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, 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
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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 January 25, 1999, there were 26,684,449 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, 1999 and September 30, 1999
(unaudited)......................................................... 2
Condensed Consolidated Statements of Earnings
for the three months ended December 31, 1999 and
1998 (unaudited).....................................................3
Condensed Consolidated Statements of Stockholders'
Equity for the three months ended December 31, 1999 and
1998 (unaudited).....................................................4
Condensed Consolidated Statements of Cash Flows
for the three months ended December 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.................................11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk and Asset and Liability Management......................15
Part II. Other Information
Item 1. Legal Proceedings...................................................15
Item 2. Changes in Securities...............................................15
Item 3. Defaults Upon Senior Securities.....................................15
Item 4. Submission of Matters to a Vote of Security-Holders.................15
Item 5. Other Information...................................................15
Item 6. Exhibits and Reports on Form 8-K....................................15
Signature Page......................................................17
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition (unaudited)
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
---- ----
Assets
<S> <C> <C>
Cash and amounts due from depository institutions $ 45,427 $ 30,214
Interest-bearing deposits in other banks 17,545 32,959
Investment securities held to maturity 10,911 10,910
Investment securities available for sale 76,159 76,166
Mortgage-backed securities held to maturity 187,464 196,971
Loans held for sale 1,297 1,747
Loans, net 1,103,993 1,070,335
Accrued interest receivable 7,732 7,580
Real estate owned 925 911
Premises and equipment 20,605 20,139
Federal Home Loan Bank stock 12,250 11,250
Goodwill, net 2,310 2,361
Other assets 989 1,007
--- -----
Total assets $ 1,487,607 $1,462,550
=========== ==========
Liabilities and Stockholders' Equity
Deposits $ 1,003,951 $ 977,595
FHLB Advances 245,000 225,000
Advance payments by borrowers for taxes and insurance 5,520 18,951
Income taxes payable 2,989 22
Other liabilities 4,602 5,060
----- -----
Total liabilities 1,262,062 1,226,628
--------- ---------
Preferred stock --- ---
Common stock 3,110 3,110
Paid-in capital 191,432 191,016
Retained earnings 99,701 96,485
Common stock purchased by:
Employee stock ownership plan (ESOP) (12,571) (12,746)
Recognition and retention plans (RRP) (6,258) (6,258)
Accumulated other comprehensive loss, net (178) (70)
Treasury stock (49,691) (35,615)
-------- --------
Total stockholders' equity 225,545 235,922
------- -------
Total Liabilities and Stockholders' Equity $ 1,487,607 $1,462,550
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (unaudited)
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
Three months ended
December 31
1999 1998
---- ----
Interest income:
<S> <C> <C>
Loans $ 21,832 $ 19,961
Investment securities 1,467 1,578
Mortgage-backed securities 3,057 3,379
Other 591 729
--- ---
Total interest income 26,947 25,647
------ ------
Interest expense:
Deposits 9,719 9,670
Other 3,275 2,512
----- -----
Total interest expense 12,994 12,182
------ ------
Net interest income 13,953 13,465
Provision for loan losses 204 155
--- ---
Net interest income after provision for loan
losses 13,749 13,310
------ ------
Other income:
Other fees and service charges 1,506 1,171
Income from real estate operations 83 220
Gain (loss) on sale of mortgage loans (15) 29
Other 57 62
-- --
Total other income 1,631 1,482
----- -----
Other expenses:
Compensation and employee benefits 4,025 4,044
Occupancy 1,025 788
Advertising and promotion 221 263
Data processing services 367 317
Other 1,334 1,078
----- -----
Total other expense 6,972 6,490
----- -----
Income before income taxes 8,408 8,302
Income tax expense 3,260 3,348
----- -----
Net income $5,148 $ 4,954
====== =======
Net income per share
Basic $ 0.20 $ 0.17
====== ======
Diluted $ 0.20 $ 0.17
====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Harbor Florida Bancshares, Inc.
Consolidated Statements of Stockholders' Equity (unaudited)
<TABLE>
<CAPTION>
Accum.
