FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
MARK ONE
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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: 0-24194
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HARBOR FEDERAL BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 52-1860591
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
705 York Road, Baltimore, Maryland 21204-2562
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(410)321-7041
------------
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 period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past ninety days. Yes X No
--- ---
As of September 30, 1999, 1,669,515 shares of the
registrant's Common Stock, par value $0.01 per share, were
issued and outstanding.
Transitional small business disclosure format (check one):
YES NO X
--- ---
HARBOR FEDERAL BANCORP, INC.
---------------------------
Baltimore, Maryland
-------------------
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Consolidated Statements of Financial Condition --
As of September 30, 1999 (Unaudited) and March 31,
1999
Consolidated Statements of Income and Comprehensive
Income (Loss) for the six and three months ended
September 30, 1999 and 1998 -- (Unaudited)
Consolidated Statements of Cash Flows for the six
months ended September 30, 1999 and 1998 --
(Unaudited)
Notes to Consolidated Financial Statements --
(Unaudited)
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 and Use of Proceeds
-----------------------------------------
Item 3. Defaults Upon Senior Securities
-------------------------------
Item 4. Submission of Matters to a Vote of Security
Holders
-------------------------------------------
Item 5. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
2
PART I. FINANCIAL INFORMATION
3
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Financial Condition
September 30, March 31,
Assets 1999 1999
------ ------------ --------
(Unaudited)
Cash:
On hand and due from banks $ 2,596,787 1,501,358
Interest-bearing deposits 448,404 114,259
Federal funds sold 20,873,636 2,545,437
Investment securities, fair value of $60,796,059
and $59,963,291, respectively 60,796,059 59,963,291
Mortgage-backed securities, fair value of
$11,794,934 and $14,280,938, respectively 11,722,974 14,172,392
Loans receivable, net 166,966,126 153,918,968
Investment in real estate, net -- 446,899
Investment in Federal Home Loan Bank stock, at cost 1,725,000 1,433,500
Investment in and advances to affiliated corporation -- 2,525,000
Property and equipment, net 1,722,081 1,760,516
Prepaid expenses and other assets 2,229,879 916,015
------------ -----------
Total assets $269,080,946 239,297,635
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings accounts $183,082,015 181,485,848
Borrowed funds 57,810,000 27,555,000
Advance payments by borrowers for taxes,
Insurance and ground rents 747,991 1,841,672
Accrued expenses and other liabilities 2,080,152 1,612,963
------------ -----------
Total liabilities 243,720,158 212,495,483
------------ -----------
Stockholders' Equity:
Preferred stock $0.01 par value; authorized
5,000,000 shares; none issued -- --
Common stock $0.01 par value; authorized
20,000,000 shares; 1,669,515 and 1,676,515
shares issued and outstanding 16,695 16,765
Additional paid-in capital 13,017,656 13,071,570
Unearned ESOP shares (662,056) (662,056)
Retained income, substantially restricted 14,983,804 14,422,503
Accumulated other comprehensive loss (1,995,311) (46,630)
------------ -----------
Total stockholders' equity 25,360,788 26,802,152
------------ -----------
Total liabilities and stockholders' equity $269,080,946 239,297,635
============ ===========
See accompanying notes to consolidated financial statements.
