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, 2001
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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
--
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, 2001.
Common stock, $.01 Par value -- 679,422 shares as of June 30, 2001
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
________________________________________________________________________________
INDEX
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PART I FINANCIAL INFORMATION
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Item 1 Financial Statements
Consolidated Statements of Condition - June 30, 2001
(Unaudited) and December 31, 2000
Consolidated Statements of Income (Unaudited) Six months
Ended June 30, 2001 and 2000
Consolidated Statements of Income (Unaudited) - Three months
Ended June 30, 2001 and 2000
Consolidated Statement of Cash Flows (Unaudited) - Three
months Ended June 30, 2001 and 2000
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
________________________________________________________________________________
CONSOLIDATED STATEMENTS OF CONDITION
June 30 December 31
2001 2000
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(Unaudited)
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Dollars in Thousands
ASSETS
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Cash and Due from Banks $ 4,782 $ 5,223
Interest Bearing Deposits in Other Banks 1,095 641
Investment Securities:
Held to maturity (fair values of $ 2,038
as of June 30, 2001 and $27 as of
December 31,2000) 2,048 27
Available for Sale 59,924 55,244
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Total Investment Securities 61,972 55,271
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Federal Funds Sold 16,507 --
Loans(Net of unearned income) 104,577 112,398
Allowance for Loan Losses (815) (733)
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Net Loans 103,762 111,665
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Property and Equipment - Net 1,156 1,346
Other Real Estate Owned 49 37
Goodwill Net 2,672 2,837
Accrued Interest Receivable and Other Assets 8,541 7,497
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TOTAL ASSETS $ 200,536 $ 184,517
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LIABILITIES
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Deposits:
Non-Interest Bearing Demand $ 24,736 $ 18,883
Interest Bearing Transaction Accounts 18,753 16,536
Savings 81,743 76,361
Time, $100,000 or more 33,517 29,499
Other Time 27,396 28,003
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Total Deposits 186,145 169,282
Accrued Interest and Other Liabilities 1,120 989
Short Term Borrowings -- 2,000
Notes Payable 2,000 2,000
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TOTAL LIABILITIES 189,265 174,271
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STOCKHOLDERS' EQUITY
Common stock, non voting, - par value $.01 per share:
Authorized 10,000,000 shares; at 679,422 at June 30,
2001 and 656,455 at December 31, 2000 and 33, 333
common non-voting June 30, 2001 and
December 31, 2000 7 7
Capital Surplus 6,846 6,500
Retained Earnings 5,092 4,809
Accumulated other comprehensive loss (674) (1,070)
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TOTAL STOCKHOLDERS' EQUITY 11,271 10,246
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TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $ 200,536 $ 184,517
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See Notes to Unaudited Consolidated Financial Statements
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
June 30
2001 2000
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(Unaudited)
In Thousands
Except per Share Data
INTEREST INCOME
Interest and Fees on Loans $2,336 $2,348
Interest on Investment Securities (Taxable) 957 904
Interest on Deposits in Other Banks 13 7
Interest on Federal Funds Sold 294 25
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TOTAL INTEREST INCOME 3,600 3,284
INTEREST EXPENSE
Interest on Deposits
Savings 720 535
Interest Bearing Transaction Accounts 38 193
Time $100,000 or More 479 175
Other Time 408 365
Interest on Borrowed Funds -0- 109
Interest on Notes Payable 35 82
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TOTAL INTEREST EXPENSE 1,680 1,459
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NET INTEREST INCOME 1,920 1,825
Provision for Possible Loan Losses 100 136
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NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 1,820 1,689
NON-INTEREST INCOME
Service Charges on Deposit Accounts 254 275
Other Income 225 157
Realized Gains on Available for sale
Securities 28 -0-
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507 432
NON-INTEREST EXPENSES
Salaries and Employee Benefits 1,009 860
Occupancy Expense of Premises 192 202
Equipment Expense 169 201
Data Processing Expense 244 184
Deposit Assessments and Related Fees 20 8
