<PAGE>
<PAGE>
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, 1998
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
-------
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, 1998, 1,862,795 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
--- ---
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC.
---------------------------
Baltimore, Maryland
-------------------
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Consolidated Statements of Financial Condition --
As of September 30, 1998 (Unaudited) and March 31,
1998
Consolidated Statements of Income and Comprehensive
Income -- (Unaudited) for the six and three months
ended September 30, 1998 and 1997
Consolidated Statements of Cash Flows -- (Unaudited)
for the six months ended September 30, 1998 and 1997
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<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
3<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, March 31,
Assets 1998 1998
------ ------------ --------
(Unaudited)
<S> <C> <C>
Cash:
On hand and due from banks $ 1,344,256 2,752,630
Interest-bearing deposits 282,003 173,728
Federal funds sold 1,525,227 313,047
Investment securities, fair value of $49,946,285
and $51,779,610, respectively 49,936,785 51,826,542
Mortgage-backed securities, fair value of
$17,698,025 and $21,324,796, respectively 17,584,010 21,159,954
Investment in real estate 153,823,240 147,901,019
Real estate owned 86,050 ----
Investment in Federal Home Loan Bank stock,
at cost 1,433,500 1,433,500
Investment in and advances to affiliated
Corporation 2,875,000 2,850,000
Property and equipment, net 1,818,222 1,820,909
Prepaid expenses and other assets 984,961 908,861
------------ ------------
Total assets $231,693,254 231,140,190
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Savings accounts $176,243,061 172,902,844
Borrowed funds 23,310,000 25,266,250
Advance payments by borrowers for taxes,
insurance and ground rents 655,889 1,935,804
Accrued expenses and other liabilities 1,881,013 1,560,098
Federal and state income taxes payable ---- 152,384
------------ ------------
Total liabilities 202,089,963 201,817,380
------------ ------------
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; 1,862,795 and 1,693,420
shares issued and outstanding 18,628 16,934
Additional paid-in capital 15,890,956 13,069,233
Unearned ESOP shares (912,830) (912,830)
Retained income, substantially restricted 14,063,657 16,939,169
Accumulated comprehensive income 542,880 210,304
------------ ------------
Total stockholders' equity 29,603,291 29,322,810
------------ ------------
Total liabilities and stockholders' equity $231,693,254 231,140,190
============ ============
</TABLE>
See accompanying notes to consolidated
financial statements.
4<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Income and Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
September 30, September 30,
----------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $5,914,586 5,796,882 2,945,422 2,926,626
Mortgage-backed securities 679,196 485,798 322,232 237,744
Investment securities 1,859,056 1,597,358 947,087 771,080
Interest-earning deposits and
other short-term investments 163,072 155,768 81,820 80,071
---------- ---------- ---------- ----------
Total interest income 8,615,910 8,035,806 4,296,561 4,015,521
---------- ---------- ---------- ----------
Interest expense:
Savings accounts:
Certificates 3,619,587 3,318,440 1,834,758 1,660,743
NOW and money market deposit accounts 466,128 504,020 235,097 254,284
Passbook and statement savings 489,359 514,076 245,800 256,842
---------- ---------- ---------- ----------
4,575,074 4,336,536 2,315,655 2,171,869
Borrowed funds:
Federal Home Loan Bank advances 256,708 ---- 129,055 ----
Securities sold under agreements
to repurchase 397,737 449,176 196,927 216,256
---------- ---------- ---------- ----------
654,445 449,176 325,982 216,256
Total interest expense 5,229,519 4,785,712 2,641,637 2,388,125
---------- ---------- ---------- ----------
Net interest income 3,386,391 3,250,094 1,654,924 1,627,396
Provision for losses on loans 40,000 40,000 30,000 10,000
---------- ---------- ---------- ----------
Net interest income after
provision for losses on
Loans 3,346,391 3,210,094 1,624,924 1,617,396
---------- ---------- ---------- ----------
Noninterest income:
Loan fees and service charges 232,530 71,727 141,762 53,274
Other 87,318 85,988 52,928 42,477
---------- ---------- ---------- ----------
Total noninterest income 319,848 157,715 194,690 95,751
---------- ---------- ---------- ----------
Noninterest expense:
Compensation and benefits 1,350,968 1,337,160 690,938 690,818
Occupancy and equipment 206,018 224,912 99,946 115,944
SAIF deposit insurance premiums 45,363 45,208 22,259 22,497
Advertising 73,196 48,958 37,563 28,113
Other 368,228 383,123 171,098 185,779
---------- ---------- ---------- ----------
Total noninterest expense 2,043,773 2,039,361 1,021,804 1,043,151
---------- ---------- ---------- ----------
Income before income taxes 1,622,466 1,328,448 797,810 669,996
Income taxes 648,150 513,113 318,400 258,763
---------- ---------- ---------- ----------
Net income 974,316 815,335 479,410 411,233
---------- ---------- ---------- ----------
Other comprehensive income, net of tax:
Unrealized holding gain on securities
available for sale 332,576 565,688 206,984 189,145
---------- ---------- ---------- ----------
Comprehensive income $1,306,892 1,381,023 686,394 600,378
========== ========== ========== ==========
Net income per share of common stock (Note 5):
Basic (1) $ .56 .48 .27 .24
========== ========== ========== ==========
Diluted (1) $ .54 .46 .27 .23
========== ========== ========== ==========
<FN>
1) Amounts have been restated for the effect of a 10% stock dividend paid on
August 10, 1998.