4
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Income and Comprehensive
Income (Loss)
(Unaudited)
Six Months Ended Three Months Ended
September 30, September 30,
------------------- ---------------------
1999 1998 1999 1998
------ ------ ------ ------
Interest income:
Loans receivable $ 6,149,021 5,914,586 3,159,380 2,945,422
Mortgage-backed securities 396,630 679,196 166,105 322,232
Investment securities 2,313,817 1,859,056 1,162,563 947,087
Interest-earning deposits and other
short-term investments 53,095 163,072 26,538 81,820
----------- ---------- ---------- ----------
Total interest income 8,912,563 8,615,910 4,514,586 4,296,561
----------- ---------- ---------- ----------
Interest expense:
Savings accounts:
Certificates 3,526,281 3,619,587 1,770,686 1,834,758
NOW and money market deposit accounts 469,817 466,128 238,549 235,097
Passbook and statement savings 496,560 489,359 250,146 245,800
----------- ---------- ---------- ----------
4,492,658 4,575,074 2,259,381 2,315,655
Borrowed funds:
Federal Home Loan Bank advances 262,504 256,708 134,851 129,055
Securities sold under agreements to
repurchase 490,472 397,737 271,681 196,927
----------- ---------- ---------- ----------
752,976 654,445 406,532 325,982
Total interest expense 5,245,634 5,229,519 2,665,913 2,641,637
----------- ---------- ---------- ----------
Net interest income 3,666,929 3,386,391 1,848,673 1,654,924
Provision for losses on loans 15,000 40,000 -- 30,000
----------- ---------- ---------- ----------
Net interest income after provision
for losses on loans 3,651,929 3,346,391 1,848,673 1,624,924
----------- ---------- ---------- ----------
Noninterest income:
Loan fees and service charges 145,156 232,530 53,384 141,762
Other 123,163 87,318 49,291 52,928
----------- ---------- ---------- ----------
Total noninterest income 268,319 319,848 102,675 194,690
----------- ---------- ---------- ----------
Noninterest expense:
Compensation and benefits 1,397,067 1,350,968 730,760 690,938
Occupancy and equipment 190,996 206,018 95,111 99,946
SAIF deposit insurance premiums 42,189 45,363 21,201 22,259
Advertising 90,064 73,196 47,252 37,563
Other 501,447 368,228 227,669 171,098
----------- ---------- ---------- ----------
Total noninterest expense 2,221,763 2,043,773 1,121,993 1,021,804
----------- ---------- ---------- ----------
Income before income taxes 1,698,485 1,622,466 829,355 797,810
Income taxes 702,200 648,150 343,400 318,400
----------- ---------- ---------- ----------
Net income 996,285 974,316 485,955 479,410
----------- ---------- ---------- ----------
Other comprehensive income (loss), net of tax:
Unrealized holding gain (loss) on
securities available for sale (1,948,681) 332,576 (825,663) 206,984
----------- ---------- ---------- ----------
Comprehensive income (loss) $ (952,396) 1,306,892 (339,708) 686,394
=========== ========== ========== ==========
Net income per share of common stock:
Basic $ .62 .56 .30 .27
=========== ========== ========== ==========
Diluted $ .61 .54 .30 .27
=========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
5
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
September 30,
-------------------------
1999 1998
-------- --------
Cash flows from operating activities
Net income $ 996,285 974,316
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 38,435 47,113
Provision for losses on loans 15,000 40,000
Amortization of premium on savings deposits 190,692 190,692
Noncash compensation under stock-based benefit plans 209,630 275,046
Loans originated for sale, net of repayments 491,011 (610,382)
Amortization of loan fees, premiums and discounts, net (43,255) (78,503)
Increase in prepaid expenses and other assets (87,659) (204,714)
Increase in accrued expenses and other liabilities 154,603 123,457
Change in federal and state income taxes receivable
or payable (457) (208,881)
(Increase) decrease in accrued interest receivable (181,297) 9,272
Increase (decrease) in accrued interest payable 118,586 (68,930)
Loss on sale of investments in real estate 14,600 --
----------- ----------
Net cash provided by operating activities 1,916,174 488,486
----------- ----------
Cash flows from investing activities:
Maturities of investment securities available for sale -- 8,000,000
Maturities of investment securities held to maturity -- 13,000,000
