SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2004.
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-20990
HARBOR BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
| Maryland | 52-1786341 | |
| (State of other jurisdiction of incorporation or organization) |
(IRS Employer identification No.) | |
| 25 W. Fayette Street, Baltimore, Maryland | 21201 | |
| (Address of principal executive office) | (Zip code) | |
Registrants telephone number, including area code: (410) 528-1800
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock, non-voting, $.01 Par value - 33,795 shares as of June 30, 2004.
Common stock, $.01 Par value – 670,698 shares as of June 30, 2004.
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
-2-
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
| June 30 2004 |
December 31 2003 |
|||||||
| (Unaudited) | ||||||||
| Dollars in Thousands | ||||||||
| ASSETS |
||||||||
| Cash and Due from Banks |
$ | 12,165 | $ | 6,982 | ||||
| Federal Funds Sold |
1,907 | 8,159 | ||||||
| Interest Bearing Deposits in Other Banks |
1,300 | 1,900 | ||||||
| Investment Securities: |
||||||||
| Held to maturity (market values of $2,080 as of June 30, 2004 and $2,129 as of December 31, 2003) |
2,040 | 2,049 | ||||||
| Available for Sale |
39,576 | 35,788 | ||||||
| Total Investment Securities |
41,616 | 37,837 | ||||||
| Loans Held for Sale |
478 | 790 | ||||||
| Loans |
162,830 | 150,427 | ||||||
| Allowance for Loan Losses |
(1,538 | ) | (1,488 | ) | ||||
| Net Loans |
161,292 | 148,939 | ||||||
| Property and Equipment - Net |
3,793 | 3,736 | ||||||
| Goodwill |
2,506 | 2,506 | ||||||
| Intangible Assets |
590 | 632 | ||||||
| Accrued Interest Receivable and Other Assets |
8,202 | 8,066 | ||||||
| TOTAL ASSETS |
$ | 233,849 | $ | 219,547 | ||||
| LIABILITIES |
||||||||
| Deposits: |
||||||||
| Non-Interest Bearing Demand |
$ | 39,770 | $ | 32,482 | ||||
| Interest Bearing Transaction Accounts |
28,232 | 21,873 | ||||||
| Savings |
84,523 | 85,328 | ||||||
| Time, $100,000 or more |
26,408 | 25,094 | ||||||
| Other Time |
31,317 | 31,124 | ||||||
| Total Deposits |
210,250 | 195,901 | ||||||
| Junior Subordinated Debentures |
7,217 | 7,217 | ||||||
| Accrued Interest and Other Liabilities |
1,015 | 1,154 | ||||||
| TOTAL LIABILITIES |
218,482 | 204,272 | ||||||
| STOCKHOLDERS’ EQUITY |
||||||||
| Common stock, - par value $.01 per share: |
||||||||
| Authorized 10,000,000 shares; issued 670,698 at June 30, 2004 and 670,381 at December 31, 2003 and 33,795 common non-voting at June 30, 2004 and December 31, 2003. |
7 | 7 | ||||||
| Paid in Capital |
7,213 | 7,210 | ||||||
| Retained Earnings |
8,552 | 8,037 | ||||||
| Accumulated other comprehensive (loss) income |
(405 | ) | 21 | |||||
| TOTAL STOCKHOLDERS’ EQUITY |
15,367 | 15,275 | ||||||
| TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY |
$ | 233,849 | $ | 219,547 | ||||
See Notes to Unaudited Consolidated Financial Statements
-3-
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
| Three Months Ended June 30, | ||||||
| 2004 |
2003 | |||||
| (Unaudited) | ||||||
| In Thousands | ||||||
| Except per Share Data | ||||||
| INTEREST INCOME |
||||||
| Interest and Fees on Loans |
$ | 2,717 | $ | 2,632 | ||
| Interest on Investment Securities (Taxable) |
307 | 411 | ||||
| Interest on Deposits in Other Banks |
11 | 19 | ||||
| Interest on Federal Funds Sold |