</FN>
</TABLE>
See accompanying notes to consolidated financial
statements.
5<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 974,316 815,335
Adjustments to reconcile net income to
Net cash provided by (used in) operating activities:
Depreciation 47,113 67,650
Provision for losses on loans 40,000 40,000
Amortization of premium on savings deposits 190,692 190,692
Noncash compensation under stock-based
benefit plans 275,046 266,900
Loans originated for sale, net of repayments (610,382) (3,215,734)
Amortization of loan fees, premiums and
discounts, net (78,503) (80,362)
Increase in prepaid expenses and other assets (204,714) (154,265)
Increase in accrued expenses and other liabilities 123,457 314,882
Change in federal and state income taxes receivable
or payable (208,881) (33,843)
Increase in accrued interest receivable 9,272 20,778
Decrease in accrued interest payable (68,930) (37,967)
---------- ----------
Net cash provided by (used in) operating
activities 488,486 (1,805,934)
---------- ----------
Cash flows from investing activities:
Maturities of investment securities available for sale 8,000,000 1,000,000
Maturities of investment securities held to maturity 13,000,000 3,090,909
Purchase of investment securities available for sale (18,518,875) -----
Principal repayments of mortgage-backed securities
held to maturity 1,373,196 1,145,971
Principal repayments of mortgage-backed securities
available for sale 2,090,898 493,684
Proceeds from sale of investments in real estate ----- 465,136
Loan principal disbursements, net of repayments (5,144,101) (506,021)
Loan purchases (160,000) (1,006,911)
Purchases of property and equipment, net (44,426) (17,871)
Increase in investments in and advances to affiliated
corporation, net (25,000) (150,000)
---------- ----------
Net cash provided by investing activities 571,692 4,514,897
---------- ----------
(Continued)
</TABLE>
6<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Net increase in savings deposits 3,149,525 69,754
Net decrease in borrowed funds (1,956,250) (1,777,000)
Decrease in advance payments by borrowers
for taxes, insurance and ground rents (1,279,915) (1,322,245)
Purchases of common stock for Stock Option Trust (642,325) ----
Purchases of common stock ---- (965,687)
Exercise of stock options by Stock Option Trust 43,176 28,952
Dividends paid (462,308) (375,252)
----------- -----------
Net cash used in financing activities (1,148,097) (4,341,478)
----------- -----------
Net decrease in cash and cash equivalents (87,919) (1,632,515)
Cash and cash equivalents at beginning of period 3,239,405 5,698,253
----------- -----------
Cash and cash equivalents at end of period $ 3,151,486 4,065,738
=========== ===========
Supplemental information -- noncash investing activities:
Unrealized holding gain on securities available for
sale, net of income tax effect $ 332,576 565,688
=========== ===========
Transfer of loans receivable to investments in
real estate $ 86,050 67,795
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
Six Months Ended September 30, 1998
(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, 1998
have been recorded.
Effective January 1, 1998, the Company adopted the provisions of
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
which establishes standards for reporting and display of
comprehensive income and its components in a full set of general
purpose financial statements. It requires all items that are
required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed in equal prominence with other
financial statements. It requires that an enterprise display an
amount representing total comprehensive income for each period.
It does not require per share amounts of comprehensive income to
be disclosed. The adoption of the provisions of SFAS No. 130
did not affect the financial condition or results of operations
of the Company.
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, 1998 are not necessarily indicative of the results
that may be expected for the entire year ending March 31, 1999.
