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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 JUNE 30, 1996
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[ ] 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
------ ------ --------
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 - 1,415,214
SHARES AS OF JUNE 30, 1996
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HARBOR BANCORP AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - June 30,
1996 and December 31, 1995
Condensed consolidated statements of income - three months ended June 30,
1996 and 1995; and six months ended June 30, 1996 and 1995
Condensed consolidated statements of cash flows six months ended June 30,
1996 and 1995
Notes to condensed consolidated financial statements -
June 30, 1996
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
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
June 30, December 31,
1996 1995
-------- ------------
(Unaudited)
(000's omitted)
ASSETS
Cash and due from banks $ 14,684 $ 20,964
Federal funds sold and securities
purchased under resale agreements 23,500 5,200
-------- --------
Cash and cash equivalents 38,184 26,164
Time certificates of deposit 495 495
Investment securities:
Held to maturity securities (market value
of $7,625,975 in 1996 and $10,190,673
in 1995) 7,655 10,187
Available for sale securities 15,692 24,796
Loans 132,858 130,412
Less allowance for loan losses 2,870 3,003
-------- --------
Net loans 129,988 127,409
Bank premises and equipment:
Land 159 159
Buildings and improvements 4,210 4,068
Furniture, fixtures and equipment 3,512 3,428
-------- --------
7,881 7,655
Less accumulated depreciation
and amortization 5,932 5,727
-------- --------
1,949 1,928
Other real estate owned 1,613 516
Accrued interest receivable 1,155 998
Other assets 1,758 2,599
-------- --------
Total assets $198,489 $195,092
======== ========
(Continued)
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HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
June 30, December 31,
1996 1995
-------- ------------
(Unaudited)
(000's omitted)
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $ 92,700 $ 87,201
Noninterest bearing 89,905 92,003
--------- ---------
Total deposits 182,605 179,204
Accrued expenses and other liabilities 963 1,331
--------- ---------
Total liabilities 183,568 180,535
Stockholders' equity:
Common stock, no par value; 5,000,000
shares authorized; issued and out-
standing, 1,415,214 shares in 1996
and 1,348,021 shares in 1995 13,963 13,258
Retained earnings 1,138 1,382
Net unrealized security losses (180) (83)
--------- ---------
Total stockholders' equity 14,921 14,557
--------- ---------
Total liabilities and
stockholders' equity $ 198,489 $ 195,092
========= =========
See notes to unaudited consolidated financial statements.
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HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
(000's omitted, except per share data)
Interest income:
Interest and fees on loans $6,099 $5,490 $3,074 $2,766
Interest on U.S. government
and agency obligations 758 925 354 447
Interest on obligations of
states and political
subdivisions 7 10 4 5
Interest on other investments 41 46 20 35
Interest on federal funds sold
and securities purchased under
agreements to resale 387 195 242 123
------ ------ ------ ------
Total interest income 7,292 6,666 3,694 3,376
Interest expense:
Interest on deposits 1,409 1,232 753 622
Interest on borrowed funds 4 41 -- 5
------ ------ ------ ------
Total interest expense 1,413 1,273 753 627
Net interest income 5,879 5,393 2,941 2,749
Provision for loan
losses 444 50 248 25
Net interest income after
provision for loan losses 5,435 5,343 2,693 2,724
Other operating income:
Service charges on deposit
accounts 486 432 226 216
Loan servicing fees and other
fees and charges 112 81 78 42
Gain on sale of securities -- 54 -- 53
------ ------ ------ ------
Total other operating
income 598 567 304 311
(Continued)
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HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Continued)
Six Months Ended Three Months Ended
June 30, June 30,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
(000's omitted, except per share data)
Noninterest expense:
Salaries, wages and employee
benefits 1,852 1,728 961 870
Occupancy expenses 1,100 1,057 559 535
Equipment expenses 207 154 101 73
Data processing expenses 300 305 147 155
Other operating expenses 1,834 1,591 841 804
------ ------ ------ ------
Total noninterest
expense 5,293 4,835 2,609 2,437
------ ------ ------ ------
Income before taxes based on
income 740 1,075 388 598
Provision for taxes based
on income 279 434 154 255
------ ------ ------ ------
Net income $ 461 $ 641 $ 234 $ 343
====== ====== ====== ======
Earnings per share $ 0.32 $ 0.48 $ 0.16 $ 0.25
====== ====== ====== ======
See notes to unaudited consolidated financial statements.
