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: March 31, 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 April 23, 1999, there were 28,981,147 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 March 31, 1999 and September 30, 1998 (unaudited).......... 2
Condensed Consolidated Statements of Earnings for
the Three Months and Six Months ended March 31, 1999
and 1998 (unaudited)..............................................3
Condensed Consolidated Statements of Stockholders'
Equity and Comprehensive Income for the Six Months
ended March 31, 1999 and 1998 (unaudited).........................4
Condensed Consolidated Statements of Cash Flows for
the Six Months ended March 31, 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
Part II. Other Information
Item 1. Legal Proceedings................................................18
Item 2. Changes in Securities............................................18
Item 3. Defaults Upon Senior Securities..................................18
Item 4. Submission of Matters to a Vote of Security-Holders..............18
Item 5. Other Information................................................18
Item 6. Exhibits and Reports on Form 8-K.................................19
Signature Page..................................... .............20
<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>
MARCH 31, SEPTEMBER 30,
1999 1998
---- ----
Assets
<S> <C> <C>
Cash and amounts due from depository institutions $ 25,254 $ 23,861
Interest-bearing deposits in other banks 50,828 19,902
Federal funds sold --- 20,000
Investment securities held to maturity 20,707 29,989
Investment securities available for sale 76,749 71,516
Mortgage-backed securities held to maturity 203,832 201,049
Loans held for sale 977 714
Loans, net 1,009,195 944,700
Accrued interest receivable 7,402 7,872
Real estate owned 1,725 2,534
Premises and equipment 18,043 16,927
Federal Home Loan Bank stock 10,250 8,212
Goodwill, net 2,462 2,563
Other assets 1,029 744
------------------ ------------------
Total assets $ 1,428,453 $ 1,350,583
================== ==================
Liabilities and Stockholders' Equity
Deposits $ 966,487 $ 918,126
Long-term debt 205,000 145,000
Advance payments by borrowers for taxes and insurance 9,438 17,608
Income taxes payable 754 761
Other liabilities 5,216 5,369
------------------ ------------------
Total liabilities 1,186,895 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; 31,084,440
issued and 29,052,889 outstanding at
March 31, 1999 and 30,909,830
issued and outstanding at September 30, 1998) 3,108 3,091
Paid-in capital 191,231 189,958
Retained earnings 89,474 83,355
Common stock purchased by:
Employee stock ownership plan (ESOP) (13,095) (13,344)
Recognition and retention plans (RRP) (7,171) ---
Accumulated other comprehensive income, net 668 659
Treasury stock, at cost, 2,031,551 shares (22,657) ---
------------------- ------------------
Total stockholders' equity 241,558 263,719
------------------ ------------------
Total $ 1,428,453 $ 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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Loans $ 20,194 $ 18,618 $ 40,154 $ 37,735
Investment securities 1,577 842 3,155 1,714
Mortgage-backed securities 3,391 2,663 6,770 5,476
Other 685 650 1,414 903
------------ ------------ ------------ ------------
Total interest income 25,847 22,773 51,493 45,828
------------ ------------ ------------ ------------
Interest expense:
Deposits 9,377 10,028 19,046 20,306
Other 2,844 1,431 5,356 2,920
------------ ------------ ------------ ------------
Total interest expense 12,221 11,459 24,402 23,226
------------ ------------ ------------ ------------
Net interest income 13,626 11,314 27,091 22,602
Provision for loan losses 354 651 509 463
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 13,272 10,663 26,582 22,139
------------ ------------ ------------ ------------
Other income:
Other fees and service charges 1,323 1,025 2,495 1,913
Income (losses) from real estate
operations 75 (63) 294 (206)
Gain on sale of mortgage loans 16 40 46 60
Other 47 83 108 898
------------ ------------ ------------ ------------
Total other income 1,461 1,085 2,943 2,665
------------ ------------ ------------ ------------
Other expenses:
Compensation and employee benefits 3,684 3,496 7,728 6,917
Occupancy 814 755 1,601 1,800
SAIF deposit insurance premium 141 144 275 288
Other 1,667 1,532 3,192 3,039
------------ ------------ ------------ ------------
Total other expense 6,306 5,927 12,796 12,044
------------ ------------ ------------ ------------
Income before income taxes 8,427 5,821 16,729 12,760
Income tax expense 3,204 2,432 6,552 5,276
------------ ------------ ------------ ------------
Net income $ 5,223 $ 3,389 $ 10,177 $ 7,484
========== ============ ============ ============
Net income per share
Basic $ 0.19 $ 0.11 $ 0.36 $ 0.25
====== ====== ====== ======
Diluted $ 0.18 $ 0.11 $ 0.35 $ 0.24
====== ====== ====== ======
</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
------ ----- ------- -------- -------- -------- ---- --------- ----- -----
SIX MONTHS ENDED MARCH 31, 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 $7,484 - - 7,484 - - - - - 7,484
Other compre-
hensive income,
net of tax:
Unrealized
loss on
securities
available
for sale (54) - - - - - - - (54) (54)
---
Comprehensive
income $7,430
======
Reorganization
of MHC - - 200 - - - - - 200
Proceeds of
stock offering - 163,577 - - - - - - 163,577
Issue ESOP
shares - - - (13,269) - - - - (13,269)
Stock options
exercised 18 287 - - - - - - 305
Amortization of
award of ESOP
and RRP's - 851 - 149 - - - - 1,000
Dividends paid - - (1,603) - - - - - (1,603)
Distribution
of stock by
deferred comp.
