<PAGE>
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
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For quarter ended June 30, 2000
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Commission file number 0-20990
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Harbor Bankshares Corporation
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(Exact name of registrant as specified in its charter)
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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
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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 June 30, 2000.
Common stock, $.01 Par value -- 656,325 shares as of June 30, 2000
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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 - June 30, 2000
(Unaudited) and December 31, 1999
Consolidated Statements of Income (Unaudited) - Six months
Ended June 30, 2000 and 1999
Consolidated Statements of Income (Unaudited) - Three months
Ended June 30, 2000 and 1999
Consolidated Statement of Cash Flows (Unaudited) - Six months
Ended June 30, 2000 and 1999
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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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
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(Unaudited)
Dollars in Thousands
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 3,905 $ 6,233
Interest Bearing Deposits in Other Banks 842 553
Investment Securities
Held to maturity (market values of $22
as of June 30, 2000 and $20 as of
December 31,1999) 22 20
Available for Sale 50,615 50,328
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Total Investment Securities 50,637 50,348
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Federal Funds Sold 27 9,740
Loans(Net of unearned income) 107,797 102,501
Reserve for Possible Loan Losses (709) (678)
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Net Loans 107,088 101,823
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Property and Equipment - Net 1,575 1,616
Other Real Estate Owned -0- 217
Goodwill 3,046 3,169
Accrued Interest Receivable and Other Assets 4,471 3,919
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TOTAL ASSETS $ 171,591 $ 177,618
========= =========
LIABILITIES
Deposits:
Non-Interest Bearing Demand $ 19,961 $ 15,595
Interest Bearing Transaction Accounts 31,545 32,070
Savings 55,658 71,914
Time, $100,000 or more 17,284 18,997
Other Time 26,542 26,965
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Total Deposits 150,990 165,541
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Accrued Interest and Other Liabilities 608 630
Short Term Borrowings 9,000 ---
Notes Payable 2,983 3,983
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TOTAL LIABILITIES 163,581 170,154
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STOCKHOLDERS' EQUITY
Common stock, non voting, - par value $.01 per share:
Authorized 10,000,000 shares; at 656,325
at June 30, 2000 and 653,204 at December 31, 1999
and 33, 333 common non-voting June 30, 2000 and
December 31, 1999 7 7
Capital Surplus 6,498 6,497
Retained Earnings 4,510 4,244
Net accumulated other comprehensive (deficit) income (3,005) (3,284)
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TOTAL STOCKHOLDERS' EQUITY 8,010 7,464
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TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $ 171,591 $ 177,618
========= =========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
June 30
2000 1999
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(Unaudited)
In Thousands
Except per Share Data
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $4,650 $3,734
Interest on Investment Securities (Taxable) 1,813 2,162
Interest on Deposits in Other Banks 13 22
Interest on Federal Funds Sold 90 157
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TOTAL INTEREST INCOME 6,566 6,075
INTEREST EXPENSE
Interest on Deposits
Savings 1,157 1,015
Interest Bearing Transaction Accounts 415 444
Time $100,000 or More 360 597
Other Time 717 671
Interest on Borrowed Funds 110 40
Interest on Notes Payable 165 139
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TOTAL INTEREST EXPENSE 2,924 2,906
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NET INTEREST INCOME 3,642 3,169
Provision for Possible Loan Losses 196 352
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NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 3,446 2,817
NON-INTEREST INCOME
Service Charges on Deposit Accounts 521 347
Other Income 257 265
Gains Sale of Real Estate -0- 112
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778 724
NON-INTEREST EXPENSES
Salaries and Employee Benefits 1,688 1,561
Occupancy Expense of Premises 414 400
Equipment Expense 401 311
Data Processing Expense 364 349
Deposit Assessments and Related Fees 16 22
Goodwill Amortization 166 166
Other Expenses 770 665
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3,819 3,474
INCOME BEFORE INCOME TAXES 405 67
Applicable Income Taxes 138 23
