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: June 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 000-22817
HARBOR FLORIDA BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 65-0813766
(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 July 31, 1998 there were 30,909,830 shares of the Registrant's
common stock outstanding.
<PAGE>
HARBOR FLORIDA BANCSHARES, INC.
TABLE OF CONTENTS
Part I. Financial Information Page
Item 1. Financial Statements
Condensed Consolidated Statements of Financial
Condition as of June 30, 1998 and
September 30, 1997 (Unaudited)..............................2
Condensed Consolidated Statements of Earnings
for the Three Months and Nine Months ended
June 30, 1998 and 1997 (Unaudited)..........................3
Condensed Consolidated Statements of Stockholders'
Equity for the Nine Months ended June 30, 1998
and 1997 (Unaudited)........................................4
Condensed Consolidated Statements of Cash Flows
for the Nine Months ended June 30, 1998 and
1997 (Unaudited)............................................5
Notes to Condensed Consolidated Financial
Statements (Unaudited)......................................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................15
Item 3. Quantitative and Qualitative Disclosures about
Market Risk and Asset and Liability Management.............19
Part II. Other Information
Item 1. Legal Proceedings..........................................19
Item 2. Changes in Securities and Use of Proceeds..................19
Item 3. Defaults Upon Senior Securities............................19
Item 4. Submission of Matters to a Vote of Security-Holders........20
Item 5. Other Information..........................................20
Item 6. Exhibits and Reports on Form 8-K...........................20
Signature Page.............................................22
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Dollars in thousands)
JUNE 30, SEPTEMBER 30,
1998 1997
----- ----
Assets
Cash and amounts due from depository
institutions..............................$ 26,441 $ 16,899
Interest-bearing deposits in other banks..... 20,383 15,736
Federal funds sold........................... 20,000 250
Investment securities held to maturity....... 29,987 5,000
Investment securities available for sale..... 74,392 47,553
Mortgage-backed securities held to maturity.. 193,704 176,854
Loans held for sale.......................... 707 141
Loans, net................................... 915,378 834,270
Accrued interest receivable.................. 8,235 7,033
Real estate owned............................ 2,349 2,314
Premises and equipment....................... 15,529 13,313
Federal Home Loan Bank stock................. 8,212 7,595
Goodwill..................................... 2,878 3,045
Other assets................................. 597 1,021
--------- ---------
Total .................................... $1,318,792 $1,131,024
========= =========
Liabilities and Stockholders' Equity
Deposits.................................... $ 915,169 $ 911,576
Short-term borrowings....................... --- 30,100
Long-term debt.............................. 125,000 70,375
Advance payments by borrowers for taxes
and insurance.. ......................... 13,217 15,924
Income taxes payable........................ 795 628
Other liabilities........................... 5,985 5,619
--------- ----------
Total liabilities......................... 1,060,166 1,034,222
--------- ----------
Preferred stock ($.10 par value; authorized
10,000,000 shares; none issued and
outstanding).................... --- ---
Common stock ($.10 par value; authorized
70,000,000 shares; issued and outstanding
30,739,518 shares at June 30, 1998 and
30,522,862 shares at September 30, 1997) 3,074 3,052
Paid-in capital.............................. 189,211 23,874
Retained earnings............................ 80,719 71,203
Common stock purchased by:
Employee stock ownership plan (ESOP)....... (13,419) (374)
Deferred compensation plan................. (941) (946)
Unrealized loss on investment securities
available for sale, net.................. (18) (7)
--------- ---------
Total stockholders' equity............... 258,626 96,802
--------- ---------
Total ................................... $1,318,792 $1,131,024
========= =========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans ................................ $ 19,020 $ 17,465 $ 56,754 $ 51,026
Investment securities ................ 1,547 1,055 3,262 2,835
Mortgage-backed securities ........... 2,792 2,532 8,268 7,354