plan - - - - - 80 - - 80
Stock issued to
deferred comp.
plan - - - - - (46) - - (46)
Tax benefit
of stock plans - 130 - - - - - - 130
------ -------- ------- -------- ------ ------ ---- ----- ------
Balance at March
31, 1998 $3,070 $188,719 $77,284 $(13,494) $ - $(912) $ - $ 61) $254,606
====== ======== ======= ======== ====== ====== ==== ===== ========
</TABLE>
<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
------ ----- ------- -------- -------- -------- ---- --------- ----- -----
SIX MONTHS ENDED MARCH 31, 1999
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September
30, 1998 $3,091 $189,958 $83,355 $(13,344) $ - $ - $ - $ 659 $263,719
Comprehensive income
- --------------------
Net income $10,177 - - 10,177 - - - - - 10,177
Other compre-
hensive income,
net of tax:
Unrealized
gain on
securities
available
for sale 9 - - - - - - - 9 9
-------
Comprehensive
income $10,186 - - - - - - - - -
=======
Stock options
exercised 17 284 - - - - - - 301
Amortization
of award of ESOP and RRP's - 882 - 249 - - - - 1,131
Dividends paid - - (4,058) - - - - - (4,058)
Tax benefit
of stock plans - 107 - - - - - - 107
Stock purchased
by RRP plan - - - - (7,171) - - - (7,171)
Treasury shares
purchased - - - - - - (22,657) - (22,657)
------- --------- -------- --------- -------- ------ --------- ----- --------
Balance at March
31, 1999 $ 3,108 $ 191,231 $ 89,474 $(13,095) $ (7,171) $ - $ (22,657) $ 668 $241,558
======= ========= ======== ========= ======== ====== ========= ===== ========
</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>
SIX MONTHS ENDED
MARCH 31
1999 1998
---- ----
Cash provided by operating activities:
<S> <C> <C>
Net income 10,177 $ 7,484
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of stock benefit plans 1,131 1,000
Tax benefit of stock plans credited to capital 107 130
Originations of loans held for sale (4,599) (4,969)
Proceeds from sale of loans held for sale 4,336 4,223
Depreciation and amortization 786 585
Deferred income tax benefit (14) (302)
Increase in deferred loan fees and costs 1,143 819
Amortization of deferred loan fees and costs (820) (587)
Amortization of goodwill 101 111
Net amortization of other purchase accounting adjustments 40 40
Loss on sale of premises and equipment 2 ---
(Gain) loss on sale of real estate owned (87) 1
Accretion of discount on purchased loans (6) (344)
(Increase) decrease in accrued interest receivable 470 (29)
Provision for loan losses 509 463
Provision for (recovery of) losses on real estate owned (203) 196
Increase in other assets (285) (309)
Decrease in income taxes payable (7) (389)
Increase (decrease) in other liabilities (144) 394
--------------- --------------
Net cash provided by operating activities 12,637 8,517
-------------- --------------
Cash used by investing activities:
Net increase in loans (65,292) (55,507)
Purchase of mortgage-backed securities (50,152) (9,990)
Proceeds from principal repayments of mortgage-backed securities 47,275 30,605
Proceeds from maturities and calls of investment securities held
to maturity 10,000 5,000
Purchase of investment securities held to maturity (715) (9,985)
Proceeds from maturities and calls of investment securities
available for sale 10,000 43,082
Purchase of investment securities available for sale (15,204) (59,912)
Proceeds from sale of real estate owned 1,031 289
Purchase of premises and equipment (1,900) (2,553)
Proceeds from sale of premises and equipment 71 46
FHLB stock purchase (2,038) (617)
--------------- ---------------
Net cash used by investing activities (66,924) (59,542)
--------------- ---------------
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
MARCH 31
1999 1998
---- ----
Cash provided by financing activities:
Net increase in deposits 48,361 9,228
Net repayments of short-term borrowings --- (30,400)
Repayments of long-term borrowings --- (75)
Net proceeds from long-term borrowings 60,000 25,000
Decrease in advance payments by borrowers for taxes and insurance (8,170) (7,656)
Dividends paid (4,058) (1,603)
Common stock options exercised 301 304
Purchase of common stock by deferred compensation plan --- (46)
Net proceeds from issuance of common stock --- 150,308
Purchase of treasury stock (22,657) ---
