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, 1999
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 (IRS 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 22, 1999, there were 28,750,656 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, 1999 and September 30, 1998(unaudited)................. 2
Condensed Consolidated Statements of Earnings for the three
months and nine months ended June 30, 1999 and 1998 (unaudited)...........3
Condensed Consolidated Statements of Stockholders' Equity
and Comprehensive Income for the nine months ended
June 30, 1999 and 1998 (unaudited)........................................4
Condensed Consolidated Statements of Cash Flows for the nine
months ended June 30, 1999 and 1998 (unaudited)...........................5
Notes to Condensed Consolidated Financial Statements (unaudited)..........7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................13
Item 3. Quantitative and Qualitative Disclosures about Market
Risk and Asset and Liability Management..........................18
Part II. Other Information
Item 1. Legal Proceedings................................................19
Item 2. Changes in Securities............................................19
Item 3. Defaults Upon Senior Securities..................................19
Item 4. Submission of Matters to a Vote of Security-Holders..............19
Item 5. Other Information................................................19
Item 6. Exhibits and Reports on Form 8-K.................................19
Signature Page...................................................21
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
June 30, September 30
1999 1998
---- ----
Assets
<S> <C> <C>
Cash and amounts due from depository institutions ... $ 24,511 $ 23,861
Interest-bearing deposits in other banks ............ 38,102 19,902
Federal funds sold .................................. -- 20,000
Investment securities held to maturity .............. 10,708 29,989
Investment securities available for sale ............ 76,290 71,516
Mortgage-backed securities held to maturity ......... 209,710 201,049
Loans held for sale ................................. 2,551 714
Loans, net .......................................... 1,035,137 944,700
Accrued interest receivable ......................... 7,607 7,872
Real estate owned ................................... 1,517 2,534
Premises and equipment .............................. 19,329 16,927
Federal Home Loan Bank stock ........................ 10,250 8,212
Goodwill, net ....................................... 2,411 2,563
Other assets ........................................ 1,284 744
----------- -----------
Total assets ...................................... $ 1,439,407 $ 1,350,583
=========== ===========
Liabilities and Stockholders' Equity
Deposits ............................................ $ 973,383 $ 918,126
Long-term debt ...................................... 205,000 145,000
Advance payments by borrowers for taxes and insurance 14,303 17,608
Income taxes payable ................................ 470 761
Other liabilities ................................... 4,836 5,369
----------- -----------
Total liabilities ................................. 1,197,992 1,086,864
----------- -----------
Preferred stock ($.10 par value; authorized
10,000,000 shares; none issued
and outstanding) ................................. -- --
Common stock ($.10 par value; authorized
70,000,000 shares; 31,089,704
issued and 28,749,653 outstanding
at June 30, 1999 and 30,909,830 issued
and outstanding at September 30, 1998) ........... 3,109 3,091
Paid-in capital ..................................... 191,507 189,958
Retained earnings ................................... 92,924 83,355
Common stock purchased by:
Employee stock ownership plan (ESOP) .............. (12,920) (13,344)
Recognition and retention plans (RRP) ............. (7,171) --
Accumulated other comprehensive income, net ......... 285 659
Treasury stock, at cost, 2,340,051 shares ........... (26,319) --
----------- -----------
Total stockholders' equity ........................ 241,415 263,719
----------- -----------
Total $ 1,439,407 $ 1,350,583
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Loans ................................ $ 20,704 $ 19,020 $ 60,859 $ 56,754
Investment securities ................ 1,518 1,547 4,673 3,262
Mortgage-backed securities ........... 3,169 2,792 9,939 8,268
Other ................................ 656 956 2,070 1,859
-------- -------- -------- --------
Total interest income ............. 26,047 24,315 77,541 70,143
-------- -------- -------- --------
Interest expense:
Deposits ............................. 9,336 9,915 28,382 30,221
Other ................................ 2,862 1,460 8,219 4,380
-------- -------- -------- --------
Total interest expense ............ 12,198 11,375 36,601 34,601
-------- -------- -------- --------
Net interest income ............... 13,849 12,940 40,940 35,542
Provision for (recovery of) loan losses 155 (231) 665 232
-------- -------- -------- --------
Net interest income after provision
for(recovery of) loan losses ... 13,694 13,171 40,275 35,310
-------- -------- -------- --------
Other income:
Other fees and service charges ....... 1,346 1,024 3,841 2,937
Income (losses) from real estate
operations ........................ 104 156 399 (49)
Gain on sale of mortgage loans ....... 17 40 63 100
Other ................................ 64 667 172 1,565
-------- -------- -------- --------
Total other income ................ 1,531 1,887 4,475 4,553
-------- -------- -------- --------
Other expenses:
Compensation and employee benefits ... 3,788 3,595 11,516 10,513
Occupancy ............................ 841 776 2,442 2,576
SAIF deposit insurance premium ....... 138 143 413 431
Other ................................ 1,579 1,473 4,771 4,512
-------- -------- -------- --------
Total other expense ............... 6,346 5,987 19,142 18,032
-------- -------- -------- --------
Income before income taxes ........ 8,879 9,071 25,608 21,831
Income tax expense ..................... 3,405 3,736 9,957 9,012
-------- -------- -------- --------
Net income ........................ $ 5,474 $ 5,335 $ 15,651 $ 12,819
======== ======== ======== ========
Net income per share
Basic .......................... $ 0.20 $ 0.18 $ 0.56 $ 0.43
======== ======== ======== ========
Diluted ........................ $ 0.20 $ 0.18 $ 0.55 $ 0.42
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders'
Equity and Comprehensive Income
(Dollars in thousands)
<TABLE>
<CAPTION>
Common
stock Accum.