Purchase of investment securities available for sale (3,700,000) (18,518,875)
Principal repayments of mortgage-backed securities
held to maturity 431,709 1,373,196
Principal repayments of mortgage-backed securities
available for sale 1,748,344 2,090,898
Proceeds from sale of investments in real estate 446,899 --
Loan principal disbursements, net of repayments (10,550,267) (5,144,101)
Loan purchases (2,830,783) (160,000)
Purchase of Federal Home Bank Stock, net (291,500) --
Purchases of property and equipment, net -- (44,426)
Decrease (increase) in investments in and advances
to affiliated corporation, net 2,525,000 (25,000)
----------- ----------
Net cash provided by (used in) investing
activities (12,220,598) 571,692
----------- ----------
(Continued)
6
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
September 30,
-------------------------
1999 1998
-------- --------
Cash flows from financing activities:
Net increase in savings accounts 1,405,475 3,149,525
Increase (decrease) in borrowed funds 30,255,000 (1,956,250)
Decrease in advance payments by borrowers
for taxes, insurance and ground rents (1,093,681) (1,279,915)
Purchases of common stock for Stock Option Trust (111,920) (642,325)
Purchases of common stock (100,688) --
Exercise of stock options by Stock Option Trust 142,994 43,176
Dividends paid (434,984) (462,308)
----------- -----------
Net cash provided by (used in) financing activities 30,062,196 (1,148,097)
----------- -----------
Net increase (decrease) in cash and cash equivalents 19,757,772 (87,919)
Cash and cash equivalents at beginning of period 4,161,054 3,239,405
----------- -----------
Cash and cash equivalents at end of period $23,918,827 3,151,486
=========== ===========
Supplemental information -- noncash investing activities:
Unrealized holding gain (loss) on securities available
for sale, net of income tax effect $(1,948,681) 332,576
=========== ===========
Transfer of loans receivable to investments in
real estate $ -- 86,050
=========== ===========
See accompanying notes to consolidated financial statements.
7
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Six Months Ended September 30, 1999
(Unaudited)
Note 1 -- Business. The accompanying unaudited consolidated
--------
financial statements include the accounts of Harbor Federal
Bancorp, Inc. (the "Company") and wholly-owned subsidiaries,
including Harbor Federal Savings Bank ("Harbor Federal").
Harbor Federal provides a full range of banking services to
individual and corporate customers through its subsidiaries and
branch offices in Maryland. Harbor Federal is subject to
competition from other financial institutions. Harbor Federal
is subject to the regulations of certain federal agencies and
undergoes periodic examinations by those agencies.
Note 2 -- Basis of Presentation. The accompanying unaudited
---------------------
consolidated financial statements were prepared in accordance
with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation
of financial position, results of operations, and cash flows in
conformity with generally accepted accounting principles.
However, all adjustments (consisting of normal, recurring
adjustments) which in the opinion of management, are necessary
for a fair presentation of the consolidated financial statements
at and for the six and three months ended September 30, 1999
have been recorded.
In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the statement of
financial condition and revenues and expenses for the period.
Actual results could differ significantly from those estimates.
The results of operations for the six and three months ended
September 30, 1999 are not necessarily indicative of the results
that may be expected for the entire year ending March
31, 2000.
Note 3 -- Principles of Consolidation. The accompanying
---------------------------
unaudited consolidated financial statements include the
accounts of the Company and Harbor Federal, and its wholly owned
subsidiaries, Harbor Service Corporation and Bank Street
Mortgage Company. All significant intercompany items have been
eliminated.
Note 4 -- Retained Income. Harbor Federal is required to
---------------
maintain certain levels of regulatory capital. At September 30,
1999, Harbor Federal was in compliance with all regulatory
capital requirements.
