SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Amended)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For quarter ended March 31, 2002

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	(I.R.S. Employer
incorporation or organization)	identification No.)
25 W. Fayette Street, Baltimore, Maryland	21201
(Address of principal executive offices)	(Zip code)

(410) 528-1800

Registrant’s telephone number, including area code

Not Applicable

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—33,795 shares as of March 31, 2002.

Common stock, $.01 Par value – 697,980 shares as of March 31, 2002.

HARBOR BANKSHARES CORPORATION AND SUBSIDIARY

INDEX

PART I	FINANCIAL INFORMATION
	Item 1	Financial Statements
		Consolidated Statements of Condition - March 31, 2002 (Unaudited) and December 31, 2001	3
		Consolidated Statements of Income (Unaudited) Three months Ended March 31, 2002 and 2001	4
		Consolidated Statement of Cash Flows (Unaudited) - Three months Ended March 31, 2002 and 2001	5
		Notes to Unaudited Consolidated Financial Statements	6
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
PART II	OTHER INFORMATION
	Item 1	Legal Proceedings	11
	Item 2	Changes in Securities	11
	Item 3	Defaults upon Senior Securities	11
	Item 4	Submission of Matters to a Vote of Security Holders	11
	Item 5	Other Information	11
	Item 6	Exhibits and Reports on Form 8-K	11
SIGNATURES			12

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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CONDITION

	March 31 2002			December 31 2001
	(Unaudited)
	Dollars in Thousands
ASSETS
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
Total Investment Securities		43,247			50,996
Federal Funds Sold		17,443			10,553
Loans (Net of unearned income)		105,591			106,807
Reserve for Possible Loan Losses		(980	)		(960	)
Net Loans		104,611			105,847
Property and Equipment - Net		1,022			996
Other Real Estate Owned		14			14
Goodwill		2,506			2,506
Accrued Interest Receivable and Other Assets		8,344			7,520
TOTAL ASSETS	$	184,282		$	186,586
LIABILITIES
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
Total Deposits		169,276			171,532
Accrued Interest and Other Liabilities		873			813
Notes Payable		2,000			2,000
TOTAL LIABILITIES		172,149			174,345
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 March 31, 2002 and 33,333 December 31, 2001		7			7
Capital Surplus		6,986			6,986
Retained Earnings		5,819			5,538
Accumulated other comprehensive (loss) income		(679	)		(290	)
TOTAL STOCKHOLDERS’ EQUITY		12,133			12,241
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	184,282		$	186,586

See Notes to Unaudited Consolidated Financial Statements

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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended March 31
	2002		2001
	(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
TOTAL INTEREST INCOME		2,817		3,590
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
TOTAL INTEREST EXPENSE		866		1,770
NET INTEREST INCOME		1,951		1,820
Provision for Possible Loan Losses		93		100
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES		1,858		1,720
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
		479		542
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
Other Expenses		408		384
		1,939		2,043
INCOME BEFORE INCOME TAXES		398		219
Applicable Income Taxes		114		67
NET INCOME	$	284	$	152
BASIC EARNINGS PER SHARE	$	.39	$	.22
DILUTED EARNINGS PER SHARE	$	.38	$	.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

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31
	2001			2000
	(Unaudited)
	Dollars in Thousands
OPERATING ACTIVITIES
Net Income	$	284		$	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		120			239
Increase in Interest Receivable and Other		(741	)		(469	)
Increase (Decrease) in Interest Payable and Other Liabilities		32			8
Net Cash (Used in) Provided by Operating Activities		(240	)		14
INVESTING ACTIVITIES
Net Decrease in Deposits at Other Banks		80			12
Purchase of Investments Securities Available for Sale		(4,000			(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		1,477			(134	)
Purchase of Premises and Equipment		(146	)		5,033
Net Cash Provided by Investing Activities		8,411			(902	)
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	)
Net Cash (Used in) by Financing Activities		(2,260	)		25,471
Decrease in Cash and Cash Equivalents		5,911			30,518
Cash and Cash Equivalents at Beginning of Period		17,545			5,224
Cash and Cash Equivalents at End of Period	$	23,456		$	35,742

(See Notes to Unaudited Consolidated Financial Statements)

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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

March 31, 2002

Note A:	Basis of Presentation
	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
	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,
	2002			2001
Net Income	$	284		$	152
—  Other Comprehensive Income:
Unrealized Holding Gains (Losses) Arising During the period		(1,028	)		772
—  Less: Reclassified Adjustments for gains included in Net Income		—			—
Other Comprehensive Income, Before Tax		(1,028	)		772
Income Tax Expense Related to items of Other Comprehensive Income		(349	)		262
Other Comprehensive Income		(679	)		510
Comprehensive Income	$	(395	)	$	662

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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY

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 they arise from contractual or other legal rights, of 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 Corporation adopted SFAS No. 142 as of January 1, 2002. The impact of the adoption will result in a material impact on 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 long-lived assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Management does not expect the impact of SFA 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

The following table presents a summary of per share data and amounts for the period indicated:

	Three Months Ended
	March 31, 2002		March 31 2001
Basic:
Net income applicable to common stock	$	283,696	$	152,013
Average common shares outstanding		723,570		689,815
Basic net income per share $	$	.39	$	.22
Diluted:
Net income applicable to common stock	$	283,696	$	152,013
Average common shares outstanding		723,570		689,815
Stock option adjustment		24,097		20,962
Diluted average common shares outstanding		747,667		710,777
Diluted net income per share	$	.38	$	.22$

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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY

Part I. FINANCIAL INFORMATION

Item II. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Harbor Bankshares Corporation’s earnings for the first quarter of 2002 totaled $284 thousand, an increase of $132 thousand or 86.8 percent when compared to the first quarter of 2001. The Corporation’s adoption of SFAS No. 142 and 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 .60 percent and 9.04 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 saving 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 decreased 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 decreased by $83 thousand due to the adoption of SFAS No. 142. Deposit assessments decrease 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 increase by $469 thousand while interest bearing transaction accounts decrease 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.

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HARBOR BANKSHARES CORPORATION AND SUBSIDIARY

Stockholders’ equity decreased by $108 thousand or .88 percent. Earnings of $284 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 5.54 percent and 9.97 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

Part II. OTHER INFORMATION

Item I.	Legal Proceedings
	The Corporation and its subsidiary, at times and in the ordinary course of business, are subject to legal actions. Management does not believe the outcome of such matters will have a material adverse effect on the financial condition of the Corporation.
Item II.	Changes in Securities
	None
Item III.	Defaults Upon Senior Securities
	None
Item IV.	Submission of Matters to a Vote of Security Holders
	The 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
Three Years	For	Against
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
	None
Item VI.	Exhibits and Reports on Form 8-K
	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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HARBOR BANKSHARES CORPORATION

Date: 6-18-03	/s/    JOSEPH HASKINS, JR.
	Joseph Haskins, Jr.
	Chairman, President and Chief Executive Officer
Date: 6-18-03	/s/    TEODORO J. HERNANDEZ
	Teodoro J. Hernandez
	Treasurer

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