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,
1998, Harbor Federal was in compliance with all regulatory
capital requirements. In addition to these requirements, since
the conversion Harbor Federal must maintain sufficient capital
for a "liquidation account" for the benefit of eligible account
holders. In the event of a complete liquidation of Harbor
Federal, eligible depositors would have an interest in the
account.
8<PAGE>
<PAGE>
Note 5 -- Earnings per Common Share. On August 10, 1998 the
Company paid a 10% stock dividend to shareholders of record on
July 31, 1998. 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, 1998 and September
30, 1997, adjusted for the effect of the 10% stock dividend:
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
-------------------- ---------------------
Basic Diluted Basic Diluted
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income 974,316 974,316 815,335 815,335
Dividend on unvested common
stock awards (7,804) (5,272) (9,975) (7,346)
--------- --------- -------- ----------
Adjusted net income used in
EPS calculations 966,512 969,044 805,360 807,989
========= ========= ========= ==========
Weighted average shares outstanding 1,730,915 1,730,915 1,692,600 1,692,600
Dilutive securities:
Options --- 58,860 --- 37,654
Unvested common stock awards --- 10,212 --- 13,143
--------- --------- -------- ----------
Adjusted weighted-average shares used
in EPS computation 1,730,915 1,799,987 1,692,600 1,743,397
========= ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
-------------------- ---------------------
Basic Diluted Basic Diluted
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income 479,410 479,410 411,233 411,233
Dividend on unvested common
stock awards (4,091) (2,847) (5,436) (1,918)
--------- --------- -------- ----------
Adjusted net income used in
EPS calculations 475,319 476,563 405,797 409,315
========= ========= ========= ==========
Weighted average shares outstanding 1,730,915 1,730,915 1,687,833 1,687,833
Dilutive securities:
Options --- 55,168 --- 40,944
Unvested common stock awards --- 9,571 --- 14,292
--------- --------- -------- ----------
Adjusted weighted-average shares
used in EPS computation 1,730,915 1,795,654 1,687,833 1,743,069
========= ========= ========= ==========
</TABLE>
Note 6 -- Investment Securities. Investment securities
available for sale included in investment securities have a
carrying value and fair market value of $46,407,618 at September
30, 1998 and $36,204,093 at March 31, 1998 and related accrued
interest of $566,660 at September 30, 1998 and $432,389 at March
31, 1998.
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
$14,752,668 at September 30, 1998 and $16,930,783 at March 31,
1998 and related accrued interest of $105,222 at September 30,
1998 and $121,011 at March 31, 1998.
9<PAGE>
<PAGE>
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, 1998 and the results of
operations of the Company for the six and three months ended
September 30, 1998 and 1997.
FINANCIAL CONDITION
- -------------------
Harbor Federal's total assets increased by $553,000 or 0.2%
to $231.7 million at September 30, 1998 from $231.1 million at
March 31, 1998.
Loans receivable, net, increased by $5.9 million or 4.0% to
$153.8 million at September 30, 1998 from $147.9 million at
March 31, 1998. This increase was due in part to a greater
demand for loans during this period. The increase was funded in
part by a reduction in investment securities of $1.9 million or
3.6% to $49.9 million at September 30, 1998 from $51.8 million
at March 31,1998 and a reduction in mortgage-backed securities
of $3.6 million or 16.9% to $17.6 million at September 30, 1998
from $21.2 million at March 31, 1998.
RESULTS OF OPERATIONS
- ---------------------
The earnings of Harbor Federal depend primarily on its
level of net interest income, which is the difference between
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. Net income for the six and three months ended
September 30, 1998 increased $159,000 and $68,000 respectively.
Interest Income. Total interest income for the six months
ended September 30, 1998 increased by $580,000 or 7.2% to $8.6
million from $8.0 million for the same period in 1997. Total
interest income for the three months ended September 30, 1998
increased by $281,000 or 7.0% to $4.3 million from $4.0 million
for the same period in 1997. The increases in interest income
resulted from a $15.6 million or 7.3% and $17.1 million or 8.1%
increase in average interest-earning assets for the six and
three months ended September 30, 1998 as compared to the same
periods in 1997 offset by a decrease in the average yield on
Harbor Federal's average interest-earning assets to 7.54% and
7.50% for the six and three months ended September 30, 1998
from 7.55% and 7.58% for the six and three months ended
September 30, 1997.
Interest on loans for the six months ended September 30,
1998 increased $118,000 or 2.0% as compared to the same period
in 1997. Interest on loans for the three months ended September
30, 1998 increased $19,000 or 0.6% as compared to the same
period in 1997. The increases were due primarily to increases
in average loans receivable of $3.0 million or 2.0% and $2.6
million or 1.8% for the six and three months ended September 30,
1998, respectively, as compared to the same periods in 1997.
