents
Management's decision to increase the reserve levels during
1998. There were no charge-offs during the first quarter of
1998. Recoveries totaled $6 thousand.
Other Operating Income remained the same at approximately $337
thousand for both quarters. There were $25 thousand of
securities gains for the first quarter of 1998 and $2 thousand
due to the sale of loans. There were no securities gains
during the first quarter of 1997, and gain on the sale of
loans totaled $42 thousand for that period. Fee income from
the subsidiary of the Bank, Harbor Financial Services was $38
thousand and $28 thousand respectively for 1998 and 1997.
Non-interest expense increased by $97 thousand or 7.14
percent. Salaries and benefits increased by $51 thousand or
8.52 percent reflecting the cost of additional staff as well
as salary increases. Occupancy and equipment expenses
increased by $18 thousand each or 11.39 percent and 21.2
percent respectively, reflecting the cost of the expansion
during the later part of 1997. Data processing fees increased
by $17 thousand or 12.88 per cent due to higher transaction
volume. Goodwill amortization at $83 thousand, remained the
same as the previous year first quarter. Other expenses
reflected a decrease of $9 thousand or 3.03 percent.
-8-
<PAGE>
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
Harbor Financial Services, the only subsidiary of the Bank
which deals with the sale of insurance, mutual funds and
brokerage services realized a net operating income of $2
thousand. This gain is reflected in the consolidated financial
statements.
As of March 31, 1998, total deposits were $122.1 million
reflecting an increase of $3.2 million or 2.69 percent when
compared to December 31, 1997. Non-interest bearing deposits
increased by $288 thousand or 2.63 percent. Savings and time
deposits reflected an increase of $168 thousand or .18 percent
while interest bearing transaction accounts increased by $2.7
million or 19.33 percent. Net Loans decreased by $1.8 million
reflecting a high volume of pay offs, especially in the real
estate category.
Shareholder equity, decreased by $22 thousand or .21 percent.
A cash dividend payment of $162 thousand during the first
quarter of 1998 coupled with a decrease of $24 thousand in the
unrealized gain on available-for-sale securities were the main
reason for the decrease. Primary and risk based capital for
The Harbor Bank of Maryland were 9.10 percent and 18.92
percent respectively.
The Corporation stock is traded privately. During the first
quarter of 1988, a few trades were registered at $17.00 per
share.
-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
-------
The 1998 Annual Meeting of
the Stockholders of Harbor Bankshares
Corporation was held on April 22, 1998.
The stockholders elected the following
nominees to the Corporation's Board of
Directors to serve for a three and two year
term. The following shows the separate
tabulation of votes for each nominee.
NUMBER OF VOTES
------------------
THREE YEARS FOR AGAINST
----------- --- -------
Stephen A. Geppi 414,784 940
John Paterakis 415,648 76
Edward St. John 415,724 ---
Ronald Scott 415,623 101
George F. Vaeth, Jr. 415,623 101
TWO YEARS
---------
Sachinder Gupta 415,623 101
Item V. Other Information
-----------------
None
Item VI. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit II - Statement Regarding Computation
earnings per share.
The Company did not file any report on Form
8-K for the period ending March 31, 1998.
-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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,313
<INT-BEARING-DEPOSITS> 2,534
<FED-FUNDS-SOLD> 13,579
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,434
<INVESTMENTS-CARRYING> 11,016
<INVESTMENTS-MARKET> 11,029
<LOANS> 76,483
<ALLOWANCE> 698
<TOTAL-ASSETS> 138,871
<DEPOSITS> 122,125
<SHORT-TERM> 0
<LIABILITIES-OTHER> 698
<LONG-TERM> 5,796
0
0
<COMMON> 7
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 138,871
<INTEREST-LOAN> 1,815
<INTEREST-INVEST> 579
<INTEREST-OTHER> 164
<INTEREST-TOTAL> 2,558
<INTEREST-DEPOSIT> 1,113
<INTEREST-EXPENSE> 78
<INTEREST-INCOME-NET> 1,367
<LOAN-LOSSES> 38
<SECURITIES-GAINS> 26
<EXPENSE-OTHER> 1,144
<INCOME-PRETAX> 211
<INCOME-PRE-EXTRAORDINARY> 140
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
<YIELD-ACTUAL> 4.41
<LOANS-NON> 1,000
<LOANS-PAST> 1,696
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 746
<ALLOWANCE-OPEN> 654
<CHARGE-OFFS> 0
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 698
<ALLOWANCE-DOMESTIC> 698
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 494
</TABLE>