Common Common purchased other
Compre- Stock stock by deferred Treasury compre-
hensive Common Paid-in Retained Purchased purchased compensation stock hensive
income stock capital earnings by ESOP by RRP's plan purchased income Total
------- ----- ------- -------- ------- -------- ---- --------- -------- -----
Nine months ended
June 30, 1998
- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September
30, 1997 $3,052 $23,874 $71,203 $(374) $- $(946) $ - $ (7) $96,802
Comprehensive income
Net income $12,819 - - 12,819 - - - - - 12,819
Other comprehensive
income, net of
tax:
Unrealized loss on
securities
available for
sale (11) - - - - - - - (11) (11)
-----
Comprehensive income $12,808
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 and
RRP's - 1,323 - 224 - - - - 1,547
Dividends paid - - (3,503) - - - - - (3,503)
Distribution of
stock by deferred
comp. plan - - - - - 80 - - 80
Stock issued to
deferred comp.
plan - - - - - (75) - - (75)
Tax benefit of stock
plans - 130 - - - - - - 130
------- -------- -------- --------- --- ------ -- ------ --------
Balance at June 30,
1998 $3,074 $189,211 $80,719 $(13,419) $ - $(941) $- $ (18) $258,626
====== ======== ======= ========= === ====== == ====== ========
Nine months ended
June 30, 1999
- -------------
Balance at September
30, 1998 $3,091 $189,958 $83,355 $(13,344) $ - $ - $- $ 659 $263,719
Comprehensive income
Net income $15,651 - - 15,651 - - - - - 15,651
Other comprehensive
income, net of
tax:
Unrealized loss on
securities
available for
sale (374) - - - - - - - (374) (374)
------
Comprehensive income $15,277 - - - - - - - - -
=======
Stock options
exercised 18 293 - - - - - - 311
Amortization of
award of ESOP and
RRP's - 1,149 - 424 - - - - 1,573
Dividends paid - - (6,082) - - - - - (6,082)
Tax benefit of stock
plans - 107 - - - - - - 107
Stock purchased by
RRP plan - - - - (7,171) - - - (7,171)
Treasury shares
purchased - - - - - - (26,319) - (26,319)
------- --------- -------- ---------- --------- --- ---------- ----- --------
Balance at June 30,
1999 $ 3,109 $ 191,507 $ 92,924 $ (12,920) $ (7,171) $ - $ (26,319) $ 285 $241,415
======= ========= ======== ========== ========= === ========== ===== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
June 30
1999 1998
---- ----
Cash provided by operating activities:
<S> <C> <C>
Net income 15,651 $ 12,819
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of stock benefit plans 1,573 1,547
Tax benefit of stock plans credited to capital 107 130
Originations of loans held for sale (7,632) (7,197)
Proceeds from sale of loans held for sale 5,795 6,631
Depreciation and amortization 1,217 922
Deferred income tax provision (benefit) (280) 43
Increase in deferred loan fees and costs 1,654 1,304
Amortization of deferred loan fees and costs (1,213) (881)
Amortization of goodwill 152 167
Net amortization of other purchase accounting adjustments 60 60
Gain on sale of premises and equipment (3) (594)
Gain on sale of real estate owned (168) (93)
Accretion of discount on purchased loans (10) (347)
(Increase) decrease in accrued interest receivable 265 (1,202)
Provision for loan losses 665 232
Provision for (recovery of) losses on real estate owned (216) 89
(Increase) decrease in other assets (540) 424
Increase (decrease) in income taxes payable (291) 166
Increase (decrease) in other liabilities (19) 410
---------- -----------
Net cash provided by operating activities 16,767 14,630
--------- -----------
Cash used by investing activities:
Net increase in loans (91,625) (82,818)
Purchase of mortgage-backed securities (70,073) (70,287)
Proceeds from principal repayments of mortgage-backed securities 61,278 53,299
Proceeds from maturities and calls of investment securities held to
maturity 20,000 5,000
Purchase of investment securities held to maturity (715) (29,983)
Proceeds from maturities and calls of investment securities
available for sale 20,000 43,082
Purchase of investment securities available for sale (25,359) (69,913)
Proceeds from sale of real estate owned 1,433 1,314
Purchase of premises and equipment (3,584) (4,043)
Proceeds from sale of premises and equipment 75 1,606
FHLB stock purchase (2,038) (617)
---------- ------------
Net cash used by investing activities (90,608) (153,360)
---------- ------------
<PAGE>
Cash provided by financing activities:
Net increase in deposits 55,257 3,792