Common Common other
Compre- stock stock compre. Treasury
hensive Common Paid-in Retained purchased purchased income stock
income stock capital earnings by ESOP by RRP's (loss) purchased Total
------ ----- ------- -------- ------- -------- ------ --------- -----
(Dollars in thousands)
Three months ended
December 31, 1998
<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 $4,954 - - 4,954 - - - - 4,954
Other comprehensive
income, net of
tax:
Unrealized loss on
securities
available for
sale (158) - - - - - (158) - (158)
--------
Comprehensive income $4,796 - - - - - - - -
======
Stock options
exercised 1 13 - - - - - 14
Amortization of
award of ESOP and
RRP's - 634 - 75 - - - 709
Dividends paid - - (1,912) - - - - (1,912)
Tax benefit of stock
plans - 107 - - - - - 107
Purchase RRP shares - - - - (7,171) - - (7,171)
Purchase treasury
shares - - - - - - (3,011) (3,011)
------- --------- -------- --------- --------- ----- ------ --------
Balance at December
31, 1998 $ 3,092 $ 190,712 $ 86,397 $ (13,269) $ (7,171) $ 501 $ (3,011) $257,251
======= ========= ======== ========== ========= ===== ========= ========
Three months ended
December 31, 1999
Balance at September
30, 1999 $ 3,110 $ 191,016 $ 96,485 $ (12,746) $ (6,258) $(70) $(35,615) $235,922
Comprehensive income
Net income $5,148 - - 5,148 - - - - 5,148
Other comprehensive
income, net of
tax:
Unrealized loss on
securities
available for
sale (108) - - - - - (108) - (108)
------
Comprehensive income $5,040 - - - - - - - -
======
Stock options
exercised - 5 - - - - - 5
Amortization of
award of ESOP and
RRP's - 256 - 175 - - - 431
Dividends paid - - (1,932) - - - - (1,932)
Tax benefit of stock
plans - 155 - - - - - 155
Purchase treasury
shares - - - - - - (14,076) (14,076)
------- --------- -------- --------- -------- ----- ------- -------
Balance at December
31, 1999 $ 3,110 $ 191,432 $ 99,701 $ (12,571) $ (6,258) $ (178) $ (49,691) $225,545
======= ========= ======== ========== ========= ======= ========== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
December 31
1999 1998
---- ----
<S> <C> <C>
Cash provided by operating activities:
Net income 5,148 $ 4,954
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on sale of investment securities available for sale (2) ---
Loss on sale of premises and equipment 1 2
Gain on sale of real estate owned (90) (101)
Provision for loan losses 204 155
Provision for (recovery of) losses on real estate owned 12 (118)
Depreciation and amortization 446 404
Amortization of stock benefit plans 431 709
Amortization of goodwill 51 51
Net amortization of other purchase accounting adjustments 20 20
Amortization of deferred loan fees and costs (354) (404)
Accretion of discount on purchased loans (4) (3)
Originations of loans held for sale (271) (1,997)
Proceeds from sale of loans held for sale 721 2,020
Increase in deferred loan fees and costs 325 586
(Increase) decrease in accrued interest receivable (152) 98
(Increase) decrease in other assets 18 (893)
Increase in income taxes payable 3,122 2,559
Deferred income tax provision (benefit) (187) 223
Decrease in other liabilities (202) (60)
--------------- -------
Net cash provided by operating activities 9,237 8,205
-------------- -----
Cash used by investing activities:
Net increase in loans (33,970) (34,370)
Purchase of mortgage-backed securities --- (50,152)
Proceeds from principal repayments of mortgage-backed securities 9,474 26,095
Proceeds from maturities and calls of investment securities held to
maturity --- 10,000
Purchase of investment securities held to maturity --- (715)
Proceeds from sale of investment securities available for sale 24 ---
Purchase of investment securities available for sale (183) (4,464)
Proceeds from sale of real estate owned 183 679
Purchase of premises and equipment (910) (706)
Proceeds from sale of premises and equipment 22 25
FHLB stock purchase (1,000) (2,038)
--------------- -------
Net cash used by investing activities (26,360) (55,646)
--------------- --------
<PAGE>
Three months ended
December 31
1999 1998
---- ----
Cash provided by financing activities:
Net increase in deposits 26,356 28,582
Net increase in FHLB advances 20,000 60,000
Decrease in advance payments by borrowers for taxes and insurance (13,431) (12,418)