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NET INCOME $ 267 $ 44
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BASIC EARNINGS PER SHARE $ .38 $ .06
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DILUTED EARNINGS PER SHARE $ .38 $ .06
AVERAGE COMMON SHARES
OUTSTANDING 689 686
Dividends Declared per Share $ -- $ .25
</TABLE>
(See notes to unaudited consolidated Financial Statements)
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
June 30
2000 1999
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(Unaudited)
In Thousands
Except per Share Data
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $2,348 $1,846
Interest on Investment Securities (Taxable) 904 1,062
Interest on Deposits in Other Banks 7 10
Interest on Federal Funds Sold 25 91
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TOTAL INTEREST INCOME 3,284 3,009
INTEREST EXPENSE
Interest on Deposits
Savings 535 464
Interest Bearing Transaction Accounts 193 228
Time $100,000 or More 175 283
Other Time 365 367
Interest on Borrowed Funds 109 18
Interest on Notes Payable 82 74
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TOTAL INTEREST EXPENSE 1,459 1,434
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NET INTEREST INCOME 1,825 1,575
Provision for Possible Loan Losses 136 201
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NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 1,689 1,374
NON-INTEREST INCOME
Service Charges on Deposit Accounts 275 177
Other Income 157 152
Gains Sale of Real Estate -0- 112
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432 441
NON-INTEREST EXPENSES
Salaries and Employee Benefits 860 800
Occupancy Expense of Premises 202 201
Equipment Expense 201 181
Data Processing Expense 184 176
Deposit Assessments and Related Fees 8 12
Goodwill Amortization 83 83
Other Expenses 399 354
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1,937 1,807
INCOME BEFORE INCOME TAXES 184 8
Applicable Income Taxes 63 2
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NET INCOME $ 121 $ 6
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BASIC EARNINGS PER SHARE $ .17 $ .01
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DILUTED EARNINGS PER SHARE $ .17 $ .01
AVERAGE COMMON SHARES
OUTSTANDING 689 686
Dividends Declared per Share $ -- $ --
</TABLE>
(See notes to unaudited consolidated Financial Statements)
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
2000 1999
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(Unaudited)
Dollars In Thousands
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 267 $ 44
Adjustments to Reconcile Net Income to Net Cash
and Cash Equivalents Provided by (Used in) Operating
Activities:
Gains on sales of Real Estate -0- (112)
Gains on sale of loans (7) (1)
Provision for Possible Loan Losses 196 352
Depreciation and Amortization 493 449
(Increase) in Interest Receivable and Other Assets (335) (41)
Decrease in Interest Payable and Other
Liabilities (22) (23)
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Net Cash Provided by (Used in) Operating Activities 592 668
INVESTING ACTIVITIES
Net (Increase) Decrease in Deposits at Other Banks (289) 393
Purchase of Investments held to maturity (65) (90)
Purchase of Investments Securities available for sale -0- (5,000)
Proceeds from Investment Securities held to maturity 354 17,238
Proceeds from Called Securities available for sale -0- 5,000
Proceeds from the sale of loans 1,126 3,227
Net (Increase) Decrease in Loans (6,912) 969
Purchase of Premises and Equipment (287) (630)
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Net Cash and Cash Provided by (Used in) Investing Activities (6,073) 21,107
FINANCING ACTIVITIES
Net Increase in Non-Interest Bearing
Transaction Accounts 4,366 3,748
Net Decrease in Interest Bearing
Transaction Accounts (525) (1,062)
Net Decrease in Savings Deposits (16,256) (5,670)
Net Decrease in Time Deposits (2,136) (10,433)
Short term Borrowings 9,000 --
Sale of common Stock 1 --
Sale of Treasury Stock -- 17
Principal payment Notes Payable (1,000) --
Payment of Cash Dividends - (173)
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Net Cash (Used in) Provided by Financing Activities (6,550) (13,573)
Increase (Decrease) in Cash and Cash Equivalents (12,031) (8,202)
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Cash and Cash Equivalents at Beginning of Period 15,973 18,429
Cash and Cash Equivalents at End of Period $ 3,932 $ 26,631
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</TABLE>
(See Notes to Unaudited Consolidated Financial Statements)
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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Notes to Unaudited Consolidated Financial Statements
June 30, 2000
Note A: Basis of Presentation
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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 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, 2000, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
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, 1999.