22 | 25 | ||||
| Other Interest Income |
4 | 4 | ||||
| TOTAL INTEREST INCOME |
3,061 | 3,091 | ||||
| INTEREST EXPENSE |
||||||
| Interest on Deposits: |
||||||
| Savings |
144 | 191 | ||||
| Interest Bearing Transaction Accounts |
11 | 12 | ||||
| Time $100,000 or More |
98 | 190 | ||||
| Other Time |
198 | 226 | ||||
| Interest on Junior Subordinated Debentures |
78 | — | ||||
| Interest on Notes Payable |
— | 33 | ||||
| TOTAL INTEREST EXPENSE |
529 | 652 | ||||
| NET INTEREST INCOME |
2,532 | 2,439 | ||||
| Provision for Loan Losses |
90 | 142 | ||||
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
2,442 | 2,297 | ||||
| NON-INTEREST INCOME |
||||||
| Service Charges on Deposit Accounts |
208 | 215 | ||||
| Other Income |
166 | 192 | ||||
| Gain of Sale of Loans |
2 | 28 | ||||
| TOTAL NON-INTEREST INCOME |
376 | 435 | ||||
| NON-INTEREST EXPENSE |
||||||
| Salaries and Employee Benefits |
1,121 | 1,061 | ||||
| Occupancy Expense of Premises |
150 | 196 | ||||
| Equipment Expense |
85 | 105 | ||||
| Data Processing Expense |
253 | 232 | ||||
| Other Expenses |
619 | 526 | ||||
| TOTAL NON-INTEREST EXPENSES |
2,228 | 2,120 | ||||
| INCOME BEFORE INCOME TAXES |
590 | 612 | ||||
| Applicable Income Taxes |
184 | 191 | ||||
| NET INCOME |
$ | 406 | $ | 421 | ||
| BASIC EARNINGS PER SHARE |
$ | .57 | $ | .58 | ||
| DILUTED EARNINGS PER SHARE |
$ | .53 | $ | .56 | ||
| Dividends Declared per Share |
$ | — | $ | — | ||
(See notes to unaudited consolidated Financial Statements)
-4-
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
| Six Months Ended June 30, | ||||||
| 2004 |
2003 | |||||
| (Unaudited) | ||||||
| In Thousands | ||||||
| Except per Share Data | ||||||
| INTEREST INCOME |
||||||
| Interest and Fees on Loans |
$ | 5,357 | $ | 5,014 | ||
| Interest on Investment Securities (Taxable) |
609 | 898 | ||||
| Interest on Deposits in Other Banks |
26 | 38 | ||||
| Interest on Federal Funds Sold |
51 | 55 | ||||
| Other Interest Income |
8 | 13 | ||||
| TOTAL INTEREST INCOME |
6,051 | 6,018 | ||||
| INTEREST EXPENSE |
||||||
| Interest on Deposits |
||||||
| Savings |
280 | 388 | ||||
| Interest Bearing Transaction Accounts |
21 | 23 | ||||
| Time $100,000 or More |
222 | 381 | ||||
| Other Time |
373 | 464 | ||||
| Interest on Junior Subordinated Debentures |
148 | — | ||||
| Interest on Notes Payable |
— | 67 | ||||
| TOTAL INTEREST EXPENSE |
1,044 | 1,323 | ||||
| NET INTEREST INCOME |
5,007 | 4,695 | ||||
| Provision for Loan Losses |
180 | 365 | ||||
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
4,827 | 4,330 | ||||
| NON-INTEREST INCOME |
||||||
| Service Charges on Deposit Accounts |
397 | 420 | ||||
| Other Income |
332 | 397 | ||||
| Realized Gains on Security Sales |
— | 83 | ||||
| Gain of Sale of Loans |
6 | 49 | ||||
| TOTAL NON-INTEREST INCOME |
735 | 949 | ||||
| NON-INTEREST EXPENSE |
||||||
| Salaries and Employee Benefits |
2,240 | 2,101 | ||||
| Occupancy Expense of Premises |
309 | 409 | ||||
| Equipment Expense |
175 | 202 | ||||
| Data Processing Expense |
505 | 476 | ||||
| Other Expenses |
1,236 | 1,009 | ||||
| TOTAL NON-INTEREST EXPENSES |
4,465 | 4,197 | ||||
| INCOME BEFORE INCOME TAXES |
1,097 | 1,082 | ||||
| Applicable Income Taxes |
336 | 332 | ||||
| NET INCOME |
$ | 761 | $ | 750 | ||
| BASIC EARNINGS PER SHARE |
$ | 1.08 | $ | 1.02 | ||
| DILUTED EARNINGS PER SHARE |
$ | 1.01 | $ | .99 | ||