Dividends paid (1,932) (1,912)
Common stock options exercised 5 14
Purchase of treasury stock (14,076) (3,011)
Purchase of common stock by recognition and retention plan --- (7,171)
-------------- -------
Net cash provided by financing activities 16,922 64,084
-------------- ------
Net increase (decrease) in cash and cash equivalents (201) 16,643
Cash and cash equivalents - beginning of period 63,173 63,763
-------------- ------
Cash and cash equivalents - end of period $62,972 $80,406
============== =======
Supplemental disclosures:
Cash paid for:
Interest $13,080 $11,762
Taxes 325 570
Noncash investing and financing activities:
Additions to real estate acquired in settlement of loans
through foreclosure 400 177
Sale of real estate owned financed by the Company 281 188
Tax benefit of stock plans credited to capital 155 107
Change in unrealized loss on securities available for sale (176) (257)
Change in deferred taxes related to securities available for
sale 68 99
</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, 1999.
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 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.
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. The Company adopted Statement 134 on
October 1, 1999 and the statement did 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, 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.
<PAGE>
<TABLE>
<CAPTION>
Three months ended
December 31,
1999 1998
---- ----
<S> <C> <C>
Net income $5,148,468 $4,953,835
========= =========
Weighted average common shares outstanding:
Shares outstanding 26,808,028 30,625,196
Less weighted average uncommitted ESOP shares (1,268,550) (1,356,459)
---------- -----------
Total 29,268,737
==========
25,539,478
Basic earnings per share $ 0.20 $ 0.17
===== =====
Weighted average common shares outstanding 25,539,478 29,268,737
Additional dilutive shares related to stock benefit plans 387,450 287,844
------- -------
Total weighted average common shares and equivalents
outstanding for diluted earnings per share computation 25,926,928 29,556,581
========== ==========
Diluted earnings per share $ 0.20 $ 0.17
===== =====
</TABLE>
Additional dilutive shares are calculated under the treasury stock method
utilizing the average market value of the Company's stock for the period.
3). INVESTMENT AND MORTGAGE BACKED SECURITIES
The amortized cost and estimated market value of investment and mortgage-backed
securities as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(Dollars in thousands)
Available for sale:
<S> <C> <C> <C> <C>
FHLB notes $ 50,000 $ --- $890 $ 49,110
FNMA notes 19,968 --- 153 19,815
------ ----- ----- ------
69,968 --- 1,043 68,925
Equity securities 6,481 857 104 7,234
----- ----- ----- -----
76,449 857 1,147 76,159
------ ----- ----- ------
Held to maturity:
FHLB notes 9,996 --- 16 9,980
Municipal securities 915 --- 91 824
--- ----- ---- ---
10,911 --- 107 10,804
------ ----- ---- ------
FHLMC mortgage-backed securities 83,755 219 3,244 80,730
FNMA mortgage-backed securities 103,709 137 2,363 101,483
------- ----- ----- -------
187,464 356 5,607 182,213
------- ----- ----- -------
$274,824 $1,213 $6,861 $269,176
======= ===== ===== =======
</TABLE>
<PAGE>
The amortized cost and estimated market value of investment and mortgage-backed
securities as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(Dollars in thousands)
Available for sale:
<S> <C> <C> <C> <C>
FHLB notes $ 50,000 $ --- $498 $ 49,502
FNMA notes 19,961 --- 86 19,875
------ --- -- ------
69,961 --- 584 69,377
Equity securities 6,320 577 108 6,789
----- --- --- -----
76,281 577 692 76,166
------ --- --- ------
Held to maturity:
FHLB notes 9,995 --- 3 9,992
Municipal securities 915 --- 63 852
--- --- -- ---
10,910 --- 66 10,844
------ --- -- ------
FHLMC mortgage-backed securities 88,191 312 2,444 86,059
FNMA mortgage-backed securities 108,780 314 1,679 107,415
------- --- ----- -------
196,971 626 4,123 193,474
------- --- ----- -------
$284,162 $1,203 $4,881 $280,484
======= ===== ===== =======
</TABLE>
The amortized cost and estimated market value of debt securities at December 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.
