UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
-----------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1997
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 000-22817
HARBOR FLORIDA BANCORP, INC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 65-0737675
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 S. SECOND STREET
FORT PIERCE, FL 34950
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES/ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (561) 461-2414
--------------------------
Indicate by check 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 90 days. Yes X No ____
As of January 20, 1998 there were 4,994,612 shares of the Registrant's
common stock outstanding.
<PAGE>
HARBOR FLORIDA BANCORP, INC
TABLE OF CONTENTS
Part I. Financial Information Page
Item 1. Financial Statements
Condensed Consolidated Statements of Financial
Condition as of December 31, 1997 and
September 30, 1997......................................... 2
Condensed Consolidated Statements of Earnings
for the Three Months ended December 31, 1997
and 1996 ...................................................3
Condensed Consolidated Statements of Stockholders'
Equity for the Three Months ended December 31,
1997 and 1996 ..............................................4
Condensed Consolidated Statements of Cash Flows
for the Three Months ended December 31, 1997
and 1996....................................................5
Notes to Condensed Consolidated Financial Statements .......8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................15
Part II. Other Information
Item 1. Legal Proceedings...................................................20
Item 2. Changes in Securities...............................................20
Item 3. Defaults Upon Senior Securities.....................................20
Item 4. Submission of Matters to a Vote of Security-Holders.................20
Item 5. Other Information...................................................21
Item 6. Exhibits and Reports on Form 8-K....................................21
Signature Page.............................................23
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
DECEMBER 31, SEPTEMBER 30,
1997 1997
----------- -----------
Assets
Cash and amounts due from depository
institutions .................................. $ 19,842 $ 16,899
Interest-bearing deposits in other banks ......... 4,003 15,736
Federal funds sold ............................... 250 250
Investment securities held to maturity ........... 14,984 5,000
Investment securities available for sale ......... 29,482 47,553
Mortgage-backed securities held to maturity ...... 163,942 176,854
Loans held for sale .............................. 751 141
Loans, net ....................................... 859,878 834,270
Accrued interest receivable ...................... 6,982 7,033
Real estate owned ................................ 2,529 2,314
Premises and equipment ........................... 14,491 13,313
Federal Home Loan Bank stock ..................... 7,595 7,595
Goodwill ......................................... 2,989 3,045
Other assets ..................................... 1,224 1,021
----------- -----------
Total .......................................... $ 1,128,942 $ 1,131,024
=========== ===========
Liabilities and Stockholders' Equity
Deposits ......................................... $ 925,667 $ 911,576
Short-term borrowings ............................ 20,400 30,100
Long-term debt ................................... 70,000 70,375
Advance payments by borrowers for taxes
and insurance ................................. 3,861 15,924
Income taxes payable ............................. 2,751 628
Other liabilities ................................ 5,491 5,619
----------- -----------
Total liabilities .............................. 1,028,170 1,034,222
----------- -----------
Preferred stock ($.01 par value; authorized
1,000,000 shares; none issued and outstanding) -- --
Common stock ($.01 par value; authorized
13,000,000 shares;issued and outstanding
4,978,756 shares at December 31, 1997 and
4,973,428 shares at September 30, 1997) ....... 50 50
Paid-in capital .................................. 27,468 26,876
Retained earnings, substantially restricted ...... 74,505 71,203
Common stock purchased by:
Employee stock ownership plan (ESOP) ........... (300) (374)
Recognition and retention plans (RRP) .......... -- --
Deferred compensation plan ..................... (946) (946)
Unrealized loss on investment securities
available for sale, net ....................... (5) (7)
----------- -----------
Total stockholders' equity ................... 100,772 96,802
----------- -----------
Total ........................................ $ 1,128,942 $ 1,131,024
=========== ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands except per share data)
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
-------- --------
Interest income:
Loans .............................................. $ 19,116 $ 16,644
Investment securities .............................. 872 929
Mortgage-backed securities ......................... 2,813 2,466
Other .............................................. 253 489
-------- --------
Total interest income ........................... 23,054 20,528
-------- --------
Interest expense:
Deposits ........................................... 10,278 9,441
Other .............................................. 1,488 1,491
-------- --------
Total interest expense .......................... 11,766 10,932
-------- --------
Net interest income ............................. 11,288 9,596
Provision for (recovery of) loan losses .............. (188) 125
-------- --------
Net interest income after provision for
(recovery of) loan losses .................... 11,476 9,471
-------- --------
Other income:
Other fees and service charges ..................... 888 819
Income (losses) from real estate operations ........ (143) (2)
Gain on sale of mortgage loans ..................... 20 88
Other .............................................. 815 89
-------- --------
Total other income .............................. 1,580 994
-------- --------
Other expenses:
Compensation and employee benefits ................. 3,421 2,939
Occupancy .......................................... 1,045 728
Professional fees .................................. 138 138
SAIF deposit insurance premium ..................... 144 374
Other .............................................. 1,369 1,103
-------- --------
Total other expense ............................. 6,117 5,282
-------- --------
Income before income taxes ...................... 6,939 5,183
Income tax expense ................................... 2,844 2,082
-------- --------
Net income ...................................... $ 4,095 $ 3,101
======== ========
Net income per share
Basic ........................................ $ 0.83 $ 0.64
======== ========
Diluted ...................................... $ 0.81 $ 0.62
======== ========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common
stock Unreal.