Note 5 -- Earnings per Common Share. Information related to the
-------------------------
calculation of net income per share of common stock is
summarized as follows for the six and three months ended
September 30, 1999 and September 30, 1998:
Six Months Ended
----------------
September 30, 1999 September 30, 1998
-------------------- ---------------------
Basic Diluted Basic Diluted
--------- --------- --------- ---------
Net income $ 996,285 996,285 974,316 974,316
Dividend on unvested common stock
awards (4,090) (3,141) (7,804) (5,272)
---------- --------- --------- ---------
Adjusted net income used in EPS
calculations $ 992,195 993,144 966,512 969,044
========== ========= ========= =========
Weighted average shares outstanding 1,587,958 1,587,958 1,730,915 1,730,915
Dilutive securities:
Options --- 38,259 --- 58,860
Unvested common stock awards --- 3,648 --- 10,212
---------- --------- --------- ---------
Adjusted weighted-average shares
used in EPS computation 1,587,958 1,629,865 1,730,915 1,799,987
========== ========= ========= =========
8
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Three Months Ended
------------------
September 30, 1999 September 30, 1998
-------------------- ---------------------
Basic Diluted Basic Diluted
--------- --------- --------- ---------
Net income $ 485,955 485,955 479,410 479,410
Dividend on unvested common stock
awards (2,045) (1,589) (4,091) (2,847)
---------- --------- --------- ---------
Adjusted net income used in EPS
calculations $ 483,910 484,366 475,319 476,563
========== ========= ========= =========
Weighted average shares outstanding 1,587,390 1,587,390 1,730,915 1,730,915
Dilutive securities:
Options --- 36,810 --- 55,168
Unvested common stock awards --- 3,510 --- 9,571
---------- --------- --------- ---------
Adjusted weighted-average shares used
in EPS computation 1,587,390 1,627,710 1,730,915 1,795,654
========== ========= ========= =========
Note 6 -- Investment Securities. Investment securities available
---------------------
for sale included in investment securities have a carrying value
and fair market value of $60,149,024 at September 30, 1999 and
$59,458,780 at March 31, 1999 and related accrued interest of
$647,035 at September 30, 1999 and $504,511 at March 31, 1999.
Note 7 -- Mortgage-Backed Securities. Mortgage-backed securities
--------------------------
available for sale included in mortgage-backed securities have a
carrying value and fair market value of $9,845,748 at September
30, 1999 and $11,846,898 at March 31, 1999 and related accrued
interest of $71,714 at September 30, 1999 and $84,484 at March
31, 1999.
9
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion analyzes the financial condition of
the Company at September 30, 1999 and the results of operations
of the Company for the six and three months ended
September 30, 1999 and 1998.
When used in this Form 10-QSB, the words or phrases "will
likely result,", "are expected to," "will continue," "is
anticipated," "estimate," "project" or similar expressions are
intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to certain risks and uncertainties
including changes in economic conditions in the Company's market
area, and competition that could cause actual results to differ
materially from histroical earnings and those presently
anticipated or projected. The Company wishes to caution readers
not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The Company
wishes to advise readers that the factors listed above could
affect the Company's financial performance and could cause the
Company's actual results for the future periods to differ
materially from any opinions or statements expressed with respect
to future periods in any current statements.
The Company does not undertake, and specifically disclaims
any oblication, to publicly release the result of any revisions
which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.
FINANCIAL CONDITION
- -------------------
Harbor Federal's total assets increased by $29.8 million or
12.4% to $269.1 million at September 30, 1999 from $239.3 million
at March 31, 1999. Investment in and advances to
affiliated corporation decreased due to Harbor Federal selling
its interest in Bankers Affiliate, Inc. for the par value of the
capital stock which totaled $25,000. At that time, the $2.5
million of advances were also repaid by Bankers Affiliate, Inc.
Prepaid expenses and other asets increased by $1.3 million or
143% to $2.2 million at September 30, 1999 from $916,000 at March
31, 1999. This increase was primarily due to a deferred tax
asset related to an unrealized loss on Harbor Federal's
investment portfolio held for sale. The unrealized loss was
recorded as accumulated other comprehensive loss at September 30,
1999. Borrowed funds increased by $30.3 million or 109.8%
to $57.8 million at September 30, 1999 from $27.6 million at
March 31, 1999 to fund the increase in assets.
