UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
-----------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 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 January 22, 1999 there were 31,013,779 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 December 31, 1998 and
September 30, 1998 (unaudited).............................. 2
Condensed Consolidated Statements of Earnings
for the Three Months ended December 31, 1998
and 1997 (unaudited).........................................3
Condensed Consolidated Statements of Stockholders'
Equity for the Three Months ended December 31, 1998
and 1997 (unaudited).........................................4
Condensed Consolidated Statements of Cash Flows
for the Three Months ended December 31, 1998
and 1997 (unaudited).........................................6
Notes to Condensed Consolidated Financial Statements
(unaudited)..................................................9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................15
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
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
DECEMBER 31, SEPTEMBER 30,
1998 1998
---- ----
Assets
Cash and amounts due from depository
institutions......................... $ 28,603 $ 23,861
Interest-bearing deposits in other banks. 41,803 19,902
Federal funds sold....................... 10,000 20,000
Investment securities held to maturity... 20,705 29,989
Investment securities available for sale. 75,731 71,516
Mortgage-backed securities held to maturity 225,053 201,049
Loans held for sale........................ 692 714
Loans, net................................. 978,726 944,700
Accrued interest receivable................ 7,774 7,872
Real estate owned.......................... 2,063 2,534
Premises and equipment..................... 17,219 16,927
Federal Home Loan Bank stock............... 10,250 8,212
Goodwill, net.............................. 2,512 2,563
Other assets................................ 1,637 744
--------- ---------
Total assets.............................. $1,422,768 $1,350,583
========= =========
Liabilities and Stockholders' Equity
Deposits........................................$ 946,709 $ 918,126
Long-term debt................................... 205,000 145,000
Advance payments by borrowers for taxes
and insurance..................... 5,190 17,608
Income taxes payable.............................. 3,213 761
Other liabilities................................ 5,405 5,369
--------- ---------
Total liabilities............................. 1,165,517 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; 30,918,242 issued and
30,642,912 outstanding at December 31, 1998
and 30,909,830 issued and outstanding at
September 30, 1998) 3,092 3,091
Paid-in capital............................... 190,712 189,958
Retained earnings............................. 86,397 83,355
Common stock purchased by:
Employee stock ownership plan (ESOP)........ (13,269) (13,344)
Recognition and retention plans (RRP)....... (7,171) ---
Accumulated other comprehensive income, net..... 501 659
Treasury stock, at cost, 275,330 shares.......... (3,011) ---
--------- ----------
Total stockholders' equity.............. 257,251 263,719
--------- ----------
Total .....................................$ 1,422,768 $1,350,583
========= =========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands except per share data)
THREE MONTHS ENDED
DECEMBER 31,
1998 1997
---- ----
Interest income:
Loans $ 19,961 $ 19,116
Investment securities 1,578 872
Mortgage-backed securities 3,379 2,813
Other 729 253
-------- ---------
Total interest income 25,647 23,054
------- -------
Interest expense:
Deposits 9,670 10,278
Other 2,512 1,488
-------- --------
Total interest expense 12,182 11,766
------- -------
Net interest income 13,465 11,288
Provision for (recovery of) loan losses 155 (188)
-------- ---------
Net interest income after provision for
(recovery of) loan losses 13,310 11,476
------- -------
Other income:
Other fees and service charges 1,171 888
Income (losses) from real estate operations 220 (143)
Gain on sale of mortgage loans 29 20
Other 62 815
-------- --------
Total other income 1,482 1,580
------- -------
Other expenses:
Compensation and employee benefits 4,044 3,421
Occupancy 788 1,045
SAIF deposit insurance premium 134 144
Other 1,524 1,507
------- -------
Total other expense 6,490 6,117
------- -------
Income before income taxes 8,302 6,939
Income tax expense 3,348 2,844
------ -------
Net income $ 4,954 $ 4,095
======= =======
Net income per share
Basic $ 0.17 $ 0.14
====== ======
Diluted $ 0.17 $ 0.13
====== ======
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Common
Compre- stock
hensive Common Paid-in Retained purch.