Common Common purch. by gain(loss)on
stock stock deferred securities
Common Paid-in Retained purch. by purch. comp. available
stock capital earnings ESOP by RRP's plan for sale, net Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three months ended
December 31, 1996
Balance at September 30, 1996 $49 $25,339 $ 60,893 $(674) $(53) $(673) $(49) $ 84,832
Net income -- -- 3,101 -- -- -- -- 3,101
Stock options exercised -- 45 -- -- -- -- -- 45
Amortization of award of
ESOP and RRP's -- 164 -- 75 53 -- -- 292
Dividends paid -- -- (651) -- -- -- -- (651)
Change in unrealized gain
(loss) on securities
available for sale, net -- -- -- -- -- -- 5 5
Tax benefit of stock options -- 59 -- -- -- -- -- 59
--- ------- -------- ----- ---- ----- ---- ---------
Balance at December 31, 1996 $49 $25,607 $ 63,343 $(599) $-- $(673) $(44) $ 87,683
--- ------- -------- ----- ---- ----- ---- ---------
Three months ended
December 31, 1997
Balance at September 30, 1997 $50 $26,876 $ 71,203 $(374) $-- $(946) $ (7) $ 96,802
Net income -- -- 4,095 -- -- -- -- 4,095
Stock options exercised -- 53 -- -- -- -- -- 53
Amortization of award of
ESOP and RRP's -- 409 -- 74 -- -- -- 483
Dividends paid -- -- (793) -- -- -- -- (793)
Change in unrealized gain
(loss) on securities
available for sale, net -- -- -- -- -- -- 2 2
Tax benefit of stock options -- 130 -- -- -- -- -- 130
--- ------- -------- ----- ---- ----- ---- ---------
Balance at December 31, 1997 $50 $27,468 $ 74,505 $(300) $-- $(946) $ (5) $ 100,772
=== ======= ======== ===== ==== ===== ==== =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
---- ----
Cash provided by operating activities:
Net income ........................................... $ 4,095 $ 3,101
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of stock benefit plans .............. 483 292
Tax benefit of stock plans credited to capital ... 130 59
Originations of loans held for sale .............. (1,411) (1,044)
Proceeds from sale of loans held for sale ........ 801 2,435
Depreciation and amortization .................... 281 273
Deferred income tax provision (benefit) .......... (46) 1,915
Increase in deferred loan fees and costs ......... 371 306
Amortization of deferred loan fees and costs ..... (255) (224)
Amortization of goodwill ......................... 56 61
Net accretion of other purchase accounting
adjustments .................................... 20 (15)
Loss on sale of real estate owned ................ 6 15
Accretion of discount on purchased loans ......... (340) (6)
Decrease in accrued interest receivable .......... 51 194
Provision for (recovery of) loan losses .......... (188) 125
Provision for (recovery of) losses on
real estate owned .............................. 134 (48)
(Increase) decrease in other assets .............. (203) 294
Increase (decrease) in income taxes payable ..... 2,123 (795)
Decrease in other liabilities .................... (82) (5,820)
------- -------
Net cash provided by operating activities ........ 6,026 1,118
------- -------
5
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
---- ----
Cash used by investing activities:
Net increase in loans .......................... (25,734) (20,478)
Purchase of mortgage-backed securities ......... -- (1,022)
Proceeds from principal repayments of
mortgage-backed securities .................... 12,879 7,453
Proceeds from maturities of investment
securities held to maturity ................... -- 10,000
Purchase of investment securities held to
maturity ...................................... (9,984) --
Proceeds from maturities of investment
securities available for sale ................. 28,082 15,509
Purchase of investment securities available
for sale ...................................... (10,000) (20,000)
Proceeds from sale of real estate owned ........ 165 213
Purchase of premises and equipment ............. (1,479) (1,036)
Proceeds from sale of premises and equipment ... 42 1
-------- --------
Net cash used by investing activities ...... (6,029) (9,360)
-------- --------
Cash provided by financing activities:
Net increase in deposits ....................... 14,091 11,391
Net change in short-term borrowings ............ (10,000) 5,000
Repayments of long-term borrowings ............. (75) (75)
Decrease in advance payments by borrowers for
taxes and insurance ........................... (12,063) (11,539)
Stock dividend paid ............................ (793) (651)
Common stock options exercised ................. 53 45
-------- --------
Net cash provided (used) by financing
activities ............................... (8,787) 4,171
-------- --------
Net decrease in cash and cash equivalents .. (8,790) (4,071)
Cash and cash equivalents - beginning of period .... 32,885 48,562
-------- --------
Cash and cash equivalents - end of period .......... $ 24,095 $ 44,491
======== ========
6
<PAGE>
HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
---- ----
Supplemental disclosures:
Cash paid for:
Interest ..................................... $ 11,762 $ 10,922
Taxes ........................................ 638 904
Noncash investing and financing activities:
Additions to real estate acquired in
settlement of loans through foreclosure .... 730 207
Sale of real estate owned financed by
the Company ................................ 210 249
Change in unrealized gain (loss) on
securities available for sale .............. 2 9
Change in deferred taxes related to
securities available for sale .............. (1) (3)
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1). BASIS OF PRESENTATION
The unaudited condensed consolidated interim financial statements for Harbor
Florida Bancorp, Inc. (the "Company") and its subsidiary Harbor Federal Savings
Bank (the "Bank") reflect all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary to present fairly
the Company's consolidated financial condition and the consolidated results of
operations and cash flows for interim periods. The results for interim periods
are not necessarily indicative of trends or results to be expected for the full
year. These condensed consolidated interim financial statements and notes should
be read in conjunction with the Company's Annual Report on Form 10-K for the
year ended September 30, 1997.
