UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
-----------
FORM 10-Q
(MarkOne)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2000
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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 July 24, 2000, there were 25,454,203 shares of the Registrant's
common stock outstanding.
<PAGE>
HARBOR FLORIDA BANCSHARES, INC.
Table of Contents
Part I. Financial Information Page
Item 1. Financial Statements
Condensed Consolidated Statements of Financial
Condition as of June 30, 2000 and September 30, 1999
(unaudited)....................................................... 2
Condensed Consolidated Statements of Earnings
for the three and nine months ended June 30, 2000
and 1999 (unaudited)...............................................3
Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 2000 and 1999 (unaudited).......4
Notes to Condensed Consolidated Financial Statements (unaudited)...6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................12
Item 3. Quantitative and Qualitative Disclosures about Market
Risk and Asset and Liability Management...........................16
Part II. Other Information
Item 1. Legal Proceedings.................................................16
Item 2. Changes in Securities.............................................16
Item 3. Defaults Upon Senior Securities...................................16
Item 4. Submission of Matters to a Vote of Security-Holders...............16
Item 5. Other Information.................................................16
Item 6. Exhibits and Reports on Form 8-K..................................16
Signature Page....................................................18
<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>
June 30, September 30,
2000 1999
---- ----
Assets
<S> <C> <C>
Cash and amounts due from depository institutions $ 33,800 $ 30,214
Interest-bearing deposits in other banks 821 32,959
Investment securities held to maturity 10,199 10,910
Investment securities available for sale 74,539 76,166
Mortgage-backed securities held to maturity 172,246 196,971
Loans held for sale 2,256 1,747
Loans, net 1,204,200 1,070,335
Accrued interest receivable 8,144 7,580
Real estate owned 1,124 911
Premises and equipment 21,006 20,139
Federal Home Loan Bank stock 12,250 11,250
Goodwill, net 2,209 2,361
Other assets 1,544 1,007
----- -----
Total assets $ 1,544,338 $1,462,550
=========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 1,068,624 $ 977,595
FHLB Advances 239,000 225,000
Advance payments by borrowers for taxes and insurance 15,541 18,951
Income taxes payable 679 22
Other liabilities 4,446 5,060
----- -----
Total liabilities 1,328,290 1,226,628
--------- ---------
Stockholders' Equity:
Preferred stock --- ---
Common stock 3,113 3,110
Paid-in capital 191,917 191,016
Retained earnings 106,286 96,485
Common stock purchased by:
Employee stock ownership plan (ESOP) (12,222) (12,746)
Recognition and retention plans (RRP) (6,215) (6,258)
Accumulated other comprehensive loss, net (689) (70)
Treasury stock (66,142) (35,615)
-------- --------
Total stockholders' equity 216,048 235,922
------- -------
Total Liabilities and Stockholders' Equity $ 1,544,338 $1,462,550
=========== ==========
</TABLE>
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 share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Loans $ 24,130 $ 20,704 $ 68,640 $ 60,859
Investment securities 1,459 1,518 4,378 4,673
Mortgage-backed securities 2,829 3,169 8,823 9,939
Other 19 656 827 2,070
------------ ------------ ------------ ------------
Total interest income 28,437 26,047 82,668 77,541
------------ ------------ ------------ ------------
Interest expense:
Deposits 10,582 9,336 30,315 28,382
Other 3,301 2,862 9,775 8,219
------------ ------------ ------------ ------------
Total interest expense 13,883 12,198 40,090 36,601
------------ ------------ ------------ ------------
Net interest income 14,554 13,849 42,578 40,940
Provision for loan losses 244 155 637 665
------------ ------------ ------------ ------------
Net interest income after
provision for loan
losses 14,310 13,694 41,941 40,275
------------ ------------ ------------ ------------
Other income:
Other fees and service charges 1,684 1,390 4,918 3,962
Income from real estate operations 102 104 200 399
Gain on sale of mortgage loans 29 17 1 63
Gain on sale of securities available for sale --- --- 103 ---
Other 165 64 286 172
------------ ------------ ------------ ------------
Total other income 1,980 1,575 5,508 4,596
------------ ------------ ------------ ------------
Other expenses:
