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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transitions period from ____________to____________
Commission file number 2-79912
HARBOR BANCORP
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(Exact name of small business issuer as specified in its charter)
California 95-3764395
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11 Golden Shore
Long Beach, CA 90802
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(Address of principal executive offices)
(310) 491-1111
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(Issuer's telephone number)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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.
Yes x No
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Check whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
after the distribution of securities under a plan confirmed by a court.
Yes No Other N/A
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State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date. Common stock, no par value -
1,348,021 shares as of March 31, 1996
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HARBOR BANCORP AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
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ITEM 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - March 31,
1996 and December 31, 1995
Condensed consolidated statements of income - three
months ended March 31, 1996 and 1995
Condensed consolidated statements of cash flows -
three months ended March 31, 1996 and 1995
Notes to condensed consolidated financial statements -
March 31, 1996
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 Service Securities
ITEM 4. Submission of Matter to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
PART III. SIGNATURES
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ITEM I: FINANCIAL INFORMATION
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
--------- -----------
(Unaudited)
(000's omitted)
ASSETS
------
Cash and due from banks $ 27,946 $ 20,964
Federal funds sold and securities
purchased under resale agreements 20,000 5,200
-------- --------
Cash and cash equivalents 47,946 26,164
Time certificates of deposit 495 495
Investment securities:
Held to maturity securities (market
value of $10,091,673 in 1996 and
$8,060,572 in 1995) 8,043 10,187
Available for sale securities 19,763 24,795
Loans 128,724 130,412
Less allowance for loan losses 3,006 3,003
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Net loans 125,718 127,409
Bank premises and equipment:
Land 159 159
Buildings and improvements 4,171 4,068
Furniture, fixtures and equipment 3,482 3,428
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7,812 7,655
Less accumulated depreciation
and amortization 5,827 5,385
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1,985 1,796
Other real estate owned 1,923 516
Accrued interest receivable 1,265 998
Other assets 2,091 2,599
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Total assets $209,229 $195,092
======== ========
(Continued)
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HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
March 31, December 31,
1996 1995
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(Unaudited)
(000's omitted)
LIABILITIES AND STOCKHOLDERS' EQUITY
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Deposits:
Interest bearing $ 93,461 $ 87,201
Noninterest bearing 100,199 92,003
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Total deposits 193,660 179,204
Accrued expenses and other liabilities 822 1,331
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Total liabilities 194,482 180,535
Stockholders' equity:
Common stock, no par value; 5,000,000
shares authorized; issued and
outstanding, 1,348,021 shares in
1996 and 1,348,021 shares in 1995 13,258 13,258
Retained earnings 1,609 1,382
Net unrealized security losses (120) (83)
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Total stockholders' equity 14,747 14,557
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Total liabilities and
stockholders' equity $209,229 $195,092
======== ========
See notes to unaudited consolidated financial statements.
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HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
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1996 1995
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(000's omitted,
except per share data)
Interest income:
Interest and fees on loans $3,025 $2,724
Interest on U.S. government
and agency obligations 404 478
Interest on obligations of states
and political subdivisions 3 5
Interest on other investments 21 11
Interest on federal funds sold
and securities purchased under
agreements to resale 145 72
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Total interest income 3,598 3,290
Interest expense:
Interest on deposits 656 610
Interest on borrowed funds 3 36
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Total interest expense 659 646
Net interest income 2,938 2,644
Provision for loan losses 196 25
Net interest income after
provision for loan losses 2,742 2,619
Other operating income:
Service charges on deposit accounts 260 216
Loan servicing fees and other
fees and charges 34 39
Gain on sale of securities - 1
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Total other operating income 294 256
(Continued)
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HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Continued)
Three Months Ended
March 31,
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1996 1995
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(000's omitted,
except per share data)
Noninterest expense:
Salaries, wages and employee benefits $ 954 $ 858
Occupancy expenses 541 522
Equipment expenses 106 81
Data processing expenses 153 150
Other operating expenses 930 787
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Total noninterest expense 2,684 2,398
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Income before taxes based on income 352 477
Provision for taxes based on income 125 179
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Net income $ 227 $ 298
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Earnings per share $ 0.17 $ 0.23
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See notes to unaudited consolidated financial statements.