On June 25, 1997, Harbor Federal Savings Bank (the "Bank") completed its
reorganization into the two-tier form of mutual holding company ownership.
Pursuant to the reorganization, the Bank is now the wholly owned subsidiary of
Harbor Florida Bancorp, Inc. (the "Company"), a Delaware corporation. The
Company is the majority owned subsidiary of Harbor Financial, M.H.C. (the
"Holding Company"). Pursuant to the reorganization, each share of the Bank's
outstanding common stock was automatically converted into one share of the
Company's common stock. The reorganization was accounted for in a manner similar
to a pooling of interests and did not result in any significant accounting
adjustments. The consolidated financial statements for prior periods have been
restated to reflect the change in the par value of the Company's common stock
from $1.00 to $.01 per share. Certain conditions were imposed upon the Company
by the OTS as part of the reorganization, including requirements to obtain a
federal charter, provisions related to minority stock issuances, and other
regulatory requirements.
The Company conducts no business other than holding the common stock of the
Bank. Consequently, its net income is derived from the Bank.
In February, 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("Statement 128"). Statement 128 is effective for
financial statements issued for periods ending after December 15, 1997.
Statement 128 establishes standards for computing and presenting earnings per
share ("EPS"), simplifies the standards previously found in APB No. 15,
"Earnings Per Share", and makes them comparable to international EPS standards.
The Company began disclosing EPS in accordance with Statement 128 for the
quarter ended December 31, 1997 with previous periods restated. See Note 2.
In February, 1997, the FASB issued Statement of Financial Accounting Standards
No. 129, "Disclosure of Information about Capital Structure ("Statement 129".)
Statement 129 is effective for financial statements for periods ending after
December 15, 1997 and established standards for disclosing information about an
entity's capital structure. Such information has been disclosed in the Company's
financial statements and notes thereto at December 31, 1997.
In June, 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("Statement 130"). Statement 130 is
effective for fiscal years beginning after December 15, 1997. Statement 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Statement 130
requires all items recognized under accounting standards as components of
comprehensive income be reported in a financial statement with equal prominence
as other financial statements. Such statement will be presented by the Company
beginning with the quarter ended December 31, 1998.
8
<PAGE>
In June, 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 is effective for periods beginning after
December 15, 1997. Statement 131 establishes standards for the way that public
business enterprises report information about operating segments, based on how
the enterprise defines such segments. The Company is required to report
operating segment information, to the extent such segments are defined,
beginning with the year ended September 30, 1999.
2). NET INCOME PER SHARE
Net income per share was computed by dividing net income by the weighted average
number of shares of common stock outstanding during the three months ended
December 31, 1997 and 1996. Adjustments have been made, where material, to give
effect to the shares that would be outstanding, assuming the exercise of
dilutive stock options, all of which are considered common stock equivalents.
Beginning with the quarter ended December 31, 1997, net income per share has
been calculated in accordance with the provisions of Statement of Financial
Accounting Standards No. 128 "Earnings Per Share", with previous periods
restated.
Quarter Ended
December 31,
1997 1996
---- ----
Net income ..................................... $ 4,094,664 $ 3,100,620
=========== ===========
Weighted average common shares outstanding
Shares outstanding ......................... 4,973,025 4,930,820
Less uncommitted ESOP shares ............... (29,960) (59,920)
----------- -----------
Total .................................. 4,943,065 4,870,900
=========== ===========
Basic earnings per share ....................... $ 0.83 $ 0.64
=========== ===========
Weighted average common shares outstanding ..... 4,943,065 4,870,900
Additional dilutive shares related to
stock options ............................. 100,318 102,028
----------- -----------
Total weighted average common shares and
equivalents outstanding for diluted
earnings per share computation ............ 5,043,383 4,972,928
=========== ===========
Diluted earnings per share $ 0.81 $ 0.62
=========== ===========
Additional dilutive shares are calculated under the treasury stock method
utilizing the average market value of the Company's stock for the period.
