<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 March 31, 2000
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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
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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 March 31, 2000.
Common stock, $.01 Par value -- 656,244 shares as of March 31, 2000
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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INDEX
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PART I FINANCIAL INFORMATION
---------------------
Item 1 Financial Statements
Consolidated Statements of Condition - March 31, 2000
(Unaudited) and December 31, 1999
Consolidated Statements of Income (Unaudited) Three months
Ended March 31, 2000 and 1999
Consolidated Statement of Cash Flows (Unaudited) - Three months
Ended March 31, 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
-----------------
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>
March 31 December 31
2000 1999
-------- -----------
(Unaudited)
-----------
Dollars in Thousands
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 4,142 $ 6,233
Interest Bearing Deposits in Other Banks 438 553
Investment Securities:
Held to maturity (market values of $19
as of March 31, 2000 and $20 as of
December 31,1999) 19 20
Available for Sale 50,548 50,328
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Total Investment Securities 50,567 50,348
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Federal Funds Sold 1,903 9,740
Loans(Net of unearned income) 103,244 102,501
Reserve for Possible Loan Losses (700) (678)
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Net Loans 102,544 101,823
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Property and Equipment - Net 1,557 1,616
Other Real Estate Owned 138 217
Goodwill 3,086 3,169
Accrued Interest Receivable and Other Assets 3,893 3,919
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TOTAL ASSETS $ 168,268 $ 177,618
======= =======
LIABILITIES
Deposits:
Non-Interest Bearing Demand $ 20,947 $ 15,595
Interest Bearing Transaction Accounts 27,621 32,070
Savings 61,845 71,914
Time, $100,000 or more 15,697 18,997
Other Time 26,599 26,965
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Total Deposits 152,709 165,541
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Accrued Interest and Other Liabilities 700 630
Short Term Borrowings 3,000 ---
Notes Payable 3,983 3,983
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TOTAL LIABILITIES 160,392 170,154
======= =======
STOCKHOLDER'S EQUITY
Common stock, non voting, - par value $.01 per share:
Authorized 10,000,000 shares; at 656,244
at March 31, 2000 and 653,204 at December 31, 1999
and 33, 333 common non-voting March 31, 2000 and
December 31, 1999. 7 7
Capital Surplus 6,497 6,497
Retained Earnings 4,390 4,244
Net accumulated other comprehensive (deficit) income (3,018) (3,284)
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TOTAL STOCKHOLDER'S EQUITY 7,876 7,464
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TOTAL LIABILITIES & STOCKHOLDER'S
EQUITY $ 168,268 $ 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>
Three Months Ended
March 31
----------------------------------
2000 1999
(Unaudited)
In Thousands
Except per Share Data
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 2,302 $ 1,888
Interest on Investment Securities (Taxable) 909 1,100
Interest on Deposits in Other Banks 6 12
Interest on Federal Funds Sold 65 66
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TOTAL INTEREST INCOME 3,282 3,066
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INTEREST EXPENSE
Interest on Deposits
Savings 622 551
Interest Bearing Transaction Accounts 222 216
Time $100,000 or More 185 314
Other Time 352 304
Interest on Borrowed Funds 1 22
Interest on Notes Payable 83 65
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TOTAL INTEREST EXPENSE 1,465 1,472
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NET INTEREST INCOME 1,817 1,594
Provision for Possible Loan Losses 60 151
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NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 1,757 1,443
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NON-INTEREST INCOME
Service Charges on Deposit Accounts 246 170
Other Income 100 113
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346 283
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NON-INTEREST EXPENSES
Salaries and Employee Benefits 828 761
Occupancy Expense of Premises 212 199
Equipment Expense 200 130
Data Processing Expense 180 173
Deposit Assessments and Related Fees 8 10
Goodwill Amortization 83 83
Other Expenses 371 311
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1,882 1,667
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INCOME BEFORE INCOME TAXES 221 59
Applicable Income Taxes 75 21
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NET INCOME $ 146 $ 38
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BASIC EARNINGS PER SHARE $ .21 $ .05
DILUTED EARNINGS PER SHARE $ .17 $ .04
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 CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
2000 1999
(Unaudited)
Dollars in Thousands
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 146 $ 38
Adjustments to Reconcile Net Income to Net Cash
and Cash Equivalents Provided by (Used in) Operating
Activities:
Proceeds from the sale of loans 261 864
