HARB Harbor Florida Bancshares

FORT PIERCE, Fla., July 19 /PRNewswire-FirstCall/ -- Harbor Florida Bancshares, Inc. (NASDAQ:HARB) ("the Company"), the holding company for Harbor Federal Savings Bank ("the Bank"), announced that diluted earnings per share for its third fiscal quarter ended June 30, 2006 increased 3.9% to 53 cents per share on net income of $12.5 million, compared to 51 cents per share on net income of $11.9 million for the same period last year. Diluted earnings per share for the nine months ended June 30, 2006 increased 7.5% to $1.58 per share on net income of $36.9 million, compared to $1.47 per share on net income of $34.2 million for the same period last year. The increases for both the quarter and fiscal year to date were due primarily to increased net interest income, resulting from an increase in average interest-earning assets due primarily to originations of loans. This growth was funded primarily with deposits, FHLB advances and repayments of mortgage-backed securities. The increases in net interest income were supplemented by increased other income and partially offset by increased other expense for both periods. The Company also announced that its Board of Directors has declared a quarterly cash dividend of 27.5 cents per share for the quarter ending June 30, 2006. The dividend is payable August 18, 2006 to shareholders of record as of July 31, 2006. On July 11, 2006, National City Corporation (NYSE:NCC) and Harbor Florida Bancshares, Inc. announced that they had reached a definitive agreement by which National City would acquire Harbor Florida Bancshares, Inc. Under the terms of the agreement, Harbor Florida stockholders will receive National City common stock worth $45 for each share of Harbor Florida common stock in a tax- free exchange. The exchange ratio will be based on the average closing price of National City common stock for the 10 trading days immediately preceding Federal Reserve Board approval of the transaction. The transaction has a total indicated value of approximately $1.1 billion. Subject to regulatory and Harbor Florida stockholder approvals, the transaction is expected to close in the fourth quarter of 2006. Upon completion of the transaction, Michael J. Brown, Sr., Chairman and CEO, President and Chief Operating Officer J. Hal Roberts and Executive Vice President Michael J. Brown, Jr., will continue serving in substantially similar roles with National City's Florida Division. FINANCIAL CONDITION Total assets increased to $3.220 billion at June 30, 2006, from $3.012 billion at September 30, 2005. Total net loans increased to $2.558 billion at June 30, 2006, from $2.276 billion at September 30, 2005. Total deposits increased to $2.204 billion at June 30, 2006, from $2.056 billion at September 30, 2005. For the nine month period ended June 30, 2006, total net loans increased 12.4% due primarily to net increases of $187.8 million in residential one-to- four family mortgage loans, $35.1 million in land loans, $14.7 million in nonresidential mortgage loans, $7.9 million in multifamily loans, and $33.5 million in consumer loans. These increases were the result of increased expansion and growth in the Bank's primary markets. Loan originations, while strong in all markets, declined from the historically high levels of the past year. Specifically, total loan originations for the nine months ended June 30, 2006 were 21.4% lower than originations for the same period in 2005. The Company believes the decrease in originations was due to a combination of higher interest rates, a decline in storm related reconstruction, and somewhat lower consumer demand. Deposits at June 30, 2006 increased 7.2% to $2.204 billion from $2.056 billion at September 30, 2005 due to an increase of $281.5 million in certificate accounts partially offset by a net decrease of $134.1 million in core deposits (transaction and savings accounts). Certificate account