9
<PAGE>
3). INVESTMENT AND MORTGAGE BACKED SECURITIES
The amortized cost and estimated market value of investment and mortgage-backed
securities as of December 31, 1997 are as follows:
Gross Gross Estimated
Amortized unreal. unreal. market
cost gains losses value
(In thousands)
Available for sale:
Treasury notes ............... $ 9,991 $ 1 $ -- $ 9,992
FHLB notes ................... 19,500 -- 10 19,490
Other securities ............. -- -- -- --
-------- ------ -------- --------
29,491 1 10 29,482
-------- ------ -------- --------
Held to maturity:
FHLB notes ................... 14,984 29 -- 15,013
-------- ------ -------- --------
FHLMC mortgage-backed
securities ............... 79,438 947 -- 80,385
FNMA mortgage-backed
securities ............... 84,504 1,301 -- 85,805
-------- ------ -------- --------
163,942 2,248 -- 166,190
-------- ------ -------- --------
$208,417 $2,278 $ 10 $210,685
======== ====== ======== ========
The amortized cost and estimated market value of investment and mortgage-backed
securities as of September 30, 1997 are as follows:
Gross Gross Estimated
Amortized unreal. unreal. market
cost gains losses value
(In thousands)
Available for sale:
Treasury notes ............... $ 17,982 $ 3 $ -- $ 17,985
FHLB notes ................... 29,500 -- 14 29,486
Other securities ............. 82 -- -- 82
-------- ------ -------- --------
47,564 3 14 47,553
-------- ------ -------- --------
Held to maturity:
FHLB notes ................... 5,000 -- 7 4,993
-------- ------ -------- --------
FHLMC mortgage-backed
securities ............... 118,951 1,250 -- 120,201
FNMA mortgage-backed
securities ............... 57,903 850 -- 58,753
-------- ------ -------- --------
176,854 2,100 -- 178,954
-------- ------ -------- --------
$229,418 $2,103 $ 21 $231,500
======== ====== ======== ========
10
<PAGE>
The amortized cost and estimated market value of debt securities at December 31,
1997 and September 30, 1997 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
DECEMBER 31, 1997 SEPTEMBER 30, 1997
----------------- ------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
---- ----- ---- -----
(In thousands)
Available for sale:
Due in one year or less ........ $ 14,491 $ 14,489 $ 22,482 $ 22,482
Due in one to five years ....... 15,000 14,993 25,000 24,989
Other securities ............... -- -- 82 82
-------- -------- -------- --------
29,491 29,482 47,564 47,553
-------- -------- -------- --------
Held to maturity:
Due in one year or less ........ -- -- -- --
Due in one to five years ....... 14,984 15,013 5,000 4,993
Other securities ............... -- -- -- --
-------- -------- -------- --------
14,984 15,013 5,000 4,993
-------- -------- -------- --------
FHLMC mortgage-backed securities 79,438 80,385 118,951 120,201
FNMA mortgage-backed securities 84,504 85,805 57,903 58,753
-------- -------- -------- --------
163,942 166,190 176,854 178,954
-------- -------- -------- --------
$208,417 $210,685 $229,418 $231,500
======== ======== ======== ========
As of December 31, 1997, the Company had pledged mortgage-backed securities with
a market value of $440,000 and a carrying value of $428,000 to collateralize the
public funds on deposit. The Company had also pledged mortgage-backed securities
with a market value of $1,932,000 and a carrying value of $1,880,000 to
collateralize Treasury, tax and loan accounts as of December 31, 1997.
11
<PAGE>
4). LOANS
Loans are summarized below: DECEMBER 31, SEPTEMBER 30,
1997 1997
---- ----
Mortgage loans: (Dollars in thousands)
Construction 1-4 family ................ $ 48,755 $ 47,800
Permanent 1-4 family ................... 647,876 629,906
Multi-family ........................... 11,552 15,326
Nonresidential ......................... 57,141 54,983
Land ................................... 34,192 33,182
-------- --------
Total mortgage loans ............... 799,516 781,197
-------- --------
Other loans:
Commercial nonmortgage ................. 12,625 11,287
Home improvement ....................... 19,657 20,614
Manufactured housing ................... 16,755 16,399
Other consumer ......................... 54,555 51,988
-------- --------
Total other loans .................. 103,592 100,288
-------- --------
Total loans receivable ............. 903,108 881,485
-------- --------
Less:
Loans in process ....................... 28,601 32,078
Deferred loan fees and discounts ....... 3,221 3,446
Allowance for loan losses .............. 11,408 11,691
-------- --------
43,230 47,215
-------- --------
Total loans receivable, net ........ $859,878 $834,270
======== ========
An analysis of the allowance for loan losses follows:
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
---- ----
(In thousands)
Beginning balance ........... $ 11,691 $ 11,016
Provision for (recovery of)
loan losses ............. (188) 125
Charge-offs ................. (108) (23)
Recoveries .................. 13 31
-------- --------
Ending balance .............. $ 11,408 $ 11,149
======== ========
At December 31, 1997 and September 30, 1997, loans with unpaid principal
balances of approximately $3,235,000 and $2,580,000, respectively, were 90 days
or more contractually delinquent or on nonaccrual status. As of December 31,
1997 and September 30, 1997, approximately $2,901,000 and $2,377,000,
respectively, of these loans were in the process of foreclosure.
As of December 31, 1997 and September 30, 1997, mortgage loans which had been
sold on a recourse basis had outstanding principal balances of approximately
$2,991,000 and $3,185,000, respectively.