Other ................................ 956 502 1,859 1,590
-------- -------- -------- --------
Total interest income ............. 24,315 21,554 70,143 62,805
-------- -------- -------- --------
Interest expense:
Deposits ............................. 9,915 9,940 30,221 28,941
Other ................................ 1,460 1,507 4,380 4,441
-------- -------- -------- --------
Total interest expense ............ 11,375 11,447 34,601 33,382
-------- -------- -------- --------
Net interest income ............... 12,940 10,107 35,542 29,423
Provision for (recovery of) loan losses (231) 205 232 456
-------- -------- -------- --------
Net interest income after provision
for (recovery of) loan losses 13,171 9,902 35,310 28,967
-------- -------- -------- --------
Other income:
Other fees and service charges ....... 1,024 788 2,937 2,478
Income (losses) from real estate
operations ......................... 156 68 (49) 23
Gain on sale of mortgage loans ....... 40 98 100 135
Other ................................ 667 87 1,565 259
-------- -------- -------- --------
Total other income ................ 1,887 1,041 4,553 2,895
-------- -------- -------- --------
Other expenses:
Compensation and employee benefits ... 3,595 2,968 10,513 8,864
Occupancy ............................ 776 715 2,576 2,100
Professional fees .................... 138 223 417 485
SAIF deposit insurance premium ....... 143 138 431 645
Other ................................ 1,335 1,274 4,095 3,612
-------- -------- -------- --------
Total other expense ............... 5,987 5,318 18,032 15,706
-------- -------- -------- --------
Income before income taxes ........ 9,071 5,625 21,831 16,156
Income tax expense ..................... 3,736 2,209 9,012 6,339
-------- -------- -------- --------
Net income ........................ $ 5,335 $ 3,416 $ 12,819 $ 9,817
======== ======== ======== ========
Net income per share
Basic .......................... $ 0.18 $ 0.11 $ 0.43 $ 0.32
======== ======== ======== ========
Diluted ........................ $ 0.18 $ 0.11 $ 0.42 $ 0.32
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(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>
Nine months ended June 30, 1997
Balance at September 30, 1996 ........ $ 3,029 $ 22,359 $ 60,893 $ (674) $ (53) $ (673) $ (49) $ 84,832
Net income ........................... -- -- 9,817 -- -- -- -- 9,817
Stock options exercised .............. 21 337 -- -- -- -- -- 358
Amortization of award of
ESOP and RRP shares ............. -- 562 -- 225 53 -- -- 840
Tax benefit of RRP's ................. -- 193 -- -- -- -- -- 193
Dividends paid ....................... -- -- (2,226) -- -- -- -- (2,226)
Change in unrealized gain
(loss) on securities
available for sale, net ......... -- -- -- -- -- -- 6 6
Tax benefit of stock options ......... -- 99 -- -- -- -- -- 99
Stock purchased by deferred
compensation plan ............... -- -- -- -- -- (213) -- (213)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1997 ............. $ 3,050 $ 23,550 $ 68,484 $ (449) $ -- $ (886) $ (43) $ 93,706
--------- --------- --------- --------- --------- --------- --------- ---------
Nine months ended June 30, 1998
Balance at September 30, 1997 ........ $ 3,052 $ 23,874 $ 71,203 $ (374) $ -- $ (946) $ (7) $ 96,802
Net income ........................... -- -- 12,819 -- -- -- -- 12,819
Reorganization of MHC ................ -- -- 200 -- -- -- -- 200
Proceeds of stock offering ........... -- 163,533 -- -- -- -- -- 163,533
Issue ESOP shares .................... -- -- -- (13,269) -- -- -- (13,269)
Stock options exercised .............. 22 351 -- -- -- -- -- 373
Amortization of award of
ESOP shares ..................... -- 1,323 -- 224 -- -- -- 1,547
Dividends paid ....................... -- -- (3,503) -- -- -- -- (3,503)
Change in unrealized gain
(loss) on securities
available for sale, net ......... -- -- -- -- -- -- (11) (11)
Tax benefit of stock options ......... -- 130 -- -- -- -- -- 130
Distribution of stock by
deferred compensation
plan ........................... -- -- -- -- -- 80 -- 80
Stock purchased by deferred
compensation plan .............. -- -- -- -- -- (75) -- (75)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1998 ............. $ 3,074 $ 189,211 $ 80,719 $ (13,419) $ -- $ (941) $ (18) $ 258,626
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
1998 1997
---- ----
<S> <C> <C>
Cash provided by operating activities:
Net income ................................................................. $12,819 $ 9,817