Purchase of common stock by recognition and retention plan (7,171) ---
--------------- --------------
Net cash provided by financing activities 66,606 145,060
-------------- --------------
Net increase in cash and cash equivalents 12,319 94,035
Cash and cash equivalents - beginning of period 63,763 32,885
-------------- --------------
Cash and cash equivalents - end of period $76,082 $126,920
============== ==============
Supplemental disclosures:
Cash paid for:
Interest $24,019 $23,215
Taxes 6,470 5,838
Noncash investing and financing activities:
Additions to real estate acquired in settlement of loans
through foreclosure 633 1,234
Sale of real estate owned financed by the Company 700 287
Change in unrealized gain (loss) on securities available for
sale 14 (88)
Change in deferred taxes related to securities available for
sale (5) 34
Issuance of ESOP common stock --- 13,269
Reorganization of Harbor Financial, MHC --- 200
Distribution of deferred compensation plan --- 80
</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 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 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.
<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 ended March
31, 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>
QUARTER ENDED
MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Net income $5,222,670 $3,388,936
========= =========
Weighted average common shares outstanding:
Shares outstanding 29,400,060 30,678,683
Less weighted average uncommitted ESOP shares (1,320,926) (370,950)
---------- ----------
Total 28,079,134 30,307,773
========== ==========
Basic earnings per share $ 0.19 $ 0.11
===== =====
Weighted average common shares outstanding 28,079,134 30,307,733
Additional dilutive shares related to stock
benefit plans 219,516 481,388
------- -------
Total weighted average common shares and
equivalents outstanding for diluted earnings
per share computation 29,298,650 30,789,121
========== ==========
Diluted earnings per share $ 0.18 $ 0.11
===== =====
</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 March 31, 1999 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
(IN THOUSANDS)
Available for sale:
<S> <C> <C> <C> <C>
FHLB notes $ 50,000 $ 203 $ 4 $ 50,199
FNMA notes 19,944 123 -- 20,067
Equity securities 5,718 765 -- 6,483
-------- -------- -------- --------
75,662 1,091 4 76,749
-------- -------- -------- --------
Held to maturity:
FHLB notes 19,992 105 -- 20,097
Municipal securities 715 -- 27 688
-------- -------- -------- --------
20,707 105 27 20,785
-------- -------- -------- --------
FHLMC mortgage-backed securities 93,138 576 608 93,106
FNMA mortgage-backed securities 110,694 624 180 111,138
-------- -------- -------- --------
203,832 1,200 788 204,244
-------- -------- -------- --------
$300,201 $ 2,396 $ 819 $301,778
======== ======== ======== ========
</TABLE>
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 March 31,
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.
MARCH 31, 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 69,944 70,266 69,929 71,064
Equity securities 5,718 6,483 514 452
-------- -------- -------- --------
75,662 76,749 70,443 71,516
-------- -------- -------- --------
Held to maturity:
Due in one year or less -- -- -- --
Due in one to five years 19,992 20,097 29,989 30,273
Due in five to ten years -- -- -- --
Due after ten years 715 688 -- --
-------- -------- -------- --------
20,707 20,785 29,989 30,273
-------- -------- -------- --------
FHLMC mortgage-backed securities 93,138 93,106 65,610 66,948
FNMA mortgage-backed securities 110,694 111,138 135,439 137,894
-------- -------- -------- --------
203,832 204,244 201,049 204,842
-------- -------- -------- --------
$300,201 $301,778 $301,481 $306,631
======== ======== ======== ========
As of March 31, 1999, the Company had pledged mortgage-backed securities with a
market value of $328,000 and a carrying value of $315,000 to collateralize the
public funds on deposit. The Company had also pledged mortgage-backed securities
with a market value of $1,238,000 and a carrying value of $1,199,000 to
collateralize Treasury, tax and loan accounts as of March 31, 1999.