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HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
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1996 1995
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(000's omitted)
Operating activities:
Net income $ 227 $ 298
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for depreciation and
amortization 120 130
Provision for loan losses 196 25
(Increase) decrease in
interest receivable (268) 39
Increase (decrease) in
interest payable 5 (38)
Other (14) (357)
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Net cash provided by operating
activities 266 97
Investing activities:
Proceeds from maturities, sales
and calls of investment securities 7,128 6,045
Net (increase) decrease in loans 1,495 2,975
Capital expenditures (157) (16)
Other real estate 1,406 1,447
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Net cash (used in) provided by
investing activities 7,060 10,451
(Continued)
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HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
Three Months Ended
March 31,
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1996 1995
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(000's omitted)
Financing activities:
Net increase (decrease) in commercial
and other demand deposits, savings
and money market deposits and
certificates of deposit $14,456 $ 2,600
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Net cash provided by (used in)
financing activities 14,456 2,600
Increase in cash and cash equivalents 21,782 13,148
Cash and cash equivalents at beginning
of period 26,164 21,376
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Cash and cash equivalents at end of period $47,946 $34,524
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See notes to unaudited consolidated financial statements.
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HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1996
1. Summary of Significant Accounting Policies:
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996.
Certain reclassifications have been made in the 1995 financial statements to
conform to the presentations used in 1996.
The balance sheet on December 31, 1995 has been derived from the audited
financial statements at that date. The accompanying notes are an integral part
of these financial statements.
Principles of consolidation
Harbor Bancorp ("HB") was formed on July 23, 1982. The unaudited condensed
consolidated financial statements include all the accounts of HB and its
wholly-owned subsidiaries, Harbor Bank and Harbor Bank Properties. All
intercompany accounts and transactions have been eliminated.
Investment securities
The Company adopted Statement of Financial Accounting Standard No. 115
"Accounting for Certain Investments in Debt and Equity Securities" as of
January 1, 1994.
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Investment securities held to maturity are securities which the Company has the
ability and intent to hold until maturity. Accordingly, these securities are
stated at cost adjusted for amortization of premiums and accretion of
discounts. Unrealized gains and losses are not reported in the financial
statements until realized or until a decline in fair value below cost is deemed
to be other than temporary.
Investment securities available for sale include debt securities and mutual
funds. These securities are stated at fair value with unrealized gains and
losses reflected as a component of stockholders' equity, net of applicable
income taxes. Gains and losses are determined on the specific identification
method.
Impaired loans
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended, effective January 1, 1995. This statement requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rates or the fair value of
the underlying collateral, and specifies alternative methods for which there
are credit concerns. For purposes of applying this standard, impaired loans
have been defined as all non-accrual loans. The Company's policy for income
recognition was not affected by adoption of the standard. The adoption of SFAS
No. 114 did not have any effect on the total reserve for credit losses or
related provision.
Allowance for loan losses
The allowance for loan losses represents management's evaluation of the quality
of the loan portfolio. The allowance is maintained at a level considered to be
adequate for potential loan losses based on management's assessment of various
factors affecting the loan portfolio, which includes a review of problem loans,
business conditions and the overall quality of the loan portfolio.
The allowance is increased by the provision for loan losses charged to
operations and reduced by loans charged off to the allowance, net of
recoveries.
Other Real Estate
Other real estate ("ORE") is stated at the lower of cost or fair market value,
net of estimated selling costs.
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Income taxes
Income tax expense (benefit) is the current and deferred tax consequence, of
events that have been recognized in the financial statements, as measured by
the provisions of enacted tax law.
Bank premises and equipment
Bank premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related assets
which range from 10 to 30 years for buildings and improvement and 3 to 10 years
for furniture, fixtures and equipment.
Earnings per share
Earnings per share was computed by dividing net income by the weighted average
number of common stock and common stock equivalents (stock options) outstanding
during each period. The number of shares used in the per share calculations
for the periods ended March 31, 1996 and 1995 was 1,348,021.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Harbor Bancorp's ("Company") performance during the first three months of 1996
shows continued stability which is supported by the local and national economic
environment. The purpose of the following discussion is to focus on the above
mentioned performance and other information about the Company's financial
condition and results of operations which is not otherwise apparent from the
consolidated financial statements included in this quarterly report. Reference
should be made to those statements and the condensed financial data presented
herein for an understanding of the following discussion and analysis.