Net repayments of short-term borrowings --- (30,400)
Repayments of long-term borrowings --- (75)
Net proceeds from long-term borrowings 60,000 55,000
Decrease in advance payments by borrowers for taxes and insurance (3,305) (2,707)
Dividends paid (6,082) (3,503)
Common stock options exercised 311 373
Purchase of common stock by deferred compensation plan --- (75)
Net proceeds from issuance of common stock --- 150,264
Purchase of treasury stock (26,319) ---
Purchase of common stock by recognition and retention plan (7,171) ---
---------- -----------
Net cash provided by financing activities 72,691 172,669
--------- -----------
Net increase (decrease) in cash and cash equivalents (1,150) 33,939
Cash and cash equivalents - beginning of period 63,763 32,885
--------- -----------
Cash and cash equivalents - end of period $62,613 $66,824
========= ===========
Supplemental disclosures:
Cash paid for:
Interest $36,216 $34,517
Taxes 10,395 8,672
Noncash investing and financing activities:
Additions to real estate acquired in settlement of loans
through foreclosure 976 1,731
Sale of real estate owned financed by the Company 944 387
Change in unrealized gain (loss) on securities available for
sale (608) (18)
Change in deferred taxes related to securities available for
sale 234 7
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.
<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, 1998.
Prior to March 18, 1998, the Company's predecessor entity, Harbor Florida
Bancorp, Inc. ("Bancorp"), was owned approximately 53.37% by Harbor Financial
M.H.C. ("Mutual Holding Company") and 46.63% by public shareholders. On March
18, 1998, pursuant to a plan of conversion and reorganization, and after a
series of transactions: (1) a new entity, Bancshares, became the surviving
corporate entity, (2) Bancshares sold the ownership interest in Bancorp
previously held by the Mutual Holding Company to the public in a subscription
offering (the "Offering") (16,586,752 common shares at $10.00 resulting in net
cash proceeds after costs and funding the Harbor Federal Savings Bank Employee
Stock Ownership Plan (the "ESOP") of approximately $150 million), (3) previous
public shareholders of Bancorp had their shares exchanged into 14,112,400 common
shares of Bancshares (exchange ratio of 6.0094 to 1) (the "Exchange"), and (4)
the Mutual Holding Company ceased to exist. The 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 interests
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 common 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's only significant business is holding the common stock of the Bank.
Consequently, its net income is derived from the Bank.
In June 1997, the Financial Accounting Standards Board ("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 has been presented by the Company beginning with the quarter ended
December 31, 1998.
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 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, in the
financial statements for the year ending 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"). The effective date for Statement 133 was delayed by Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities - deferral of the effective date of FASB No. 133"
("Statement 137"), to fiscal years beginning after June 15, 2000. 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, 2000, and that the statement will not
have a significant financial statement impact upon adoption.
<PAGE>
In October, 1998, the FASB issued Statement of Financial Accounting Standards
134, "Accounting for Mortgage-backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise." ("Statement 134") Statement 134 is effective for the first fiscal
quarter beginning after December 15, 1998, with earlier adoption permitted. This
statement conforms the subsequent accounting for securities retained after the
securitization of mortgage loans by a mortgage banking enterprise with the
subsequent accounting for securities retained after the securitization of other
types of assets by a nonmortgage entity. It is currently anticipated that the
Company will adopt Statement 134 on October 1, 1999, and that the statement will
not have a significant financial statement impact upon adoption.
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, 1999 and 1998. 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.