Compensation and employee benefits 4,068 3,788 12,232 11,516
Occupancy 1,070 841 3,140 2,442
Advertising and promotion 288 218 818 774
Data processing services 441 367 1,306 1,122
Other 1,222 1,176 3,845 3,409
------------ ------------ ------------ ------------
Total other expense 7,089 6,390 21,341 19,263
------------ ------------ ------------ ------------
Income before income taxes 9,201 8,879 26,108 25,608
Income tax expense 3,540 3,405 10,087 9,957
------------ ------------ ------------ ------------
Net income $ 5,661 $ 5,474 $ 16,021 $ 15,651
========== ========== ============ ============
Net income per share
Basic $ 0.24 $ 0.20 $ 0.65 $ 0.56
====== ====== ====== ======
Diluted $ 0.23 $ 0.20 $ 0.64 $ 0.55
====== ====== ====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
June 30
2000 1999
---- ----
<S> <C> <C>
Cash provided by operating activities:
Net income 16,021 15,651
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on sale of investment securities available for sale (103) ---
Gain on sale of premises and equipment (117) (3)
Gain on sale of real estate owned (218) (168)
Provision for loan losses 637 665
Provision for (recovery of) losses on real estate owned 25 (216)
Depreciation and amortization 1,357 1,217
Amortization of stock benefit plans 1,256 1,573
ESOP forfeitures transferred to Treasury stock (11) (44)
Amortization of goodwill 152 152
Net amortization of other purchase accounting adjustments 54 60
Amortization of deferred loan fees and costs (1,049) (1,213)
Accretion of discount on purchased loans (10) (10)
Originations of loans held for sale (3,150) (7,632)
Proceeds from sale of loans held for sale 2,642 5,795
Increase in deferred loan fees and costs 1,100 1,654
(Increase) decrease in accrued interest receivable (564) 265
Increase in other assets (537) (540)
Increase (decrease) in income taxes payable 810 (184)
Deferred income tax benefit (534) (280)
Increase (decrease) in other liabilities 308 (19)
-------- -----
Net cash provided by operating activities 18,069 16,723
-------- ------
Cash used by investing activities:
Net increase in loans (135,614) (91,625)
Purchase of mortgage-backed securities --- (70,073)
Proceeds from principal repayments of mortgage-backed securities 24,627 61,278
Proceeds from maturities and calls of investment securities held to
maturity 715 20,000
Purchase of investment securities held to maturity --- (715)
Proceeds from maturities and calls of investment securities
available for sale --- 20,000
Proceeds from sale of investment securities available for sale 1,663 ---
Purchase of investment securities available for sale (918) (25,359)
Proceeds from sale of real estate owned 996 1,433
Purchase of premises and equipment (2,343) (3,584)
Proceeds from sale of premises and equipment 308 75
FHLB stock purchase (1,000) (2,038)
--------- -------
Net cash used by investing activities (111,566) (90,608)
--------- --------
4
<PAGE>
Nine months ended
June 30
2000 1999
---- ----
Cash provided by financing activities:
Net increase in deposits 91,029 55,257
Net increase in FHLB advances 14,000 60,000
Decrease in advance payments by borrowers for taxes and insurance (3,410) (3,305)
Dividends paid (6,220) (6,082)
Common stock options exercised 62 311
Purchase of treasury stock (30,516) (26,275)
Purchase of common stock by recognition and retention plan --- (7,171)
--------- -------
Net cash provided by financing activities 64,945 72,735
--------- ------
Net increase (decrease) in cash and cash equivalents (28,552) 1,150
Cash and cash equivalents - beginning of period 63,173 63,763
--------- ------
Cash and cash equivalents - end of period $34,621 $62,613
========= =======
Supplemental disclosures:
Cash paid for:
Interest $40,008 $36,216
Taxes 9,810 10,395
Noncash investing and financing activities:
Additions to real estate acquired in settlement of loans
through foreclosure 1,647 976
Sale of real estate owned financed by the Company 631 944
Tax benefit of stock plans credited to capital 153 107
Change in unrealized gain (loss) on securities available for
sale (1,007) (608)
Change in deferred taxes related to securities available for
sale 388 234
Distribution of recognition and retention plan 43 ---
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<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. In June 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,
an amendment to FASB Statement No. 133" ("Statement 138"). Statement 138
addresses a limited number of issues causing implementation difficulties for
numerous entities that apply Statement 133. 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.