income stock capital earnings by ESOP
------ ----- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Three months ended
December 31, 1997
Balance at
September 30, 1997 $3,052 $23,874 $71,203 $(374)
Comprehensive income
Net income $4,095 - - 4,095 -
Other comprehensive
income, net of tax:
Unrealized gain on
securities
available for sale 2 - - - -
-----
Comprehensive income $4,097
=====
Stock options exercised 4 49 - -
Amortization of award
of ESOP and RRP's - 409 - 74
Dividends paid - - (793) -
Tax benefit of stock
plans - 130 - -
----- ------- ------- -------
Balance at
December 31, 1997 $3,056 $24,462 $74,505 $(300)
----- ------ ------- ------
Three months ended
December 31, 1998
Balance at
September 30, 1998 $3,091 $189,958 $83,355 $(13,344)
Comprehensive income
Net income $4,954 - - 4,954 -
Other comprehensive
income, net of tax:
Unrealized loss on
securities
available for sale (158) - - - -
-----
Comprehensive income $4,796
=====
Stock options exercised 1 13 - -
Amortization of award
of ESOP and RRP's - 634 - 75
Dividends paid - - (1,912) -
Tax benefit of stock
plans - 107 - -
Stock purchased by RRP
plan - - - -
Treasury shares
purchased - - - -
------ -------- ------- --------
Balance at
December 31, 1998 $3,092 $190,712 $86,397 $(13,269)
====== ======== ======= ========
4
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME (Continued)
(Dollars in thousands)
Common
stock Accum.
Common purch.by other
stock deferred Treasury compre-
purch. comp. stock hensive
by RRP's plan purch. income Total
-------- ---- ------- ------ -----
<S> <C> <C> <C> <C> <C>
Three months ended
December 31, 1997
Balance at
September 30, 1997 $ - $(946) $ - $ (7) $96,802
Comprehensive income
Net income - - - - 4,095
Other comprehensive
income, net of tax:
Unrealized gain on
securities
available for sale - - - 2 2
Comprehensive income
Stock options exercised - - - - 53
Amortization of award
of ESOP and RRP's - - - - 483
Dividends paid - - - - (793)
Tax benefit of stock
plans - - - - 130
----- -------- ---- ------- ----------
Balance at
December 31, 1997 $ - $(946) $ - $ (5) $100,772
----- ------ ---- ------- --------
Three months ended
December 31, 1998
Balance at
September 30, 1998 $ - $ - $ - $ 659 $263,719
Comprehensive income
Net income - - - - 4,954
Other comprehensive
income, net of tax:
Unrealized loss on
securities
available for sale - - - (158) (158)
Comprehensive income
Stock options exercised - - - - 14
Amortization of award
of ESOP and RRP's - - - - 709
Dividends paid - - - - (1,912)
Tax benefit of stock
plans - - - - 107
Stock purchased by RRP
plan (7,171) - - - (7,171)
Treasury shares
purchased - - (3,011) - (3,011)
-------- ------ ------- --- --------
Balance at
December 31, 1998 $(7,171) $ - $(3,011) $501 $257,251
======== ====== ======== ==== =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
Cash provided by operating activities:
Net income $ 4,954 $ 4,095
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of stock benefit plans 709 483
Tax benefit of stock plans credited to capital 107 130
Originations of loans held for sale (1,997) (1,411)
Proceeds from sale of loans held for sale 2,020 801
Depreciation and amortization 404 281
Deferred income tax provision (benefit) 223 (46)
Increase in deferred loan fees and costs 586 371
Amortization of deferred loan fees and costs (404) (255)
Amortization of goodwill 51 56
Net amortization of other purchase accounting
adjustments 20 20
Loss on sale of premises and equipment 2 ---
(Gain) loss on sale of real estate owned (101) 6
Accretion of discount on purchased loans (3) (340)
Increase in accrued interest receivable 98 51
Provision for (recovery of) loan losses 155 (188)
Provision for (recovery of) losses on real estate owned (118) 134
Increase in other assets (893) (203)
Increase in income taxes payable 2,452 2,123
Decrease in other liabilities (60) (82)
-------- --------
Net cash provided by operating activities 8,205 6,026
----- -----
</TABLE>
6
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
Cash used by investing activities:
Net increase in loans (34,370) (25,734)
Purchase of mortgage-backed securities (50,152) ---
Proceeds from principal repayments of mortgage-backed
securities 26,095 12,879
