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, 2002
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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 (IRS 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 - 33,795 shares as of March 31, 2002.
Common stock, $.01 Par value - 697,980 shares as of March 31, 2002.
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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 - March 31, 2002
(Unaudited) and December 31, 2001
Consolidated Statements of Income,
(Unaudited) - Three months Ended March 31, 2002 and 2001
Consolidated Statement of Cash Flows (Unaudited) - Three months
Ended March 31, 2002 and 2001
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
March 31 December 31
2002 2001
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(Unaudited)
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Dollars in Thousands
ASSETS
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Cash and Due from Banks $ 6,013 $ 6,992
Interest Bearing Deposits in Other Banks 1,082 1,162
Investment Securities:
Held to maturity (market values of $2,089
as of March 31, 2002 and $2,121 as of
December 31,2001) 2,062 2,064
Available for Sale 41,185 48,932
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Total Investment Securities 43,247 50,996
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Federal Funds Sold 17,443 10,553
Loans 105,591 106,807
Allowance for Loan Losses (980) (960)
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Net Loans 104,611 105,847
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Property and Equipment - Net 1,022 996
Other Real Estate Owned 14 14
Goodwill 2,423 2,506
Accrued Interest Receivable and Other Assets 8,344 7,520
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TOTAL ASSETS $ 184,199 $ 186,586
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LIABILITIES
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Deposits:
Non-Interest Bearing Demand $ 19,979 $ 20,448
Interest Bearing Transaction Accounts 19,802 21,206
Savings 80,169 75,330
Time, $100,000 or more 23,639 29,222
Other Time 25,218 25,795
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Total Deposits 169,276 171,532
Accrued Interest and Other Liabilities 845 813
Notes Payable 2,000 2,000
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TOTAL LIABILITIES 172,121 174,345
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STOCKHOLDERS' EQUITY
Common stock, non voting, - par value $.01 per share:
Authorized 10,000,000 shares; at 697,980
at March 31, 2002 and 688,632 at December 31, 2001
and 33,795 common non-voting at March 31, 2002 and
33,333 at December 31, 2001 7 7
Capital Surplus 6,986 6,986
Retained Earnings 5,764 5,538
Accumulated other comprehensive income (deficit) 679 (290)
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TOTAL STOCKHOLDERS' EQUITY 12,078 12,241
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TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $ 184,199 $ 186,586
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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
Three Months Ended
March 31,
2002 2001
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(Unaudited)
In Thousands
Except per Share Data
INTEREST INCOME
Interest and Fees on Loans $ 2,198 $ 2,435
Interest on Investment Securities (Taxable) 509 917
Interest on Deposits in Other Banks 11 9
Interest on Federal Funds Sold 90 217
Other Interest Income 9 12
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TOTAL INTEREST INCOME 2,817 3,590
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INTEREST EXPENSE
Interest on Deposits
Savings 270 846
Interest Bearing Transaction Accounts 12 38
Time $100,000 or More 278 420
Other Time 271 422
Interest on Borrowed Funds --- 9
Interest on Notes Payable 35 35
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TOTAL INTEREST EXPENSE 866 1,770
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NET INTEREST INCOME 1,951 1,820
Provision for Loan Losses 93 100
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,858 1,720
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NON-INTEREST INCOME
Service Charges on Deposit Accounts 212 254
Other Income 217 267
Loan Sales 22 3
Realized Gains on Available for Sale Securities 28 18
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479 542
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NON-INTEREST EXPENSES
Salaries and Employee Benefits 995 987
Occupancy Expense of Premises 187 197
Equipment Expense 130 173
Data Processing Expense 219 219
Goodwill Amortization 83 83
Other Expenses 408 384
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2,022 2,043
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INCOME BEFORE INCOME TAXES 315 219
Applicable Income Taxes 86 67
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NET INCOME $ 229 $ 152
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BASIC EARNINGS PER SHARE $ .32 $ .22
DILUTED EARNINGS PER SHARE $ .31 $ .21
AVERAGE COMMON SHARES
OUTSTANDING 724 689
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
Three Months Ended
March 31
2002 2001
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(Unaudited)
In Thousands
OPERATING ACTIVITIES
Net Income $ 229 $ 152
Adjustments to Reconcile Net Income to Net Cash
And Cash Equivalents (Used in) Provided by Operating
Activities:
Origination of Loans Held for Sale (764) (487)
Proceeds from the Sale of Loans Held for Sale 786 490
Gains on sale of loans (22) (3)
Gains on sale of securities (28) ----
Provision for Possible Loan Losses 93 100
Depreciation and Amortization 203 239
Increase in Interest Receivable and Other (741) (469)
Increase (Decrease) in Interest Payable and Other
Liabilities 32 (8)
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Net Cash (Used in ) Provided by Operating Activities (212) 14
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INVESTING ACTIVITIES
Net Decrease in Deposits at Other Banks 80 12
Purchase of Investments Securities Available for Sale (4000) (5,941)
Proceeds from Investment Securities Available for Sale --- 1,315
