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, 1995
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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
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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 August 5, 1995
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HARBOR BANCORP AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - June 30,
1995 and December 31, 1994
Condensed consolidated statements of income - three
months ended June 30, 1995 and 1994; and six months
ended June 30, 1995 and 1994
Condensed consolidated statements of cash flows -
six months ended June 30, 1995 and 1994
Notes to condensed consolidated financial statements -
June 30, 1995
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
1
ITEM I: FINANCIAL INFORMATION
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1995 1994
(000's omitted)
---------------------------
ASSETS
Cash and due from banks $ 18,702 $ 16,377
Federal funds sold and securities
purchased under resale agreements 21,650 5,000
------- -------
Cash and cash equivalents 40,352 21,377
Time certificates of deposit 495 495
Investment securities (market value
of $11,456,181 in 1995 and $9,147,270
in 1994) 11,454 9,673
Available for sale securities 16,768 25,146
Loans 119,242 114,850
Less allowance for
loan losses 3,004 3,224
------- -------
Net loans 116,238 111,626
Bank premises and equipment:
Land 159 159
Buildings and improvements 4,013 4,008
Furniture, fixtures and equipment 3,044 3,014
------- -------
7,216 7,181
Less accumulated depreciation
and amortization 5,552 5,385
------- -------
1,664 1,796
Other real estate owned 1,338 2,814
Accrued interest receivable 1,045 972
Other assets 2,283 2,566
------- -------
Total assets $191,637 $176,465
------- -------
------- -------
2
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
JUNE 30, DECEMBER 31,
1995 1994
(000's omitted)
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing $ 91,598 $ 89,963
Noninterest bearing 84,986 72,149
------- -------
Total deposits 176,584 162,112
Accrued expenses and other liabilities 1,101 1,218
------- -------
Total liabilities 177,685 163,330
Commitments and contingencies -- --
Stockholders' equity:
Common stock, no par value; 5,000,000
shares authorized; issued and out-
standing, 1,348,021 shares in 1995
and 1,348,021 shares in 1994 13,258 13,258
Retained earnings 784 143
Net unrealized security losses (90) (266)
------- -------
Total stockholders'equity 13,952 13,135
------- -------
Total liabilities and
stockholders' equity $191,637 $176,465
------- -------
------- -------
See notes to unaudited consolidated financial statements.
3
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
(000's omitted, except per share data)
1995 1994 1995 1994
---- ---- ---- ----
Interest income:
Interest and fees on loans $ 5,490 $ 5,206 $ 2,766 $ 2,537
Interest on U.S. government
and agency obligations 925 544 447 245
Interest on obligations of
states and political
subdivisions 10 11 5 5
Interest on other investments 46 44 35 22
Interest on federal funds sold
and securities purchased under
agreements to resale 195 162 123 55
------ ------ ------ ------
Total interest income 6,666 5,967 3,376 2,864
Interest expense:
Interest on deposits 1,232 900 622 446
Interest on borrowed funds 41 44 5 25
------ ------ ------ ------
Total interest expense 1,273 944 627 471
Net interest income 5,393 5,023 2,749 2,393
Provision for loan
losses 50 0 25 0
Net interest income after
provision for loan
losses 5,343 5,023 2,724 2,393
Other operating income:
Service charges on deposit
accounts 432 464 216 234
Loan servicing fees and other
fees and charges 81 129 42 44
Gain on sale of securities 54 (1) 53 (1)
------ ------ ------ ------
Total other operating
income 567 592 311 277
(Continued)
4
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Continued)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
(000's omitted, except per share data)
1995 1994 1995 1994
---- ---- ---- ----
Noninterest expense:
Salaries, wages and employee
benefits 1,728 1,652 870 806
Occupancy expenses 1,057 960 535 448
Equipment expenses 154 167 73 84
Data processing expenses 305 300 155 129
Other operating expenses 1,591 1,772 804 861
------ ------ ------ ------
Total noninterest
expense 4,835 4,851 2,437 2,328
------ ------ ------ ------
Income before taxes based on
income 1,075 764 598 342
Provision for taxes based
on income 434 331 255 142
------ ------ ------ ------
Net income $ 641 $ 433 $ 343 $ 200
------ ------ ------ ------
------ ------ ------ ------
Earnings per share $ 0.48 $ 0.32 $ 0.25 $ 0.15
------ ------ ------ ------
------ ------ ------ ------
See notes to unaudited consolidated financial statements.
5
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
(000'S OMITTED)
1995 1994
---- ----
Operating activities:
Net income $ 641 $ 433
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for depreciation and
amortization 252 274
Provision for loan
losses 50 0
(Increase) decrease in
interest receivable (73) 104
(Decrease) in interest
payable (7) (5)
Other (250) (622)
------ ------
Net cash provided by operating
activities 613 184
Investing activities:
Proceeds from maturities, sales
and calls of investment
securities 14,101 41,262
Purchases of investment securities (6,991) (14,824)
Net increase in short-
term securities 0 99
Net (increase) decrease in loans (4,662) 2,885
Capital expenditures (34) (181)
Other real estate 1,476 (521)
------ ------
Net cash used in
investing activities 3,890 28,720
(Continued)
6
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
SIX MONTHS ENDED JUNE 30,
(000's omitted)
1995 1994
---- ----
Financing activities:
Net increase in commercial
and other demand deposits, savings
and money market deposits and
certificates of deposit 14,472 (17,352)
------ ------
Net cash provided by
financing activities 14,472 (17,352)
Increase in cash
and cash equivalents 18,975 11,552
Cash and cash equivalents at
beginning of period 21,377 21,872
------ ------
Cash and cash equivalents at
end of period $40,352 $33,424
====== ======
See notes to unaudited consolidated financial statements.