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HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
-------------------------
1996 1995
---- ----
(000's omitted)
Operating activities:
Net income $ 461 $ 641
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for depreciation and
amortization 244 252
Provision for loan
losses 444 50
(Increase) in interest
receivable (157) (73)
Increase (decrease) in
interest payable 32 (7)
Other 438 (250)
-------- --------
Net cash provided by operating
activities $ 1,462 $ 613
Investing activities:
Proceeds from maturities, sales
and calls of investment
securities 16,504 14,101
Purchases of investment securities (5,000) (6,991)
Net (increase) in loans (3,023) (4,662)
Capital expenditures (226) (34)
Other real estate (1,097) 1,476
-------- --------
Net cash provided by
investing activities $ 7,158 $ 3,890
(Continued)
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HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
Six Months Ended
June 30,
-----------------------
1996 1995
(000's omitted)
Financing activities:
Net increase in commercial and
other demand deposits, savings
and money market deposits and
certificates of deposit $ 3,400 $14,472
------- -------
Net cash provided by
financing activities $ 3,400 $14,472
Increase in cash
and cash equivalents 12,020 18,975
Cash and cash equivalents at
beginning of period 26,164 21,377
------- -------
Cash and cash equivalents at
end of period $38,184 $40,352
======= =======
See notes to unaudited consolidated financial statements.
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HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 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 six month period ended June 30, 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 (the "Company") was formed on July 23, 1982. The unaudited
condensed consolidated financial statements include all the accounts of the
Company 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 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 June 30, 1996 and 1995 were 1,433,603 and 1,348,021
respectively.
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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 six months of 1996
shows continued stability which is supported by improvement in 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 six months of 1996, the Company experienced a net increase in
liquid assets. Cash and cash equivalents increased $12,020,000, or 45.94%, from
$26,164,000 at December 31, 1995 to $38,184,000 at June 30, 1996. Investment
securities declined $11,636,000, or 33.26%, from $34,983,000 at December 31,
1995 to $23,347,000 at June 30, 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 second quarter of 1996, loan volume increased slightly with
loans at $132,858,000 at June 30, 1996 compared to loans at $130,412,000 at
December 31, 1995. Loans increased $2,446,000, or 1.88%, as a result of the
Company's decision to maintain a conservative posture with respect to lending in
view of the current economic condition. Total assets of the Company increased
from $195,092,000 at December 31, 1995 to $198,489,000 at June 30, 1996. This
increase of $3,397,000, or 1.74%, 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 June 30, 1996, the bank had $15,692,000 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 $3,401,000, or 1.90%, for the first six months of
1996. This is a result of an increase in interest bearing deposits which
increased $5,499,000, or 6.31%, from $87,201,000 at December 31, 1995 to
$92,700,000 at June 30, 1996. In addition, there was a decrease of noninterest
bearing deposits of $2,098,000, or 2.28%, from $92,003,000 at December 31, 1995
to $89,905,000 at June 30,
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1996.
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, and the Bank and the California State Banking Department
executed a Memorandum of Understanding (Department MOU) dated January 31, 1995.
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 was removed effective
May 22, 1996 and the Department Memorandum was removed effective June 12, 1996.
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 33.97% and 34.4% as of June 30,
1996 and December 31, 1995, respectively.
The Bank's goal is to maintain federal funds sold at $7 to $10 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.
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Interest rate sensitivity varies with different types of interest-earning assets
and interest-bearing liabilities. Harbor 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 $461,000, or $0.32 per share, for the six
months ended June 30, 1996, compared to net income of $641,000, or $0.48 per
share, for the same period in 1995. For the three months ended June 30, 1996,
the Company generated net income of $234,000, or $0.16 per share, compared to
$343,000, or $0.25 per share, for the three months ended June 30, 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 $5,879,000 for the six months ended June 30, 1996,
reflects an increase of $486,000 or 9.01%, from $5,393,000 for the same period
of 1995. Net interest income of $2,941,000 for the second quarter in 1996
reflects an increase of $192,000, or 6.98%, from $2,749,000 for the same quarter
in 1995. Rising interest rates and increased net earning assets are the primary
reason for the improvement in net interest income.
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The Company recorded $444,000 in provision for loan losses during the first six
months of 1996 compared to $50,000 for the six months ended June 30, 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 size and quality of the loan portfolio.
During the first six 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 a modest $215,000 or
6.63%, during the six months ended June 30, 1996 over the same period in 1995.
Primary factors of the increase were the addition of a Chief Credit Officer in
Fall 1995 and the re-evaluation of FASB 91 which primarily resulted in smaller
salary capitalization per loan. Other operating expense increased $243,000, or
15.27%, during the six months ended June 30, 1996 compared to the same period in
1995 with most of the increase in the area of Professional Fee Analysis.
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 June 30, 1996, loans on
non-accrual status were $6,558,000, or 4.94%, 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 $47,000 at June 30,
1996 compared to $121,000 at December 31, 1995.
At June 30, 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 to 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
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Total Capital. At December 31, 1995 the Company had Tier 1 Capital of 10.31% and
Total Capital of 11.56% and at June 30, 1996 the company had Tier 1 Capital of
10.08% and Total Capital of 11.33%.
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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: August 13, 1996 /s/ DALLAS E. HAUN
----------------------- --------------------------
DALLAS E. HAUN
Vice President
Dated: August 13, 1996 /s/ MELISSA LANFRE'
----------------------- --------------------------
MELISSA LANFRE'
Vice President & CFO
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