<TABLE>
<CAPTION>
December 31, 1999 September 30, 1999
----------------- ------------------
Amortized Estimated Amortized Estimated
cost market value cost market value
---- ------------ ---- ------------
(Dollars in thousands)
Available for sale:
<S> <C> <C> <C> <C>
Due in one year or less $ --- $ --- $ --- $ ---
Due in one to five years 69,968 68,925 69,961 69,377
------ ------ ------ ------
69,968 68,925 69,961 69,377
------ ------ ------ ------
Held to maturity:
Due in one year or less 9,996 9,980 9,995 9,992
Due after ten years 915 824 915 852
--- --- --- ---
10,911 10,804 10,910 10,844
------ ------ ------ ------
FHLMC mortgage-backed securities 83,755 80,730 88,191 86,059
FNMA mortgage-backed securities 103,709 101,483 108,780 107,415
------- ------- ------- -------
187,464 182,213 196,971 193,474
------- ------- ------- -------
$268,343 $261,942 $277,842 $273,695
======= ======= ======= =======
</TABLE>
As of December 31, 1999, the Company had pledged securities with a market value
of $629,000 and a carrying value of $715,000 to collateralize the public funds
on deposit. The Company had also pledged mortgage-backed securities with a
market value of $951,000 and a carrying value of $944,000 to collateralize
treasury, tax and loan accounts as of December 31, 1999. Additionally, the
Company had pledged FHLB notes with a market value of $19,766,000 and a carrying
value of $19,782,000 to collateralize possible Federal Reserve discount window
borrowing.
<PAGE>
4). Loans
Loans are summarized below:
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
---- ----
Mortgage loans: (Dollars in thousands)
<S> <C> <C> <C>
Construction 1-4 family $ 96,030 $ 91,922
Permanent 1-4 family 811,289 788,408
Multi-family 15,394 15,141
Nonresidential 107,138 99,824
Land 40,463 41,882
------ ------
Total mortgage loans 1,070,314 1,037,177
--------- ---------
Other loans:
Commercial nonmortgage 21,551 21,192
Home improvement 17,244 17,205
Manufactured housing 15,728 16,190
Other consumer 69,201 65,489
------ ------
Total other loans 123,724 120,076
------- -------
Total loans 1,194,038 1,157,253
--------- ---------
Less:
Loans in process 73,729 70,722
Net deferred loan fees and discounts 4,237 4,244
Allowance for loan losses 12,079 11,952
------ ------
90,045 86,918
------ ------
Total loans, net $ 1,103,993 $ 1,070,335
========== =========
</TABLE>
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
Three months ended
December 31,
1999 1998
---- ----
(Dollars in thousands)
<S> <C> <C>
Beginning balance $ 11,952 $ 11,818
Provision for loan losses 204 155
Charge-offs (88) (82)
Recoveries 11 29
-- --
Ending balance $ 12,079 $ 11,920
====== ======
</TABLE>
At December 31, 1999 and September 30, 1999, loans with unpaid principal
balances of approximately $3,216,000 and $2,541,000, respectively, were 90 days
or more contractually delinquent or on nonaccrual status. As of December 31,
1999 and September 30, 1999, approximately $2,615,000 and $2,059,000,
respectively, of these loans were in the process of foreclosure.
As of December 31, 1999 and September 30, 1999 mortgage loans which had been
sold on a recourse basis had outstanding principal balances of approximately
$1,320,000 and $1,413,000, respectively.
<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 is between the three months
ended December 31, 1999 and December 31, 1998.
General. Diluted earnings per share for the first fiscal quarter ended December
31, 1999, increased 17.6% to 20 cents per share on net income of $5.2 million,
compared to 17 cents per share on net income of $5.0 million for the same period
last year. This increase was due primarily to an increase in average
interest-earning assets and a decrease in the average number of shares
outstanding.