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Net income ............................... $ 5,474,268 $ 5,335,328 $ 15,650,774 $ 12,818,928
============ =========== ============ ============
Weighted average common shares
outstanding:
<S> <C> <C> <C> <C>
Shares outstanding ................... 28,323,965 30,731,364 29,449,739 30,651,708
Less weighted average uncommitted ESOP
shares ............................... (1,303,468) (1,446,473 (1,326,950) (675,637)
------------ ----------- ------------ ------------
Total ............................ 27,020,497 29,284,891 28,122,789 29,976,071
============ =========== ============ ============
Basic earnings per share ................. $ 0.20 $ 0.18 $ 0.56 $ 0.43
============ =========== ============ ============
Weighted average common shares outstanding 27,020,497 29,284,891 28,122,789 29,976,071
Additional dilutive shares related to
stock benefit plans .................. 341,204 450,671 282,855 514,388
------------ ----------- ------------ ------------
Total weighted average common shares and
equivalents outstanding for diluted
earnings per share computation ....... 27,361,701 29,735,562 28,405,644 30,490,459
============ =========== ============ ============
Diluted earnings per share ............... $ 0.20 $ 0.18 $ 0.55 $ 0.42
============ =========== ============ ============
</TABLE>
Additional dilutive shares are calculated under the treasury stock method
utilizing the average market value of the Company's stock for the period.
<PAGE>
3). INVESTMENT AND MORTGAGE BACKED SECURITIES
The amortized cost and estimated market value of investment and mortgage-backed
securities as of June 30, 1999 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(In thousands)
Available for sale:
FHLB notes $ 50,000 $ --- $328 $ 49,672
FNMA notes 19,951 --- 32 19,919
Equity securities 5,873 910 84 6,699
----- --- -- -----
75,824 910 444 76,290
------ --- --- ------
Held to maturity:
FHLB notes 9,993 32 --- 10,025
Municipal securities 715 --- 61 654
--- --- -- ---
10,708 32 61 10,679
------ -- -- ------
FHLMC mortgage-backed securities 92,649 393 2,039 91,003
FNMA mortgage-backed securities 117,061 375 1,257 116,179
------- --- ----- -------
209,710 768 3,296 207,182
------- --- ----- -------
$296,242 $1,710 $3,801 $294,151
======= ===== ===== =======
The amortized cost and estimated market value of investment and mortgage-backed
securities as of September 30, 1998 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(In thousands)
Available for sale:
FHLB notes $ 50,000 $ 721 $--- $ 50,721
FNMA notes 19,929 414 --- 20,343
Equity securities 514 --- 62 452
--- --- -- ---
70,443 1,135 62 71,516
------ ----- -- ------
Held to maturity:
FHLB notes 19,989 279 --- 20,268
FNMA notes 10,000 5 --- 10,005
------ - --- ------
29,989 284 --- 30,273
------ --- --- ------
FHLMC mortgage-backed securities 65,610 1,338 --- 66,948
FNMA mortgage-backed securities 135,439 2,455 --- 137,894
------- ----- --- -------
201,049 3,793 --- 204,842
------- ----- --- -------
$301,481 $5,212 $ 62 $306,631
======= ===== === =======
<PAGE>
The amortized cost and estimated market value of debt securities at June 30,
1999 and September 30, 1998 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, 1999 September 30, 1998
------------- ------------------
Estimated Estimated
Amortized Market Amortized Market
cost Value Cost Value
(In thousands)
Available for sale:
Due in one year or less $ -- $ -- $ -- $ --
Due in one to five years 69,951 69,591 69,929 71,064
Equity securities 5,873 6,699 514 452
-------- -------- -------- --------
75,824 76,290 70,443 71,516
-------- -------- -------- --------
Held to maturity:
Due in one year or less -- -- -- --
Due in one to five years 9,993 10,025 29,989 30,273
Due in five to ten years -- -- -- --
Due after ten years 715 654 -- --
-------- -------- -------- --------
10,708 10,679 29,989 30,273
-------- -------- -------- --------
FHLMC mortgage-backed securities 92,649 91,003 65,610 66,948
FNMA mortgage-backed securities 117,061 116,179 135,439 137,894
-------- -------- -------- --------
209,710 207,182 201,049 204,842
-------- -------- -------- --------
$296,242 $294,151 $301,481 $306,631
======== ======== ======== ========
As of June 30, 1999, the Company had pledged mortgage-backed securities with a
market value of $302,000 and a carrying value of $294,000 to collateralize the
public funds on deposit. The Company had also pledged mortgage-backed securities
with a market value of $1,116,000 and a carrying value of $1,096,000 to
collateralize Treasury, tax and loan accounts as of June 30, 1999.