<PAGE>
4). LOANS
Loans are summarized below:
MARCH 31, SEPTEMBER 30,
1999 1998
---- ----
(IN THOUSANDS)
Mortgage loans:
Construction 1-4 family $ 69,146 $ 66,671
Permanent 1-4 family 755,769 707,078
Multi-family 12,511 11,074
Nonresidential 94,936 84,254
Land 25,597 27,562
------ ------
Total mortgage loans 957,959 896,639
------- -------
Other loans:
Commercial nonmortgage 19,554 15,074
Home improvement 17,211 19,016
Manufactured housing 16,383 16,418
Other consumer 60,936 59,223
------ ------
Total other loans 114,084 109,731
------- -------
Total loans 1,072,043 1,006,370
--------- ---------
Less:
Loans in process 46,852 46,152
Net deferred loan fees and discounts 4,127 3,700
Allowance for loan losses 11,869 11,818
------ ------
62,848 61,670
------ ------
Total loans, net $ 1,009,195 $ 944,700
========== =========
An analysis of the allowance for loan losses follows:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
---- ---- ---- ----
(IN THOUSANDS)
Beginning balance $ 11,920 $ 11,408 $ 11,818 $ 11,691
Provision for loan losses 354 651 509 463
Charge-offs (426) (178) (508) (286)
Recoveries 21 89 50 102
-------- -------- -------- --------
Ending balance $ 11,869 $ 11,970 $ 11,869 $ 11,970
======== ======== ======== ========
At March 31, 1999 and September 30, 1998, loans with unpaid principal balances
of approximately $2,964,000 and $2,447,000, respectively, were 90 days or more
contractually delinquent or on nonaccrual status. As of March 31, 1999 and
September 30, 1998, approximately $2,238,000 and $1,909,000, respectively, of
these loans were in the process of foreclosure.
As of March 31, 1999 and September 30, 1998, mortgage loans which had been sold
on a recourse basis had outstanding principal balances of approximately
$1,770,000 and $2,213,000, respectively.
<PAGE>
5). REAL ESTATE OWNED
Real estate owned includes the following:
MARCH 31, SEPTEMBER 30,
1999 1998
---- ----
(IN THOUSANDS)
Real estate acquired in satisfaction of loans $ 2,156 $ 3,168
Allowance for losses (431) (634)
------- -------
$ 1,725 $ 2,534
======= =======
Activity in the allowance for losses on real estate owned is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31,
-------- ---------
1999 1998 1999 1998
---- ---- ---- ----
(IN THOUSANDS)
Beginning balance 516 632 634 578
Provision for (reversal of) losses (85) 62 (203) 196
Charge-offs -- -- -- (80)
----- ----- ----- -----
Ending balance $ 431 $ 694 $ 431 $ 694
===== ===== ===== =====
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.
<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 March 31, 1999 and March 31, 1998. Comparisons of fiscal year to date
results are between the six months then ended.
GENERAL. Net income for the second fiscal quarter ended March 31, 1999,
increased 54.1% to $5.2 million or 18 cents per diluted share, compared to $3.4
million or 11 cents per diluted share for the same period last year. This
increase was due primarily to an increase in average interest-earning assets
resulting primarily from the cash proceeds from the stock offering completed on
March 18, 1998. Net income for the first half of fiscal 1999 increased 36.0% to
$10.2 million or 35 cents per diluted share, compared to $7.5 million or 24
cents per diluted share for the same period last year. This increase was due
primarily to the increase in average interest-earning assets. Net income for the
six months ended March 31, 1998 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 20.4% to $13.6 million for
the quarter ended March 31, 1999, from $11.3 million for the quarter ended March
31, 1998. For the six months ended March 31, 1999, net interest income increased
19.9% to $27.1 million compared to $22.6 million for the same period last year.