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of stock benefit plans .................................... 1,547 840
Tax benefit of stock plans credited to capital ......................... 130 292
Originations of loans held for sale .................................... (7,197) (3,939)
Proceeds from sale of loans held for sale .............................. 6,631 5,719
Depreciation and amortization .......................................... 922 820
Deferred income tax provision .......................................... 43 1,787
Increase in deferred loan fees and costs ............................... 1,304 830
Amortization of deferred loan fees and costs ........................... (881) (668)
Gain on sale of premises and equipment ................................. (594) --
Amortization of goodwill ............................................... 167 180
Net (accretion) amortization of other purchase accounting
adjustments .......................................................... 60 (32)
Gain on sale of real estate owned ...................................... (93) (95)
Accretion of discount on purchased loans ............................... (347) (12)
Increase in accrued interest receivable ................................ (1,202) (484)
Provision for loan losses .............................................. 232 456
Provision for (recovery of) losses on real estate owned ................ 89 (20)
Increase in other assets ............................................... 424 98
Increase (decrease) in income taxes payable ............................ 166 (43)
Increase (decrease) in other liabilities ............................... 410 (5,573)
--- ---
Net cash provided by operating activities .............................. 14,630 9,973
</TABLE>
5
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
--------
1998 1997
---- ----
<S> <C> <C>
Cash used by investing activities:
Net increase in loans ........................................................ (82,818) (52,686)
Purchase of mortgage-backed securities ....................................... (70,287) (31,843)
Proceeds from principal repayments of mortgage-backed securities ............. 53,299 28,438
Proceeds from maturities of investment securities held to maturity ........... 5,000 20,000
Purchase of investment securities held to maturity ........................... (29,983) (15,000)
Proceeds from maturities of investment securities available for sale ......... 43,082 15,528
Purchase of investment securities available for sale ......................... (69,913) (29,500)
Proceeds from sale of real estate owned ...................................... 1,314 1,587
Purchase of premises and equipment ........................................... (4,043) (2,404)
Proceeds from sale of premises and equipment ................................. 1,606 1
FHLB stock purchase .......................................................... (617) (437)
Other ........................................................................ -- 306
------- ------
Net cash used by investing activities .................................... (153,360) (66,010)
------- ------
Cash provided by financing activities:
Net increase in deposits ..................................................... 3,792 53,143
Net change in short-term borrowings .......................................... (30,400) 5,000
Repayments of long-term borrowings ........................................... (75) (225)
Net proceeds from long-term borrowings ....................................... 55,000 --
Decrease in advance payments by borrowers for taxes and
insurance ................................................................ (2,707) (3,601)
Dividends paid ............................................................... (3,503) (2,226)
Common stock options exercised ............................................... 373 358
Purchase of common stock by deferred compensation plan ....................... (75) (213)
Net proceeds from issuance of common stock ................................... 150,264 --
------- ----
Net cash provided by financing activities ................................ 172,669 52,236
------- ------
Net increase (decrease) in cash and cash equivalents ..................... 33,939 (3,801)
Cash and cash equivalents - beginning of period .................................. 32,885 48,562
------ ------
Cash and cash equivalents - end of period ........................................ $ 66,824 $ 44,761
========= =========
</TABLE>
6
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