6
<PAGE>
2). NET INCOME PER SHARE
Net income per share was computed by dividing net income by the weighted average
number of shares of common stock outstanding during the three months and nine
months ended June 30, 2000 and 1999. Adjustments have been made, where material,
to give effect to the shares that would be outstanding, assuming the exercise of
dilutive stock options, all of which are considered common stock equivalents.
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30 June 30
-------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $5,661,182 $5,474,268 $16,021,063 $15,650,774
========= ========= ========== ==========
Weighted average common shares outstanding:
Shares outstanding 25,221,622 28,323,965 26,003,493 29,449,739
Less weighted average uncommitted ESOP
shares (1,231,901) (1,303,468) (1,250,513) (1,326,950)
---------- ----------- ---------- -----------
Total 23,989,721 27,020,497 28,122,789
========== ========== ==========
24,752,980
Basic earnings per share $ .24 $ 0.20 $ 0.65 $ 0.56
==== ===== ===== =====
Weighted average common shares outstanding 23,989,721 27,020,497 24,752,980 28,122,789
Additional dilutive shares related to
stock benefit plans 118,723 314,204 215,228 282,855
------- ------- ------- -------
Total weighted average common shares and
equivalents outstanding for diluted
earnings per share computation 24,108,443 27,361,701 24,968,208 28,405,644
========== ========== ========== ==========
Diluted earnings per share $ 0.23 $ 0.20 $ 0.64 $ 0.55
===== ===== ===== =====
</TABLE>
Additional dilutive shares are calculated under the treasury stock method
utilizing the average market value of the Company's stock for the period.
7
<PAGE>
3). INVESTMENT AND MORTGAGE BACKED SECURITIES
The amortized cost and estimated market value of investment and mortgage-backed
securities as of June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Available for sale:
FHLB notes $ 50,000 $ --- $958 $ 49,042
FNMA notes 19,983 --- 119 19,864
------ --- --- ------
69,983 --- 1,077 68,906
Equity securities 5,678 188 233 5,633
----- --- --- -----
75,661 188 1,310 74,539
------ --- ----- ------
Held to maturity:
FHLB notes 9,999 --- 4 9,995
Municipal securities 200 --- 2 198
--- --- - ---
10,199 --- 6 10,193
------ --- - ------
FHLMC mortgage-backed securities 78,204 237 3,380 75,061
FNMA mortgage-backed securities 94,042 89 2,647 91,484
------ -- ----- ------
172,246 326 6,027 166,545
------- --- ----- -------
$258,106 $514 $ 7,343 $251,277
======= === ===== =======
</TABLE>
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)
<S> <C> <C> <C> <C>
Available for sale:
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>
8
<PAGE>
The amortized cost and estimated market value of debt securities at June 30,
2000 and September 30, 1999 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>
June 30, 2000 September 30, 1999
------------- ------------------
Amortized Estimated Amortized Estimated
cost market value cost market value
---- ----- ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Available for sale:
Due in one year or less $19,983 $ 19,864 $ --- $ ---
Due in one to five years 50,000 49,042 69,961 69,377
------ ------ ------ ------
69,983 68,906 69,961 69,377
------ ------ ------ ------
Held to maturity:
Due in one year or less 9,999 9,995 9,995 9,992
Due after ten years 200 198 915 852
--- --- --- ---
10,199 10,193 10,910 10,844
------ ------ ------ ------
FHLMC mortgage-backed securities 78,204 75,061 88,191 86,059
FNMA mortgage-backed securities 94,042 91,484 108,780 107,415
------ ------ ------- -------
172,246 166,545 196,971 193,474
------- ------- ------- -------
$252,428 $245,644 $277,842 $273,695
======= ======= ======= =======
</TABLE>
As of June 30, 2000, the Company had pledged securities with a market value of
$198,000 and a carrying value of $200,000 to collateralize the public funds on
deposit. The Company had also pledged mortgage-backed securities with a market
value of $844,000 and a carrying value of $846,000 to collateralize treasury,
tax and loan accounts as of June 30, 2000.