Note B: Comprehensive Income
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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>
Six Months Ended June 30,
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2000 1999
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<S> <C> <C>
Net Income $ 267 $ 44
- Other Comprehensive Income:
Unrealized Holding Gains (Losses)
Arising During the period 278 (2,775)
- Less: Reclassified Adjustments for
gains included in Net Income -- --
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Other Comprehensive Income (loss) Before
Taxes 278 (2,775)
Income Tax Expense (Benefit) Related to
items of Other Comprehensive Income 95 (930)
Other Comprehensive Income 183 (1,845)
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Comprehensive Income (Loss) $ 450 $(1,801)
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</TABLE>
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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Note C: SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133, requires derivative instruments be carried at
fair value on the balance sheet. The statement continues to allow
derivative instruments to be used to hedge various risks and sets
forth specific criteria to be used to determine when hedge accounting
can be used. The statement also provides for offsetting changes in
fair value or cash flows of both the derivative and the hedge asset or
liability to be recognized in earnings in the same period; however,
any changes in fair value or cash flow that represent the ineffective
portion of a hedge are required to be recognized in earnings and
cannot be deferred. For derivative instruments not accounted for as
hedges, changes in fair value are required to be recognized in
earnings.
The Corporation plans to adopt the provisions of this statement, as
amended, for its quarterly and annual reporting beginning January 1,
2001, the statement's effective date. These statements will not have a
material impact on the corporation's results of operations.
Note: D 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. This computation of diluted
earnings per share 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>
Six Months Ended Three Months Ended
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June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic:
Net income applicable to common stock $267,215 $ 43,269 $121,003 $ 5,870
======== ======== ======== ========
Average common shares outstanding 689,577 686,537 $689,577 $686,537
======== ======== ======== ========
Basic net income per share $ .38 $ .06 $ .17 $ .01
======== ======== ======== ========
Diluted:
Net income applicable to common stock $267,215 $ 43,269 $121,003 $ 5,870
======== ======== ======== ========
Average common shares outstanding 689,577 686,537 $689,577 $686,537
Stock option adjustment 11,031 25,599 $ 6,972 $ 20,718
-------- -------- -------- --------
Diluted average common shares outstanding 700,608 712,136 $696,549 $707,255
======== ======== ======== ========
Diluted net income per share $ .38 $ .06 $ .17 $ .01
======== ======== ======== ========
</TABLE>
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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Part I. FINANCIAL INFORMATION
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Item II. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Harbor Bankshares Corporation's earnings for the second quarter of
2000 totaled $121 thousand, an increase of $115 thousand or191.6
percent when compared to the second quarter of 1999. Net interest
income increased by $250 thousand or 15.8 percent mainly due to
interest and fees on loans which increased by $502 thousand or 27.2
percent. Interest expense for the period increased by $25 thousand or
1.7 percent. Other operating income decreased by $9 thousand or 2.0
percent. Included in the 1999 figures, is a gain on the sale of real
estate of $112 thousand. Other operating expenses for the quarter
increased by $130 thousand or 7.2 percent, equipment expense increased
by $20 thousand or 11.0 percent mainly reflecting the depreciation
expense related to the year 2000 equipment upgrades and enhancements
that took place during 1999. Other expenses increased by $45 thousand
or 12.7 percent, reflecting general increases in the other expense
categories. The provision for loan losses decreased by $65 thousand
or 32.3 percent, the net effect of the income and expense variances
resulted in the $121 increase.
Year-to-date earnings as of June 30, 2000, were $267 thousand or $.38
basic earnings per share, reflecting an increase of $.32 per share
when compared to the six month ending June 30,1999. Return on Average
Assets (ROAA) and Return on Average Equity (ROAE) were.16 percent and
3.5 percent respectively.