NINE MONTHS ENDED
JUNE 30,
--------
1998 1997
---- ----
<S> <C> <C>
Supplemental disclosures: .......................................................... $ 34,517 $ 33,388
Cash paid for:
Interest
Taxes ...................................................................... 8,672 4,303
Noncash investing and financing activities:
Additions to real estate acquired in settlement of loans through
foreclosure .............................................................. 1,731 2,200
Sale of real estate owned financed by the Company .......................... 387 950
Change in unrealized gain (loss) on securities available for sale .......... (18) 10
Change in deferred taxes related to securities available for sale .......... 7 (4)
Issuance of ESOP common stock .............................................. 13,269 --
Reorganization of Harbor Financial, MHC .................................... 200 --
Distribution of deferred compensation plan ................................. 80 --
Transfer to short-term borrowings from long-term debt ...................... 300 --
</TABLE>
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 Bancshares, 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 March 18, 1998, the Company completed its reorganization and stock offering
in connection with the conversion of Harbor Financial, M.H.C. The Company sold
16,586,752 shares of common stock for $10.00 per share in a Subscription
Offering (the "Offering"). Cash proceeds after costs and funding of the ESOP was
approximately $150 million. The Company also issued 14,112,400 exchange shares
(exchange ratio of 6.0094 to 1) to existing Harbor Florida Bancorp, Inc. public
stockholders (the "Exchange"). Total number of shares of common stock
outstanding following the Offering and Exchange was 30,699,152. The
reorganization was accounted for in a manner similar to a pooling of interest
and did not result in any significant accounting adjustments. As a result of the
reorganization, the consolidated financial statements for prior periods have
been restated to reflect the changes in the par value of the Company's stock
from $.01 to $.10 per share and in the number of authorized shares of common
stock from 13,000,000 to 70,000,000.
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 June 30, 1998.
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.
In June, 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement
133"). Statement 133 is effective for fiscal years beginning after June 15,
1999, with earlier adoption permitted. Statement 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. It
is currently anticipated that the Company will adopt Statement 133 on October 1,
1999, and that the statement will not have a significant financial statement
impact upon adoption.
9
<PAGE>
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 and nine
months ended June 30, 1998 and 1997. 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.
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
--------------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income ................................... $ 5,335,328 $ 3,415,861 $ 12,818,928 $ 9,817,202
============ ============ ============ ============
Weighted average common shares outstanding:
Shares outstanding ....................... 30,731,364 30,488,332 30,651,708 30,398,269
Less weighted average uncommitted
ESOP shares .......................... (1,446,473) (299,496) (675,637) (344,513)
------------ ------------ ------------ ------------
Total ................................ 29,284,891 30,188,836 29,976,071 30,053,756
============ ============ ============ ============
Basic earnings per share ..................... $ 0.18 $ 0.11 $ 0.43 $ 0.32
============ ============ ============ ============
Weighted average common shares
outstanding .............................. 29,284,891 30,188,836 29,976,071 30,053,756
Additional dilutive shares related to
stock options ............................ 450,671 552,367 514,388 582,809
------------ ------------ ------------ ------------
Total weighted average common shares
and equivalents outstanding for
diluted earnings per share
computation .............................. 29,735,562 30,741,203 30,490,459 30,636,565
============ ============ ============ ============
Diluted earnings per share $ 0.18 $ 0.11 $ 0.42 $ 0.32
============ ============ ============ ============
</TABLE>
Additional dilutive shares are calculated under the treasury stock method
utilizing the average market value of the Company's stock for the period.