Financial Condition
During the first three months of 1996, the Company experienced a net increase
in liquid assets. Cash and cash equivalents increased $21,782,000, or 83.25%,
from $26,164,000 at December 31, 1995 to $47,946,000 at March 31, 1996.
Investment securities declined $7,176,000, or 20.51%, from $34,982,000 at
December 31, 1995 to $27,806,000 at March 31, 1996. This net increase in
liquid assets is primarily a result of maintaining liquidity in the form of
short term and overnight investments in anticipation of growth in loan volume
in the remainder of 1996. During the first quarter of 1996, loan volume
declined slightly with loans at $128,724,000 at March 31, 1996 compared to
loans at $130,412,000 at December 31, 1995. The decline of $1,688,000, or
1.3%, in loans is primarily a result of loan payoffs. Total assets of the
Company increased from $195,092,000 at December 31, 1995 to $209,229,000 at
March 31, 1996. This increase of $14,137,000 or 7.25%, in total assets
occurred primarily in cash and cash equivalents.
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". As of March 31, 1996, the bank had $19,763,000
in securities classified as available for sale.
Substantially all of the Company's deposits are local, core deposits. The
Company does not have any out-of-area brokered deposits included in the deposit
base. Total deposits increased $14,456,000, or 8.07%, for the first three
months of 1996. This is a result of an increase in noninterest bearing deposits
which increased $8,196,000, or 8.91%, from $92,003,000 at December 31, 1995 to
$100,199,000 at March 31, 1996. In addition, there was an increase of interest
bearing deposits of $6,260,000, or 7.18%, from $87,201,000 at December 31, 1995
to $93,461,000 at March 31, 1996.
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As a result of the Federal Deposit Insurance Corporation ("the FDIC")
examination at December 31, 1993, the bank and the Federal Deposit Insurance
Corporation executed a Memorandum of Understanding ("FDIC Memorandum") dated
August 3, 1994.
Based upon the January 8, 1996, FDIC examination of the Bank as of November 30,
1995, the Bank has been notified that the FDIC Memorandum will be removed.
Subsequent to the removal of the FDIC Memorandum, the Board of Directors of the
Bank will approve a resolution which will require Bank management to maintain
certain performance standards.
Liquidity and Interest Rate Sensitivity Management
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest sensitive
earning assets and interest bearing liabilities. Liquidity management involves
the ability to meet the cash flow requirements of customers who may be either
depositors wanting to withdraw funds or borrowers who may need assurance that
sufficient funds will be available to meet their credit needs. Interest rate
sensitivity management seeks to avoid fluctuating interest margins and to
enhance consistent growth of net interest income through periods of changing
interest rates.
Historically, the overall liquidity of the Company has been enhanced by a
significant aggregate amount of core deposits. As described in the analysis of
financial condition, the Bank has not relied on large-denomination time
deposits.
To meet short-term liquidity needs, the Bank has maintained adequate balances
in federal funds sold, certificates of deposits with other financial
institutions and investment securities having maturities of five years or less.
Liquid assets (cash, federal funds sold and securities purchased under
agreements to resale, deposits in other financial institutions and investment
securities) as a percent of total deposits are 39.37% and 34.40% as of March
31, 1996 and December 31, 1995, respectively.
The Bank's goal is to maintain federal funds sold at $5 to $7 million dollars
on an average with minimum daily investments monitored closely. Deposits with
other institutions and securities purchased under agreements to resale will be
maintained as alternative short-term investment products.
Interest rate sensitivity varies with different types of interest-earning
assets and interest-bearing liabilities. Harbor
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Bank intends to maintain interest-earning assets, comprised primarily of both
loans and investments, and interest-bearing liabilities, comprised primarily of
deposits, maturing or repricing evenly in order to eliminate any impact from
interest rate changes. In this way, both assets and liabilities can be
substantially repriced simultaneously with interest rate changes.