Proceeds from maturities and calls of investment securities
held to maturity 10,000 ---
Purchase of investment securities held to maturity (715) (9,984)
Proceeds from maturities and calls of investment securities
available for sale --- 28,082
Purchase of investment securities available for sale (4,464) (10,000)
Proceeds from sale of real estate owned 679 165
Purchase of premises and equipment (706) (1,479)
Proceeds from sale of premises and equipment 25 42
FHLB stock purchase (2,038) ---
--------- --------
Net cash used by investing activities (55,646) (6,029)
-------- -------
Cash provided by financing activities:
Net increase in deposits 28,582 14,091
Net repayments of short-term borrowings --- (10,000)
Repayments of long-term borrowings --- (75)
Net proceeds from long-term borrowings 60,000 ---
Decrease in advance payments by borrowers for taxes and
insurance (12,418) (12,063)
Dividends paid (1,912) (793)
Common stock options exercised 14 53
Purchase of treasury stock (3,011) ---
Purchase of common stock by recognition and
retention plan (7,171) ---
-------- -------
Net cash provided (used) by financing activities 64,084 (8,787)
------ -------
Net increase (decrease) in cash and cash equivalents 16,643 (8,790)
Cash and cash equivalents - beginning of period 63,763 32,885
------ -------
Cash and cash equivalents - end of period $80,406 $24,095
======= =======
</TABLE>
7
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
Supplemental disclosures:
Cash paid for:
Interest $11,762 $11,762
Taxes 570 638
Noncash investing and financing activities:
Additions to real estate acquired in settlement of loans
through foreclosure 177 730
Sale of real estate owned financed by the Company 188 210
Change in unrealized gain (loss) on securities available
for sale (257) 2
Change in deferred taxes related to securities available
for sale 99 (1)
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
8
<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 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 is effective for years 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, 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"). 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
9
<PAGE>
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.
2). NET INCOME PER SHARE
Net income per share was computed by dividing net income by the weighted average
number of shares of common stock outstanding during the three months ended
December 31, 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.
Quarter Ended
December 31,
------------
1998 1997
---- ----
Net income $4,953,835 $4,094,664
========= =========
Weighted average common shares outstanding:
Shares outstanding 30,625,196 30,545,078
Less weighted average
uncommitted ESOP shares (1,356,459) (209,488)
--------- ---------
Total 29,268,737 30,335,590
========== ==========
Basic earnings per share $ 0.17 $ 0.14
===== =====
Weighted average common shares outstanding 29,268,737 30,335,590
Additional dilutive shares related to
stock benefit plans 287,844 611,104
---------- ----------
Total weighted average common shares and
equivalents outstanding for diluted
earnings per share computation 29,556,581 30,946,694
========== ==========
Diluted earnings per share $ 0.17 $ 0.13
===== =====
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 December 31, 1998 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(In thousands)
Available for sale:
FHLB notes $ 50,000 $ 458 $ --- $ 50,458
FNMA notes 19,936 293 --- 20,229
Equity securities 4,978 66 --- 5,044
-------- ----- ----- ------
74,915 817 --- 75,731
-------- ---- ----- ------
Held to maturity:
FHLB notes 19,990 198 --- 20,188
Municipal securities 715 --- 2 713
-------- ---- ----- -------
20,705 198 2 20,901
-------- --- ----- -------
FHLMC mortgage-backed
securities 103,077 638 --- 103,715
FNMA mortgage-backed
securities 121,976 1,154 --- 123,130
------- ----- ---- -------
225,053 1,792 --- 226,845
------- ----- ---- -------
$320,673 $2,806 $ 2 $323,477
======= ===== ==== =======
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
======= ===== === =======
11
<PAGE>
The amortized cost and estimated market value of debt securities at December 31,
1998 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.