10
<PAGE>
3). INVESTMENT AND MORTGAGE BACKED SECURITIES
The amortized cost and estimated market value of investment and mortgage-backed
securities as of June 30, 1998 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(In thousands)
Available for sale:
FHLB notes .................. $ 54,500 $ 8 $ -- $ 54,508
FNMA notes .................. 19,921 -- 37 19,884
-------- -------- -------- --------
74,421 8 37 74,392
-------- -------- -------- --------
Held to maturity:
FHLB notes .................. 19,987 51 -- 20,038
FNMA notes .................. 10,000 0 2 9,998
-------- -------- -------- --------
29,987 51 2 30,036
-------- -------- -------- --------
FHLMC mortgage-backed
securities .............. 76,815 661 -- 77,476
FNMA mortgage-backed
securities .............. 116,889 1,110 -- 117,999
-------- -------- -------- --------
193,704 1,771 -- 195,475
-------- -------- -------- --------
$298,112 $ 1,830 $ 39 $299,903
======== ======== ======== ========
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 87,840 999 --- 88,839
FNMA mortgage-backed
securities 89,014 1,101 --- 90,115
------- ------ ---- -------
176,854 2,100 --- 178,954
------- ------ ---- -------
$229,418 $ 2,103 $ 21 $231,500
======= ===== === =======
11
<PAGE>
The amortized cost and estimated market value of debt securities at June 30,
1998 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.
JUNE 30, 1998 SEPTEMBER 30, 1997
------------- ------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
(In thousands)
Available for sale:
Due in one year or less $ 4,500 $ 4,501 $ 22,482 $ 22,482
Due in one to five years 69,921 69,891 25,000 24,989
Other securities -- -- 82 82
-------- -------- -------- --------
74,421 74,392 47,564 47,553
-------- -------- -------- --------
Held to maturity:
Due in one year or less -- -- -- --
Due in one to five years 29,987 30,036 5,000 4,993
Other securities -- -- -- --
-------- -------- -------- --------
29,987 30,036 5,000 4,993
-------- -------- -------- --------
FHLMC mortgage-backed securities 76,815 77,476 87,840 88,839
FNMA mortgage-backed securities 116,889 117,999 89,014 90,115
-------- -------- -------- --------
193,704 195,475 176,854 178,954
-------- -------- -------- --------
$298,112 $299,903 $229,418 $231,500
======== ======== ======== ========
As of June 30, 1998, the Company had pledged mortgage-backed securities with a
market value of $377,000 and a carrying value of $368,000 to collateralize the
public funds on deposit. The Company had also pledged mortgage-backed securities
with a market value of $1,673,000 and a carrying value of $1,626,000 to
collateralize Treasury, tax and loan accounts as of June 30, 1998.
12
<PAGE>
4). LOANS
Loans are summarized below: JUNE 30, SEPTEMBER 30,
1998 1997
---- ----
Mortgage loans: (Dollars in thousands)
Construction 1-4 family $ 62,203 $ 47,800
Permanent 1-4 family 688,348 629,906
Multi-family 11,613 15,326
Nonresidential 77,314 54,983
Land 27,832 33,182
-------- --------
Total mortgage loans 867,310 781,197
-------- --------
Other loans:
Commercial nonmortgage 15,144 11,287
Home improvement 18,824 20,614
Manufactured housing 16,473 16,399
Other consumer 57,016 51,988
-------- --------
Total other loans 107,457 100,288
-------- --------
Total loans receivable 974,767 881,485
-------- --------
Less:
Loans in process 44,102 32,078
Deferred loan fees and discounts 3,511 3,446
Allowance for loan losses 11,776 11,691
-------- --------
59,389 47,215
-------- --------
Total loans receivable, net $915,378 $834,270
======== ========
An analysis of the allowance for loan losses follows:
THREE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands)
Beginning balance $ 11,970 $ 11,280 $ 11,691 $ 11,016
Provision for (recovery of)
loan losses (231) 205 232 456
Charge-offs (84) (112) (370) (184)
Recoveries 121 35 223 120
-------- -------- -------- --------
Ending balance $ 11,776 $ 11,408 $ 11,776 $ 11,408
======== ======== ======== ========
At June 30, 1998 and September 30, 1997, loans with unpaid principal balances of
approximately $3,306,000 and $2,580,000, respectively, were 90 days or more
contractually delinquent or on nonaccrual status. As of June 30, 1998 and
September 30, 1997, approximately $2,630,000 and $2,377,000, respectively, of
these loans were in the process of foreclosure.
