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 September 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)
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 September 30,
2000.
Common stock, $.01 Par value -- 656,390 shares as of September 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 - September 30,
2000 (Unaudited) and December 31, 1999
Consolidated Statements of Income, (Loss) Unaudited -
Three months Ended September 30, 2000 and 1999
Consolidated Statements of Income, (Loss) Unaudited -
Nine months Ended September 30, 2000 and 1999
Consolidated Statement of Cash Flows (Unaudited) -
Nine months Ended September 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
September 30 December 31
2000 1999
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(Unaudited)
Dollars in Thousands
ASSETS
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Cash and Due from Banks $ 6,964 $ 6,233
Interest Bearing Deposits in Other Banks 779 553
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 51,363 50,328
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Total Investment Securities 51,385 50,348
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Federal Funds Sold 2,585 9,740
Loans(Net of unearned income) 109,671 102,501
Reserve for Possible Loan Losses (725) (678)
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Net Loans 108,946 101,823
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Property and Equipment - Net 1,481 1,616
Other Real Estate Owned 79 217
Goodwill 2,920 3,169
Accrued Interest Receivable and Other Assets 4,367 3,919
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TOTAL ASSETS $179,506 $177,618
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LIABILITIES
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Deposits:
Non-Interest Bearing Demand $ 20,312 $ 15,595
Interest Bearing Transaction Accounts 36,976 32,070
Savings 51,814 71,914
Time, $100,000 or more 22,663 18,997
Other Time 27,389 26,965
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Total Deposits 159,154 165,541
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Accrued Interest and Other Liabilities 663 630
Short Term Borrowings 9,000 --
Notes Payable 2,000 3,983
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TOTAL LIABILITIES 170,817 170,154
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STOCKHOLDERS' EQUITY
Common stock, non voting, - par value $.01 per share: Authorized 10,000,000
shares; at 656,390 at September 30, 2000 and 653,204 at December 31, 1999 and
33,333 common non-voting September 30, 2000 and
December 31, 1999. 7 7
Capital Surplus 6,499 6,497
Retained Earnings 4,784 4,244
Net accumulated other comprehensive (deficit) income (2,601) (3,284)
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TOTAL STOCKHOLDERS' EQUITY 8,689 7,464
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TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $179,506 $177,618
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See Notes to Unaudited Consolidated Financial Statements
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three Months Ended
September 30
2000 1999
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(Unaudited)
In Thousands
Except per Share Data
INTEREST INCOME
Interest and Fees on Loans $2,584 $2,010
Interest on Investment Securities (Taxable) 917 920
Interest on Deposits in Other Banks 11 9
Interest on Federal Funds Sold 26 139
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TOTAL INTEREST INCOME 3,538 3,078
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INTEREST EXPENSE
Interest on Deposits
Savings 527 494
Interest Bearing Transaction Accounts 215 236
Time $100,000 or More 194 243
Other Time 421 361
Interest on Borrowed Funds 135 -0-
Interest on Notes Payable 49 77
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TOTAL INTEREST EXPENSE 1,541 1,411
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NET INTEREST INCOME 1,997 1,667
Provision for Possible Loan Losses 90 400
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NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 1,907 1,267
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NON-INTEREST INCOME
Service Charges on Deposit Accounts 266 235
Other Income 149 126
CDFI Awards 126 -0-
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541 361
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NON-INTEREST EXPENSES
Salaries and Employee Benefits 867 827
Occupancy Expense of Premises 201 220
Equipment Expense 200 208
Data Processing Expense 196 158
Deposit Assessments and Related Fees 8 11
Goodwill Amortization 82 82
Other Expenses 480 363
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2,034 1,869
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INCOME BEFORE INCOME TAXES 414 (241)
Applicable Income Taxes 141 (81)
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NET INCOME (LOSS) $ 273 $ (160)
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BASIC EARNINGS PER SHARE $ .39 $ (.23)
DILUTED EARNINGS PER SHARE $ .39 $ (.18)
AVERAGE COMMON SHARES
OUTSTANDING 689 687
Dividends Declared per Share $ -- $ --
(See notes to unaudited consolidated Financial Statements)
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Nine Months Ended
September 30
2000 1999
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(Unaudited)
In Thousands
Except per Share Data
INTEREST INCOME
Interest and Fees on Loans $ 7,234 $5,744
Interest on Investment Securities (Taxable) 2,730 3,082
Interest on Deposits in Other Banks 24 31
Interest on Federal Funds Sold 116 296
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TOTAL INTEREST INCOME 10,104 9,153
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INTEREST EXPENSE
Interest on Deposits
Savings 1,684 1,509
Interest Bearing Transaction Accounts 630 680
Time $100,000 or More 554 840
Other Time 1,138 1,032
Interest on Borrowed Funds 245 40
Interest on Notes Payable 214 216
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TOTAL INTEREST EXPENSE 4,465 4,317
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NET INTEREST INCOME 5,639 4,836
Provision for Possible Loan Losses 286 752
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NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 5,353 4,084