The impact of inflation on a financial institution differs significantly from
that exerted on an industrial concern, primarily because its assets and
liabilities consist primarily of monetary items. The relatively low proportion
of the Company's fixed assets to total assets reduces both the potential of
inflated earnings resulting from understated depreciation charges and the
potential of significant understatement of absolute asset values. However,
inflation does have a considerable indirect impact on banks, including
increased loan demand, as it becomes necessary for producers and consumers to
acquire additional funds to maintain the same levels of production, consumption
and new investments. Inflation also frequently results in high interest rates
which can affect both yields on earning assets and rates paid on deposits and
other interest-bearing liabilities. The Company monitors inflation rates to
insure that ongoing programs are compatible with fluctuations in inflation and
resultant changes in interest rates.
Results of Operations
The Company reported net income of $227,000, or $0.17 per share, for the three
months ended March 31, 1996, compared to net income of $298,000, or $0.23 per
share, for the same period in 1995.
Net interest income is an effective measurement of how well Management has
balanced the Company's interest rate sensitive assets and liabilities as well
as optimizing the allocation of resources.
Net interest income of $2,938,000 for the three months ended March 31, 1996,
reflects an increase of $294,000 or 11.12%, from $2,644,000 for the same period
of 1995. Rising interest rates and increased net earning assets are the
primary reason for the improvement in net interest income.
The Company recorded $196,000 in provision for loan losses during the first
three months of 1996 compared to $25,000 for the three months ended March 31,
1995. The increase in the provision for possible loan losses is primarily a
result of the Company's commitment to maintain an allowance for loan and lease
losses at a sufficient level based upon the quality of the loan portfolio.
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During the first three months of 1996, the Company maintained a strict focus on
controlling noninterest expense. The focus on noninterest expense control
began with a corporate commitment in 1989 and, today, continues to be
emphasized and enforced. As a result of this continued effort, total
noninterest expense categories of salaries, wages and employee benefits,
occupancy expense, equipment expense and data processing expense increased
$286,000 or 11.93%, during the three months ended March 31, 1996 over the same
period in 1995.
Risk Elements
The policy of Harbor Bank is that all loans that are past due for ninety (90)
days must be placed on non-accrual status. At March 31, 1996, loans on
non-accrual status were $7,502,000, or 5.83%, compared to $6,746,000, or
5.17%, of total loans on non-accrual status at December 31, 1995. Accruing
loans which are contractually past due ninety (90) days or more were $294,000
at March 31, 1996 compared to $121,000 at December 31, 1995.
At March 31, 1996, the Company was not aware of information regarding
performing loans which would cause them to have serious doubts as to the
ability of the borrowers to comply with loan repayment terms, nor are they
aware of any trends which might have a material impact on future operating
results.
Capital Resources
Management seeks to maintain a level of capital adequate to support anticipated
asset growth and credit risks and the ensure that the Company is within
established regulatory guidelines and industry standards. In 1995,
stockholders' equity increased $1,421,497 due to retention of the Company's
1995 net income. The Company's capital plan for 1996 contemplates continued
growth in stockholders' equity through the retention of net income. Minimum
capital ratios required under the final 1994 risk-based capital regulations are
6.0% for Tier 1 Capital and 8.0% for Total Capital. At December 31, 1995 the
Company has Tier 1 Capital of 10.31% and Total Capital of 11.56% and at March
31, 1996 the company had Tier 1 Capital of 10.23% and Total Capital of 11.48%.
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HARBOR BANCORP AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Due to the nature of their business, the Company, the Bank, and
their subsidiaries are subject to legal action threatened or filed which arise
from the normal course of their business. Management believes that the
eventual outcome of all currently pending legal proceedings against the Bank
will not be material to the Company's or the Bank's financial position or
results of operations.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Service Securities
None
ITEM 4. Submission of Matter to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-k
None
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PART III. SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant duly caused this report to be signed on its
behalf by the undersigned thereto duly authorized.
HARBOR BANCORP
Dated: May 10, 1996 /s/ DALLAS E. HAUN
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Dallas E. Haun
President
Dated: May 10, 1996 /s/ MELISSA LANFRE'
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Melissa Lanfre'
Vice President & CFO
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