13
<PAGE>
As of June 30, 1998 and September 30, 1997, mortgage loans which had been sold
on a recourse basis had outstanding principal balances of approximately
$2,436,000 and $3,185,000, respectively.
5). REAL ESTATE OWNED
Real estate owned includes the following:
JUNE 30, SEPTEMBER 30,
1998 1997
---- ----
(In thousands)
Real estate acquired in satisfaction of loans $ 2,936 $ 2,892
Allowance for losses (587) (578)
------- -------
$ 2,349 $ 2,314
======= =======
Activity in the allowance for losses on real estate owned is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands)
Beginning balance $ 694 $ 763 $ 578 $ 1,712
Provision for (recovery of) losses (107) (16) 89 (20)
Charge-offs -- (23) (80) (968)
------- ------- ------- -------
Ending balance $ 587 $ 724 $ 587 $ 724
======= ======= ======= =======
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.
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, and ix) demand for financial services in the
Company's markets. 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 June 30, 1998 and June 30, 1997. Comparison of fiscal year to date results
are between the nine month periods then ended.
GENERAL. Net income for the third fiscal quarter ended June 30, 1998, increased
56.2% to $5.3 million or 18 cents per diluted share, compared to $3.4 million or
11 cents per diluted share for the same period last year. This increase was due
primarily to an increase in average interest-earning assets resulting from the
cash proceeds from the stock offering and nonrecurring income of $366,000, after
tax, from the sale of land and buildings. Net income for the nine months ended
June 30, 1998, increased 30.6% to $12.8 million or 42 cents per diluted share,
compared to $9.8 million or 32 cents per diluted share for the same period last
year. This increase was due mainly to the increase in average interest-earning
assets and the nonrecurring income in the third quarter and also to the
nonrecurring income of $978,000, after tax, recognized in the first quarter on
the payoff of a problem commercial real estate loan and on the sale of the
Bank'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 three and nine month periods ended June 30,
1997 has been restated to conform to this standard.
NET INTEREST INCOME. Net interest income increased 28.0% to $12.9 million for
the quarter ended June 30, 1998, from $10.1 million for the same period last
year. For the nine months ended June 30, 1998, net interest income increased
20.8% to $35.5 million compared to $29.4 million for the same period last year.
This increase was due primarily to an increase in average interest-earning
assets to $1.169 billion for the nine months ended June 30, 1998, compared to
$1.056 billion for the comparable period in 1997 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 cash
proceeds from the stock offering. 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.
15
<PAGE>
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 of the Company's loan portfolio.
The provision for loan losses was a credit of $231,000 for the quarter ended
June 30, 1998, compared to an expense of $205,000 for the comparable period in
1997. The provision for loan losses for the quarter ended June 30, 1998 was
principally comprised of a credit to the provision of $449,000 related to a
decrease in the level of classified loans, a charge of $255,000 due to overall
loan portfolio growth and a credit of $37,000 for net recoveries. For the nine
months ended June 30, 1998, the provision for loan losses was $232,000 compared
to $456,000 for the comparable period in 1997. The provision for loan losses for
the nine months ended June 30, 1998 was principally comprised of a credit to the
provision of $571,000 related to a decrease in the level of classified loans, a
charge of $722,000 due to overall loan portfolio growth and a charge of $80,000
for net charge offs. The provision for the nine months ended June 30, 1997 was
due primarily to an increase in the level of classified loans. 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 $1.9 million for the quarter ended June
30, 1998, from $1.0 million for the same period last year. Other income
increased to $4.6 million for the nine months ended June 30, 1998, from $2.9
million for the comparable period in 1997 due primarily to the $719,000 gain on
the sale of the Company's ownership interest in its data processing servicer,
the $596,000 gain on the sale of land and buildings, and an increase of $458,000
in other fees and service charges. Other fees and service charges, primarily
from fees and service charges on deposit products, was $2.9 million and $2.5
million for the nine months ended June 30, 1998 and 1997, respectively.