Goodwill Amortization 83 83
Other Expenses 421 399
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2,138 1,937
INCOME BEFORE INCOME TAXES 189 184
Applicable Income Taxes 58 63
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NET INCOME $ 131 $ 121
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BASIC EARNINGS PER SHARE $ .19 $ .17
DILUTED EARNINGS PER SHARE $ .18 $ .17
AVERAGE COMMON SHARES
OUTSTANDING 697 689
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
Six Months Ended
June 30
2001 2000
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(Unaudited)
In Thousands
Except per Share Data
INTEREST INCOME
Interest and Fees on Loans $ 4,771 $ 4.650
Interest on Investment Securities (Taxable) 1,886 1,813
Interest on Deposits in Other Banks 22 13
Interest on Federal Funds Sold 511 90
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TOTAL INTEREST INCOME 7,190 6,566
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INTEREST EXPENSE
Interest on Deposits
Savings 1,566 1,434
Interest Bearing Transaction Accounts 76 138
Time $100,000 or More 899 360
Other Time 830 717
Interest on Borrowed Funds 9 110
Interest on Notes Payable 70 165
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TOTAL INTEREST EXPENSE 3,450 2,924
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NET INTEREST INCOME 3,740 3,642
Provision for Possible Loan Losses 200 196
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NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 3,540 3,446
NON-INTEREST INCOME
Service Charges on Deposit Accounts 508 521
Other Income 495 257
Realized Gains on Available for Sale Securities 46 -0-
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1,049 778
NON-INTEREST EXPENSES
Salaries and Employee Benefits 1,996 1,688
Occupancy Expense of Premises 389 414
Equipment Expense 342 401
Data Processing Expense 463 364
Deposit Assessments and Related Fees 42 16
Goodwill Amortization 166 166
Other Expenses 783 770
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4,181 3,819
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INCOME BEFORE INCOME TAXES 408 405
Applicable Income Taxes 125 138
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NET INCOME $ 283 $ 267
========= ========
BASIC EARNINGS PER SHARE $ .40 $ .38
DILUTED EARNINGS PER SHARE $ .39 $ .38
AVERAGE COMMON SHARES
OUTSTANDING 693 689
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 CASH FLOWS
Six Months Ended
June 30
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2001 2000
(Unaudited)
Dollars in Thousands
OPERATING ACTIVITIES
Net Income $ 283 $ 267
Adjustments to Reconcile Net Income to Net Cash
and Cash Equivalents Provided by (Used in) Operating
Activities:
Gains on sale of loans (5) (7)
Provision for Possible Loan Losses 200 196
Depreciation and Amortization 474 493
Increase in Interest Receivable and Other Assets (891) (335)
Increase (Decrease) in Interest Payable and Other
Liabilities 131 (22)
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Net Cash Provided by Operating Activities 192 592
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INVESTING ACTIVITIES
Net Increase in Deposits at Other Banks (454) (289)
Purchase of Investments held to Maturity (2,000) (65)
Purchase of Investments Securities Available for Sale (14,914) -0-
Proceeds from Investment Securities held to Maturity -0- 354
Proceeds from Called Securities available for Sale 2,000 -0-
Proceeds from Investment Security held for Sale 8,243 -0-
Proceeds from the Sales of Loans 1,129 1,126
Net (Increase) Decrease in Loans 8,070 (6,912)
Purchase of Premises and Equipment (118) (287)
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Net Cash Provided by
(Used in) Investing Activities 1,956 (6,073)
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FINANCING ACTIVITIES
Net Increase in Non-Interest Bearing
Transaction Accounts 5,853 4,366
Net Increase (Decrease) in Interest Bearing
Transaction Accounts 2,217 (535)
Net Increase (Decrease) in Savings Deposits 5,382 (16,256)
Net Increase (Decrease) in Time Deposits 3,411 (2,136)
Short Term Borrowings (2,000) 9,000
Principal Payment Notes Payable (1,000)
Sale of common Stock 346 1
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Net Cash Provided by (Used In) Financing Activities 15,209 (6,560)
Increase (Decrease) in Cash and Cash Equivalents 17,257 (12,041)
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Cash and Cash Equivalents at Beginning of Period 3,932 15,973
Cash and Cash Equivalents at End of Period $ 21,289 $ 3,932
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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
June 30, 2001
Note A: Basis of Presentation
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The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States 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, 2001, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2001. 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, 2000.