12
<PAGE>
5). REAL ESTATE OWNED
Real estate owned includes the following:
DECEMBER 31, SEPTEMBER 30,
1997 1997
---- ----
(In thousands)
Real estate acquired in satisfaction
of loans .......................... $ 3,161 $ 2,892
Allowance for losses ............... (632) (578)
------- -------
$ 2,529 $ 2,314
======= =======
Activity in the allowance for losses on real estate owned is as follows:
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
---- ----
(In thousands)
Beginning balance ................. $ 578 $ 1,712
Provision for (reversal of) losses 134 (48)
Charge-offs ....................... (80) (7)
----- -------
Ending balance .................... $ 632 $ 1,657
===== =======
Provision for losses on real estate owned is included in income (losses) from
real estate operations in the consolidated statements of earnings.
Legal and consulting fees relating to real estate operations and real estate
owned are included in professional fees on the consolidated statements of
earnings.
6). STOCK OFFERING
On August 27, 1997, the Company and the Bank announced that the Board of
Directors of their mutual holding company, Harbor Financial, M.H.C. (the "Mutual
Holding Company") had determined to convert the Mutual Holding Company to a
capital stock corporation. The Mutual Holding Company is a federally chartered
mutual holding company, and owns 2,654,369 shares, or approximately 53%, of the
issued and outstanding shares of common stock of the Company, which in turn owns
100% of the issued and outstanding capital stock of the Bank, a federally
chartered savings bank.
Upon the completion of the conversion of the Mutual Holding Company,
stockholders of the Company's common stock will receive shares of Harbor Florida
Bancshares Inc. ("Bancshares"), a newly formed Delaware corporation, common
stock so that they will maintain approximately the same percentage ownership of
Bancshares after the conversion as they held in the Company before the
conversion. Additional Bancshares common stock will be offered for sale to
depositors of the Bank, stockholders of the Company and to the public in a
community offering.
The conversion is subject to regulatory approval as well as the approval of the
Mutual Holding Company's members and the Company's stockholders. The Mutual
Holding Company has filed an application on Form AC with the Office of Thrift
Supervision. This application has been approved subject to certain conditions.
13
<PAGE>
The Company has filed a registration statement on Form S-1 with the Securities
and Exchange Commission. This registration statement has been declared effective
on January 27, 1998. The conversion is expected to be completed in the first
quarter of 1998.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
- -------------------------------------------------
This report contains certain "forward-looking statements." The Company desires
to take advantage of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 and is including this statement for the express
purpose of availing itself of the protections of the safe harbor with respect to
all such forward-looking statements. These forward-looking statements, which are
included in Management's Discussion and Analysis, describe future plans or
strategies and include The Company's expectations of future financial results.
The words "believe," "expect," "anticipate," "estimate," "project," and similar
expressions identify forward-looking statements. The Company's ability to
predict results or the effect of future plans or strategies or qualitative or
quantitative changes based on market risk exposure is inherently uncertain.
Factors which could affect actual results include but are not limited to i)
change in general market interest rates, ii) general economic conditions, iii)
legislative/regulatory changes, iv) monetary and fiscal policies of the U.S.
Treasury and the Federal Reserve, v) changes in the quality or composition of
the Company's loan and investment portfolios, vi) demand for loan products, vii)
deposit flows, viii) competition, ix) demand for financial services in the
Company's markets, and x) changes in the accounting principles, policies, and
guidelines. These factors should be considered in evaluating the forward-looking
statements, and undue reliance should not be placed on such statements.
RESULTS OF OPERATIONS
- ---------------------
Comparison of quarterly results in this section are between the three months
ended December 31, 1997 and December 31, 1996.
GENERAL. Net income for the first fiscal quarter ended December 31, 1997,
increased 32.1% to $4.1 million or 81 cents per share (diluted), compared to
$3.1 million or 62 cents per share (diluted) for the same period last year. This
increase was due primarily to nonrecurring income of $978,000, after tax,
recognized on the payoff of a problem commercial real estate loan and on the
sale of the Company's ownership interest in its data processing servicer.
Beginning December 31, 1997, net income per share has been calculated in
accordance with the provisions of Statement of Financial Accounting Standards
No. 128 "Earnings Per Share". Net income per share for the period ended December
31, 1996 has been restated to conform to this standard.
NET INTEREST INCOME. Net interest income increased to $11.3 million for the
quarter ended December 31, 1997, from $9.6 million for the same period last
year. This increase was due primarily to an increase in average interest-earning
assets to $1.104 billion for the quarter ended December 31, 1997, compared to
$1.035 billion for the comparable period in 1996 and $874,000 of interest income
recognized on the payoff of the problem commercial real estate loan. The
increase in average interest-earning assets was due primarily to the growth in
loans. In the quarter ending December 31, 1997, the Company received final
payment on a commercial real estate loan. This loan was performing, but had been
seriously delinquent in the past and had other characteristics which caused
management to be uncertain about the ability of the borrower to comply with the
loan repayment terms. Additional interest income was recognized in the amount of
$874,000 due to deferred cash interest payments and unearned purchase discount
remaining at time of payoff.