The increase in average loans receivable was due primarily to
increased loan production over normal repayments.
Interest on mortgage-backed securities for the six and
three months ended September 30,1998 increased by $193,000 or
39.8% and $84,000 or 35.5% respectively, as compared to the same
periods in 1997. The increases were the result of increases in
the average mortgage-backed securities of $6.0 million or 44.9%
and $5.5 million or 42.1% for the six and three months ended
September 30, 1998, respectively, as compared to the same
periods in 1997. The increases in average mortgage-backed
securities were due primarily to the purchase of a $9.9 million
mortgage-backed security in December 1997.
Interest on investment securities for the six and three
months ended September 30, 1998 increased by $262,000 or 16.4%
and $176,000 or 22.8%, respectively, as compared to the same
periods in 1997. The increases were due primarily to increases
in the average investment securities of $5.1 million or 11.2%
and $6.1 million or
10
<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
13.6% for the six and three months ended September 30, 1998,
respectively, as compared to the same periods in 1997. The
increases in average investment securities were due to an
increase in purchases of investment securities offset by
increased borrowings in the latter half of fiscal year end March
31, 1998.
Interest Expense. Total interest expense for the six and
three months ended September 30, 1998 increased by $444,000 or
9.3% and $254,000 or 10.6% to $5.2 million and $2.6 million from
$4.8 million and $2.4 million for the same periods in 1997. 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 1998 of $13.5 million or
7.2% and $15.1 million or 8.2%, respectively, over the same
periods in 1997, and an increase in the weighted average cost of
Harbor Federal's deposits and borrowings to 5.24% and 5.27%,
respectively, for the six and three months ended September
30,1998 from 5.14% and 5.15%, respectively, for the same periods
in 1997.
Net Interest Income. Net interest income for the six and
three months ended September 30, 1998 increased by $136,000 or
4.2% and $28,000 or 1.7% to $3.4 million and $1.7 million from
$3.3 million and $1.6 million for the same periods in 1997 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 and prospective economic conditions, status
of nonperforming loans and regulatory reviews conducted in the
regulatory examination process. There were provisions of
$40,000 and $30,000 for loan losses during the six and three
months ended September 30, 1998 as compared to $40,000 and
$10,000 during the same periods in 1997. 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, 1998.
Noninterest Income. Noninterest income for the six and
three months ended September 30, 1998 increased by $162,000 or
102.8% and $99,000 or 103.3% to $320,000 and $195,000 from
$158,000 and $96,000 for the same periods in 1997. The increase
for the six and three months ended September 30, 1998 was due
primarily to an increase in fee income of $l59,000 from Bank
Street Mortgage Company which commenced operations in June 1997.
This was offset by a reduction of $19,000 in ATM fees due to the
closing of ATM machine in Ocean City, Maryland in November of
1997. This ATM machine has been reinstalled in the Parkville
branch in September 1998.
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
27.7% and 27.1% for the six and three months ended September
30, 1998. 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 earnings 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.
11<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
During the six months ended September 30, 1998, Harbor
Federal's cash and cash equivalents (cash and short-term
investments with maturities less than 90 days) decreased by
$88,000.
The Company had $3.5 million in outstanding loan
commitments at September 30, 1998. 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 ACTION PLAN
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.
In 1997, the Company adopted a Year 2000 Action Plan (the
"Plan"). The Plan includes several phases as follows:
awareness, assessment, renovation, validation and
implementation. The awareness phase establishes a committee
that is composed of representatives from all functional areas of
the Company. The assessment phase includes the inventory of all
hardware and software. Presently, the Company has replaced all
hardware. The Company relies on its third party service bureaus
to provide data processing services and is dependent upon vendor
application software. In addition, 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 hardware and software replacement involves the renovation
phase. The validation phase consists of extensive testing.
This testing utilizes daily processing on sensitive future
dates. The Company has completed testing of mission critical
systems. Implementation involves re-testing any systems that
failed the original testing. It is the Company's goal to follow
the Plan and have internal Year 2000 issues resolved by December
31, 1998.
In addition to the Plan, the Company has devised a Year
2000 contingency plan. The contingency plan resolves 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.
Cost associated with the Year 2000 primarily includes costs
incurred to upgrade existing software and to replace hardware.
The Company estimates that these costs will be incurred in the
normal course of business as software and hardware are
ordinarily upgraded to keep pace with technological advances.