growth reflects customers' increased preference for longer-term deposit products in a higher interest rate environment. The Company has also used selective programs to attract additional certificate accounts as a longer term, fixed-rate funding source. The Company continues to emphasize growth in transaction accounts. RESULTS OF OPERATIONS Net interest income increased 5.1% to $29.5 million for the quarter ended June 30, 2006, from $28.0 million for the quarter ended June 30, 2005. This increase was primarily a result of a 9.32% increase in average interest- earning assets over the comparable period in 2005. Average total loans increased by $396.6 million or 16.2%, reflecting continued strong loan originations as a result of expansion and growth in the Bank's primary markets. Average balances of deposits and FHLB advances increased $182.8 million and $47.2 million, respectively. The average balance of mortgage- backed securities and investment securities decreased $91.7 million and $35.0 million, respectively. The average balance of core deposits decreased to 43.2% of total average deposits from 54.6% for the same quarter last year, reflecting the increased demand for certificate accounts and the Company's programs designed to attract fixed rate deposits. Provision for loan losses was $370,000 for the quarter ended June 30, 2006, compared to a $463,000 provision for the quarter ended June 30, 2005. The provision for the quarter ended June 30, 2006 was principally comprised of a charge of $827,000 due to an increase in the level of classified loans (primarily due to one commercial business loan), offset by a decrease of $481,000 due primarily to reduced allowances provided for residential mortgage loans based on low levels of historical charge-offs and a loan mix high in residential 1-4 family loans. Charge-offs for the quarter ended June 30, 2006 were $24,000. For the nine months ended June 30, 2006, the Company recorded a net recovery of $58,000. Other income increased to $6.3 million for the quarter ended June 30, 2006, compared to $6.1 million for the quarter ended June 30, 2005. This increase was due primarily to increases of $296,000 in loan and deposit- related fees and service charges and $106,000 in insurance commission and fees. The increase in fees and service charges was primarily due to growth in transaction accounts. The increase in insurance commission and fees was due to fees from sale of insurance products. Other expense increased to $14.9 million for the quarter ended June 30, 2006, from $14.0 million for the quarter ended June 30, 2005. This increase was due primarily to increases of $216,000 in compensation and benefits, $536,000 in occupancy, $165,000 in data processing services, and $243,000 in advertising and promotion, offset by a $617,000 decrease in professional fees. The increase in compensation and benefits was primarily due to a $214,000 increase in pension expense. The increases in occupancy, data processing services and advertising and promotion were primarily due to growth in loans and deposits and expenses incurred in the opening of new branches. The decrease in professional fees was primarily due to additional expense recorded during the quarter ended June 30, 2005 related to compliance with the Sarbanes-Oxley Act of 2002 and the Bank Secrecy Act. Income tax expense was $8.1 and $7.7 million for the quarters ended June 30, 2006 and 2005. The effective tax rate was 39.2% for the both quarters. ASSET QUALITY Nonperforming loans increased to $3.9 million at March 31, 2006 from $2.2 million at September 30, 2005. Net charge-offs for the quarter ended March 31, 2006 were $24,000 compared to $6,000 in net recoveries for the same period last year. The ratio of the allowance for loan losses to total net loans decreased to .82% as of June 30, 2006, from .89% for the same period last year. This decrease reflects the Company's continued history