PROVISION FOR LOAN LOSSES. The provision for loan losses is charged to
operations to bring the total allowance for loan losses to a level considered
appropriate by management based on historical experience, volume and type of
lending conducted by the Company, industry standards, the status of past due and
non-performing loans, the general economic conditions of the Company's lending
area and other factors affecting collectibility
15
<PAGE>
of the Company's loan portfolio. Provision for loan losses was a credit of
$188,000 for the quarter ended December 31, 1997, compared to an expense of
$125,000 for the comparable period in 1996. The credit to the provision for loan
losses for the quarter ended December 31, 1997 was principally comprised of a
credit to the provision of $400,000 related to a decrease in the level of
classified loans due primarily to the payoff of two commercial real estate
loans. This credit was partially offset by a charge to the provision of
approximately $200,000 due to loan growth, primarily in the commercial real
estate and consumer loan portfolios. The provision for the quarter ended
December 31, 1996 was due primarily to an increase in the level of classified
loans due mainly to the downgrade of one commercial real estate loan and an
increase in residential loan delinquencies. While the Company's management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions.
OTHER INCOME. Other income increased to $1.6 million for the quarter ended
December 31, 1997, from $994,000 for the same period last year due primarily to
the $719,000 gain on the sale of the Company's ownership interest in its data
processing servicer somewhat offset by an increase of $141,000 in loss from real
estate operations. Loss from real estate operations was $143,000 for the quarter
ended December 31, 1997, compared to a loss of $2,000 in the comparable period
in 1996. The loss for the quarter ended December 31, 1997 was primarily due to a
$134,000 provision for losses on real estate owned.
OTHER EXPENSE. Other expenses increased to $6.1 million for the quarter ended
December 31, 1997, from $5.3 million for the same period last year due primarily
to an increase of $482,000 in compensation and benefits and an increase of
$317,000 in occupancy expense. The increase in compensation and benefits is due
primarily to additional staff required to support the growth in loans and
deposits and an increase in amortization of stock benefit plans due to the
increase in the Company's stock price. The increase in occupancy expense is due
primarily to an increase in data processing expense.
INCOME TAXES. Income tax expense increased to $2.8 million for the quarter ended
December 31, 1997, from $2.1 million for the same period last year. The
effective tax rate remained constant at 40% for both the quarters ended December
31, 1997 and 1996.
FINANCIAL CONDITION
- -------------------
Total assets decreased to $1.129 billion at December 31, 1997, from $1.131
billion at the fiscal year ended September 30, 1997. The decrease is due
primarily to the funding of annual property tax payments from borrowers escrow
accounts and the maturity of FHLB advances offsetting the growth in net loans
and deposits.
Interest bearing deposits in other banks decreased to $4.0 million at December
31, 1997, from $15.7 million at September 30, 1997. The decrease is due
primarily to the funding of annual property tax payments from borrowers escrow
accounts.
Investment securities held to maturity increased to $15.0 million at December
31, 1997, from $5.0 million at September 30, 1997. The increase is due to the
purchase of $10.0 million FHLB Notes.
Investment securities available for sale decreased to $29.5 million at December
31, 1997, from $47.6 million at September 30, 1997. The decrease is due
primarily to the purchase of a $10.0 million FHLB Note offset by the maturity of
a $8.0 U.S.Treasury Note and the call prior to maturity of $20.0 million FHLB
Notes.
16
<PAGE>
Mortgage-backed securities decreased to $163.9 million at December 31, 1997,
from $176.9 million at September 30, 1997. The decrease is due to repayments.
Net loans increased to $859.9 million at December 31, 1997, from $834.3 million
at September 30, 1997. The increase is due primarily to loan originations of
$78.5 million partially offset by repayments of $54.2 million.
Deposits increased to $925.7 million at December 31, 1997, from $911.6 million
at September 30, 1997. The increase is due primarily to a net increase in
deposits before interest credited of $5.1 million and interest credited of $9.0
million.
FHLB advances decreased to $90.0 million at December 31, 1997, from $100.0
million at September 30, 1997. The decrease is due to a new short-term fixed
rate advance of $10.0 million taken in order to fund the purchase of a $10.0
million FHLB Note offset by the maturity of $20.0 million short-term fixed rate
advances taken in order to fund the purchase of $20.0 million FHLB Notes.
Stockholders' equity increased to $100.8 million at December 31, 1997 from $96.8
million at September 30, 1997, due primarily to $4.1 million of earnings for the
quarter. At December 31, 1997, the Bank exceeded all regulatory capital
requirements as follows:
Required Actual
Excess of Actual
% of %of over Regulatory
Amount Assets Amount Assets Requirements
------ ------ ------ ------ ------------
(Dollars in thousands)
Tangible Capital $16,891 1.50% $86,604 7.69% $69,713
Core Capital $33,783 3.00% $86,604 7.69% $52,821
Risk-Based Capital $48,572 8.00% $94,239 15.52% $45,667
CASH FLOW
- ---------
Net cash provided by the Company's operating activities (i.e. cash items
affecting net income) was $6.0 million and $1.1 million for the quarters ended
December 31, 1997 and 1996, respectively.