| Dividends Declared per Share |
$ | .35 | $ | .25 | ||
(See notes to unaudited consolidated Financial Statements)
-5-
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months Ended June 30 |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
| In Thousands | ||||||||
| OPERATING ACTIVITIES |
||||||||
| Net Income |
$ | 761 | $ | 750 | ||||
| Adjustments to Reconcile Net Income to Net Cash And Cash Equivalents Provided by Operating Activities: |
||||||||
| Origination of Loans Held for Sale |
(1,924 | ) | (2,385 | ) | ||||
| Proceeds from the Sale of Loans Held for Sale |
2,242 | 2,434 | ||||||
| Gains on sale of loans |
(6 | ) | (49 | ) | ||||
| Gains on sale of securities |
— | (83 | ) | |||||
| Provisions for loan losses |
180 | 365 | ||||||
| Depreciation and Amortization |
235 | 236 | ||||||
| Increase in Interest Receivable and Other Assets |
(151 | ) | (27 | ) | ||||
| Decrease in Interest Payable and Other Liabilities |
(139 | ) | (22 | ) | ||||
| Net Cash Provided by Operating Activities |
1,198 | 1,219 | ||||||
| INVESTING ACTIVITIES |
||||||||
| Net Decrease in Deposits at Other Banks |
600 | 400 | ||||||
| Purchase of Investments Securities Available for Sale |
(13,999 | ) | (20,980 | ) | ||||
| Proceeds from Securities called |
7,000 | 26,000 | ||||||
| Proceeds from Matured Securities and Principal Payments |
2,527 | 3,779 | ||||||
| Proceeds from sale of Investment Securities |
||||||||
| Available for sale |
— | 4,083 | ||||||
| Net Increase in Loans |
(12,363 | ) | (23,890 | ) | ||||
| Purchase of Premises and Equipment |
(138 | ) | (238 | ) | ||||
| Net Cash Used in Investing Activities |
(16,373 | ) | (10,846 | ) | ||||
| FINANCING ACTIVITIES |
||||||||
| Net Increase in Non-Interest Bearing Transaction Accounts |
7,288 | 4,694 | ||||||
| Net Increase in Interest Bearing Transaction Accounts |
6,359 | 3,152 | ||||||
| Net Decrease in Savings Deposits |
(805 | ) | (2,486 | ) | ||||
| Net Increase in Time Deposits |
1,507 | 1,010 | ||||||
| Payment of Cash Dividends |
(246 | ) | (184 | ) | ||||
| Repayment of Long-Term Debt |
— | (71 | ) | |||||
| Proceeds from the Sale of Common Stock |
3 | 5 | ||||||
| Net Cash Provided by Financing Activities |
14,106 | 6,120 | ||||||
| Decrease in Cash and Cash Equivalents |
(1,069 | ) | (3,507 | ) | ||||
| Cash and Cash Equivalents at Beginning of Period |
15,141 | 19,926 | ||||||
| Cash and Cash Equivalents at End of Period |
$ | 14,072 | $ | 16,419 | ||||
(See notes to unaudited consolidated Financial Statements)
-6-
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
For the Six Months Ended June 30, 2004
Note A: Basis of Presentation
The accompanying unaudited consolidated financial statements of Harbor Bankshares Corporation and subsidiary (The “Company”), have been prepared in accordance with 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 and six month period ended June 30, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The enclosed unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto incorporated by reference in the Company’s Annual Report on Form 10 – KSB for the year ended December 31, 2003.
Note B: Comprehensive Income
The Company’s comprehensive income consists of its net income and unrealized holding gains (losses) on its available for sale securities, net of taxes.
Presented below is a reconciliation of net income to comprehensive income.
| Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Net Income |
$ | 761 | $ | 750 | ||||
| Unrealized gains on securities |
(615 | ) | 523 | |||||
| Available-for-sale |
||||||||
| Related income tax expense |
(189 | ) | (178 | ) | ||||
| (426 | ) | 345 | ||||||
| Reclassifications adjustment for gains |
||||||||
| Included in net income |
— | (83 | ) | |||||
| Related income tax benefit |
— | 28 | ||||||
| — | (55 | ) | ||||||
| Total Other Comprehensive Income |
(426 | ) | 290 | |||||
| Total Comprehensive Income |
$ | 335 | $ | 1,040 | ||||
-7-
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
EARNINGS PER SHARE
| Note C: | 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, such as stock options, were exercised and shared in corporate earnings. At June 30, 2004 and 2003, there were no antidilutive options to purchase common shares. |
The following table presents a summary of per share data and amounts for the period indicated:
(amount in thousands except per-share data)
| Six Months Ended | ||||||
| June 30, 2004 |
June 30, 2003 | |||||
| Basic: |
||||||
| Net income applicable to common stock |
$ | 761 | $ | 750 | ||
| Average common shares outstanding |
704 | 736 | ||||
| Basic net income per share |
$ | 1.08 | $ | 1.02 | ||
| Diluted: |
||||||
| Net income applicable to common stock |
$ | 761 | $ | 750 | ||
| Average common shares outstanding |
704 | 736 | ||||
| Stock option adjustment |
52 | 22 | ||||
| Diluted average common shares outstanding |
756 | 758 | ||||
| Diluted net income per share |
$ | 1.01 | $ | .99 | ||
-8-
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
Note D:
STOCK OPTION ACCOUNTING
The Company accounts for stock options under the intrinsic value method of recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal or exceeding the market value of this underlying common stock on the date of grant. Statement of Financial Accounting Standards (“SFAS”) No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure is effective for the interim period beginning after December 15, 2002 and requires pro-forma net income and earnings per share disclosures on a quarterly basis. The following table illustrates the effect on net income and earnings per share as if the company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
| Six Months Ended June 30 |
Three Months Ended June 30 |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| (In Thousands Except per Share Data) | (In Thousands Except per Share Data) | |||||||||||||||
| Net Income, as reported |
$ | 761 | $ | 750 | $ | 406 | $ | 421 | ||||||||
| Deduct: |
||||||||||||||||
| Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax |
(14 | ) | (16 | ) | (7 | ) | (8 | ) | ||||||||
| Pro-forma net income |
$ | 747 | $ | 742 | $ | 399 | $ | 413 | ||||||||
| Earnings per share: |
||||||||||||||||
| Basic - as reported |
$ | 1.08 | $ | 1.02 | $ | 0.58 | $ | 0.60 | ||||||||
| Basic - pro-forma |
$ | 1.06 | $ | 1.01 | $ | 0.57 | $ | 0.59 | ||||||||
| Diluted - as reported |
$ | 1.01 | $ | 0.99 | $ | 0.54 | $ | 0.56 | ||||||||
| Diluted - pro-forma |
$ | 0.99 | $ | 0.98 | $ | 0.53 | $ | 0.55 | ||||||||
Note E:
RECENT ACCOUNTING PRONOUNCEMENTS
FASB Interpretation No. 46, Consolidation of Variable Interest Entities, (as revised December 2003-FIN 46(R)), clarifies when some entities previously not consolidated under prior accounting guidelines, should be. In some instances, it also requires certain previously consolidated entities to be deconsolidated. FIN 46(R) is effective for periods ending after December 15, 2003 for special purpose entities and for periods ending after March 15, 2004 for other types of variable interest entities that are not defined as special purpose entities. Implementation of this new guidance did not have a material impact on the Company’s financial statements.
Although Harbor Bankshares Corporation Capital Trust is no longer consolidated, the underlying subordinated debentures are reported as debt obligations on the Company’s consolidated balance sheet. It is, however, unclear what effect, if any, such deconsolidation will have on the regulatory-capital treatment of those securities. If the subordinated debentures were removed, the Company’s capital ratio would fall from well capitalized to adequate.
Note F:
CONTINGENCIES
In 1999, The Harbor Bank of Maryland entered into an agreement with an unaffiliated company that operated and serviced automated teller machines (“ATM’s”). This agreement called for the Bank to provide cash for use in certain ATM’s not located on Bank premises. In 2003, the Bank discovered that it had a significant cash shortage in connection with this arrangement. The investigation of the cash shortage is ongoing and the Bank is vigorously pursuing recovery. The Bank cannot yet reasonably estimate the amount of loss it may incur as a result of this cash shortage. Therefore, no accrual for any potential loss has been reflected in the accompanying financial statements. The maximum exposure to the Bank is estimated at approximately $1.1 million, without consideration of any related tax benefit.
-9-
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
Part I. FINANCIAL INFORMATION
| Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements. This management’s discussion and analysis of financial condition and results of operations and other portions of this report include forward-looking statements such as: statements of the Company’s goals, intentions, and expectations; estimates of risks and of future costs and benefits; assessments of loan quality, and probable loan losses, liquidity, and interest risk; and statements of the Company’s ability to achieve financial and other goals. These forward-looking statements are subject to significant uncertainties because they are based upon: the amount and timing of future changes in interest rates, market behaviors, and other economic conditions; future laws and regulations; and a variety of other matters. Because of these uncertainties, the actual future results may be materially different from the results indicated by these forward-looking statements. In addition, the Company’s past growth and performance do not necessarily indicate its future results.
