<PAGE>
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, 1995
-------------------------
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transitions period from to
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Commission file number 2-79912
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HARBOR BANCORP
- - --------------------------------------------------------------------------------
(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 May 10, 1995
<PAGE>
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HARBOR BANCORP AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - March 31,
1995 and December 31, 1994
Condensed consolidated statements of income - three
months ended March 31, 1995 and 1994
Condensed consolidated statements of cash flows -
three months ended March 31, 1995 and 1994
Notes to condensed consolidated financial statements -
March 31, 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
<PAGE>
ITEM I: FINANCIAL INFORMATION
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
------------- -------------
1995 1994
(Unaudited)
(000's omitted)
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ASSETS
------
<S> <C> <C>
Cash and due from banks $ 16,025 $ 16,377
Federal funds sold and securities
purchased under resale agreements 18,500 5,000
------- -------
Cash and cash equivalents 34,525 21,377
Time certificates of deposit 495 495
Investment securities (market value
of $9,391,639 in 1995 and $9,298,038
in 1994) 9,561 9,673
Available for sale securities 19,568 25,146
Loans 111,679 114,850
Less allowance for possible
loan losses 3,053 3,224
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Net loans 108,626 111,626
Bank premises and equipment:
Land 159 159
Buildings and improvements 4,011 4,008
Furniture, fixtures and equipment 3,028 3,014
------- -------
7,198 7,181
Less accumulated depreciation
and amortization 5,470 5,385
------- -------
1,728 1,796
Other real estate 1,367 2,814
Accrued interest receivable 932 972
Other assets 2,358 2,566
------- -------
Total assets $179,160 $176,465
======= =======
</TABLE>
(Continued)
<PAGE>
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
(Unaudited)
(000's omitted)
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Deposits:
Interest bearing $ 88,789 $ 89,963
Noninterest bearing 75,922 72,149
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Total deposits 164,711 162,112
Accrued expenses and other liabilities 875 1,218
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Total liabilities 165,586 163,330
Commitments and contingencies 0 0
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 442 143
Net unrealized securities losses (126) (266)
------- -------
Total stockholders' equity 13,574 13,135
------- -------
Total liabilities and
stockholders' equity $179,160 $176,465
======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(000's omitted, except per share data)
1995 1994
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 2,724 $ 2,669
Interest on U.S. government
and agency obligations 478 299
Interest on obligations of
states and political
subdivisions 5 6
Interest on other investments 11 22
Interest on federal funds sold
and securities purchased under
agreements to resale 72 107
------ ------
Total interest income 3,290 3,103
Interest expense:
Interest on deposits 610 454
Interest on borrowed funds 36 19
------ ------
Total interest expense 646 473
------ ------
Net interest income 2,644 2,630
Provision for possible loan
losses 25 0
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Net interest income after
provision for possible loan
losses 2,619 2,630
Other operating income:
Service charges on deposit
accounts 216 230
Loan servicing fees and other
fees and charges 39 85
Gain (loss) on sale of securities 1 0
------ ------
Total other operating
income 256 315
</TABLE>
(Continued)
<PAGE>
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(000's omitted, except per share data)
1995 1994
---- ----
<S> <C> <C>
Noninterest expense:
Salaries, wages and employee
benefits 858 846
Occupancy expenses 522 512
Equipment expenses 81 83
Data processing expenses 150 171
Other operating expenses 787 911
------ ------
Total noninterest
expense 2,398 2,523
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Income before taxes based on
income 477 422
Provision for taxes based
on income 179 189
------ ------
Net income $ 298 $ 233
====== ======
Earnings per share $ 0.23 $ 0.18
====== ======
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
(000's omitted)
1995 1994
---- ----
<S> <C> <C>
Operating activities:
Net income $ 298 $ 233
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for depreciation and
amortization 130 134
Provision for possible loan
losses 25 0
(Increase) in interest
receivable 39 (40)
Increase (decrease) in interest
payable (38) (17)
Other (357) (645)
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Net cash provided by operating
activities 97 (335)
Investing activities:
Proceeds from maturities, sales
and calls of investment
securities 6,045 25,991
Purchases of investment securities 0 (14,824)
Net (increase) in short-
term securities 0 0
Net (increase) in loans 2,975 (471)
Capital expenditures (16) (42)
Other real estate 1,447 272
------- ------
Net cash used in
investing activities 10,451 10,926
</TABLE>
(Continued)
<PAGE>
HARBOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31,
(000's omitted)
1995 1994
---- ----
<S> <C> <C>
Financing activities:
Net increase in commercial
and other demand deposits, savings
and money market deposits and
certificates of deposit 2,600 2,685
------ ------
Net cash provided by
financing activities 2,600 2,685
Increase in cash
and cash equivalents 13,148 13,276
Cash and cash equivalents at
beginning of period 21,377 21,871
------ ------
Cash and cash equivalents at
end of period $34,525 $35,147
====== ======
</TABLE>
See notes to unaudited consolidated financial statements.
<PAGE>
HARBOR BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 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-Q 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,
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
Investment securities - securities which the Company has the ability and
intent to hold until maturity - are stated at cost adjusted for amortization
of premiums and accretion of discounts. Securities available for sale are
carried at market value with unrealized gains or losses recorded as a
separate component of stockholders' equity. The adjusted cost of the
specific security sold is used to compute gain or loss on the sale of
investment securities.
<PAGE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible 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 possible loan losses charged to
operations and reduced by loans charged off to the allowance, net of recoveries.