<PAGE>
4). Loans
Loans are summarized below:
June 30, September 30,
1999 1998
---- ----
(In thousands)
Mortgage loans:
Construction 1-4 family $ 80,952 $ 66,671
Permanent 1-4 family 769,724 707,078
Multi-family 14,364 11,074
Nonresidential 102,162 84,254
Land 27,620 27,562
------ ------
Total mortgage loans 994,822 896,639
------- -------
Other loans:
Commercial nonmortgage 20,091 15,074
Home improvement 16,924 19,016
Manufactured housing 16,254 16,418
Other consumer 63,835 59,223
------ ------
Total other loans 117,104 109,731
------- -------
Total loans 1,111,926 1,006,370
--------- ---------
Less:
Loans in process 60,567 46,152
Net deferred loan fees and discounts 4,239 3,700
Allowance for loan losses 11,983 11,818
------ ------
76,789 61,670
------ ------
Total loans, net $ 1,035,137 $ 944,700
========== =========
An analysis of the allowance for loan losses follows:
Three months ended Nine months ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
(In thousands)
Beginning balance $ 11,870 $ 11,970 $ 11,818 $ 11,691
Provision for loan losses 155 (231) 665 232
Charge-offs (59) (84) (566) (370)
Recoveries 17 121 66 223
-------- -------- -------- --------
Ending balance $ 11,983 $ 11,776 $ 11,983 $ 11,776
======== ======== ======== ========
At June 30, 1999 and September 30, 1998, loans with unpaid principal balances of
approximately $2,729,000 and $2,447,000, respectively, were 90 days or more
contractually delinquent or on nonaccrual status. As of June 30, 1999 and
September 30, 1998, approximately $2,107,000 and $1,909,000, respectively, of
these loans were in the process of foreclosure.
As of June 30, 1999 and September 30, 1998, mortgage loans which had been sold
on a recourse basis had outstanding principal balances of approximately
$1,586,000 and $2,213,000, respectively.
<PAGE>
5). Real Estate Owned
Real estate owned includes the following:
June 30, September 30,
1999 1998
---- ----
(In thousands)
Real estate acquired in satisfaction
of loans $1,517 $ 3,168
Allowance for losses -- (634)
------ -------
$1,517 $ 2,534
====== =======
Activity in the allowance for losses on real estate owned is as follows:
Three months ended Nine months ended
June 30 June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
(In thousands)
Beginning balance 431 694 634 578
Provision for (reversal of)
losses (13) (107) (216) 89
Charge-offs (418) -- (418) (80)
----- ----- ----- -----
Ending balance $-- $ 587 $-- $ 587
===== ===== ===== =====
Provision for losses on real estate owned is included in income (losses) from
real estate operations in the consolidated statements of earnings.
Charge-offs for the quarter ended June 30, 1999 was due to a charge-off of
$418,000 on one real estate owned property.
Legal and consulting fees relating to real estate operations and real estate
owned are included in other expenses on the consolidated statements of earnings.
<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." Harbor Florida
Bancshares, Inc. (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
Comparisons of quarterly results in this section are between the three months
ended June 30, 1999 and June 30, 1998. Comparisons of fiscal year to date
results are between the nine months then ended.
General. Diluted earnings per share for the third fiscal quarter ended June 30,
1999, increased 17.6% to 20 cents per share on net income of $5.5 million,
compared to 17 cents per share on net income of $5.0 million for the same period
last year (excluding the impact in 1998 of the $366,000 after tax gain on the
sale of land and buildings). This increase was due primarily to an increase in
average interest-earning assets and a decrease in the average number of shares
outstanding. Reported diluted earnings per share for the quarter ended June 30,
1998 was 18 cents per share on net income of $5.3 million. Diluted earnings per
share for the nine months ended June 30, 1999, increased 44.7% to 55 cents per
diluted share on net income of $15.7 million, compared to 38 cents per share on
net income of $11.5 million for the same period last year (excluding the impact
in 1998 of the gain referred to above and $978,000 after tax of nonrecurring
income 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). This increase was due primarily to the increase in average
interest-earning assets and a decrease in the average number of shares
outstanding. Reported diluted earnings per share for the nine months ending June
30, 1998 was 42 cents per share on net income of $12.8 million.
Net Interest Income. Net interest income increased 7.0% to $13.8 million for the
quarter ended June 30, 1999, from $12.9 million for the quarter ended June 30,
1998. For the nine months ended June 30, 1999, net interest income increased
15.2% to $40.9 million compared to $35.5 million for the same period last year.