DECEMBER 31, 1998 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 69,937 70,687 69,929 71,064
Equity securities 4,978 5,044 514 452
---------- -------- --------- --------
74,915 75,731 70,443 71,516
-------- ------- -------- -------
Held to maturity:
Due in one year or less --- --- --- ---
Due in one to five years 19,990 20,188 29,989 30,273
Due in five to ten years --- --- --- ---
Due after ten years 715 713 --- ---
--------- ---------- --------- -----------
20,705 20,901 29,989 30,273
-------- ------- -------- --------
FHLMC mortgage-backed
securities 103,077 103,715 65,610 66,948
FNMA mortgage-backed
securities 121,976 123,130 135,439 137,894
-------- ------- -------- -------
225,053 226,845 201,049 204,842
------- ------- ------- -------
$320,673 $323,477 $301,481 $306,631
======= ======= ======= =======
As of December 31, 1998, the Company had pledged mortgage-backed securities with
a market value of $349,000 and a carrying value of $336,000 to collateralize the
public funds on deposit. The Company had also pledged mortgage-backed securities
with a market value of $1,381,000 and a carrying value of $1,341,000 to
collateralize Treasury, tax and loan accounts as of December 31, 1998.
12
<PAGE>
4). LOANS
Loans are summarized below: DECEMBER 31, SEPTEMBER 30,
1998 1998
---- ----
(Dollars in thousands)
Mortgage loans:
Construction 1-4 family $ 71,143 $ 66,671
Permanent 1-4 family 732,490 707,078
Multi-family 11,429 11,074
Nonresidential 88,930 84,254
Land 26,521 27,562
---------- -----------
Total mortgage loans 930,513 896,639
--------- ----------
Other loans:
Commercial nonmortgage 18,255 15,074
Home improvement 17,815 19,016
Manufactured housing 16,231 16,418
Other consumer 59,896 59,223
---------- -----------
Total other loans 112,197 109,731
---------- ----------
Total loans 1,042,710 1,006,370
--------- ---------
Less:
Loans in process 48,069 46,152
Net deferred loan fees and discounts 3,995 3,700
Allowance for loan losses 11,920 11,818
---------- ----------
63,984 61,670
---------- ----------
Total loans, net $ 978,726 $ 944,700
========= =========
An analysis of the allowance for loan losses follows:
THREE MONTHS ENDED
DECEMBER 31,
------------
1998 1997
---- ----
(In thousands)
Beginning balance $ 11,818 $ 11,691
Provision for (recovery of)
loan losses 155 (188)
Charge-offs (82) (108)
Recoveries 29 13
-------- --------
Ending balance $ 11,920 $ 11,408
====== ======
At December 31, 1998 and September 30, 1998, loans with unpaid principal
balances of approximately $3,592,000 and $2,447,000, respectively, were 90 days
or more contractually delinquent or on nonaccrual status. As of December 31,
1998 and September 30, 1998, approximately $2,936,000 and $1,909,000,
respectively, of these loans were in the process of foreclosure.
As of December 31, 1998 and September 30, 1998, mortgage loans which had been
sold on a recourse basis had outstanding principal balances of approximately
$1,987,000 and $2,213,000, respectively.
13
<PAGE>
5). REAL ESTATE OWNED
Real estate owned includes the following:
DECEMBER 31, SEPTEMBER 30,
1998 1998
---- ----
(In thousands)
Real estate acquired in satisfaction of loans $ 2,579 $ 3,168
Allowance for losses (516) (634)
----- -----
$ 2,063 $ 2,534
====== ======
Activity in the allowance for losses on real estate owned is as follows:
THREE MONTHS ENDED
DECEMBER 31,
------------
1998 1997
---- ----
(In thousands)
Beginning balance $ 634 $ 578
Provision for (reversal of) losses (118) 134
Charge-offs --- (80)
----- ----
Ending balance $ 516 $ 632
===== ====
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 other expenses 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." 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
Comparison of quarterly results in this section are between the three months
ended December 31, 1998 and December 31, 1997.
GENERAL. Net income for the first fiscal quarter ended December 31, 1998,
increased 21.0% to $5.0 million or 17 cents per diluted share, compared to $4.1
million or 13 cents per diluted share for the same period last year. This
increase was due primarily to an increase in average interest-earning assets
resulting primarily from the cash proceeds from the stock offering completed on
March 18, 1998. Net income for the quarter ended December 31, 1997 included the
recognition of nonrecurring income of $978,000, after tax, 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.