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:
Six Months Ended June 30,
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2001 2000
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Net Income $283 $267
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- - Other Comprehensive Income:
Unrealized Holding Gains (Losses)
Arising During the period 396 278
- - Less: Reclassified Adjustments for gains
Included in Net Income -- --
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Other Comprehensive Income(Loss) Before
Tax 396 278
Income Tax Expense Related to
items of Other Comprehensive Income 135 95
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Other Comprehensive Income 261 183
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Comprehensive Income $544 $450
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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 Accounting for Transfers and Servicing of Financial
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Assets and Extinguishment of Liabilities
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SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, was
issued in September 2000 and replaces SFAS No. 125. The
guidance in SFAS NO. 140, while not changing most of the
guidance originally issued in SFAS NO. 125, revises the
standards for accounting for securitizations and other
transfers of financial assets and collateral and requires
certain additional disclosures related to transferred assets.
Certain provisions of the statement related to the
recognition, reclassification and disclosure of collateral, as
well as the disclosure of securitization transactions, became
effective for the Corporation for 2000 year-end reporting.
Other provisions related to the transfer and servicing of
financial assets and Extinguishments of liabilities are
effective for transactions occurring after March 30 2001.
Management believes the application of the new rules will not
have a material impact on the Corporation's results of
operations, financial position or liquidity.
Note: E FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosure About Fair Value of Financial
Instruments requires the Corporation to disclose fair value
information about financial instruments for which it is
practicable to estimate, whether or not such fair values are
reflected in the consolidated balance sheets. Estimated fair
value amounts have been determined using available market
information and other valuation methodologies. However,
considerable judgment is required to interpret market data in
developing the estimates of fair value. Accordingly, the
estimates presented are not necessarily indicative of the
amount that could be realized in a current market exchange.
The use of different market assumptions and estimation
methodologies may have a material effect on the estimated fair
value amounts.
The carrying amounts reported under the caption "Cash and due
from banks", "Interest bearing Time Deposits in other banks",
and "Federal funds sold" approximate the fair value of those
assets.
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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Note: F 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:
Six Months Ended Three Months Ended
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June 30, June 30 June 30 June 30
2001 2000 2001 2000
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Basic:
Net income applicable to common stock $ 282,922 $ 267,215 $ 130,909 $ 121,003
========= ========= ========= =========
Average common shares outstanding 693,271 689,577 693,271 689,577
========= ========= ========= =========
Basic net income per share $ .40 $ .38 $ .19 $ .17
========= ========= ========= =========
Diluted:
Net income applicable to common stock $ 282,922 $ 267,215 $ 130,909 $ 121,003
========= ========= ========= =========
Average common shares outstanding 693,271 689,577 693,271 689,577
Stock option adjustment 18,446 11,031 15,861 6,972
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Diluted average common shares outstanding 711,717 700,608 709,132 696,549
========= ========= ========= =========
Diluted net income per share $ .39 $ .38 $ .18 $ .17
========= ========= ========= =========
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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 2001
totaled $131 thousand, an increase of $10 thousand or 8.3 percent when
compared to the second quarter of 2000. Net interest income increased
by $95 thousand or 5.2 percent. Interest expense for the period
increased by $221 thousand or 12.1 percent. Non-interest income
increased by $75 thousand or 17.3 percent, included in the non-
interest income are gains on available for sale securities of $28
thousand. Non-interest expenses for the quarter increased by $201
thousand or 10.4 percent, salaries and benefits increased by $149
thousand or 17.3 percent. Other expenses increased by $52 thousand or
4.8 percent reflecting general increases in the other non-interest
expense categories. The provision for loan losses decreased by $36
thousand or 26.5 percent.