Gains on sale of loans (2) (4)
Provision for Possible Loan Losses 60 151
Depreciation and Amortization 246 209
Decrease (Increase) in Interest Receivable and Other 26 (1,192)
Increase (Decrease) in Interest Payable and Other
Liabilities 70 (138)
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Net Cash Provided by (Used in) Operating Activities 807 (72)
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INVESTING ACTIVITIES
Net Decrease in Deposits at Other Banks 115 384
Purchase of Investments held to maturity -- (84)
Purchase of Investments Securities available for sale -- (5,000)
Proceeds from maturity of Investment Securities
held to maturity 169 500
Proceeds from Called Securities available for sale -- 5,000
Net Increase in Loans (1,084) (346)
Purchase of Premises and Equipment (102) (522)
-------- --------
Net Cash Used in Investing Activities (902) (68)
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FINANCING ACTIVITIES
Net Increase in Non-Interest Bearing
Transaction Accounts 5,352 1,047
Net Decrease in Interest Bearing
Transaction Accounts (4,449) (3,056)
Net Decrease in Savings Deposits (10,069) (8,703)
Net Decrease in Time Deposits (3,667) (7,218)
Short Term Borrowings 3,000 5,000
Payment of Cash Dividends -- (172)
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Net Cash Used in by Financing Activities
Decrease in Cash and Cash Equivalents (9,833) (13,102)
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(9,928) (13,242)
Cash and Cash Equivalents at Beginning of Period 15,973 18,429
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Cash and Cash Equivalents at End of Period $ 6,045 $ 5,187
======== ========
</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
March 31, 2000
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 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, 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
--------------------
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,
----------------------------
2000 1999
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<S> <C> <C>
Net Income $ 146 $ 38
- Other Comprehensive Income:
Unrealized Holding Gains (Losses)
Arising During the period 266 (354)
- Less: Reclassified Adjustments for
gains included in Net Income --- ---
---------- -----
Other Comprehensive Income, Before
Tax 266 (354)
Income Tax Expense Related to items
of Other Comprehensive Income 90 (90)
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Other Comprehensive Income 176 (264)
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Comprehensive Income $ 322 $(226)
========== =====
</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>
Three Months Ended
--------------------
March 31, March 31
2000 1999
--------- --------
<S> <C> <C>
Basic:
Net income applicable to common stock $146,212 $ 37,759
======== ========
Average common shares outstanding 689,212 686,537
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Basic net income per share $ .21 $ .05
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Diluted:
Net income applicable to common stock $146,212 $ 37,759
======== ========
Average common shares outstanding 689,577 686,537
Stock option adjustment 6,219 30,492
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Diluted average common shares outstanding 683,358 717,029
======== ========
Diluted net income per share $ .21 $ .05
======== ========
</TABLE>
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<PAGE>
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 first quarter of 2000
totaled $146 thousand, an increase of $108 thousand or 284.2 percent
when compared to the first quarter of 1999. A provision of $151
thousand in the allowance for loan losses for the first quarter of
1999, coupled with overhead expenses due to a branch expansion and Y2K
updates in equipment and systems resulted in the lower earnings for
the prior year first quarter. The earnings for the first quarter of
2000, reflect a much lower loan loss reserve allowance due to the
allocations made to the reserve during 1999 and the improved quality
of the loan portfolio. The annualized return of average assets (ROAA)
and average stockholders equity (ROAE) during the first quarter were
.34 percent and 5.33 percent, respectively.
Net interest income increased by $223 thousand or 13.9 percent over
last year's first quarter. Interest and fees on loans increased by
$414 thousand or 21.9 percent reflecting the growth in the loan
portfolio which as of March 31, 2000 had $103.4 million in outstanding
loans. Interest on Investment securities decreased by $191 thousand or
17.4 percent. Interest expense on deposits decreased by $7 thousand.
Interest on saving accounts increased by $71 thousand or 12.9 percent.
Interest on time deposits over $100 thousand decreased by $129
thousand or 41.1 percent reflecting a decrease in those type of
deposits. The decrease reflects management's decision in not renewing
some of the large maturing certificates of deposit. Interest expense
on interest bearing transaction accounts increased slightly by $6
thousand and other time deposits increased by $48 thousand or 15.8
percent. Included in interest expense was $1 thousand of interest
expense for funds borrowed form the Federal Home Loan Bank. The
interest on the FDIC debt increased by $21 thousand or 32.3 percent to
$85 thousand from $65 thousand paid for the first quarter of 1999.