OTHER EXPENSE. Other expense increased to $6.0 million for the quarter ended
June 30, 1998, from $5.3 million for the same period last year. For the nine
months ended June 30, 1998, other expense was $18.0 million compared to $15.7
million in the comparable period in 1997. The change for the nine month period
ended June 30, 1998 was due primarily to an increase of $1.6 million in
compensation and benefits, an increase of $476,000 in occupancy expense, an
increase of $483,000 in other expense partially offset by a decrease of $214,000
in SAIF deposit insurance premiums. The increase in compensation and benefits is
due primarily to additional staff required to support the growth in loans and
deposits and an increase of $762,000 in noncash expense 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 equipment expense.
The increase in other expense is due primarily to $114,000 Delaware franchise
tax, $33,000 loss on sale of other repossessed assets and other increases
resulting from the growth in loans and deposits. The decrease in SAIF deposit
insurance premiums is due to lower assessment rates resulting from The Deposit
Insurance Act of 1996.
INCOME TAXES. Income tax expense increased to $3.7 million for the quarter ended
June 30, 1998, from $2.2 million for the same period last year. For the nine
months ended June 30, 1998, income tax expense was $9.0 million compared to $6.3
million for the comparable period in 1997. The effective tax rates were 41% and
39% for the nine months ended June 30, 1998 and 1997, respectively. The increase
in the effective tax rate for the nine months ended June 30, 1998 is due
primarily to the difference between the financial and the tax treatment of the
increase in the noncash expense of stock benefit plans.
16
<PAGE>
FINANCIAL CONDITION
Total assets increased to $1.319 billion at June 30, 1998, from $1.131 billion
at the fiscal year ended September 30, 1997. The increase is due primarily to
the $150.3 million in net cash proceeds received from the stock offering
completed on March 18, 1998.
Interest bearing deposits in other banks increased to $20.4 million at June 30,
1998, from $15.7 million at September 30, 1997. The increase is due primarily to
an increase in funds on deposit at the FHLB.
Federal funds sold increased to $20.0 million at June 30, 1998, from $250,000 at
September 30, 1997. This increase is due primarily to the purchase of term
federal funds.
Investment securities held to maturity increased to $30.0 million at June 30,
1998, from $5.0 million at September 30, 1997. The increase is due to the
purchase of $30.0 million FHLB and FNMA Notes partially offset by the call prior
to maturity of a $5 million FHLB Note.
Investment securities available for sale increased to $74.4 million at June 30,
1998, from $47.6 million at September 30, 1997. The increase is due primarily to
the purchase of $70.0 million FHLB and FNMA Notes offset by the maturity of
$18.0 U.S.Treasury Notes and the call prior to maturity of $25.0 million FHLB
Notes.
Mortgage-backed securities increased to $193.7 million at June 30, 1998, from
$176.9 million at September 30, 1997. The increase is due primarily to the
purchase of $50.0 million of seven-year balloon securities and $20 million of
fifteen-year fixed rate securities offset by $53.3 million of repayments.
Net loans increased to $915.4 million at June 30, 1998, from $834.3 million at
September 30, 1997. The increase is due primarily to loan originations of $263.1
million partially offset by repayments of $180.3 million.
Deposits increased to $915.2 million at June 30, 1998, from $911.6 million at
September 30, 1997. The increase is due primarily to a net decrease in deposits
before interest credited of $22.9 million and interest credited of $26.5
million.
FHLB advances increased to $125.0 million at June 30, 1998, from $100.0 million
at September 30, 1997. The increase is due to new long-term fixed rate advances
of $55.0 million offset by the maturity of $30.0 million short-term fixed rate
advances.