This increase was due primarily to an increase in average interest-earning
assets to $1.373 billion for the nine months ended June 30, 1999, compared to
$1.169 billion for the comparable period in 1998 resulting primarily from the
cash proceeds of the stock offering completed on March 18, 1998. Interest income
for the nine months ended June 30, 1998 included $874,000 of interest income
recognized on the payoff of the commercial real estate loan, referred to above.
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 due to deferred cash interest payments and unearned
purchase discount remaining at time of payoff.
<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
nonperforming 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 $155,000 for the quarter ended June 30, 1999,
compared to a credit of $231,000 for the comparable period in 1998. For the nine
months ended June 30, 1999, the provision for loan losses was $665,000 compared
to $232,000 for the comparable period in 1998. The provision for the nine months
ended June 30, 1999 was principally comprised of a charge of $462,000 due to
loan growth, primarily in the commercial real estate, commercial business and
residential loan portfolios, $220,000 for net charge offs and a credit of
$17,000 related to a decrease in the level of classified loans. The provision
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 $723,000 due to loan growth, primarily in the commercial real
estate and residential loan portfolios, and a charge of $80,000 for net charge
offs. 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 decreased to $1.5 million for the quarter ended June
30, 1999, from $1.9 million for the same period last year. This decrease is due
primarily to the $596,000 gain on the sale of land and buildings in the quarter
ended June 30, 1998, referred to above, partially offset by an increase of
$322,000 in other fees and service charges. Other income decreased to $4.5
million for the nine months ended June 30, 1999, from $4.6 million for the
comparable period in 1998. This decrease is due primarily to the $596,000 gain
and the $719,000 gain on the sale of the Bank's ownership interest in its data
processing servicer included in the nine months ended June 30, 1998, referred to
above, partially offset by an increase of $904,000 in other fees and service
charges and an increase of $448,000 in income from real estate operations. Other
fees and service charges, primarily from fees and service charges on deposit
products, were $3.8 million and $2.9 million for the nine months ended June 30,
1999 and 1998, respectively. This increase was primarily due to the growth in
deposits. Income from real estate operations was $399,000 for the nine months
ended June 30, 1999, compared to a loss of $49,000 in the comparable period in
1998. The income for the nine months ended June 30, 1999 was due primarily to a
$216,000 credit to the provision for losses on real estate owned. The loss for
the nine months ended June 30, 1998 was due primarily to a $89,000 provision for
losses on real estate owned.
Other Expense. Other expenses increased to $6.4 million for the quarter ended
June 30, 1999, from $6.0 million for the same period last year. Other expense
increased to $19.1 million for the nine months ended June 30, 1999, from $18.0
million for the comparable period in 1998 due primarily to an increase of $1.0
million in compensation and benefits, a decrease of $134,000 in occupancy
expense and an increase of $259,000 in other expenses. The increase in
compensation and benefits is due primarily to additional staff required to
support the growth in interest-earning assets. The decrease in occupancy expense
is due primarily to a decrease in data processing equipment expense. The
increase in other expenses is due primarily to an increase of $156,000 in
deposit account losses, an increase of $59,000 in data processing services and
an increase of $53,000 in advertising and promotion.
Income Taxes. Income tax expense decreased to $3.4 million for the quarter ended
June 30, 1999, from $3.7 million for the same period last year due primarily to
a decrease in the effective tax rate. Income tax expense increased to $10.0
million for the nine months ended June 30, 1999, from $9.0 million for the
comparable period in 1998 due primarily to an increase in pretax accounting
income, partially offset by a decrease in the effective tax rate. The effective
tax rates were 39% and 41% for the nine months ended June 30, 1999 and 1998,
respectively.
<PAGE>
Financial Condition
Total assets increased to $1.439 billion at June 30, 1999, from $1.351 billion
at the fiscal year ended September 30, 1998. The increase is due primarily to
the growth in net loans.
Interest-bearing deposits in other banks increased to $38.1 million at June 30,
1999, from $19.9 million at September 30, 1998. The increase is due primarily to
an increase in funds on deposit at the FHLB.
Federal funds sold decreased to zero at June 30, 1999, from $20.0 million at
September 30, 1998. The decrease is due primarily to the maturity of term fed
funds.
Investment securities held to maturity decreased to $10.7 million at June 30,
1999, from $30.0 million at September 30, 1998. The decrease is due primarily to
the purchase of a $715,000 municipal security offset by the call prior to
maturity of a $20.0 million FNMA Note.
Investment securities available for sale increased to $76.3 million at June 30,
1999, from $71.5 million at September 30, 1998. The increase is due primarily to
the purchase of $6.2 million in equity securities.
Mortgage-backed securities increased to $209.7 million at June 30, 1999, from
$201.1 million at September 30, 1998. The increase is due primarily to the
purchase of $70.0 million of fifteen-year fixed rate securities offset by $61.3
million of repayments.