of low net charge-offs and a loan mix high in residential 1-4 family loans. The allowance for loan losses remains sufficient to cover losses inherent in the loan portfolio. BRANCH EXPANSION During the first fiscal quarter of 2006, Harbor Federal expanded its branch network to include two new branches in Sanford and one new branch in Clermont on State Route 50. In the second fiscal quarter, Harbor Federal opened new branch facilities for its Virginia Avenue branch in Fort Pierce. In the fourth fiscal quarter of 2006, the Bank expects to complete construction and open two branches in Orange County, Florida. TREASURY STOCK REPURCHASES Harbor Florida Bancshares, Inc.'s Board of Directors approved on October 13, 2005 an extension of the Company's stock repurchase plan to October 13, 2006, permitting the Company to acquire up to 1,200,000 shares of its common stock, subject to market conditions. The Company has repurchased 517,100 shares under the current stock repurchase program. As of June 30, 2006, the Company has a total of 8,084,338 shares held as treasury stock. Harbor Federal is located in Fort Pierce, Florida and has 40 offices located in an eight-county area of East Central Florida. Harbor Florida Bancshares, Inc. common stock trades on the NASDAQ National Market under the symbol HARB. Financial highlights for Harbor Florida Bancshares, Inc. are attached. HARBOR FLORIDA BANCSHARES, INC. June 30, September 30, 2006 2005 (In Thousands) Selected Consolidated Financial Data: Total assets $3,219,540 $3,012,185 Loans, gross 2,578,855 2,295,609 Allowance for loan losses 20,878 19,748 Net loans 2,557,977 2,275,861 Loans held for sale 8,133 10,695 Interest-bearing deposits 20,109 23,689 Investment securities 109,015 128,871 Mortgage-backed securities 336,888 388,458 Goodwill 3,591 3,591 Deposits 2,203,747 2,056,307 FHLB advances 640,458 595,473 Stockholders' equity 343,603 320,511 # of common shares outstanding 24,073 23,977 Three months ended Nine months ended June 30, June 30, 2006 2005 2006 2005 (In Thousands Except per Share Data) Selected Consolidated Operating Data: Interest income $51,108 $42,481 $146,052 $120,727 Interest expense 21,641 14,447 58,808 40,094 Net interest income 29,467 28,034 87,244 80,633 Provision for loan losses 370 463 1,072 1,450 Net interest income after provision for loan losses 29,097 27,571 86,172 79,183 Other Income: Fees and service charges 4,611 4,315 13,911 12,079 Insurance commissions and fees 1,005 899 2,719 2,393 Gain on sale of mortgage loans 535 601 2,078 1,633 Gain on disposal of premises and equipment, net 98 29 83 324 Gain on sale of debt securities -- 41 -- 41 Other 88 171 219 278 Total other income 6,337 6,056 19,010 16,748 Other expenses: Compensation and benefits 8,346 8,130 25,425 23,443 Occupancy 2,500 1,964 7,155 5,636 Other 4,040 3,893 11,873 10,659 Total other expenses 14,886 13,987 44,453 39,738 Income before income taxes 20,548 19,640 60,729 56,193 Income tax expense 8,056 7,701 23,831 22,009 Net income $12,492 $11,939 $36,898 $34,184 Net income per share: Basic $0.54 $0.52 $1.60 $1.50 Diluted $0.53 $0.51 $1.58 $1.47 Weighted average shares outstanding Basic 23,148 22,839 23,076 22,763 Diluted 23,495 23,358 23,423 23,271 Three months ended Nine months ended June 30, June 30, 2006 2005 2006 2005 Selected Financial Ratios: Performance Ratios: Return on average assets (1) 1.57 % 1.64 % 1.58 % 1.61 % Return on average stockholders' equity (1) 14.78 % 15.67 % 14.89 % 15.37 % Book value per share $14.27 $13.04 $14.27 $13.04 Net interest rate spread (1) 3.60 % 3.83 % 3.66 % 3.80 % Net interest margin (1) 3.85 % 4.01 % 3.89 % 3.97 % Non-interest expense to average assets (1) 1.87 % 1.92 % 1.90 % 1.87 % Net interest income to non- interest expense (1) 1.98 x 2.00 x 1.96 x 2.03 x Average interest-earning assets to average interest- bearing liabilities 108.95 % 108.51 % 108.64 % 108.58 % Efficiency ratio (1) 42.41 % 42.07 % 42.78 % 41.78 % Asset Quality Ratios: Non-performing assets to total assets 0.13 % 0.06 % 0.12 % 0.06 % Allowance for loan losses to total loans 0.82 % 0.89 % 0.82 % 0.89 % Allowance for loan losses to classified loans 317.22 % 616.90 % 317.22 % 616.90 % Allowance for loan losses to non-performing loans 525.78 % 1,192.22 % 525.78 % 1,192.22 % Capital Ratios: Average shareholders' equity to average assets 10.61 % 10.44 % 10.59 % 10.49 % Shareholders' equity to assets at period end 10.67 % 10.62 % 10.67 % 10.62 % (1) Ratio is annualized. Three months ended Nine months ended June 30, June 30, 2006 2005 2006 2005 (In Thousands) Selected Average Balances: Total assets $3,195,462 $2,928,038 $3,128,876 $2,833,720 Interest earning assets 3,069,745 2,807,917 3,001,201 2,717,669 Gross loans 2,550,531 2,153,949 2,453,513 2,030,148 Stockholders' equity 338,982 305,686 331,289 297,362 Deposits 2,172,649 1,989,835 2,123,020 1,934,857 Asset Quality: Nonaccrual loans 3,971 1,618 3,971 1,618 Net loan charge-offs (recoveries) 24 (6) (58) (39) Loan Originations: Residential $156,982 $292,369 $538,931 $687,385 Commercial Real Estate 37,884 67,640 147,109 207,662 Consumer 47,836 55,591 133,088 140,738 Commercial Business 11,803 17,061 32,007 47,595 Total loan originations $254,505 $432,661 $851,135 $1,083,380 Loan Sales: $22,133 $36,367 $83,707 $78,223 For the three months ended June 30, Mar. 31, Dec. 31, Sept. 30, June 30, 2006 2006 2005 2005 2005 (In Thousands Except Per Share Data) Selected Consolidated Operating Data: Interest income $51,108 $48,485 $46,458 $44,158 $42,481 Interest expense 21,641 19,208 17,959 15,971 14,447 Net interest income 29,467 29,277 28,499 28,187 28,034 Provision for loan losses 370 349 352 464 463 Net interest income after provision for loan losses 29,097 28,928 28,147 27,723 27,571 Other Income: Fees and service charges 4,611 4,722 4,578 4,639 4,315 Insurance commissions and fees 1,005 1,032 683 843 899 Gain on sale of mortgage loans 535 665 877 656 601 Gain (loss) on disposal of premises and equipment, net 98 (12) (3) 476 29 Gain on sale of debt securities -- -- -- -- 41 Other 88 69 62 76 171 Total other income 6,337 6,476 6,197 6,690 6,056 Other expenses: Compensation and benefits 8,346 8,550 8,530 8,330 8,130 Occupancy 2,500 2,356 2,298 2,187 1,964 Data processing services 1,095 1,146 1,060 1,098 930 Advertising and promotion 698 647 453 650 455 Professional fees 153 470 339 431 770 Other 2,094 1,846 1,872 1,965 1,738 Total other expenses 14,886 15,015 14,552 14,661 13,987 Income before income taxes 20,548 20,389 19,792 19,752 19,640 Income tax expense 8,056 7,954 7,821 7,740 7,701 Net income $12,492 $12,435 $11,971 $12,012 $11,939 Net income per share: Basic $0.54 $0.54 $0.52 $0.52 $0.52 Diluted $0.53 $0.53 $0.51 $0.51 $0.51 Three months ended June 30, 2006 Average Interest & Yield/ Balance Dividend Rate (Dollars in Thousands) Analysis of Net Interest Income: Assets: Interest-earning assets: Interest-bearing deposits $29,669 $357 4.76% Investment securities 144,521 1,551 4.30 Mortgage-backed securities 345,024 3,331 3.86 Mortgage loans 2,193,466 38,802 7.08 Other loans 357,065 7,067 7.94 Total interest-earning assets 3,069,745 51,108 6.67 Total noninterest-earning assets 125,717 Total assets 3,195,462 Liabilities and Stockholders' Equity: Interest-bearing liabilities Deposits: Transaction accounts $720,467 $1,451 0.81% Savings 200,799 555 1.11 Official checks 17,979 -- -- Certificate accounts 1,233,404 12,658 4.12 Total deposits 2,172,649 14,664 2.71 FHLB advances 644,952 6,977 4.28 Other borrowings -- -- 0.00 Total interest-bearing liabilities 2,817,601 21,641 3.07 Noninterest-bearing liabilities 38,879 Total liabilities 2,856,480 Stockholders' equity 338,982 Total liabilities and stockholders' equity $3,195,462 Net interest income/ interest rate spread $29,467 3.60% Net interest-earning assets/net interest margin $252,144 3.85% Interest-earning assets to