Management currently expects that these costs could reach
$35,000.
STOCK DIVIDEND
The Company paid a 10% stock dividend on August 10, 1998 to
shareholders of record on July 31, 1998. Fractional shares were
rounded up or down to the nearest whole share.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities". 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
12<PAGE>
<PAGE>
HARBOR FEDERAL BANCORP, INC.
AND SUBSIDIARY
position and measure those instruments at fair value. It is
effective for all fiscal quarters or fiscal years beginning
after June 15, 1999. Initial application of this Statement
should be as of the beginning of an entity's fiscal quarter, on
that 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. It does not apply retroactively.
13<PAGE>
<PAGE>
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, 1998, 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 15, 1998, 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:
<TABLE>
<CAPTION>
Votes
----------------------- Broker
For Withheld Abstentions Non-Votes
------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Robert A. Williams 1,598,878 1,200 -----
--------- ----- -----
</TABLE>
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) List of Exhibits
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
at and for the six months ended
September 30, 1997
* Incorporated by reference to Registration
Statement on Form S-1, No. 33-75624.
** Incorporated by reference to Quarterly Report on
Form 10-QSB for Quarter Period ended June 30,
1994.
(b) Form 8-K
None
14<PAGE>
<PAGE>
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 10, 1998 By: /s/ Robert A. Williams
--------------------------------
Robert A. Williams
President
(Duly Authorized Representative)
Date: November 10, 1998 By: /s/ Norbert J. Luken
--------------------------------
Norbert J. Luken
Treasurer
(Principal Financial Officer)
15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 1,344,256
<INT-BEARING-DEPOSITS> 282,003
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 62,765,608
<INVESTMENTS-CARRYING> 4,755,187
<INVESTMENTS-MARKET> 4,878,702
<LOANS> 153,832,240
<ALLOWANCE> 530,000
<TOTAL-ASSETS> 231,693,254
<DEPOSITS> 176,243,061
<SHORT-TERM> 23,310,000
<LIABILITIES-OTHER> 2,536,902
<LONG-TERM> 0
<COMMON> 18,628
0
0
<OTHER-SE> 29,584,663
<TOTAL-LIABILITIES-AND-EQUITY> 231,693,254
<INTEREST-LOAN> 5,914,586
<INTEREST-INVEST> 2,538,252
<INTEREST-OTHER> 163,072
<INTEREST-TOTAL> 8,615,910
<INTEREST-DEPOSIT> 4,575,074
<INTEREST-EXPENSE> 5,229,519
<INTEREST-INCOME-NET> 3,386,391
<LOAN-LOSSES> 40,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,043,773
<INCOME-PRETAX> 1,622,466
<INCOME-PRE-EXTRAORDINARY> 974,316
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 974,316
<EPS-PRIMARY> .56
<EPS-DILUTED> .54
<YIELD-ACTUAL> 7.54
<LOANS-NON> 0
<LOANS-PAST> 1,502,718
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 490,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 530,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 530,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 1,953,543
<INT-BEARING-DEPOSITS> 176,490
<FED-FUNDS-SOLD> 1,935,705
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,237,046
<INVESTMENTS-CARRYING> 26,553,985
<INVESTMENTS-MARKET> 26,610,378
<LOANS> 149,487,372
<ALLOWANCE> 420,000
<TOTAL-ASSETS> 217,202,394
<DEPOSITS> 171,727,075
<SHORT-TERM> 14,723,000
<LIABILITIES-OTHER> 2,395,603
<LONG-TERM> 0
<COMMON> 16,934
0
0
<OTHER-SE> 28,356,716
<TOTAL-LIABILITIES-AND-EQUITY> 217,202,394
<INTEREST-LOAN> 5,796,882
<INTEREST-INVEST> 2,083,156
<INTEREST-OTHER> 155,768
<INTEREST-TOTAL> 8,035,806
<INTEREST-DEPOSIT> 4,336,536
<INTEREST-EXPENSE> 4,785,712
<INTEREST-INCOME-NET> 3,250,094
<LOAN-LOSSES> 40,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,039,361
<INCOME-PRETAX> 1,328,448
<INCOME-PRE-EXTRAORDINARY> 815,335
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 815,335
<EPS-PRIMARY> .48 <F1>
<EPS-DILUTED> .46 <F1>
<YIELD-ACTUAL> 7.55
<LOANS-NON> 0
<LOANS-PAST> 221,597
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 380,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 420,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 420,000
<FN>
<F1> Restated for adoption of SFAS No. 128.
</FN>
</TABLE>