Net interest income increased by $473 thousand or 14.9 percent over
last year's second quarter. Interest on investment securities
decreased by $349 thousand or 16.1 percent while interest and fees on
loans increased by $916 thousand or 34.5 percent reflecting the growth
in the loan portfolio, mainly in the business and commercial real
estate loans. Interest expense increased slightly over the prior year
by $18 thousand or .6 percent. Interest on savings accounts which
includes money market accounts increased by $142 thousand or 14.0
percent. Interest expense on transaction accounts decreased by $29
thousand or 6.5 percent while interest on time deposits decreased by
$191 thousand or 15.1 percent. Included in total interest expense,
were $110 thousand of interest in borrowings from the Federal Home
Loan Bank of Atlanta and $165 thousand of interest on the debt to the
Federal Deposit Insurance Corporation.
The provision for possible Loan Losses was $196 thousand for the six
months ended June 30, 2000, a decrease of $156 thousand or 44.3
percent compared to the same period for 1999. Charge-offs as of the
end of the second quarter totaled $225 thousand and recoveries $60
thousand.
Other operating income increased by $54 thousand or 7.7 percent.
Service charges on deposit accounts increased by $174 thousand or 50.1
percent as a result of re-structured service charges pricing and
constant monitoring by management. Other income decreased by $8
thousand or 3.0. Included in the 1999 other operating income is a
gain of $112 thousand on the sale of real estate property owned by the
Bank, excluding this item during 1999, other operating income
increased by $166 thousand or 27.1 percent.
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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Fee income from the subsidiary of the Bank, Harbor Financial Services, was
$37 thousand. They had an operating loss of $5 thousand as of June 30,
2000. Non-interest expense increased by $345 thousand or 9.9 percent.
Salary and benefits increased by $127 thousand or 8.1 percent reflecting
additional staff as well as salary and benefit increases. Occupancy and
equipment expense increase by $14 thousand and $90 thousand each or 3.5
percent and 28.9 percent, respectively. The increase in equipment expense
reflects mainly the depreciation cost associated with the equipment and
software purchases related to the Y2-K compliance upgrades. Data
processing expenses increased by $15 thousand or 4.3 percent. Goodwill
amortization at $166 thousand remained the same as the previous year.
Other expenses increased by $105 thousand or 15.8 percent reflecting
general increases in the those categories.
As of June 30, 2000, total deposits were $150.9 million reflecting a
decrease of $14.5 million or 8.8 percent when compared to December 31,
1999. Interest bearing transaction accounts decreased by $525 thousand or
1.6 percent while non-interest bearing transaction accounts increased by
$4.3 million or 28.0 percent. Saving deposits decreased $16.3 million or
22.6 percent reflecting mainly the withdrawal of escrow deposits belonging
to state and local government accounts. Time deposits over $100 thousand
decreased by $1.7 million or 9.0 percent while other time deposits
decreased by $423 thousand or 1.6 percent. Short term borrowings were $9.0
million as of June 30, 2000. There were no short term borrowings
outstanding as of December 31, 1999.
Shareholder's equity increased by $546 thousand or 7.3 percent. Net
earnings of $267 thousand coupled with a decrease of $279 thousand in the
unrealized losses on available-for-sale securities were the reasons for the
increase. Primary and risk based capital for the corporation were 4.7 and
8.3 percent respectively.
The corporation stock is traded privately. During the period, a few trades
were registered raging between $15.00 and $15.75 per share.
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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Part II. OTHER INFORMATION
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Item I. Legal Proceedings
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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
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None
Item III. Defaults Upon Senior Securities
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None
Item IV. Submission of Matters to a Vote of Security Holders
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None
Item V. Other Information
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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, 2000.
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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SIGNATURES
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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: 8/9/2000 /s/ Joseph Haskins, Jr.
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Joseph Haskins, Jr.
President and Chief Executive Officer
Date: 8/9/2000 /s/ Teodoro J. Hernandez
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Teodoro J. Hernandez
Treasurer
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