9
<PAGE>
4). Loans
Loans are summarized below:
June 30 September 30,
2000 1999
---- ----
Mortgage loans: (Dollars in thousands)
Construction 1-4 family $ 101,844 $ 91,922
Permanent 1-4 family 870,271 788,408
Multi-family 15,206 15,141
Nonresidential 115,306 99,824
Land 52,483 41,882
------ ------
Total mortgage loans 1,155,110 1,037,177
--------- ---------
Other loans:
Commercial nonmortgage 24,744 21,192
Home improvement 20,009 17,205
Manufactured housing 15,668 16,190
Other consumer 76,817 65,489
------ ------
Total other loans 137,237 120,076
------- -------
Total loans 1,292,347 1,157,253
--------- ---------
Less:
Loans in process 71,294 70,722
Net deferred loan fees and discounts 4,309 4,244
Allowance for loan losses 12,544 11,952
------ ------
88,147 86,918
------ ------
Total loans, net $ 1,204,200 $ 1,070,335
========== =========
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Beginning balance $ 12,293 $ 11,870 $ 11,952 $ 11,818
Provision for loan losses 244 155 637 665
Charge-offs (12) (59) (136) (566)
Recoveries 19 17 91 66
------ ------ ------ ------
Ending balance $ 12,544 $ 11,983 $ 12,544 $ 11,983
====== ====== ====== ======
</TABLE>
At June 30, 2000 and September 30, 1999, loans with unpaid principal balances of
approximately $2,554,000 and $2,541,000, respectively, were 90 days or more
contractually delinquent or on nonaccrual status. As of June 30, 2000 and
September 30, 1999, approximately $2,257,000 and $2,059,000, respectively, of
these loans were in the process of foreclosure.
As of June 30, 2000 and September 30, 1999 mortgage loans which had been sold on
a recourse basis had outstanding principal balances of approximately $1,100,000
and $1,413,000, respectively.
10
<PAGE>
5). Subsequent event
On July 3, 2000, Harbor Federal Savings Bank completed its acquisition of Haynes
and Haynes Insurance Company. Haynes and Haynes Insurance Company, specializing
in property and casualty insurance, has been serving the residents and
businesses in St. Lucie County for 99 years. The acquisition of this agency
complements the Bank's full line of banking products with the addition of a full
range of insurance products to meet the growing needs of our customers spanning
six counties.
Harbor Insurance Agency, Inc., a wholly owned subsidiary of the Bank, will
continue to operate at Haynes and Haynes Insurance Agency's present location in
Ft. Pierce, Florida. The principal owners and managers of Haynes and Haynes
Insurance Agency will continue as the management team for Harbor Insurance
Agency, Inc.
On July 21, 2000, Harbor Insurance Agency completed the acquisition of certain
assets of the Enns Agency. The Enns Agency is located in Ft. Pierce, Florida and
specializes in property and casualty insurance. The Enns Agency was owned by
Edward G. Enns, Chairman of the Company.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Special Note Regarding Forward-Looking Statements
This report contains certain "forward-looking statements." Harbor Florida
Bancshares, Inc. (the "Company") desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing itself of the
protections of the safe harbor with respect to all such forward-looking
statements. These forward-looking statements, which are included in Management's
Discussion and Analysis, describe future plans or strategies and include the
Company's expectations of future financial results. The words "believe,"
"expect," "anticipate," "estimate," "project," and similar expressions identify
forward-looking statements. The Company's ability to predict results or the
effect of future plans or strategies or qualitative or quantitative changes
based on market risk exposure is inherently uncertain. Factors which could
affect actual results include but are not limited to i) change in general market
interest rates, ii) general economic conditions, iii) legislative/regulatory
changes, iv) monetary and fiscal policies of the U.S. Treasury and the Federal
Reserve, v) changes in the quality or composition of the Company's loan and
investment portfolios, vi) demand for loan products, vii) deposit flows, viii)
competition, and ix) demand for financial services in the Company's markets.
These factors should be considered in evaluating the forward-looking statements,
and undue reliance should not be placed on such statements.
Results of Operations
Comparisons of quarterly results in this section are between the three months
ended June 30, 2000 and June 30, 1999. Comparisons of fiscal year to date
results are between the nine months then ended.
General. Diluted earnings per share for the third fiscal quarter ended June 30,
2000, increased 15.0% to 23 cents per share on net income of $5.7 million,
compared to 20 cents per share on net income of $5.5 million for the same period
last year. Diluted earnings per share for the nine months ended June 30, 2000,
increased 16.4% to 64 cents per share on net income of $16.0 million, compared
to 55 cents on net income of $15.7 million for the same period last year. The
increase for both the quarter and nine months was due primarily to the growth in
the loan portfolio, increased non-interest income due to the growth in
transaction accounts partially offset by increased operating expenses and a
decrease in the average number of shares of common stock outstanding.