Net loans increased to $1.035 billion at June 30, 1999, from $944.7 million at
September 30, 1998. The increase is due primarily to loan originations of $310.7
million partially offset by repayments of $214.6 million.
Deposits increased to $973.4 million at June 30, 1999, from $918.1 million at
September 30, 1998. The increase is due primarily to a net increase in deposits
before interest credited of $30.1 million and interest credited of $25.2
million.
FHLB advances increased to $205.0 million at June 30, 1999, from $145.0 million
at September 30, 1998. The increase is due to new long-term fixed rate advances
of $60.0 million taken in order to fund the purchase of $50.0 million of
fifteen-year fixed rate mortgage-backed securities and $10.0 million to
refinance a FHLB advance paid off in the quarter ending September 30, 1998.
Stockholders' equity decreased to $241.4 million at June 30, 1999 from $263.7
million at September 30, 1998. The decrease is due primarily to the repurchase
of $7.2 million of Company common stock to fund the Company's recognition and
retention plan, the repurchase of $26.3 million of Company common stock to be
held as treasury stock, partially offset by $15.7 million of earnings for the
fiscal year. During the fiscal year, the Company repurchased 663,470 shares at
an average price of $10.81 per share for the recognition and retention plan and
also repurchased 2,340,051 shares at an average price of $11.25 to be held as
treasury stock in accordance with the Company's stock repurchase program.
<PAGE>
At June 30, 1999, the Bank exceeded all regulatory capital requirements as
follows:
<TABLE>
<CAPTION>
Required Actual
-------- ------ Excess of Actual
% of % of Over Regulatory
Amount Assets Amount Assets Requirements
------ ------ ------ ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible Capital $21,462 1.50% $138,739 9.70% $117,277
Core Capital $57,231 4.00% $138,739 9.70% $ 81,508
Risk-Based Capital $60,673 8.00% $147,270 19.42% $ 86,597
</TABLE>
Cash Flow
Net cash provided by the Company's operating activities (i.e., cash items
affecting net income) was $16.8 million and $14.6 million for the nine months
ended June 30, 1999 and 1998, respectively.
Net cash used by the Company's investing activities (i.e., cash receipts and
disbursements primarily from its investment securities, mortgage-backed
securities and loan portfolios) was $90.6 million and $153.4 million for the
nine months ended June 30, 1999 and 1998, respectively. The decrease in 1999 was
principally due to a $65.7 million net decrease in investment securities and a
$8.2 million net decrease in mortgage-backed securities partially offset by a
$8.8 million net increase in loans.
Net cash provided by the Company's financing activities (i.e., cash receipts
primarily from net increases in deposits and net FHLB advances) was $72.7
million and $172.7 million for the nine months ended June 30, 1999 and 1998,
respectively. The decrease in 1999 was principally due to a $150.3 million
decrease in net proceeds from issuance of common stock, a $33.5 million decrease
due to the repurchase of Company common stock partially offset by a $51.5
million net increase in deposits, a $5.1 million net increase in long-term
borrowings and a $30.4 million net increase in short-term borrowings.
Year 2000 Considerations
The following is a Year 2000 Readiness Disclosure Statement.
The Company realized the importance of Year 2000 readiness early and made a
commitment to be well prepared for the New Millennium. To successfully prepare
for the Year 2000, coordination has been established and resources have been
mobilized throughout the Company to support this effort.
All of the Company's internal mission critical and mission necessary systems
were tested and believed to be compliant by December 31, 1998. Mission critical
third party vendor testing was completed prior to March 31, 1999. Substantially
all mission critical and mission necessary systems were tested and implemented
by June 30, 1999. To date, all of our vendors appear to be able to achieve
compliance in the requisite time.
It is the intention of the Company to maintain normal business operations during
the Year 2000 transition and beyond. The Year 2000 process is currently on
schedule and management believes the Company will be prepared for the date
change. Even so, a Year 2000 Contingency Plan and Year 2000 Contingency
Procedures have been developed in addition to the Company's Corporate
Contingency Manual and all have been approved by the Board of Directors. These
documents provide the means of ensuring the continuity of daily operations in
the event of a loss of essential resources due to Year 2000 induced system
failures.
<PAGE>
Departmental responsibilities, contingencies for core business processes,
related procedures, etc. have been addressed in the Company's Year 2000
Contingency Plan, Year 2000 Contingency Procedures, and/or Corporate Contingency
Manual. If needed, the Company is prepared to change vendors, products, and/or
services if they are not Year 2000 compliant within the established timeframe
for that vendor, product, or service. The Company is also prepared to implement
contingency procedures and use alternative sites to act as backup for facilities
that may incur interruptions or outages. Additionally, management has developed
a Year 2000 Cash and Liquidity Contingency section in the Year 2000 Contingency
Plan should any unlikely problems occur with funds availability.