NET INTEREST INCOME. Net interest income increased 19.3% to $13.5 million for
the quarter ended December 31, 1998, from $11.3 million for the quarter ended
December 31, 1997. This increase was due primarily to an increase in average
interest-earning assets to $1.344 billion for the quarter ended December 31,
1998, compared to $1.104 billion for the comparable period in 1997 resulting
primarily from the cash proceeds of the stock offering. Interest income for the
quarter ending December 31, 1997, 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 in the amount of $874,000 due to deferred cash interest
payments and unearned purchase discount remaining at time of payoff.
PROVISION FOR LOAN LOSSES. The provision for loan losses is charged to
operations to bring the total allowance for loan losses to a level considered
appropriate by management based on historical experience, volume and type of
lending conducted by the Company, industry standards, the status of past due and
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 December 31,
1998, compared to a credit of $188,000 for the comparable period in 1997. The
provision for the quarter
15
<PAGE>
ended December 31, 1998 was principally comprised of a charge of $105,000 due to
loan growth, $53,000 for net charge offs and a credit of $3,000 related to a
decrease in the level of classified loans. The credit to the provision for the
quarter ended December 31, 1997 was principally comprised of a credit to the
provision of $400,000 related to a decrease in the level of classified loans due
primarily to the payoff of two commercial real estate loans. This credit was
partially offset by a charge to the provision of approximately $200,000 due to
loan growth, primarily in the commercial real estate and consumer loan
portfolios. 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
December 31, 1998, from $1.6 million for the same period last year. This
decrease is due primarily to the $719,000 gain on the sale of the Bank's
ownership interest in its data processing servicer in the quarter ended December
31, 1997, referred to above, partially offset by an increase of $362,000 in
income from real estate operations and an increase of $284,000 in other fees and
service charges in the quarter ending December 31, 1998. Income from real estate
operations was $220,000 for the quarter ended December 31, 1998, compared to a
loss of $143,000 in the comparable period in 1997. Other fees and service
charges, primarily from fees and service charges on deposit products, was $1.2
million and $888,000 for the quarters ended December 31, 1998 and 1997,
respectively. This increase was primarily due to the growth in deposits.
OTHER EXPENSE. Other expenses increased to $6.5 million for the quarter ended
December 31, 1998, from $6.1 million for the same period last year, due
primarily to an increase of $623,000 in compensation and benefits and a decrease
of $257,000 in occupancy expense. The increase in compensation and benefits is
due primarily to additional staff required to support the growth in
interest-earning assets and an increase of $226,000 in the amortization of stock
benefit plans. The decrease in occupancy expense is due primarily to a decrease
in data processing equipment expense.
INCOME TAXES. Income tax expense increased to $3.3 million for the quarter ended
December 31, 1998, from $2.8 million for the same period last year due primarily
to an increase in pretax accounting income. The effective tax rates were 40% and
41% for the quarters ended December 31, 1998 and 1997, respectively.
FINANCIAL CONDITION
Total assets increased to $1.423 billion at December 31, 1998, from $1.351
billion at the fiscal year ended September 30, 1998. The increase is due
primarily to the growth in net loans and mortgage-backed securities funded by
increases in deposits and FHLB advances.
Interest-bearing deposits in other banks increased to $41.8 million at December
31, 1998, 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 $10.0 million at December 31, 1998, 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 $20.7 million at December
31, 1998, 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 $10.0 million FNMA Note.
Investment securities available for sale increased to $75.7 million at December
31, 1998, from $71.5 million at September 30, 1998. The increase is due
primarily to the purchase of $4.5 million in equity securities.
16
<PAGE>
Mortgage-backed securities increased to $225.1 million at December 31, 1998,
from $201.1 million at September 30, 1998. The increase is due primarily to the
purchase of $50.0 million of fifteen-year fixed rate securities offset by $26.1
million of repayments.