7
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
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, 1995 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1995.
Certain reclassifications have been made in the 1994 financial
statements to conform to the presentations used in 1995.
The balance sheet on December 31, 1994 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.
8
Investment securities 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.
Available for sale securities 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 income taxes. Gains and losses are determined on the
specific identification method. Any decline in the fair value of
the investments which is deemed to be other than temporary is
charged against current earnings.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's recognition 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.
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, 1995 and 1994 were 1,348,021 and 1,348,021 respectively.
9
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 1995 shows continued improvement 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 improvements 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
Since December 31, 1994, the Company has experienced an increase in
loan volume and cash and cash equivalents which has resulted in
total assets of the Company increasing from $176,465,000 at December
31, 1994 to $191,637,000 at June 30, 1995. This increase of
$15,172,000, or 8.6%, in total assets occurred primarily in cash and
cash equivalents and loans. Cash and cash equivalents which
increased $18,975,000, or 88.76%, from $21,377,000 at December 31,
1994 to $40,352,000 at June 30, 1995, has been offset with a
corresponding decrease in total investment and available for sale
securities. Investment securities and available for sale securities
decreased $6,597,000 from $34,819,000 at December 31, 1994 to
$28,222,000 at June 30, 1995. Generally, the net increase in
liquidity is the result of seasonal and economically-generated
fluctuations in escrow and title company demand account balances and
growth in core deposits. Loans increased $4,392,000, or 3.82%, from
$114,850,000 at December 31, 1994 to $119,242,000 at June 30, 1995.
The increase in loan volume continues to be moderate as a result of
the Company's decision to maintain a conservative posture with
respect to lending in view of the current economic environment.
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,
1995, the bank had $16,768,000 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
$14,472,000, or 8.93%,
10
for the first six months of 1995. The primary component of this increase is
noninterest bearing deposits which increased $12,837,000 or 17.8%, from
$72,149,000 at December 31, 1994 to $84,986,000 at June 30, 1995.
As a result of the Federal Deposit Insurance Corporation examination
at December 31, 1993, the Bank and the Federal Deposit Insurance
Corporation executed a Memorandum of Understanding ("FDIC
Memorandum") dated August 3, 1994. In accordance with the terms of
the FDIC Memorandum, the Bank has agreed to take certain actions
including the following: maintaining capital requirements; reducing
classified assets in accordance with the reduction schedule; revise,
adopt and implement policy and procedures; and review and maintain
an adequate allowance for loan losses.
The Bank believes it is currently in compliance with the FDIC
Memorandum.
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%
and 35% as of June 30, 1995 and December 31, 1994, respectively.
The Bank's goal is to maintain federal funds sold at a level of at
least $5 to $7 million on average with minimum daily investments
monitored closely.
11
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 $641,000, or $0.48 per share, for
the six months ended June 30, 1995, compared to net income of
$433,000, or $0.32 per share, for the same period in 1994. For the
three months ended June 30, 1995, the Company generated net income
of $343,000, or $0.25 per share, compared to $200,000, or $0.15 per
share, for the three months ended June 30, 1994.
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 $5,393,000 for the six months ended June 30,
1995, reflects an increase of $370,000, or 7.37%, from $5,023,000
for the same period of 1994. Net interest income of $2,749,000 for
the second quarter in 1995 reflects an increase of $356,000, or
14.88%, from $2,393,000 for the same quarter in 1994. Rising
interest rates and increased net interests earning assets are the
primary reasons for the improvement in net interest income.
The Company made $50,000 in provision for loan losses during the
first six months of 1995 compared to no provision for the six months
ended June 30, 1994. The Company made a moderate provision in the
first two
12
quarters of 1995 because of the current balance in the
allowance for loan and lease losses and the improvement in the
quality of the loan portfolio.
During the first six months of 1995, 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, the commitment continues to be emphasized and enforced. As a
result of this continued effort, total noninterest expense cate-
gories of salaries, wages and employee benefits, occupancy expense,
equipment expense and data processing expense increased $165,000, or
5.35%, during the six months ended June 30, 1995 over the same
period in 1994. Other operating expense decreased $181,000 during
the six months ended June 30, 1995 compared to the same period in
1994 with most of the decrease in the area of legal and professional
fees and FDIC insurance premiums.
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,
1995, loans on non-accrual status were $4,675,000, or 3.9%,
compared to $3,364,000, or 2.9%, of total loans on non-accrual
status at December 31, 1994. Accruing loans which are contractually
past due ninety (90) days or more were $14,000 at June 30, 1995
compared to $535,000 at December 31, 1994.
At June 30, 1995, the management 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 1994, stockholders' equity increased $38,978 due to
retention of the Company's 1994 net income. The Company's capital
plan for 1995 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,
1994 the Company had Tier 1 Capital of 9.94% and Total Capital of
11.19% and at June 30, 1995 the Company had Tier 1 Capital of 10.07%
and Total Capital of 11.32%.
13
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
Exhibit 1 - Proxy 1995
14
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 10, 1995 /s/
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JAMES H. GRAY
President
Dated: August 10, 1995 /s/
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MELISSA LANFRE'
Vice President & CFO
15