OTHER REAL ESTATE
Other real estate is stated at the lower of cost or market.
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 improvements 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, 1995 and 1994 were 1,348,021 and 1,348,021
respectively.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
During the first three months of 1995, Harbor Bancorp ("Company") experienced
satisfactory earnings and growth performance as planned based upon the Company's
expectation of the economic recovery period in Southern California. The purpose
of the following discussion is to focus on the above mentioned performance
standards 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 1995, the Company experienced an net
increase in liquid assets. Cash and cash equivalents increased $13,148,000
from $21,377,000 at December 31, 1994 to $34,525,000 at March 31, 1995.
Available for sale securities declined $5,578,000, or 22.18%, from
$25,146,000 at December 31, 1994 to $19,568,000 at March 31, 1995. This net
increase in liquid assets is primarily a result of not reinvesting available
for sale securities at maturity, but in maintaining liquidity in the form of
short term and overnight investments in anticipation of growth in loan volume
in the remainder of 1995 . During the first quarter of 1995, loan volume
declined slightly with loans at $111,679,000 at March 31, 1995 compared to
loans at $114,850,000 at December 31, 1994. The decline in loan totals is
primarily a result of loan payoffs. Total assets of the Company increased
modestly from December 31, 1994 to March 31, 1995 with assets at $176,465,000
and $179,160,000, respectively.
Effective January 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("SFAS 114"). Under SFAS 114, impaired loans subject to the
Statement are required to be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent.
<PAGE>
A loan is impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due, contractual interest
and principal, according to the contractual terms of the loan agreement. As of
March 31, 1995, the Bank had $6,632,123 in impaired loans. The Bank allocated
$884,881 in allowance for loan and lease losses to impaired loans at March 31,
1995.
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 $2,599,000, or 1.6%, for the first quarter of
1995. The primary component of this increase is noninterest bearing deposits
which increased $3,773,000, or 5.23%, from $72,149,000 at December 31, 1994 to
$75,922,000 at March 31, 1995.
On December 31, 1993, the Bank underwent examinations conducted concurrently by
the Federal Deposit Insurance Corporation and the State Banking Department. As
a result of this exam, the Bank signed a Memorandum of Understanding with the
Federal Deposit Insurance Company dated August 3, 1994. The Bank agreed to take
certain actions under the Memorandum 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
<PAGE>
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 March 31, 1995
and December 31, 1994, 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. Management's
intention is to maintain an investment portfolio which contributes an adequate
rate of return with minimal market or credit risk.
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.
<PAGE>
RESULTS OF OPERATIONS
The Company reported net income of $298,000, or $0.23 per share, for the
three months ended March 31, 1995, compared to net income of $233,000, or $0.18
per share, for the same period in 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 $2,644,000 for the three months ended March 31, 1995,
remained relatively stable compared to $2,630,000 for the for the same period of
1994. Although interest earning assets declined $10,917,000, or 6.4%, from
$170,720,000 at March 31, 1994 to $159,803,000 at March 31, 1995, net interest
income remained relatively stable due to rising interest rates.
The provision for possible loan losses increased $25,000 for the three months
ended March 31, 1995 compared to the same period in 1994. 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 level
sufficient based upon the quality of the loan portfolio.
During the first three months of 1995, the Company maintained expenses
consistent with the same quarter of 1994. The Company began to focus on
noninterest expense control in 1989 and, today, continues to emphasize and
enforce strict cost control procedures. As a result of this continued effort,
total noninterest expense decreased $125,000 during the three months ended March
31, 1995 compared to the same period in 1994 with most of the decrease in the
area of professional fees and data processing expense.
RISK ELEMENTS
The policy of Harbor Bank is that all loans that are past due for ninety (90)
days must be placed on a non-accrual status. In addition, loans in which it is
probable that full collection of principal will not occur are placed on non-
accrual status. At March 31, 1995, loans on non-accrual status were $5,379,000,
or 4.8%, compared to $5,739,511, or 5.0%, of total loans on non-accrual status
at December 31, 1994. Accruing loans which are contractually past due ninety
(90) days or more were $6,000 at March 31, 1995 compared to $97,000 at December
31, 1994.
At March 31, 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.
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 16,025
<INT-BEARING-DEPOSITS> 495
<FED-FUNDS-SOLD> 18,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,568
<INVESTMENTS-CARRYING> 9,561
<INVESTMENTS-MARKET> 9,392
<LOANS> 111,679
<ALLOWANCE> 3,053
<TOTAL-ASSETS> 179,160
<DEPOSITS> 164,711
<SHORT-TERM> 0
<LIABILITIES-OTHER> 875
<LONG-TERM> 0
<COMMON> 0
0
13,258
<OTHER-SE> 316
<TOTAL-LIABILITIES-AND-EQUITY> 13,574
<INTEREST-LOAN> 2,724
<INTEREST-INVEST> 494
<INTEREST-OTHER> 72
<INTEREST-TOTAL> 3,290
<INTEREST-DEPOSIT> 646
<INTEREST-EXPENSE> 646
<INTEREST-INCOME-NET> 2,644
<LOAN-LOSSES> 25
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 2,398
<INCOME-PRETAX> 477
<INCOME-PRE-EXTRAORDINARY> 477
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 298
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 5,379
<LOANS-PAST> 6
<LOANS-TROUBLED> 4,742
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,224
<CHARGE-OFFS> 199
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 3,053
<ALLOWANCE-DOMESTIC> 3,053
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