Proceeds from Securities called 4,000 ----
Proceeds from sale of Investment Securities
Available for sale 7,000 ----
Net Decrease in Loans 1,449 9,781
Purchase of Premises and Equipment (146) (134)
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Net Cash Provided by Investing Activities 8,383 5,033
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FINANCING ACTIVITIES
Net Increase (Decrease) in Non-Interest Bearing
Transaction Accounts 469 (583)
Net (Decrease) Increase in Interest Bearing
Transaction Accounts (1,404) 5,860
Net Increase in Savings Deposits 4,839 12,847
Net (Decrease) Increase in Time Deposits (6,161) 9,347
Payment of Cash Dividends (3) ----
Short Term Borrowings ---- (2,000)
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Net Cash (Used in) by Financing Activities (2,260) 25,471
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Decrease in Cash and Cash Equivalents 5,911 30,518
Cash and Cash Equivalents at Beginning of Period 17,545 5,224
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Cash and Cash Equivalents at End of Period $ 23,456 $ 35,742
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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
March 31, 2002
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
generally accepted in the United States of America 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, 2002, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002.
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, 2001.
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:
Three Months Ended March 31,
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2002 2001
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Net Income $ 229 $ 152
- Other Comprehensive Income:
Unrealized Holding Gains
Arising During the period (1,028) 772
- Less: Reclassified Adjustments for
gains included in Net Income - -
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Other Comprehensive Income Before
Taxes (1,028) 772
Income Tax Expense Related to
items of Other Comprehensive Income (349) 262
Other Comprehensive Income (679) 510
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Comprehensive Income $ (450) $ 662
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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Note C: In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations (SFAS No. 141) and No. 142 Goodwill and
Other Intangible Assets, (SFAS No. 142). SFAS No. 141 changes the
accounting for business combinations, requiring that all business
combinations be accounted for using the purchase method and that
intangible assets be recognized as assets apart from goodwill if the
arise from contractual or other legal rights, or if they are separable
or capable of being separated from the acquired entity and sold,
transferred, licensed, rented or exchanged. SFAS No. 142 specifies the
financial accounting and reporting for acquired goodwill and other
intangible assets. Goodwill and intangible assets that have indefinite
useful lives will not be amortized but rather will be tested at lease
annually for impairment. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The impact of SFAS 142 will not be
material to the Corporation's consolidated financial statements.
Note D:
In June 2001, the Financial Accounting Standards Board issued SFAS No.
143, Accounting for Asset Retirement Obligations. SFAS No. 143
addresses financial accounting and reporting for obligations
associated with the retirement of intangible long-lived assets and the
associated asset retirement costs and is effective for the fiscal
years beginning after June 15, 2002. Management does not expect the
impact of SFAS No. 143 to be material to the Corporation's
consolidated financial statements.
Note E:
In August 2001, the FASB issued SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 amends SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and establishes a single
accounting model for the impairment or disposal of ling-lived assets.
SFAS No. 144 is effective for fiscal years beginning after December
15, 2001. Management does not expect the impact of SFAS No. 144 to be
material to the Corporation's consolidated financial statements.
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.
Note G: On January 17, 2002, The Bank entered into an agreement to sublet a
branch site from another commercial bank and purchase the related
deposit liabilities. On April 29, 2002, this transaction was completed
with an acquisition of $18.8 million in deposits. The Bank paid a
premium of 4.0 percent or $751 thousand for the deposits.
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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The following table presents a summary of per share data and amounts for the
period indicated:
Three Months Ended
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March 31, March 31,
2002 2001
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Basic:
Net income applicable to common stock $229,036 $152,013
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Average common shares outstanding 723,570 689,815
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Basic net income per share $ .32 $ .22
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Diluted:
Net income applicable to common stock $229,036 $152,013
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Average common shares outstanding 723,570 689,815
Stock option adjustment 24,097 20,962
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Diluted average common shares outstanding 747,667 710,777
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Diluted net income per share $ .31 $ .21
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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 first quarter of
2002 totaled $229 thousand, an increase of $77 thousand or 50.6
percent when compared to the first quarter of 2001. The
re-pricing of liabilities during the later part of 2001 and first
quarter of 2002 were a major factor for the earnings increase.
