Harbor Florida Bancshares, Inc. Announces Third Quarter Earnings Increase and Quarterly Dividend

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, [phone], or H.

Michael Callahan, CFO, [phone], or Toni Santiuste, Investor Relations,

[phone], all of Harbor Florida Bancshares



Web site:  http://www.harborfederal.com/ 

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