This increase was due primarily to an increase in average interest-earning
assets to $1.362 billion for the six months ended March 31, 1999, compared to
$1.125 billion for the comparable period in 1998 resulting primarily from the
cash proceeds of the stock offering. Interest income for the six months ended
March 31, 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 $354,000 for the quarter ended March 31, 1999,
compared to $651,000 for the comparable period in 1998. For the six months ended
March 31, 1999, the provision for loan losses was $509,000 compared to $463,000
for the comparable period in 1998. The provision for the six months ended March
31, 1999 was principally comprised of a charge of $422,000 due to loan growth,
primarily in the commercial real estate and residential loan portfolios,
$178,000 for net charge offs and a credit of $91,000 related to a decrease in
the level of classified loans. The provision for the six months ended March 31,
1998 was principally comprised of a credit to the provision of $121,000 related
to a decrease in the level of classified loans, a charge of $467,000 due to loan
growth, primarily in the commercial real estate and residential loan portfolios,
and a charge of $117,000 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 increased to $1.5 million for the quarter ended March
31, 1999, from $1.1 million for the same period last year. Other income
increased to $2.9 million for the six months ended March 31, 1999, from $2.7
million for the comparable period in 1998. This increase is due primarily to an
increase of $582,000 in other fees and service charges, an increase of $500,000
in income from real estate operations partially offset by the $719,000 gain on
the sale of the Bank's ownership interest in its data processing servicer
included in the six months ended March 31, 1998, referred to above. Other fees
and service charges, primarily from fees and service charges on deposit
products, was $2.5 million and $1.9 million for the six months ended March 31,
1999 and 1998, respectively. This increase was primarily due to the growth in
deposits. Income from real estate operations was $294,000 for the six months
ended March 31, 1999, compared to a loss of $206,000 in the comparable period in
1998. The income for the six months ended March 31, 1999 was due primarily to a
$203,000 credit to the provision for losses on real estate owned. The loss for
the six months ended March 31, 1998 was due primarily to a $196,000 provision
for losses on real estate owned.
OTHER EXPENSE. Other expenses increased to $6.3 million for the quarter ended
March 31, 1999, from $5.9 million for the same period last year. Other expense
increased to $12.8 million for the six months ended March 31, 1999, from $12.0
million for the comparable period in 1998 due primarily to an increase of
$811,000 in compensation and benefits and a decrease of $199,000 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 $131,000 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 $3.2 million for the quarter ended
March 31, 1999, from $2.4 million for the same period last year. Income tax
expense increased to $6.6 million for the six months ended March 31, 1999, from
$5.3 million for the comparable period in 1998 due primarily to an increase in
pretax accounting income. The effective tax rates were 39% and 41% for the six
months ended March 31, 1999 and 1998, respectively.
<PAGE>
FINANCIAL CONDITION
Total assets increased to $1.428 billion at March 31, 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 $50.8 million at March 31,
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 March 31, 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 $20.7 million at March 31,
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 $10.0 million FNMA Note.
Investment securities available for sale increased to $76.7 million at March 31,
1999, from $71.5 million at September 30, 1998. The increase is due primarily to
the purchase of $5.9 million in equity securities.
Mortgage-backed securities increased to $203.8 million at March 31, 1999, 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 $47.3
million of repayments.
Net loans increased to $1.009 billion at March 31, 1999, from $944.7 million at
September 30, 1998. The increase is due primarily to loan originations of $201.4
million partially offset by repayments of $139.4 million.
Deposits increased to $966.5 million at March 31, 1999, from $918.1 million at
September 30, 1998. The increase is due primarily to a net increase in deposits
before interest credited of $31.5 million and interest credited of $16.9
million.
FHLB advances increased to $205.0 million at March 31, 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 $241.6 million at March 31, 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 $22.7 million of Company common stock to be
held as treasury stock, partially offset by $10.2 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 2,031,551 shares at an average price of $11.15 to be held as
treasury stock in accordance with the Company's stock repurchase program.
At March 31, 1999, the Bank exceeded all regulatory capital requirements as
follows:
EXCESS OF
REQUIRED ACTUAL ACTUAL OVER
% OF % OF REGULATORY
AMOUNT ASSETS AMOUNT ASSETS REQUIREMENTS
------ ------ ------ ------ ------------
(DOLLARS IN THOUSANDS)
Tangible Capital $ 21,295 1.50% $197,168 13.89% $175,873
Core Capital $ 56,785 4.00% $197,168 13.89% $140,383
Risk-Based Capital $ 59,224 8.00% $205,365 27.74% $146,141
<PAGE>
CASH FLOW
Net cash provided by the Company's operating activities (i.e., cash items
affecting net income) was $12.6 million and $8.5 million for the six months
ended March 31, 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 $66.9 million and $59.5 million for the six
months ended March 31, 1999 and 1998, respectively. The increase in 1999 was
principally due to a $23.5 million net increase in mortgage-backed securities
and a $9.8 million net increase in loans partially offset by a $25.9 million net
decrease in investment securities.