Net loans increased to $978.7 million at December 31, 1998, from $944.7 million
at September 30, 1998. The increase is due primarily to loan originations of
$111.5 million partially offset by repayments of $77.2 million.
Deposits increased to $946.7 million at December 31, 1998, from $918.1 million
at September 30, 1998. The increase is due primarily to a net increase in
deposits before interest credited of $20.0 million and interest credited of $8.6
million.
FHLB advances increased to $205.0 million at December 31, 1998, 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 $257.3 million at December 31, 1998 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 $3.0 million of Company common
stock to be held as treasury stock, partially offset by $5.0 million of earnings
for the quarter. During the quarter, the Company repurchased 663,470 shares at
an average price of $10.81 per share for the recognition and retention plan and
also repurchased 275,330 shares at an average price of $10.9375 to be held as
treasury stock in accordance with the Company's stock repurchase program.
At December 31, 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 $21,229 1.50% $191,794 13.55% $170,565
Core Capital $56,612 4.00% $191,794 13.55% $135,182
Risk-Based Capital $58,036 8.00% $199,708 27.53% $141,672
CASH FLOW
Net cash provided by the Company's operating activities (i.e., cash items
affecting net income) was $8.2 million and $6.0 million for the quarters ended
December 31, 1998 and 1997, respectively.
Net cash used by the Company's investing activities (i.e., cash receipts
primarily from its investment securities, mortgage-backed securities and loan
portfolios) was $55.6 million and $6.0 million for the quarters ended December
31, 1998 and 1997, respectively. The increase 1998 was principally due to a
$36.9 million net increase in mortgage-backed securities and an $8.6 million net
increase in loans.
Net cash provided (used) by the Company's financing activities (i.e., cash
receipts primarily from net increases in deposits and net FHLB advances) was
$64.1 million and ($8.8) million for the quarters ended December 31, 1998 and
1997, respectively. The increase in 1998 was principally due to a $60.0 million
net increase in long-term borrowings and a $14.5 million net increase in
deposits.
17
<PAGE>
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:
December 31, September 30,
1998 1998
---- ----
(Dollars in thousands)
Nonaccrual mortgage loans:
Delinquent less than 90 days $ --- $ ---
Delinquent 90 days or more 3,046 1,880
----- -----
Total 3,046 1,880
----- -----
Nonaccrual other loans:
Delinquent less than 90 days --- 25
Delinquent 90 days or more 546 542
---- ------
Total 546 567
---- ------
Total nonaccrual loans 3,592 2,447
Accruing loans 90 days or more delinquent --- ---
------ --------
Total nonperforming loans 3,592 2,447
Real estate owned, net of related allowance 2,063 2,534
----- ------
Total nonperforming assets $ 5,655 $4,981
===== ======
Nonperforming loans to total net loans .37% 0.26%
Total nonperforming assets to total assets .40% 0.37%
Allowance for loan losses to total loans 1.22% 1.25%
Allowance for loan losses to nonperforming loans 331.89% 483.13%
Allowance for loan losses to classified loans 207.97% 211.91%
Allowance for losses on real estate owned to total
real estate owned 20.01% 20.01%
18
<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.
On October 14, 1998, the Company announced that its Board of Directors approved
a stock repurchase program that permits the Company to acquire up to 4,636,475
shares of its common stock subject to market conditions. This represents
approximately 15% of the outstanding common stock and is in addition to shares
to be purchased to fund stock awards pursuant to the 1998 Stock Incentive Plan.
The repurchase program expires on March 18, 1999.
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 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)
19
<PAGE>
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)
10(vii) 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(viii) 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(ix) Change of Control Agreements (Exhibit 10(x) to Form 10-K for
the year ended September 30, 1998 filed December 24, 1998)
(b) Reports on Form 8-K.
Form 8-K was filed on November 2, 1998 for a reportable event dated
October 14, 1998. An event under item 5 was reported.
20
<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: February 8, 1999 /s/
----------------------------
Michael J. Brown, Sr.
President and Chief Executive
Officer
Date: February 8, 1999 /s/
----------------------------
Don W. Bebber
Senior Vice President, Finance
and Principal Financial Officer
Principal Financial Officer
21
<PAGE>
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