The provision for possible Loan Losses was $60 thousand for the first
quarter of 2000, reflecting a decrease of $91 thousand or 60.2 percent
when compared to the $151 thousand allocated for the first quarter of
1999. Charge-offs for the quarter totaled $88 thousand and recoveries
$49 thousand.
Other operating income increased by $63 thousand or 22.2 percent
resulting primarily from service charges on Deposit accounts which
increased by $76 thousand or 44.7 percent as a result of management
efforts in the monitoring of non-interest income. Fee income from the
subsidiary of the Bank, Harbor Financial Services, was $16 thousand.
They had an operating loss of $2 thousand for the quarter ended March
31, 2000. Non-interest expense increased by $215 thousand or 12.9
percent. Salary and benefits increased by $67 thousand or 8.8 percent
reflecting additional staff as well as salary and benefits increases.
Occupancy and equipment expenses increased by $13 thousand and $70
thousand each or 6.5 percent and 53.8 percent, respectively. The
increase in the equipment expense reflects the depreciation cost
associated with the equipment and software
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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purchases related to the Y2K compliance upgrades. Data processing fees
increased by $7 thousand or 4.0 percent. Goodwill amortization at $83
thousand remained the same as the previous year first quarter. Other
expenses increased by $60 thousand or 19.3 percent reflecting general
increases in the other expenses categories.
As of March 31, 2000, total deposits were $152.7 million reflecting a
decrease of $12.8 million or 7.7 percent when compared to December 31,
1999. Interest bearing transaction accounts decreased by $4.4 million
while non-interest bearing transaction accounts increase by $5.3
million. Savings deposits decreased by $10.1 million reflecting the
withdrawal of some escrow deposits belonging to state and local
government accounts. Time deposits over $100 thousand decreased by
$3.3 million or 17.4 percent. Net loans increased by $721 thousand to
$102.5 million or .71 percent.
Stockholders equity increased by $412 thousand or 5.5 percent. Net
earnings of $146 thousand coupled with a decrease of $266 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 4.6 and 8.5 percent, respectively.
The corporation stock is traded privately. During the first quarter of
2000, a few trades were registered raging between $15.00 and $15.75
per share.
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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
---------------------------------------------------
The 2000 Annual Meeting of the Stockholders of Harbor
Bankshares Corporation was held on April 19, 2000.
The stockholders elected the following nominees to the
Corporation's Board of Directors to serve for a two and
three year term. The following shows the separate
tabulation of votes for each nominee:
Number of Votes
---------------
Three Years For Against
----------- --- -------
Sachender Gupta 475,487 952
Nathaniel Higgs 475,487 952
Delores G. Kelley 475,487 952
Stanley W. Tucker 475,487 952
Two Years For Against
--------- --- -------
John David Ryder 475,487 952
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, 2000.
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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: May 10, 2000 /s/ Joseph Haskins, Jr.
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Joseph Haskins, Jr.
President and Chief Executive Officer
Date: May 10, 2000 /s/ Teodoro J. Hernandez
------------ ------------------------------
Teodoro J. Hernandez
Treasurer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,142
<INT-BEARING-DEPOSITS> 438
<FED-FUNDS-SOLD> 1,903
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,548
<INVESTMENTS-CARRYING> 19
<INVESTMENTS-MARKET> 19
<LOANS> 103,244
<ALLOWANCE> 700
<TOTAL-ASSETS> 168,268
<DEPOSITS> 152,709
<SHORT-TERM> 3,000
<LIABILITIES-OTHER> 700
<LONG-TERM> 3,983
0
0
<COMMON> 7
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 168,268
<INTEREST-LOAN> 2,302
<INTEREST-INVEST> 909
<INTEREST-OTHER> 71
<INTEREST-TOTAL> 3,282
<INTEREST-DEPOSIT> 1,381
<INTEREST-EXPENSE> 1,465
<INTEREST-INCOME-NET> 1,817
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,882
<INCOME-PRETAX> 221
<INCOME-PRE-EXTRAORDINARY> 221
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146
<EPS-BASIC> .21
<EPS-DILUTED> .17
<YIELD-ACTUAL> 4.62
<LOANS-NON> 764
<LOANS-PAST> 349
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,415
<ALLOWANCE-OPEN> 678
<CHARGE-OFFS> 88
<RECOVERIES> 50
<ALLOWANCE-CLOSE> 700
<ALLOWANCE-DOMESTIC> 700
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 204
</TABLE>