The annualized return of average assets (ROAA) and average
stockholders equity (ROAE) during the first quarter were .48
percent and 7.35 percent respectively.
Net interest income increased by $131 thousand over last year's
first quarter. Interest on Investment securities decreased by
$408 thousand or 44.4 percent, reflecting the re-structure of the
portfolio and lower rates. Interest on the sale of federal funds
decreased by $127 thousand or 58.5 percent reflecting a decrease
in deposits and lower rates. Interest and fees on loans decreased
by $237 thousand or 9.7 percent mainly due to lower rates.
Interest expense on savings accounts decreased by $576 thousand
or 68.1 percent. This decrease is a combination of lower balances
and rates. Interest on time deposits decreased by $293 thousand
or 34.8 percent mainly due to lower rates. The interest expense
on notes payable was $35 thousand for the first quarter of 2002,
remaining the same as the interest paid during the same period of
the prior year.
The provision for possible loan losses was $93 thousand compared
to $100 thousand for the first quarter of 2001, charge offs for
the quarter totaled $83 thousand and recoveries $11 thousand.
Non-interest income decreased by $63 thousand or 11.6 percent.
Service charges on deposit accounts decreased by $42 thousand or
16.5 percent, basically due to a change in the service charge
structure in efforts to attract new accounts. Other income
decreased by $31 thousand or 11.5 percent, included in the
non-interest income total is a gain of $28 thousand on the sale
of available for sale securities. Non-interest expense decrease
by $21 thousand or 1.0 percent. Salary and benefits increased by
$8 thousand or .8 percent. Occupancy and equipment expenses
decreased by $10 thousand and $43 thousand or 5.1 percent and
24.9 percent respectively. The decrease in the furniture and
equipment category was mainly due to lesser depreciation expense.
Data processing cost remained the same for both periods. Goodwill
amortization remained also the same as the previous year first
quarter. Deposit assessments decreased by $14 thousand due to
improved capital ratios of the Corporation's subsidiary, The
Harbor Bank of Maryland. Other expenses increased by $38 thousand
or 10.5 percent.
As of March 31, 2002, total deposits were $169.3 million,
reflecting a decrease of $2.2 million or 1.3 percent when
compared to deposits as of December 31, 2001. Non-interest
bearing transaction accounts increased by $469 thousand while
interest bearing transaction accounts decreased by $1.4 million
or 6.6 percent. Savings accounts increased by $4.8 million or 6.4
percent while time deposits decreased by $6.0 million or 11.0
percent. The decrease in the time deposit category was mainly due
to the maturity of a brokered deposit in the amount of $4.0
million.
Net loans decreased by $1.2 million or 1.2 percent to $104.6
million from $105.0 million as of December 31, 2001.
Stockholders' equity decreased by $163 thousand or 1.3 percent.
Earnings of $229 thousand combined with an unrealized loss of
$389 thousand on the available-for-sale securities were the main
reasons for the decrease. Primary and risk based capital for the
corporation were 5.5 and 9.9 percent respectively.
The Corporation stock is traded privately. During the first
quarter of 2002, a few trades were registered at $18.00 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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The 2002 Annual Meeting of the Stockholders of Harbor
Bankshares Corporation was held on April 17, 2002.
The stockholders elected the following nominees to the
Corporation's Board of Directors to serve a three-year term.
The following shows the separate tabulation of votes for
each nominee:
Number of Votes
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Three Years For Against
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James H. DeGraffenreidt, Jr. 442,621 27,020
Joe Louis Gladney 437,555 32,086
Louis J. Grasmick 442,621 27,020
Joseph Haskins, Jr. 442,591 27,050
John D. Ryder 442,621 27,020
Item V. Other Information
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None
Item VI. Exhibits and Reports on Form 8-K
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The Company did not file any report on Form 8-K for the
period ending March 31, 2002.
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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: 5-9-02 /s/ Joseph Haskins, Jr.
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Joseph Haskins, Jr.
Chairman and Chief Executive Officer
Date: 5-9-02 /s/ Teodoro J. Hernandez
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Teodoro J. Hernandez
Treasurer
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