Net cash used by the Company's investing activities (i.e. cash receipts
primarily from its investment securities, mortgage-backed securities and loan
portfolios) was $6.0 million and $9.4 million for the quarters ended December
31, 1997 and 1996, respectively.
Net cash provided (used) by the Company's financing activities (i.e. cash
receipts primarily from net increases (decreases) in deposits and net FHLB
advances) was $(8.8) million and $4.2 million for the quarters ended December
31, 1997 and 1996, respectively.
MARKET RISK AND ASSET AND LIABILITY MANAGEMENT
- ----------------------------------------------
During the quarter ended December 31, 1997, long term interest rates declined.
Specifically, the ten-year treasury rate decreased by 36 basis points during
this period. A decline in long term interest rates of this magnitude could
affect the interest rate sensitivity of the Bank. Absent changes in other market
factors,
17
<PAGE>
management anticipates the Bank's long term mortgage loans will be refinanced at
an accelerated pace if interest rates continue to fall. There is no assurance
that the Bank will be able to reinvest the proceeds from the additional
prepayments in mortgage loans or other assets with comparable risks and yields
as those that were prepaid.
A decrease in market interest rates could have the effect of lowering the
interest rates paid on the Bank's deposits and borrowings, assuming the Bank is
able to retain and attract deposits and obtain borrowings at the lower market
rate.
18
<PAGE>
ASSET QUALITY
- -------------
Loans 90 days past due are generally placed on non-accrual status. The Company
ceases to accrue interest on a loan once it is placed on non-accrual status, and
interest accrued but unpaid at the time is charged against interest income.
Additionally, any loan where it appears evident that the collection of interest
is in doubt is also placed on a non-accrual status. The Company carries real
estate owned at the lower of cost or fair value, less cost to dispose.
Management regularly reviews assets to determine proper valuation.
The following table sets forth information regarding the Company's non-accrual
loans and foreclosed real estate at the dates indicated:
December 31 September 30,
1997 1997
---- ----
(Dollars in thousands)
Non-accrual mortgage loans:
Delinquent less than 90 days $ -- $ --
Delinquent 90 days or more 2,920 2,416
---------- ----------
Total 2,920 2,416
---------- ----------
Non-accrual other loans:
Delinquent less than 90 days -- --
Delinquent 90 days or more 285 164
---------- ----------
Total 285 164
---------- ----------
Total non-accrual loans 3,205 2,580
Accruing loans 90 days or more delinquent 30 --
---------- ----------
Total nonperforming loans 3,235 2,580
Real estate owned, net of related allowance 2,529 2,314
---------- ----------
Total non-performing assets $ 5,764 $ 4,894
========== ==========
Non-performing loans to total net loans .38% .31%
Total non-performing assets to total assets .51% .43%
Allowance for loan losses to total loans 1.33% 1.40%
Allowance for loan losses to non-performing loans 355.95% 453.11%
Allowance for loan losses to classified loans 125.60% 117.51%
Allowance for losses on real estate owned to total
real estate owned 19.99% 19.99%
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are various claims and lawsuits in which The Company and the Bank are
periodically involved incident to the business of The Company and the Bank. In
the opinion of management, no material loss is anticipated from any such pending
claims or lawsuits. The most significant of these lawsuits is described below.
The Company and certain other entities are defendants in a class action lawsuit
which was filed in May, 1991. The plaintiffs in the litigation are purchasers of
parcels of developed and undeveloped land from General Development Corporation
("GDC") who allege that GDC, through fraudulent means, induced them to buy land
at inflated values. The Company is a defendant in this matter along with a
number of other financial institutions, purchasers of loans in the secondary
market, broker dealers, an insurance company and numerous other individuals and
companies. The involvement of the Company arises from its purchase from GDC of
land sales contracts originated by GDC. The Company, along with the other
defendants, filed a motion to dismiss the case which was granted. The plaintiffs
filed an appeal with the Third Circuit Court of Appeals which remanded the case
to the District Court for reconsideration. The District Court entered its order
dismissing the case again.
The plaintiffs filed a motion requesting the District Court to amend the
dismissal order to permit the plaintiffs to file another amended complaint. The
District Court denied the plaintiff's motion. The plaintiffs appealed that order
to the Third Circuit and both sides were directed to submit supplementary
briefs. Management believes that the position of the plaintiffs is without
merit.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None
20
<PAGE>
ITEM 5. OTHER INFORMATION.
On August 27, 1997, the Company and the Bank announced that the Board of
Directors of their mutual holding company, Harbor Financial, M.H.C. (the "Mutual
Holding Company") had determined to convert the Mutual Holding Company to a
capital stock corporation. The Mutual Holding Company is a federally chartered
mutual holding company, and owns 2,654,369 shares, or approximately 53%, of the
issued and outstanding shares of common stock of the Company, which in turn owns
100% of the issued and outstanding capital stock of the Bank, a federally
chartered savings bank.