interest-bearing liabilities 108.95% Three months ended June 30, 2005 Average Interest & Yield/ Balance Dividend Rate (Dollars in Thousands) Analysis of Net Interest Income: Assets: Interest-earning assets: Interest-bearing deposits $37,719 $267 2.80% Investment securities 179,477 1,337 2.98 Mortgage-backed securities 436,772 4,137 3.79 Mortgage loans 1,847,647 31,133 6.74 Other loans 306,302 5,607 7.34 Total interest-earning assets 2,807,917 42,481 6.06 Total noninterest-earning assets 120,121 Total assets 2,928,038 Liabilities and Stockholders' Equity: Interest-bearing liabilities Deposits: Transaction accounts $875,119 $1,296 0.43% Savings 195,868 194 0.40 Official checks 16,305 -- -- Certificate accounts 902,543 6,452 2.87 Total deposits 1,989,835 7,942 1.60 FHLB advances 597,755 6,505 4.31 Other borrowings -- -- -- Total interest-bearing liabilities 2,587,590 14,447 2.23 Noninterest-bearing liabilities 34,762 Total liabilities 2,622,352 Stockholders' equity 305,686 Total liabilities and stockholders' equity $2,928,038 Net interest income/ interest rate spread $28,034 3.83% Net interest-earning assets/net interest margin $220,327 4.01% Interest-earning assets to interest-bearing liabilities 108.51% Nine months ended June 30, 2006 Average Interest & Yield/ Balance Dividend Rate (Dollars in Thousands) Analysis of Net Interest Income: Assets: Interest-earning assets: Interest-bearing deposits $40,038 $1,287 4.24% Investment securities 146,776 4,042 3.68 Mortgage-backed securities 360,874 10,352 3.82 Mortgage loans 2,103,687 110,004 6.98 Other loans 349,826 20,367 7.78 Total interest-earning assets 3,001,201 146,052 6.49 Total noninterest-earning assets 127,675 Total assets 3,128,876 Liabilities and Stockholders' Equity: Interest-bearing liabilities Deposits: Transaction accounts $777,919 $4,842 0.83% Savings 194,959 1,236 0.85 Official checks 21,411 -- -- Certificate accounts 1,128,731 31,822 3.77 Total deposits 2,123,020 37,900 2.39 FHLB advances 639,527 20,908 4.31 Other borrowings -- -- -- Total interest-bearing liabilities 2,762,547 58,808 2.83 Noninterest-bearing liabilities 35,041 Total liabilities 2,797,588 Stockholders' equity 331,289 Total liabilities and stockholders' equity $3,128,877 Net interest income/ interest rate spread $87,244 3.66% Net interest-earning assets/net interest margin $238,654 3.89% Interest-earning assets to interest-bearing liabilities 108.64% Nine months ended June 30, 2005 Average Interest & Yield/ Balance Dividend Rate (Dollars in Thousands) Analysis of Net Interest Income: Assets: Interest-earning assets: Interest-bearing deposits $54,042 $912 2.22% Investment securities 177,846 3,748 2.81 Mortgage-backed securities 455,633 13,072 3.83 Mortgage loans 1,736,988 87,277 6.70 Other loans 293,160 15,718 7.17 Total interest-earning assets 2,717,669 120,727 5.93 Total noninterest-earning assets 116,051 Total assets 2,833,720 Liabilities and Stockholders' Equity: Interest-bearing liabilities Deposits: Transaction accounts $845,610 $3,421 0.51% Savings 193,523 460 0.32 Official checks 22,235 -- -- Certificate accounts 873,489 17,576 2.69 Total deposits 1,934,857 21,457 1.48 FHLB advances 567,584 18,620 4.33 Other borrowings 423 17 5.45 Total interest-bearing liabilities 2,502,864 40,094 2.13 Noninterest-bearing liabilities 33,494 Total liabilities 2,536,358 Stockholders' equity 297,362 Total liabilities and stockholders' equity $2,833,720 Net interest income/ interest rate spread $80,633 3.80% Net interest-earning assets/net interest margin $214,806 3.97% Interest-earning assets to interest-bearing liabilities 108.58% DATASOURCE: Harbor Florida Bancshares, Inc. CONTACT: Michael J. Brown, Sr., President, +1-772-460-7000, or H. Michael Callahan, CFO, +1-772-460-7009, or Toni Santiuste, Investor Relations, +1-772-460-7002, all of Harbor Florida Bancshares Web site: http://www.harborfederal.com/

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