Loans receivable increased by $13.0 million or 8.5% to
$166.9 million at September 30, 1999 from $153.9 million at March
31, 1999. This increase was due in part to a greater demand for
loans during this period. The increase was funded by borrowed
funds mentioned above. The additional borrowed funds will be
used primarily to liquidate other short-term borrowings which
mature in the next quarter.
RESULTS OF OPERATIONS
- ---------------------
The earnings of Harbor Federal depend primarily on its level
of net interest income, which is the difference between the
interest earned on Harbor Federal's interest-earning assets,
consisting primarily of mortgage loans, mortgage-backed
securities, interest-bearing deposits at other institutions,
investment securities and other investments, and the interest
paid on interest-bearing liabilities consisting primarily of
savings accounts and borrowed funds. Net income for the six and
three months ended September 30, 1999 increased $22,000 and
$7,000 respectively.
Interest Income. Total interest income for the six months
ended September 30, 1999 increased by $297,000 or 3.4% to $8.9
million from $8.6 million for the same period in 1998. Total
interest income for the three months ended September 30, 1999
increased by $218,000 or 5.1% to $4.5 million from $4.3 million
for the same period in 1998. The increases in interest income
resulted from a $11.8 million or 5.1% and $14.3 million or 6.2%
increase in average interest-earning assets for the six and three
months ended September 30, 1999 as compared to the same
periods in 1998, partially offset by a decrease in the average
yield on Harbor Federal's average interest-earning assets to
7.42% and 7.42% for the six and three months ended September 30,
1999 from 7.54% and 7.50% for the six and three months ended
September 30, 1998.
10
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Interest on loans for the six months ended September 30,
1999 increased $234,000 or 4.0% as compared to the same period in
1998. Interest on loans for the three months ended September
30, 1999 increased $214,000 or 7.3% as compared to the same
period in 1998. The increases were due primarily to increases in
average loans receivable of $8.3 million or 5.5% and $10.1
million or 6.7% for the six and three months ended September 30,
1999, respectively, as compared to the same periods in 1998. The
increases in average loans receivable were due primarily to
increased loan production over normal repayments.
Interest on mortgage-backed securities for the six and three
months ended September 30,1999 decreased by $283,000 or 41.6% and
$156,000 or 48.5% respectively, as compared to the
same periods in 1998. The decreases were the result of decreases
in the average mortgage-backed securities of $6.6 million or
34.1% and $6.3 million or 34.3% for the six and three months
ended September 30, 1999, respectively, as compared to the same
periods in 1998. The decreases in average mortgage-backed
securities were due primarily to repayments on these loans and no
new purchases of mortgage-backed securities during the periods.
Interest on investment securities for the six and three
months ended September 30, 1999 increased by $455,000 or 24.5%
and $215,000 or 22.8%, respectively, as compared to the same
periods in 1998. The increases were due primarily to increases
in the average investment securities of $11.4 million or 22.3%
and $11.3 million or 22.1% for the six and three months ended
September 30, 1999, respectively, as compared to the
same periods in 1998. The increases in average investment
securities were due primarily to purchases of investment
securities funded by increased borrowings in the latter half of
the fiscal year ended March 31, 1999.
Interest Expense. Total interest expense for the six and
three months ended September 30, 1999 increased by $16,000 or
0.3% and $24,000 or 0.9%. The increases were primarily
attributable to increases in the weighted average balance of
deposits and borrowings for the six and three months ended
September 30 1999 of $15.6 million or 7.8% and $18.8 million or
9.4%, respectively, over the same periods in 1998, offset by a
decrease in the weighted average cost of Harbor Federal's
deposits and borrowings to 4.87% and 4.86%, respectively, for the
six and three months ended September 30,1999 from 5.24% and
5.27%, respectively, for the same periods in 1998.