Net Interest Income. Net interest income increased 3.6% to $14.0 million for the
quarter ended December 31, 1999, from $13.5 million for the quarter ended
December 31, 1998. This increase was due primarily to an increase in average
interest-earning assets to $1.431 billion for the quarter ended December 31,
1999, compared to $1.344 billion for the comparable period in 1998.
Provision for Loan Losses. The provision for loan losses was $204,000 for the
quarter ended December 31, 1999, compared to $155,000 for the comparable period
in 1998. The provision for the quarter ended December 31, 1999 was principally
comprised of a charge of $257,000 due to loan growth, $77,000 for net charge
offs partially offset by a credit of $130,000 related to a decrease in the level
of classified loans. The provision for the quarter 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. While the Company's management uses available information to
recognize losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions.
Other Income. Other income increased to $1.6 million for the quarter ended
December 31, 1999, from $1.5 million for the comparable period in 1998. This
increase is due primarily to an increase of $335,000 in other fees and service
charges partially offset by a decrease of $137,000 in income from real estate
operations. Other fees and service charges, primarily from fees and service
charges on deposit products, were $1.5 million and $1.2 million for the quarters
ended December 31, 1999 and 1998, respectively. This increase was due primarily
to the growth in deposits. Income from real estate operations was $83,000 for
the quarter ended December 31, 1999, compared to $220,000 in the comparable
period in 1998. This decrease was due primarily to a $130,000 increase in the
provision for losses on real estate owned. The provision was $12,000 for the
quarter ended December 31, 1999, compared to a credit of $118,000 for the
comparable period in 1998.
<PAGE>
Other Expense. Other expense increased to $7.0 million for the quarter ended
December 31, 1999, from $6.5 million for the comparable period in 1998 due
primarily to an increase of $237,000 in occupancy expense and an increase of
$256,000 in other expense. The increase in occupancy expense is due primarily to
an increase in data processing equipment expense and expenses resulting from the
addition of three new branch offices during the last fiscal year. The increase
in other expenses is due primarily to an increase of $81,000 in deposit account
losses and other increases resulting from the growth in loans and deposits.
Income Taxes. Income tax expense remained constant at $3.3 million for the
quarters ended December 31, 1999 and 1998, due primarily to a decrease in the
effective tax rate to 38.8% in 1999 from 40.3% in 1998. The decrease in the
effective tax rate for the quarter ending December 31, 1999 is due primarily to
the difference between the financial and the tax treatment of the expense of
stock benefit plans.
Financial Condition
Total assets increased to $1.488 billion at December 31, 1999, from $1.463
billion at the fiscal year ended September 30, 1999. The increase is due
primarily to the growth in net loans.
Interest-bearing deposits in other banks decreased to $17.5 million at December
31, 1999, from $33.0 million at September 30, 1999. The decrease is due
primarily to a decrease in funds on deposit at the FHLB.
Mortgage-backed securities decreased to $187.5 million at December 31, 1999,
from $197.0 million at September 30, 1999. The decrease is due primarily to $9.5
million of repayments.
Net loans increased to $1.104 billion at December 31, 1999, from $1.070 billion
at September 30, 1999. The increase is due primarily to loan disbursements of
$101.8 million partially offset by repayments of $67.8 million. The increase in
net loans for the quarter ending December 31, 1999 is due primarily to a net
increase of $25.2 million in residential 1-4 family mortgage loans, $5.0 million
in nonresidential mortgage loans and $3.3 million in consumer loans.
Deposits increased to $1.004 billion at December 31, 1999, from $977.6 million
at September 30, 1999. The increase is due primarily to a net increase in
deposits before interest credited of $17.6 million and interest credited of $8.8
million. The increase in deposits for the quarter ending December 31, 1999 is
due primarily to an increase of $11.1 million in core deposits and $15.3 million
in certificate accounts.
FHLB advances increased to $245.0 million at December 31, 1999, from $225.0
million at September 30, 1999. The increase is due to a new short-term fixed
rate advance of $20.0 million for potential Y2K liquidity.