Net cash provided by the Company's financing activities (i.e., cash receipts
primarily from net increases in deposits and net FHLB advances) was $66.6
million and $145.1 million for the six months ended March 31, 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 $29.8 million decrease
due to the repurchase of Company common stock partially offset by a $39.1
million net increase in deposits, a $35.0 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, enterprise coordination has been established and resources
have been mobilized across 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 and mission
critical third party relationships were tested prior to March 31, 1999. It is
expected that all mission critical systems will be tested and substantially
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 that the Company will be well prepared for the
date change. Even so, a Year 2000 Contingency plan has been developed as an
addition to the Company's Corporate Recovery manual and has been approved by the
Board of Directors. The plan provides 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.
A list of alternative vendors and contingencies for specific business processes
has been created as part of the Company's Contingency plan. If needed,
management is prepared to use alternative branch sites located throughout the
banking system to act as backup sites for branches that may incur interruption
or outages. Additionally, management has developed a cash and liquidity
contingency plan should any unlikely problems occur with funds availability.
<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:
MARCH 31, SEPTEMBER 30,
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
Nonaccrual mortgage loans:
Delinquent less than 90 days $ 38 $ ---
Delinquent 90 days or more 2,854 1,880
----- -----
Total 2,892 1,880
----- -----
Nonaccrual other loans:
Delinquent less than 90 days --- 25
Delinquent 90 days or more 72 542
----- -----
Total 72 567
----- -----
Total nonaccrual loans 2,964 2,447
Accruing loans 90 days or more delinquent --- ---
----- -----
Total nonperforming loans 2,964 2,447
Real estate owned, net of related allowance 1,725 2,534
----- -----
Total nonperforming assets $ 4,689 $ 4,981
===== =====
Nonperforming loans to total net loans .29% .26%
Total nonperforming assets to total assets .33% .37%
Allowance for loan losses to total loans 1.18% 1.25%
Allowance for loan losses to nonperforming loans 400.46% 483.13%
Allowance for loan losses to classified loans 250.99% 211.91%
Allowance for losses on real estate owned
to total real estate owned 19.99% 20.01%
<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.
An Annual Meeting of Stockholders of the Company was held March 19, 1999 for the
purpose of considering and voting upon the following matters:
1. To elect two directors of the Company for three (3) year terms.
2. To ratify the appointment by the Company's Board of Directors of
the firm of KPMG LLP as independent public accountants for the
Company for the fiscal year ending September 30, 1999.
3. To approve an amendment to the Harbor Florida Bancshares, Inc.
1998 Stock Incentive Plan for directors, officers and employees
(the "Plan").
4. To approve the adjournment of the Annual Meeting, if necessary,
to permit solicitation of proxies in the event there are not
sufficient vote at the time of the Annual Meeting to approve one
or more of the preceding proposals.
The following table sets for the results as to each matter voted
upon:
<TABLE>
<CAPTION>
PROPOSAL FOR AGAINST ABSTAIN % APPROVED BROKER NON-VOTES
<S> <C> <C> <C> <C> <C>
No. 1 - Enns 26,507,111 182,299 --- 86% ---
Abernethy 26,499,922 189,488 --- 86% ---
No. 2 26,515,901 99,206 74,303 86% ---
No. 3 23,315,660 2,911,764 273,368 76% ---
No. 4 23,989,420 2,598,719 101,271 78% ---
</TABLE>
ITEM 5. OTHER INFORMATION.
On March 18 1999, the Board of Director's approved a continuance of the
Company's stock repurchase program. The new authority permits the Company to
acquire up to 2,904,625 shares of its common stock subject to market conditions.
This represents approximately 10% of the outstanding common stock. As of March
31, 1999, the Company has repurchased a total of 2,031,551 shares to be held as
treasury stock, in addition to shares that were purchased to fund the 1998 Stock
Incentive Plan.
<PAGE>
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)
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)
(b) Reports on Form 8-K.
Form 8-K was filed on March 26, 1999 for a reportable event dated
March 18, 1999. An event under item 5 was reported.
<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: May 13, 1999 /s/
----------------------------
Michael J. Brown, Sr.
President and Chief Executive
Officer
Date: May 13, 1999 /s/
----------------------------
Don W. Bebber
Senior Vice President,
Finance and Principal
Financial Officer
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