Net Interest Income. Net interest income for the six and
three months ended September 30, 1999 increased by $281,000 or
8.3% and $194,000 or 11.7% to $3.7 million and $1.8 million
from $3.4 million and $1.7 million for the same periods in 1998
due to the above-mentioned changes.
Provision for Loan Losses. The Company maintains an
allowance for loan losses based on management's review and
classification of the loan portfolio and analyses of borrowers'
ability to pay, past collection experience, risk characteristics
of individual loans or groups of similar loans and underlying
collateral, current economic conditions, status of nonperforming
loans and regulatory reviews conducted in the regulatory
examination process. There were provisions of $15,000 and zero
for loan losses during the six and three months ended September
30, 1999 as compared to $40,000 and $30,000 during the same
periods in 1998. Based on the results of management's review and
analyses, it was concluded that the level of the allowance for
losses on loans was adequate at September 30, 1999.
Noninterest Income. Noninterest income for the six and
three months ended September 30, 1999 decreased by $52,000 or
16.1% and $92,000 or 47.3% to $268,000 and $103,000 from
$320,000 and $195,000 for the same periods in 1998. The decrease
in noninterest income was due primarily to a decrease in loan
originations fees earned by Bank Street Mortgage Company,
partially offset by insurance commissions earned by Harbor
Service Corporation which began selling annuities in November
1998.
Noninterest Expense. Noninterest expense for the six and
three months ended September 30, 1999 increased by $178,000 or
8.7% and $100,000 or 9.8% to $2.2 million and $1.1 million
from $2.0 million and $1.0 million for the same period in 1998.
The increase in noninterest expense resulted primarily from
increases of $46,000 and $40,000, respectively, in compensation
and benefits expense and $61,000 and $34,000, respectively, in
computer data expense for the six and three months ended
September 30, 1999 as compared to the same periods in 1998. The
increases in compensation and benefits expense are due primarily
to employee severance costs and the increases in computer data
expense are due primarily to implementation of electronic banking
services.
11
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Harbor Federal is required to maintain minimum levels of
liquid assets as defined by OTS regulations. This requirement,
which varies from time to time depending upon economic conditions
and deposit flows, is based upon a percentage of deposits and
short-term borrowings. The required ratio currently is 4.0%.
Harbor Federal's liquidity ratio averaged 18.4% and 18.1% for the
six and three months ended September 30, 1999. Harbor Federal
adjusts its liquidity levels in order to meet funding needs of
deposit outflows, payment of real estate taxes on mortgage loans,
repayment of borrowings and loan commitments. Harbor Federal
also adjusts liquidity as appropriate to meet its asset and
liability management objectives.
The Company's primary sources of funds are deposits,
amortization and prepayment of loans and mortgage-backed
securities, maturities of investment securities and other
investments, and funds provided from operations and borrowings.
While scheduled principal repayments on loans and mortgage-backed
securities are a relatively predictable source of funds, deposit
flows and loan prepayments are greatly influenced by general
interest rates, economic conditions, and competition. The
Company manages the pricing of its deposits to maintain a desired
deposit balance. In addition, the Company invests in short-term
interest-earning assets,
which provide liquidity to meet lending requirements.
During the six months ended September 30, 1999, Harbor
Federal's cash and cash equivalents (cash and short-term
investments with maturities less than 90 days) increased by $19.8
million.
The Company had $3.3 million in outstanding loan commitments
at September 30, 1999. Harbor Federal expects to fund its loan
origination's through principal and interest payments on loans
and mortgage-backed securities, proceeds from investment and
other securities as maturities occur, and to the extent
necessary, borrowed funds. Management expects that funds
provided from these sources will be adequate to meet the
Company's needs.