Year to date earnings as of June 30, 2001, were $283 thousand or $.40
basic earnings per share. Return on Average Assets (ROAA) and Return on
Average Equity (ROAE) were .14 percent and 2.58 percent respectively.
Net interest income increased by $98 thousand or 2.7 percent over last
year's second quarter. The net interest income was affected by the
prime interest rates cuts which began during the first quarter, with a
total interest rate drop of 2.75 percent for the first six months of
2001.
Interest on investment securities increased by $73 thousand or 4.0
percent while interest and fees on loans increased by $121 thousand or
2.6 percent. Interest expense increased by $526 thousand or 18.0
percent. Interest expense on savings deposits by $132 thousand or 9.2
percent and time deposits reflected an increase of $652 thousand or
60.5 percent reflecting the growth in those deposits. Interest on Notes
Payable decreased by $95 thousand or 57.5 percent due to the reduction
f the outstanding debt and a negotiated lower rate. Included in the
interest expense, were $9 thousand of interest in borrowings from the
Federal Home Loan Bank of Atlanta.
The provision for possible Loan Losses was $200 thousand for the six
months ended June 30, 2001. Charge Offs as of the end of the second
quarter totaled $146 thousand and recoveries $29 thousand.
Non-interest income increased by $271 thousand on 34.7 percent. Service
charges on deposit accounts decreased by $13 thousand or 2.5 percent.
Other non-interest income increased by $284 thousand. Included in the
other non-interest income were $102 thousand of earnings on increase in
value of cash surrender value of life insurance and $108 thousand of
ATM fees and $46 thousand of realized gains on available for sale
securities. Fee income from the subsidiary of the Bank, Harbor
Financial Services, was $60 thousand. They had earnings of $4 thousand
as of June 30, 2001. Non-interest expense increased by $362 thousand or
9.5 percent. Salary and benefits increased by $308 thousand or 18.2
percent reflecting additional staff as well as salary and benefit
increases.
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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Occupancy expense decreased by $25 thousand or 6.0 percent reflecting
the closing of one of the Bank's branches which occurred during the
last quarter of 2000. Equipment expense decreased by $59 thousand or
14.7 percent due to the cost incurred during the year 2000 associated
with purchases and upgrades during that year. Goodwill amortization at
$166 thousand remained the same as the previous year. Other expenses
increased by $13 thousand or 1.7 percent.
As of June 30, 2001, Investment securities reflected an increase of
$6.7 million or 12.1 percent, while loans at $104.6 million reflected a
decrease of $7.8 million or 6.9 percent due to pay off in the
Commercial Loan category. Federal Fund sold as of period end were $16.5
million.
Total deposits were $186.1 million reflecting an increase of $16.9
million or 9.9 percent when compared to December 31, 2000. Interest
bearing transaction accounts increased by $2.2 million or 13.4 percent
while non-interest bearing transaction accounts increased by $5.8
million or 31.0 percent. Saving deposits increased by $5.3 million or
7.0 percent. Time deposits over $100 thousand increased by $4.0 million
or 13.6 percent while other time deposits decreased $607 thousand or
2.2 percent. There were no short term borrowings as of June 30, 2001
Shareholder's equity increased by $1.0 million or 10.0 percent. Net
earnings of $283 thousand coupled with proceeds from the sale of stock
of $346 thousand and a decrease of $396 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
percent and 8.8 percent respectively.
The Corporation stock is traded privately. During the period, a few
trades were registered at $17.00 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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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, 2001.
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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: 8/8/01 /s/ Joseph Haskins, Jr.
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Joseph Haskins, Jr.
Chairman, President and Chief Executive Officer
Date: 8/8/01 /s/ Teodoro J. Hernandez
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Teodoro J. Hernandez
Treasurer
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