Net Interest Income. Net interest income increased 5.1% to $14.6 million for the
quarter ended June 30, 2000, from $13.8 million for the quarter ended June 30,
1999. For the nine months ended June 30, 2000, net interest income increased
4.0% to $42.6 million compared to $40.9 million for the same period last year.
This increase was a result of a $70.9 million increase in average
interest-earning assets to $1.444 billion for the nine months ended June 30,
2000, from $1.373 billion in the comparable period in 1999. The average balance
of the loan portfolio increased by $138.8 million. This increase was partially
offset by a decrease of $67.9 million in the average balances of interest
bearing deposits and the securities portfolio, the proceeds of which were used
primarily to fund the repurchase of the Company's stock.
Provision for Loan Losses. The provision for loan losses was $244,000 for the
quarter ended June 30, 2000, compared to $155,000 for the comparable period in
1999. For the nine months ended June 30, 2000, the provision for loan losses was
$637,000 compared to $665,000 for the comparable period in 1999. The provision
for the nine months ended June 30, 2000 was principally comprised of a charge of
$660,000 due to loan growth, primarily in the commercial real estate and
residential loan portfolios, $45,000 for net charge offs partially offset by a
credit of $68,000 related to a decrease in the level of classified loans. The
provision for the nine months ended June 30, 1999 was principally comprised of a
charge of $462,000 due to loan growth, primarily in the commercial real estate,
commercial business and residential loan portfolios, $220,000 for net charge
offs and a credit of $17,000 related to a decrease in the level of classified
loans. 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.
12
<PAGE>
Other Income. Other income increased to $2.0 million for the quarter ended June
30, 2000, from $1.6 million for the comparable period in 1999. Other income
increased to $5.5 million for the nine months ended June 30, 2000, from $4.6
million for the comparable period in 1999. This increase is due primarily to an
increase of $956,000 in other fees and service charges and to $115,000 gain on
the sale of land partially offset by a decrease of $199,000 in income from real
estate operations. Other fees and service charges, primarily from fees and
service charges on deposit products, were $4.9 million and $4.0 million for the
nine months ended June 30, 2000 and 1999, respectively. This increase was due
primarily to the growth in transaction accounts. Income from real estate
operations was $200,000 for the nine months ended June 30, 2000, compared to
$399,000 in the comparable period in 1999. This decrease was due primarily to a
$240,000 increase in the provision for losses on real estate owned. The
provision was $25,000 for the nine months ended June 30, 2000, compared to a
credit of $216,000 for the comparable period in 1999.
Other Expenses. Other expenses increased to $7.1 million for the quarter ended
June 30, 2000, from $6.4 million for the comparable period in 1999. Other
expenses increased to $21.3 million for the nine months ended June 30, 2000,
from $19.3 million for the comparable period in 1999 due primarily to an
increase of $716,000 in compensation and benefits, an increase of $698,000 in
occupancy expense and an increase of $436,000 in other expenses. The increase in
compensation and benefits is due primarily to annual salary increases and
additional staff required to support the growth in loans and deposits. 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 $213,000 in professional fees and other increases
resulting from the growth in loans and deposits. The increase in professional
fees is due primarily to fees paid to a consulting firm for a net interest
margin and product pricing study.
Income Taxes. Income tax expense increased to $3.5 million for the quarter ended
June 30, 2000, from $3.4 million for the same period last year. Income tax
expense increased to $10.1 million for the nine months ended June 30, 2000, from
$10.0 million for the comparable period in 1999 due primarily to an increase in
pretax accounting income, partially offset by a decrease in the effective tax
rate to 38.6% in 2000 from 38.9% in 1999. The decrease in the effective tax rate
for the nine months ending June 30, 2000 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 $1.544 billion at June 30, 2000, from $1.463 billion
at the fiscal year ended September 30, 1999. The increase is due primarily to
the growth in net loans partially offset by the decrease in interest bearing
deposits and the securities portfolio.
Interest-bearing deposits in other banks decreased to $821,000 at June 30, 2000,
from $33.0 million at September 30, 1999. The decrease is due primarily to a
decrease in funds on deposit at the FHLB, the proceeds of which were used
primarily to fund the repurchase of the Company's stock.