YEAR 2000 READINESS DISCLOSURE
The entire concept behind the Year 2000 issue is the way the
computer stores the year. In the beginning of the computer age,
computers had limited storage space. In an effort to save this
storage space, programmers utilized a two-digit year field. This
means that the year 1998 is stored as 98 in some systems. This
year format implies that 2000 is stored as 00 and interpreted as
1900. In order for calculations to be performed accurately,
these computer systems have to be reprogrammed.
Achieving Year 2000 readiness has been a major part of
Harbor Federal Savings Bank's strategic planning process for well
over two years. In 1997, the Company adopted a
Year 2000 Action Plan (the "Plan"). The Plan called for Year
2000 readiness by the end of December 1998, a full year ahead of
the millennium and the Company's Year 2000 Plan has largely been
accomplished. The Company relies on its third party service
bureaus to provide data processing services and is dependent upon
vendor application software. Internal and external mission
critical systems have been upgraded with Year 2000 compliant
versions. These systems include data processing, accounting,
payroll, mortgage management and electronic systems. The
Company's testing of these mission critical systems has revealed
no Year 2000 discrepancies. In addition to software, all
hardware has been replaced and tested successfully. It is the
Company's goal to follow the Plan and to continue to aggressively
monitor Year 2000 issues.
In addition to the Plan, the Company has devised a Year 2000
contingency plan. The contingency plan addresses any issues that
may occur to software. It states alternative solutions and
deadlines for any software that is not Year 2000 compliant. In
addition, the contingency plan handles any outside variables that
may affect the Company when the Year 2000 approaches. Although
precautions have been taken, the contingency plan does not
guarantee all external and
internal variables. However, the Company will continue to design
and implement solutions to avoid interruptions to service.
Costs associated with the Year 2000 primarily relate to
upgrading software and replacing hardware. The Company is
incurring these costs in the normal course of business as
software and hardware are ordinarily upgraded to keep pace with
technological advances. Costs associated with the Year 2000
efforts have totaled $27,600 to date. No significant additional
spending is anticipated.
12
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued
SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities, as amended (SFAS No. 133). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value.
It is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Initial application of this Statement
should be as of the beginning of an entity's fiscal quarter. On
the effective date, hedging relationships must be designated anew
and documented pursuant to the provisions of SFAS No. 133.
Earlier application is encouraged, but is permitted only as of
the beginning of any fiscal quarter that
begins after issuance of SFAS No. 133. SFAS No. 133 does not
apply retroactively. While the Company has not completed its
analysis of SFAS No. 133 and has not made a decision regarding
timing of adoption, management does not believe that adoption
will have a material effect on the financial condition or results
of operations of the Company.
13
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time Harbor Federal is a party
to various legal proceedings incident to its
business. At September 30, 1999, there were
no legal proceedings to which the Company,
Harbor Federal or its subsidiaries were a
party, or to which any of their property was
subject, which were expected by management
to result in a material loss.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security
-------------------------------------------
Holders
-------
On July 14, 1999, the registrant held its
annual meeting of stockholders. At the
meeting, the following directors were elected
by the stockholders to serve for three year
terms:
Votes
------------------- Broker
For Withheld Abstentions Non-Votes
----- -------- ----------- ----------
J. Kemp Roche 1,546,165 36,218 -- --
Gideon N. Stieff, Jr. 1,546,529 35,854 -- --
At the meeting, the Harbor Federal Bancorp,
Inc. 1999 Stock Incentive Plan was approved
by the stockholders as follows:
Votes Broker
For Against Abstentions Non-Votes
----- ------- ----------- ---------
940,794 106,590 11,675 523,324
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) List of Exhibits
27 Financial Data Schedule
(b) Form 8-K
None
14
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 FEDERAL BANCORP, INC.
Date: November 2, 1999 /s/ Robert A. Williams
_____________________________
Robert A. Williams
President
(Duly Authorized Representative)
Date: November 2, 1999 /s/ Norbert J. Luken
______________________________
Norbert J. Luken
Treasurer
(Principal Financial Officer)
15