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NON-INTEREST INCOME
Service Charges on Deposit Accounts 787 582
Other Income 406 391
Gains Sale of Real Estate -0- 112
CDIF Awards 126 -0-
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1,319 1,085
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NON-INTEREST EXPENSES
Salaries and Employee Benefits 2,555 2,388
Occupancy Expense of Premises 615 620
Equipment Expense 601 519
Data Processing Expense 560 507
Deposit Assessments and Related Fees 24 33
Goodwill Amortization 248 248
Other Expenses 1,250 1,028
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5,853 5,343
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INCOME BEFORE INCOME TAXES 819 (174)
Applicable Income Taxes 279 (58)
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NET INCOME (LOSS) $ 540 $ (116)
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BASIC EARNINGS PER SHARE $ .78 $ (.17)
DILUTED EARNINGS PER SHARE $ .77 $ (.13)
AVERAGE COMMON SHARES
OUTSTANDING 689 687
Dividends Declared per Share $ -- $ .25
(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
Nine Months Ended
September 30
2000 1999
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(Unaudited)
Dollars in Thousands
OPERATING ACTIVITIES
Net Income $ 540 $ (160)
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 (2)
Provision for Possible Loan Losses 286 752
Depreciation and Amortization 736 695
(Increase) in Interest Receivable and Other Assets (310) (1,464)
Increase in Interest Payable and Other
Liabilities 33 152
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Net Cash Provided by (Used in) Operating Activities 1,292 (139)
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INVESTING ACTIVITIES
Net (Increase) Decrease in Deposits at Other Banks (226) 575
Purchase of Investments held to maturity (2) (90)
Purchase of Investments Securities available for sale (213) (5,000)
Proceeds from Investment Securities held to maturity -0- 17,238
Proceeds from Investment Securities available for sale 214 -0-
Proceeds from Called Securities available for sale -0- 5,000
Proceeds from the sale of loans 1,655 3,570
Net Increase in Loans (9,154) (8,977)
Purchase of Premises and Equipment (622) (720)
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Net Cash and Cash (Used in) (8,348) 11,596
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Provided by Investing Activities
FINANCING ACTIVITIES
Net Increase in Non-Interest Bearing
Transaction Accounts 4,717 6,118
Net Increase in Interest Bearing
Transaction Accounts 4,906 1,323
Net Decrease in Savings Deposits (20,100) (9,425)
Net Increase (Decrease) in Time Deposits 4,090 (14,176)
Short term Borrowings 9,000 --
Sale of common Stock 2 --
Sale of Treasury Stock -- 15
Long Term Borrowings 2,000 --
Principal payment Notes Payable (3,983) (1,813)
Payment of Cash Dividends -- (173)
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Net Cash Provided (Used in) by Financing Activities 632 (18,131)
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Increase (Decrease) in Cash and Cash Equivalents (6,424) (6,674)
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Cash and Cash Equivalents at Beginning of Period 15,973 18,549
Cash and Cash Equivalents at End of Period $ 9,549 $ 11,875
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(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
September 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 nine month
period ended September 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:
Nine Months Ended September 30,
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2000 1999
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Net Income $540 $ (116)
- Other Comprehensive Income:
Unrealized Holding Gains (Losses)
Arising During the period 683 (2,117)
- Less: Reclassified Adjustments for
gains included in Net Income -- --
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Other Comprehensive Income (loss) Before
Taxes 683 (2,117)
Income Tax Expense (Benefit) Related to
items of Other Comprehensive Income 232 (720)
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Other Comprehensive Income 451 (1,397)
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Comprehensive Income (Loss) $991 $(1,513)
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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:
Nine Months Ended Three Months Ended
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Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
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Basic:
Net income applicable to common stock $540,445 $(115,960) $273,230 $(159,589)
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Average common shares outstanding 689,597 686,537 $689,678 $686,537
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Basic net income per share $ .78 $ (.17) $ .39 $ (.23)
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Diluted:
Net income applicable to common stock $540,445 $(115,960) $273,230 $(159,589)
======== ========= ======== =========
Average common shares outstanding 689,597 $689,597 $ 686,537
Stock option adjustment 9,858 18,180 $ 7,098 $ 14,857
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Diluted average common shares outstanding 699,455 704,717 $696,695 $ 701,394
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Diluted net income per share $ .77 $ (.16) $ .39 $ (.22)
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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 earnings for the third quarter
of 2000 were $273 thousand, an increase of $433 thousand
compared to a loss of $160 thousand for the third quarter of
1999. The loss for 1999 was mainly due to allocations to the
loan loss reserves which totaled $400 thousand for that
quarter. Net interest income increased by $330 thousand or
19.7 percent, other non-interest income increased by $180
thousand or 49.8 percent, included in the non-interest income
for the third quarter of 2000, is a $126 thousand award from
the U.S. Treasury Department, resulting from the Corporation's
investments in distressed areas of its market place. The
reserve for possible loan losses allocations for the quarter
was $90 thousand compared to $400 thousand for the prior year.