Asset Quality
Loans 90 days past due are generally placed on nonaccrual status. The Company
ceases to accrue interest on a loan once it is placed on nonaccrual 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 nonaccrual 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 nonaccrual
loans and foreclosed real estate at the dates indicated:
June 30, September 30,
1999 1998
---- ----
(Dollars in thousands)
Nonaccrual mortgage loans:
Delinquent less than 90 days $ --- $ ---
Delinquent 90 days or more 2,564 1,880
----- -----
Total 2,564 1,880
----- -----
Nonaccrual other loans:
Delinquent less than 90 days --- 25
Delinquent 90 days or more 165 542
----- -----
Total 165 567
----- -----
Total nonaccrual loans 2,729 2,447
Accruing loans 90 days or more delinquent --- ---
----- -----
Total nonperforming loans 2,729 2,447
Real estate owned, net of related allowance 1,517 2,534
----- -----
Total nonperforming assets $ 4,246 $ 4,981
===== =====
Nonperforming loans to total net loans .26% .26%
Total nonperforming assets to total assets .29% .37%
Allowance for loan losses to total loans 1.16% 1.25%
Allowance for loan losses to nonperforming loans 439.07% 483.13%
Allowance for loan losses to classified loans 245.94% 211.91%
Allowance for losses on real estate owned
to total real estate owned ---% 20.01%
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk and Asset and
Liability Management.
For a discussion of the Company's asset and liability management policies as
well as the potential impact of interest rate changes upon the market value of
the Company's portfolio equity, see the Company's Annual Report to Shareholders
for the year ended September 30, 1998. There has been no material change in the
Company's asset and liability position or the market value of the Company's
portfolio equity since September 30, 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are various claims and lawsuits in which the Company is periodically
involved incident to the Company's business. In the opinion of management, no
material loss is anticipated from any such pending claims or lawsuits.
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
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:
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
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 Form 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) 1994 Incentive Stock Option Plan (Exhibit 10(b) to the Registration
Statement on Form S-4 filed December 20, 1996)
10(iii) 1994 Stock Option Plan for Outside Directors (Exhibit 10(c) to the
Registration Statement on Form S-4 filed December 20, 1996)
10(iv) 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(v) Unfunded Deferred Compensation Plan for Directors (Exhibit 10(vii) to Form
10-K for the year ended September 30, 1998 filed December 24, 1998)
10(vi) 1998 Stock Incentive Plan for Directors, Officers and Employees (Exhibit 4.3
to the Registration Statement on Form S-8 filed October 26, 1998)
10(vii) Change of Control Agreements (Exhibit 10(x) to Form 10-K for the year ended
September 30, 1998 filed December 24, 1998)
</TABLE>
(b) Reports on Form 8-K.
None
<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 6, 1999 \S\
----------------------------------
Michael J. Brown, Sr.
President and Chief Executive
Officer
Date: August 6, 1999 \S\
---------------------------------
Don W. Bebber
Senior Vice President, Finance and
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001029407
<NAME> Harbor Florida Bancshares, Inc.
<MULTIPLIER> 1000
<CURRENCY> US $
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
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<INT-BEARING-DEPOSITS> 38102
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<INVESTMENTS-HELD-FOR-SALE> 76290
<INVESTMENTS-CARRYING> 220418
<INVESTMENTS-MARKET> 217861
<LOANS> 1037688
<ALLOWANCE> 11983
<TOTAL-ASSETS> 1439407
<DEPOSITS> 973383
<SHORT-TERM> 0
<LIABILITIES-OTHER> 19609
<LONG-TERM> 205000
0
0
<COMMON> 3109
<OTHER-SE> 238306
<TOTAL-LIABILITIES-AND-EQUITY> 1439407
<INTEREST-LOAN> 20704
<INTEREST-INVEST> 4687
<INTEREST-OTHER> 656
<INTEREST-TOTAL> 26047
<INTEREST-DEPOSIT> 9336
<INTEREST-EXPENSE> 12198
<INTEREST-INCOME-NET> 13849
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<INCOME-PRETAX> 8879
<INCOME-PRE-EXTRAORDINARY> 8879
<EXTRAORDINARY> 0
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<NET-INCOME> 5474
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<EPS-DILUTED> 0.2
<YIELD-ACTUAL> 3.98
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</TABLE>