Upon the completion of the conversion of the Mutual Holding Company,
stockholders of the Company's common stock will receive shares of Harbor Florida
Bancshares Inc. ("Bancshares"), a newly formed Delaware corporation, common
stock so that they will maintain approximately the same percentage ownership of
Bancshares after the conversion as they held in the Company before the
conversion. Additional Bancshares common stock will be offered for sale to
depositors of the Bank, stockholders of the Company and to the public in a
community offering.
The conversion is subject to regulatory approval as well as the approval of the
Mutual Holding Company's members and the Company's stockholders. The Mutual
Holding Company has filed an application on Form AC with the Office of Thrift
Supervision. This application has been approved subject to certain conditions.
The Company has filed a registration statement on Form S-1 with the Securities
and Exchange Commission. This registration statement has been declared effective
on January 27, 1998. The conversion is expected to be completed in the first
quarter of 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following Exhibits are included with this Report or are incorporated into
this Report by reference, as indicated:
Exhibit
Number Description
10(i) Employment contract with Michael J. Brown, Sr. (Exhibit 10(a)
to the Registration Statement on Form S-4 filed December 20,
1996.
10(ii) Recognition and Retention Plan and Trust Agreement
(Exhibit 10(d) to the Registration Statement on
Form S-4 filed December 20, 1996.
10(iii) Outside Directors' Recognition and Retention Plan and
Trust Agreement(Exhibit 10(e) to the Registration Statement
on Form S-4 filed December 20, 1996.
10(iv) 1994 Incentive Stock Option Plan (Exhibit 10(b) to
the Registration Statement on Form S-4 filed
December 20, 1996.
21
<PAGE>
10(v) 1994 Stock Option Plan for Outside Directors (Exhibit 10(c)
to the Registration Statement on Form S-4 filed December 20,
1996.
10(vi) Harbor Federal Savings Bank Non-Employee Directors'
Retirement Plan (Exhibit 10(vi) to Form 10-Q for the quarter
ended June 30, 1997 filed August 11, 1997)
10(vii) Unfunded Deferred Compensation Plan for Directors (Exhibit
10(vii) to Form 10-Q for the quarter ended June 30, 1997
filed August 11, 1997)
10(viii) Management Incentive Compensation Plan for fiscal year ending
September 30, 1998
(b) Reports on Form 8-K.
None.
22
<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 FLORIDA BANCORP, INC.
Date: February 11, 1997 /s/
-----------------------
Michael J. Brown, Sr.
President and Chief Executive Officer
Date: February 11, 1997 /s/
------------------------
Don W. Bebber
Senior Vice President, Finance and
Principal Financial Officer
23
MANAGEMENT INCENTIVE COMPENSATION PLAN - FY 98
PURPOSE
- -------
The purpose of the Plan is to provide an incentive for extraordinary
performance by those management personnel who, individually and collectively as
a management team, have the greatest influence over the financial success of the
Bank.
In addition to its primary purpose, the Plan is designed to accomplish
other important objectives of the Bank including:
- fostering teamwork and cooperation among management personnel;
- helping to retain, and encourage commitment on the part of management
and key personnel; and
- setting high goals and increasing returns to shareholders.
ADMINISTRATION
- --------------
The Plan shall be administered by the Compensation Committee of the Bank's
Board of Directors.
PARTICIPANTS
- ------------
Participation is at the discretion of Senior Management, but is limited to
management personnel who report directly to either a Senior Vice President, the
President, or the Board of Directors during Fiscal Plan Year 1998. Participants
must be actively employed in this capacity on the date the incentive is paid to
be eligible to receive the full award. Those participants who are no longer
"direct reports" on the date the incentive is paid, may be eligible for a
partial award, depending upon the circumstances. Those participants promoted
into this category during the Fiscal year may receive a pro-rated amount of any
incentive compensation awarded.
BANK PERFORMANCE GOALS
- ----------------------
Performance goals to be determined by the Board of Directors.
CALCULATION OF INCENTIVE AWARDS
- -------------------------------
Incentive compensation awards are calculated based on the attainment of
either the first goal or both goals. Meeting goal #1 constitutes an award of 5%
of salary for those participating management personnel. Attainment of both goals
would mean a 10% incentive award.
NOT AN EMPLOYMENT CONTRACT
- ----------------------------
Nothing contained in the Plan shall give any Employee the right to be
retained in the employment of the Bank or affect the right of the Bank to
dismiss any Employee. The adoption of the Plan shall not constitute a contract
between the Bank and any Employee.
<PAGE>
FINAL REVIEW AND APPROVAL BY COMPENSATION COMMITTEE
- ---------------------------------------------------
The Compensation Committee will review the Bank's results for the year, to
determine whether the Plan goals should be adjusted for the purpose of the
Management Incentive Plan. If extraordinary events distort the results, it will
be at the Committee's sole discretion to modify those results to determine
whether the bonus should be paid. The budget will be a gauge in determining what
is an extraordinary event.
The budget is based on the conversion occurring during the last part of
January 1998, or the first part of February 1998. A significant shift in that
time table would constitute a change in the budget.
The Compensation Committee reserves the right to amend or terminate the
plan should the Bank encounter unforeseen or extraordinary circumstances which
impact the financial stability/profitability of the Bank.
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