Harbor Bankshares Corporation’s earnings for the second quarter of 2004 totaled $406 thousand, decreasing $15 thousand or 3.6 percent when compared to the second quarter of 2003. Net interest income increased by $93 thousand or 3.8%. Non-interest expense for the quarter increased by $108 thousand or 5.1 percent. The provision for loan losses decreased by $52 thousand or 36.6 percent.
Year to date earnings as of June 30, 2004 were $761 thousand, reflecting an increase of $11 thousand or 1.5 percent when compared to the first six months of 2003. The annualized return on average assets (ROAA) and average stockholders equity (ROAE) were .72 percent and 10.0 percent respectively, compared to .71 percent and 10.5 percent achieved during the first six months of 2003.
For the first six months of 2004, net interest income increased by $312 thousand or 6.6 percent when compared to the first six months of 2003. Interest and fees on loans increased by $343 thousand or 6.8 percent as a result of the growth in the loan portfolio. Investment income decreased by $289 thousand or 32.2 percent and federal funds sold income decreased by $4 thousand or 7.2 percent. The decrease in the investment portfolio reflects the liquidation of securities in order to fund the increased loan demand. Interest expense decreased by $279 thousand or 21.1 percent. Interest expense on savings accounts decreased by $108 thousand or 27.8 percent, interest expense on time deposits decreased by $250 thousand or 29.6 percent and interest bearing transaction accounts decreased by $2 thousand or 8.7 percent. Continuing re-pricing of deposits was the main reason for the decreases. Interest on notes payable decreased by $67 thousand or 100 percent. The outstanding note amount of $1.8 million to the National Community Investment Fund was paid-off during the last quarter of 2003, with some of the proceeds from the $7.2 million in junior subordinated debentures issued on October 9, 2003. The interest expense for the junior subordinated debentures for the six months ended June 30, 2004, was $148 thousand.
As of June 30, 2004, the provision for loan losses was $180 thousand compared to $365 thousand for the same period of 2003, a decrease of $185 thousand or 50.7 percent. The decrease reflects management’s decision to increase the allowance for loan losses during 2003 a result of loan growth. Charge-offs totaled $277 thousand, reflecting a decrease of $47 thousand or 14.5 percent when compared to the same period of 2003. Recoveries for the period were $147 thousand reflecting an increase of $118 thousand or 406.9 percent when compared to June 30, 2003.
Future provisions for loan losses will continue to be based upon our assessment of the overall loan portfolio and its underlying collateral, the mix of loans within the portfolio, delinquency trends, economic conditions, current and prospective trends in real estate values, and other relevant factors under our allowance methodology.
Our allowance for loan loss methodology is a loan classification-based system. We base the required allowance on a percentage of the loan balance for each type of loan classification level. Allowance percentages are based on each individual lending program, its loss history and underwriting characteristics including loan value, credit score, debt coverage, collateral, and capacity to service debt.
-10-
This analysis is used to validate the loan loss reserve matrix as well as assist in establishing overall lending direction. In Management’s opinion, the allowance for loan losses as of June 30, 2004 is adequate. There were no changes in estimation methods or assumptions that affected the methodology for assessing the appropriateness of the allowance during the period.
Non-performing assets consist of non-accruing loans, loans past due 90 days or more but still accruing, restructured loans, and foreclosed real estate.
The following table shows the non-performing assets as of June 30, 2004 compared to December 31, 2003.