Stockholders' equity increased to $258.6 million at June 30, 1998 from $96.8
million at September 30, 1997, due primarily to the $150.3 million in net cash
proceeds received from the stock offering and $12.8 million of earnings for the
nine months ended June 30, 1998.
At June 30, 1998, 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 $ 19,742 1.50% $180,727 13.73% $160,985
Core Capital $ 52,645 4.00% $180,727 13.73% $128,082
Risk-Based Capital $ 54,044 8.00% $189,210 28.01% $135,166
CASH FLOW
Net cash provided by the Company's operating activities (i.e. cash items
affecting net income) was $14.6 million and $10.0 million for the nine months
ended June 30, 1998 and 1997, respectively.
Net cash used by the Company's investing activities (i.e. cash used primarily
from its investment securities, mortgage-backed securities and loan portfolios)
was $153.4 million and $66.0 million for the nine months ended June 30, 1998 and
1997, respectively. The increase in 1998 was principally due to a $30.1 million
net increase in loans and a $42.8 million net increase in investment securities.
Net cash provided by the Company's financing activities (i.e. cash receipts
primarily from net increases (decreases) in deposits and net FHLB advances) was
$172.7 million and $52.2 million for the nine months ended June 30, 1998 and
1997, respectively. The nine ended June 30, 1998 includes $150.3 million of net
proceeds from issuance of common stock.
17
<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:
June 30, September 30,
1998 1997
---- ----
(Dollars in thousands)
Non-accrual mortgage loans:
Delinquent less than 90 days $ -- $ --
Delinquent 90 days or more 2,851 2,416
------ ------
Total 2,851 2,416
------ ------
Non-accrual other loans:
Delinquent less than 90 days 100 --
Delinquent 90 days or more 355 164
------ ------
Total 455 164
------ ------
Total non-accrual loans 3,306 2,580
Accruing loans 90 days or more delinquent -- --
------ ------
Total nonperforming loans 3,306 2,580
Real estate owned, net of related allowance 2,349 2,314
------ ------
Total non-performing assets $5,655 $4,894
====== ======
Non-performing loans to total net loans .36% .31%
Total non-performing assets to total assets .43% .43%
Allowance for loan losses to total loans 1.29% 1.40%
Allowance for loan losses to non-performing
loans 356.14% 453.11%
Allowance for loan losses to classified loans 156.47% 117.51%
Allowance for losses on real estate owned to
total real estate owned 20.00% 19.99%
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK AND ASSET AND
LIABILITY MANAGEMENT.
MARKET RISK AND ASSET AND LIABILITY MANAGEMENT
During the quarter ended June 30, 1998, long term interest rates declined.
Specifically, the ten-year treasury rate decreased by approximately 21 basis
points during this period. A decline in long term interest rates could affect
the interest rate sensitivity of the Bank. Absent changes in other market
factors, 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.
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 Bank 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 Bank 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 Bank arises from its purchase from GDC of land
sales contracts originated by GDC. The Bank, 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 AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
19
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
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
3(i) Certificate of Incorporation of Registrant (Exhibit 3.3 to Pre-
Effective Amendment No. 1 to the Registration Statement on Form
S-1, No. 333-37275 filed November 10, 1997).
3(ii) Bylaws of Registrant (Exhibit 3.4 to Pre-Effective Amendment
No. 1 to the Registration Statement on Forms S-1, No. 333-
37275, filed November 10, 1997).
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).
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).
20
<PAGE>
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 (Exhibit 10(viii) to Form 10Q for the
quarter ended December 31, 1997 filed February 11, 1998).
(b) Reports on Form 8-K.
None.
21
<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 BANCSHARES, INC.
Date: August 10, 1998 /s/
----------------------------
Michael J. Brown, Sr.
President and Chief Executive
Officer
Date: August 10, 1998 /s/
----------------------------
Don W. Bebber
Senior Vice President, Finance
and Principal Financial
Officer
22
<PAGE>
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