Mortgage-backed securities decreased to $172.2 million at June 30, 2000, from
$197.0 million at September 30, 1999. The decrease is due primarily to $24.6
million of repayments.
Net loans increased to $1.204 billion at June 30, 2000, from $1.070 billion at
September 30, 1999. The increase is due primarily to loan disbursements of
$343.6 million partially offset by repayments of $208.0 million. The increase in
net loans for the nine months ending June 30, 2000 is due primarily to a net
increase of $89.6 million in residential 1-4 family mortgage loans, $16.0
million in nonresidential mortgage loans, $12.1 million in land loans and $13.6
million in consumer loans.
13
<PAGE>
Deposits increased to $1.069 billion at June 30, 2000, from $977.6 million at
September 30, 1999. The increase is due primarily to a net increase in deposits
before interest credited of $64.0 million and interest credited of $27.0
million. The increase in deposits for the nine months ending June 30, 2000 is
due primarily to an increase of $50.6 million in core deposits and $40.4 million
in certificate accounts.
FHLB advances increased to $239.0 million at June 30, 2000, from $225.0 million
at September 30, 1999. The increase is due to a new short-term daily rate
advance of $14.0 million.
Stockholders' equity decreased to $216.0 million at June 30, 2000, from $235.9
million at September 30, 1999. The decrease is due primarily to the repurchase
of $30.5 million of Company common stock to be held as treasury stock, partially
offset by $16.0 million of earnings for the fiscal year. During the fiscal year,
the Company repurchased 2,641,493 shares at an average price of $11.56 per share
to be held as treasury stock in accordance with the Company's stock repurchase
program.
At June 30, 2000, the Bank exceeded all regulatory capital requirements as
follows:
<TABLE>
<CAPTION>
Required Actual
-------- ------ Excess of Actual
% of % of Over Regulatory
Amount Assets Amount Assets Requirements
------ ------ ------ ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible Capital $23,064 1.50% $160,868 10.46% $137,804
Core Capital $46,128 3.00% $160,868 10.46% $114,740
Risk-Based Capital $69,914 8.00% $170,998 19.57% $101,084
</TABLE>
Cash Flow
Net cash provided by the Company's operating activities (i.e. cash items
affecting net income) was $18.1 million and $16.7 million for the nine months
ended June 30, 2000 and 1999, 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 $111.6 million and $90.6 million for the nine months ended June 30, 2000 and
1999, respectively. The increase in cash flows in 2000 was principally due to an
increase of $44.0 million in net loans, a decrease of $39.3 million in proceeds
from maturity of investment securities and a decrease of $24.4 million in the
purchase of investment securities partially offset by a $70.1 million decrease
in the purchase of mortgage-backed securities and a decrease of $36.7 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
$64.9 million and $72.7 million for the nine months ended June 30, 2000 and
1999, respectively. The decrease in cash flows in 2000 was principally due to a
$46.0 million decrease in borrowings from the FHLB partially offset by a $35.8
million increase in deposits. In 1999, 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.
14
<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>
June 30, September 30,
2000 1999
---- ----
(Dollars in thousands)
<S> <C> <C>
Nonaccrual mortgage loans:
Delinquent less than 90 days $ --- $ ---
Delinquent 90 days or more 2,347 2,343
----- -----
Total 2,347 2,343
Nonaccrual other loans:
Delinquent 90 days or more 207 198
--- ---
Total nonperforming loans 2,554 2,541
Real estate owned, net of related allowance 1,124 911
----- ---
Total nonperforming assets $ 3,678 $ 3,452
===== =====
Nonperforming loans to total net loans .21% .24%
Total nonperforming assets to total assets .24% .24%
Allowance for loan losses to total loans 1.04% 1.12%
Allowance for loan losses to nonperforming loans 491.22% 470.31%
Allowance for loan losses to classified loans 248.03% 230.73%
</TABLE>
15
<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 on Form 10-K 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
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)
16
<PAGE>
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.
-------------------
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARBOR FLORIDA BANCSHARES, INC.
Date: August 9, 2000 __________/s/_____________
Michael J. Brown, Sr.
President and Chief Executive Officer
Date: August 9, 2000 __________/s/______________
Don W. Bebber
Senior Vice President, Finance and
Principal Financial Officer