| June 30, 2004 |
December 31, 2003 |
|||||||
| Non-accruing Loans |
$ | 875 | $ | 220 | ||||
| Past Due 90 days or more |
44 | 506 | ||||||
| Restructured loans |
— | — | ||||||
| Total non-performing loans |
$ | 919 | $ | 726 | ||||
| Foreclosed real estate |
— | — | ||||||
| Total non-performing assets |
$ | 919 | $ | 726 | ||||
| Non-performing loans to total loans |
.57 | % | .48 | % | ||||
| Non-performing assets to total assets |
.39 | % | .33 | % | ||||
| Allowance for loan losses to non-performing loans |
167.3 | % | 205.0 | % | ||||
Non-interest income decreased by $214 thousand or 22.6 percent. Service charges on deposit accounts decreased by $23 thousand or 5.5 percent. Other income decreased by $65 thousand or 16.4 percent mainly related to the ATM income, which decreased by $54 thousand or 37.8 percent resulting from a downsizing of the network. There were no gains on the sale of securities for the period ending June 30, 2004. During 2003, the same period had $83 thousand of securities gains. As of June 30, 2004 the gains on the sale of loans were $6 thousand compared to $49 thousand for the same period of 2003. Salary and employee benefits increased by $139 thousand or 6.6 percent, occupancy cost decreased by $100 thousand or 24.4 percent reflecting the termination of some leases in the branch network and the purchase of the building that houses the Corporation’s headquarters. Equipment expenses also decreased by $27 thousand or 13.4 percent due to lesser depreciation cost. Data processing cost increased by $29 thousand or 6.1 percent. Amortization of intangible assets was $40 thousand in both periods. Other expenses increased by $227 thousand or 23.4 percent. Included in other expenses, is the cost of legal fees which totaled $169 thousand compared to $29 thousand for the same period of 2003, reflecting an increase of $140 thousand or 482.7 percent. The sizable increase in legal cost is mainly the result of the collection cost associated with the contingency disclosed under Note F of the consolidated financial statements.
As of June 30, 2004, total deposits were $210 million, reflecting an increase of $14.3 million or 7.3 percent when compared to deposits as of December 31, 2003. Non-interest bearing transaction accounts increased by $7.3 million or 22.4 percent while interest bearing transaction accounts increased by $6.4 million or 29.1 percent. Savings accounts which included money market accounts decreased by $805 thousand or .94 percent and time deposits increased by $1.5 million or 2.7 percent.
Net loans increased by $12.3 million or 8.3 percent to $161.3 million. The increase was mainly reflected in the commercial loan and commercial real estate categories.
Stockholders’ equity increased by $92 thousand or .60 percent. The increase was the result of earnings of $761 thousand and, an increase of $421 thousand of unrealized losses on available-for-sale securities, net of cash dividends paid in the amount of $246 thousand. Primary and risk based capital of the corporation were 7.1 percent and 12.4 percent respectively.
The Corporation stock is traded privately. During the first six months of 2004, trades were registered at $25.00 per share.
-11-
HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
| ITEM 3. | Controls and Procedures |
The Company’s management, under the supervision and with the participation of its Chief Executive Officer and the Treasurer, evaluated as of the last day of the period covered by this report, the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a – 15 under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Treasurer concluded that the Company’s disclosure controls and procedures were adequate. There were no significant changes in the Company’s internal controls over financial reporting (as defined in Rule 13a – 15 under the Securities Act of 1934) for the period ending June 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| Part II. | OTHER INFORMATION |
| Item 1. |
Legal Proceedings
| |
| The Company and its subsidiary, at times and in the ordinary course of business, are subject to various pending and threatened legal actions. The relief or damages sought in some of these actions may be substantial. Management considers that the outcome of such actions will not have a material adverse effect on the Company’s financial position; however, the Company is not able to predict whether the outcome of such actions may or may not have a material adverse effect on results of operations in a particular future period as the timing and amount of any resolution of such actions and relationship to the future results of operations are not known.
| ||
| See Note F to the Unaudited Consolidated Financial Statements, which is incorporated herein by reference.
| ||
| Item 2. |
Changes in Securities and Small Business Issuer Purchases of Equity Securities.
| |
| None
| ||
| Item 3. |
Defaults Upon Senior Securities
| |
| None | ||
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| Item 4. | Matters Submitted to a Vote of Security Holders
| |
| None
| ||
| Item 5. | Other Information
| |
| None
| ||
| Item 6. | Exhibits and Reports on Form 8-K
| |
| Exhibits
| ||
| Exhibit 31(a),(b), Rule 13a-14(a)/15d-14(a) Certifications
| ||
| Exhibit 32(a),(b), 18 U.S.C Section 1350 Certifications
| ||
| Reports on Form 8-K
| ||
| The Company did not file any report on Form 8-K for the quarterly period ending June 30, 2004. | ||
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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY
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: August 3, 2004 |
||
| /s/ Joseph Haskins, Jr. | ||
| Chairman and Chief Executive Officer | ||
| Date: August 3, 2004 |
||
| /s/ Teodoro J. Hernandez | ||
| Treasurer |
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