Total non-interest expenses increased by $165 thousand or 8.8
percent. Salaries and benefits increased by $40 thousand or
4.8 percent as a result of salary increases and additional
staff. Occupancy and equipment expenses showed a decrease of
$19 thousand and $8 thousand respectively when compared to the
same period for 1999. Other non- interest expenses increased
by $152 thousand or 24.7 percent due to increased data
processing cost and general increases in various expense
categories.
Year-to-date earnings as of September 30, 2000, were $540
thousand or $.78 basic earnings per share, reflecting an
increase of $.90 per share when compared to the nine months
ending September 30,1999. Return on Average Assets (ROAA) and
Return on Average Equity (ROAE) were.41 percent and 6.5
percent respectively.
Net interest income increased by $803 thousand or 16.6 percent
over last year's third quarter. Interest on investment
securities decreased by $352 thousand or 11.4 percent while
interest and fees on loans increased by $1.5 million or 25.9
percent reflecting the growth in the loan portfolio, mainly in
the commercial and commercial loans secured by real estate
categories. Interest expense increased by $148 thousand or 3.4
percent. Interest expense in other time deposits increased by
$106 thousand or 10.3 percent while interest on time deposits
over $100 thousand decreased by $286 thousand or 34.0 percent.
Interest on borrowed funds increased by $205 thousand.
Included in the total interest expense is $214 thousand of
interest on the debt to the FDIC which was fully paid on
August, 2000 and interest for the new long term borrowings of
$2.0 million from the NCIF fund.
The provision for possible Loan Losses was $286 thousand for
the nine months ended September 30, 2000, a decrease of $466
thousand when compared to the same period for 1999.
Charge-offs as of the end of the third quarter totaled $324
thousand and recoveries $85 thousand.
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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Non-interest income increased by $234 thousand or 21.5
percent. Service charges on deposit accounts increased by $205
thousand or 35.2 percent as a result of the continuos
monitoring by management. Other fee income increased by $15
thousand or 3.8 percent. Included in the total non-interest
income is a $126 thousand award from the U.S. Treasury
Department. The 1999 non-interest income reflects a gain of
$112 thousand from the sale of a property owned by the Bank.
Fee income from the subsidiary of the Bank, Harbor Financial
Services, was $74 thousand. Their operation as of September
30, 2000 had a net loss of $2 thousand. Non-interest expenses
increased by $510 thousand or 9.5 percent. Salary and benefits
increased by $167 thousand or 7.0 percent mainly due to
increases and additional staff. Occupancy cost decreased by $5
thousand or .8 percent, furniture and equipment increased by
$82 thousand or 15.8 percent reflecting the depreciation
expense for the purchases and upgrades related to Y2K. Data
processing cost increased by $53 thousand or 10.4 percent as a
result of the cost related to new services offered to
customers. Goodwill amortization at $248 remained the same as
the previous year. Other expenses increased by $222 thousand
or 21.6 percent basically due to the cost of expansions, loan
collections cost and general growth in other areas of the
bank.
As of September 30, 2000, total deposits were $159.1 million,
reflecting a decrease of $6.4 million when compared to
December 31, 1999. Non-interest bearing transaction accounts
increased by $4.7 million or 30.2 percent. Interest bearing
transactions accounts increased by $4.9 million or 15.3
percent while saving accounts decreased by $20.1 million
reflecting fluctuations in the Money Market category as a
result of certain escrow deposits withdrawals. Time Deposits
increased by $4.1 million mainly reflected in the Time
Deposits over $100 thousand which increased by $3.7 million or
19.3 percent. Net loans increased by $7.1million or 7.0
percent reflected mainly in the commercial and commercial
loans secured by real estate categories. There were $9.0
million of borrowed funds as of September 30, 2000 from the
Federal Home Loan Bank of Atlanta. Long term borrowings
totaled $2.0 million representing a note from The National
Community Investment Fund at a fixed rate of 7.0 percent, due
July 1, 2012. This note was used to replace the indebtness to
the Federal Deposit Insurance Corporation which totaled $3.9
million as of year end 1999. This note was paid in its
entirety during August 2000.
Shareholder's equity increased by $1.2 million or 16.4
percent, earnings of $540 thousand coupled with a decrease in
the unrealized losses on the available for sale securities of
$683 thousand were the main reasons for the increase. Primary
and risk based capital for the corporation were 4.66 percent
and 8.32 percent, respectively.
The corporation's stock is traded privately. During the first
nine months of the year, a few trades were registered ranging
from $17.00 to $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
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Holders
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None
Item V. Other Information
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None
Item VI. Reports on Form 8-K
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The Company did not file any report on Form
8-K for the period ending September 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: 11/9/00 /s/ Joseph Haskins, Jr.
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Joseph Haskins, Jr.
Chairman and Chief Executive Officer
Date: 11/8/00 /s/ Teodoro J. Hernandez
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Teodoro J. Hernandez
Treasurer
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