Stockholders' equity decreased to $225.5 million at December 31, 1999, from
$235.9 million at September 30, 1999. The decrease is due primarily to the
repurchase of $14.1 million of Company common stock to be held as treasury
stock, partially offset by $5.2 million of earnings for the quarter. During the
quarter, the Company repurchased 1,131,922 shares at an average price of $12.44
per share to be held as treasury stock in accordance with the Company's stock
repurchase program.
<PAGE>
At December 31, 1999, the Bank exceeded all regulatory capital requirements as
follows:
<TABLE>
<CAPTION>
Excess of actual
over regulatory
Required Actual requirements
-------- ------ ------------
% of % of
Amount Assets Amount Assets
------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible capital $22,191 1.50% $149,833 10.13% $127,642
Core capital $59,176 4.00% $149,833 10.13% $ 90,657
Risk-based capital $64,424 8.00% $159,241 19.77% $ 94,817
</TABLE>
Cash Flow
Net cash provided by the Company's operating activities (i.e. cash items
affecting net income) was $9.2 million and $8.2 million for the three months
ended December 31, 1999 and 1998, respectively.
Net cash used by the Company's investing activities (i.e. cash used primarily
from its investment securities, mortgage-backed securities and loan portfolios)
was $26.4 million and $55.6 million for the three months ended December 31, 1999
and 1998, respectively. The decrease in 1999 was principally due to a $50.2
million decrease in the purchase of mortgage-backed securities partially offset
by a decrease of $16.6 million in proceeds from principal repayments from
mortgage-backed securities.
Net cash provided by the Company's financing activities (i.e. cash receipts
primarily from net increases (decreases) in deposits and net FHLB advances) was
$16.9 million and $64.1 million for the three months ended December 31, 1999 and
1998, respectively. The decrease in 1999 was principally due to a $40.0 million
decrease in borrowings from the FHLB. In 1998, the Company borrowed $50 million
of new long-term fixed rate advances in order to fund the purchases of $50
million fifteen-year fixed rate mortgage-backed securities.
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 was established and resources were mobilized
throughout the Company to support this effort.
The Company has not experienced any date change related problems that affected
operations. Various tests were conducted throughout the rollover weekend and the
first part of the New Year. The Company also contacted third party vendors and
commercial customers to obtain their Year 2000 status. Testing and monitoring
will continue throughout the year for month-end, leap year, quarter-end, and
year-end to mitigate risk and assure operations are functioning correctly.
It has been the Company's intention to maintain normal business operations
during the Year 2000 transition and beyond. Consequently, the Year 2000
Contingency Plan and Year 2000 Contingency Procedures will be adjusted as
necessary and incorporated into the Company's Corporate Contingency Manual.
These documents will provide the means of ensuring the continuity of daily
operations in the event of any loss of essential resources.
<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:
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual mortgage loans:
Delinquent less than 90 days $ 28 $ ---
Delinquent 90 days or more 2,871 2,343
----- -----
Total 2,899 2,343
Nonaccrual other loans:
Delinquent 90 days or more 317 198
--- ---
Total nonperforming loans 3,216 2,541
Real estate owned, net of related allowance 925 911
--- ---
Total nonperforming assets $ 4,141 $ 3,452
===== =====
Nonperforming loans to total net loans .29% .24%
Total nonperforming assets to total assets .28% .24%
Allowance for loan losses to total loans 1.09% 1.12%
Allowance for loan losses to nonperforming loans 375.57% 470.31%
Allowance for loan losses to classified loans 244.34% 230.73%
</TABLE>
<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, 1999. 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, 1999.
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
<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:
<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: February 11, 2000 /s/
---------------------------
Michael J. Brown, Sr.
President and Chief Executive Officer
Date: February 11, 2000 /s/
---------------------------
Don W. Bebber
Senior Vice President, Finance and
Principal Financial Officer
<TABLE> <S> <C>
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<S> <C>
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<PERIOD-START> OCT-1-1999
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0
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</TABLE>
