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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
-----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2003
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 000-22817
---------
HARBOR FLORIDA BANCSHARES, INC
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 65-0813766
--------- -----------------------
(State or other jurisdiction (IRS employer
of incorporation or organization) identification no.)
100 S. SECOND STREET
FORT PIERCE, FL 34950
(Address of principal executive offices/ZIP code)
Registrants's telephone number, including area code (772)-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
--- ---
Indicate by check whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
--- ---
As of April 23, 2003, there were 23,944,899 shares of the Registrant's
common stock outstanding.
HARBOR FLORIDA BANCSHARES, INC.
Table of Contents
Part I. Financial Information Page
Item 1. Financial Statements
Condensed Consolidated Statements of Financial Condition as
of March 31, 2003 and September 30, 2002
(unaudited)..........................................................2
Condensed Consolidated Statements of Earnings for the three
and six months ended March 31, 2003 and 2002
(unaudited)..........................................................3
Condensed Consolidated Statements of Cash Flows for the six
months ended March 31, 2003 and 2002
(unaudited)..........................................................4
Notes to Condensed Consolidated Financial Statements
(unaudited)..........................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................15
Item 3. Quantitative and Qualitative Disclosures about Market
Risk and Asset and Liability Management.............................21
Item 4. Controls and Procedures.............................................21
Part II. Other Information
Item 1. Legal Proceedings...................................................21
Item 2. Changes in Securities...............................................21
Item 3. Defaults Upon Senior Securities.....................................21
Item 4. Submission of Matters to a Vote of Security-Holders.................21
Item 5. Other Information...................................................22
Item 6. Exhibits and Reports on Form 8-K....................................22
Signature Page......................................................24
Certifications of Chief Executive Officer and Chief Financial
Officer.............................................................25
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition (unaudited)
(In thousands)
March 31, September 30,
2003 2002
Assets
Cash and amounts due from depository institutions $ 58,626 $ 52,299
Interest-bearing deposits in other banks 25,269 95,326
Investment securities held to maturity 20,443 200
Investment securities available for sale 298,028 147,205
Mortgage-backed securities held to maturity 142,484 181,269
Loans held for sale 3,561 8,263
Loans, net 1,565,723 1,541,468
Accrued interest receivable 10,409 9,847
Real estate owned 721 733
Premises and equipment, net 28,401 27,049
Federal Home Loan Bank stock 21,776 22,276
Goodwill and other intangibles, net 4,124 3,378
Other assets 2,052 1,810
--------- ---------
Total assets $2,181,617 $2,091,123
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits $1,475,303 $1,372,362
Short-term borrowings 7,068 22,000
Long-term debt 424,340 423,528
Advance payments by borrowers for taxes and insurance 12,141 23,290
Income taxes payable 1,352 1,822
Other liabilities 8,891 9,203
--------- ---------
Total liabilities 1,929,095 1,852,205
--------- ---------
Stockholders' Equity:
Preferred stock --- ---
Common stock 3,156 3,145
Paid-in capital 197,569 195,506
Retained earnings 160,091 146,932
Accumulated other comprehensive income, net 3,279 2,338
Common stock purchased by:
Employee stock ownership plan (ESOP) (10,301) (10,650)
Recognition and retention plans (RRP) (3,597) (3,652)
Treasury stock (97,675) (94,701)
--------- ---------
Total stockholders' equity 252,522 238,918
--------- ---------
Total liabilities and stockholders' equity $2,181,617 $2,091,123
========= =========
See accompanying notes to condensed consolidated financial statements.
2
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (unaudited)
(In thousands except per share data)
Three months ended Six months ended
March 31, March 31,
--------- ---------
2003 2002 2003 2002
---- ---- ---- ----
Interest income:
Loans $ 28,901 $ 28,187 $ 58,226 $ 56,586
Investment securities 2,183 1,018 4,084 1,898
Mortgage-backed securities 2,148 2,940 4,666 5,231
Other 179 298 508 761
------ ------ ------ ------
Total interest income 33,411 32,443 67,484 64,476
------ ------ ------ ------
Interest expense:
Deposits 6,901 9,478 14,838 20,370
Other 5,452 4,604 11,099 8,701
------ ------ ------ ------
Total interest expense 12,353 14,082 25,937 29,071
------ ------ ------ ------
Net interest income 21,058 18,361 41,547 35,405
Provision for loan losses 502 408 953 714
------ ------ ------ ------
Net interest income after provision for loan
losses 20,556 17,953 40,594 34,691
------ ------ ------ ------
Other income:
Fees and service charges 3,286 2,647 6,437 5,007
Insurance commissions 612 581 1,182 1,090
Income from real estate operations 33 55 85 89
Gain on sale of mortgage loans 1,118 493 2,432 952
Gain on sale of securities 305 --- 610 ---
Other 9 8 16 5
------ ------ ------ ------
Total other income 5,363 3,784 10,762 7,143
------ ------ ------ ------
Other expenses:
Compensation and employee benefits 6,238 5,397 12,263 10,484
Occupancy 1,477 1,289 2,913 2,550
Data processing services 784 676 1,480 1,263
Advertising and promotion 387 322 731 557
Other 1,664 1,551 3,362 3,112
------ ------ ------ ------
Total other expense 10,550 9,235 20,749 17,966
------ ------ ------ ------
Income before income taxes 15,369 12,502 30,607 23,868
Income tax expense 6,024 4,883 11,986 9,312
------ ------ ------ ------
Net income $ 9,345 $ 7,619 $ 18,621 $ 14,556
====== ====== ======= =======
Net income per share
Basic $0.41 $0.34 $0.82 $0.64
===== ===== ===== =====
Diluted $0.40 $0.32 $0.80 $0.62
===== ===== ===== =====
See accompanying notes to condensed consolidated financial statements.
3
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Six months ended
March 31,
---------
2003 2002
---- ----
Cash provided by operating activities:
Net income $ 18,621 $ 14,556
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on sale of investment securities available for sale (610) ---
(Gain) loss on sale of premises and equipment (1) 7
Gain on sale of real estate owned (10) (14)
Gain on sale of loans held for sale (2,432) (952)
Provision for loan losses 953 714
Depreciation and amortization 613 824
Deferred income tax expense (benefit) (486) 120
Originations of loans held for sale (75,186) (48,943)
Proceeds from sale of loans held for sale 82,320 54,549
Increase in deferred loan fees and costs 3,191 2,344
(Increase) decrease in accrued interest receivable (562) 205
Increase in other assets (179) (82)
Decrease in income taxes payable (166) (3,232)
(Decrease) increase in other liabilities (641) 610
--------- ---------
Net cash provided by operating activities 25,425 20,706
--------- ---------
Cash used by investing activities:
Net increase in loans (26,348) (66,752)
Purchase of mortgage-backed securities (10,275) (74,196)
Proceeds from principal repayments of mortgage-backed securities 48,978 27,837
Purchase of investment securities held to maturity (20,243) ---
Proceeds from maturities and calls of investment securities
available for sale --- 10,000
Proceeds from sales of investment securities available for sale 1,375 ---
Purchase of investment securities available for sale (150,373) (30,673)
Proceeds from sale of real estate owned 217 344
Purchase of premises and equipment (1,727) (1,887)
Proceeds from sale of premises and equipment 51 41
FHLB stock redemption (purchase) 500 (2,250)
Purchase of insurance agency (591) ---
---------- ----------
Net cash used by investing activities (158,436) (137,536)
---------- ----------
4
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Six months ended
March 31,
---------
2003 2002
---- ----
Cash provided by financing activities:
Net increase in deposits 102,941 128,220
Net proceeds from borrowings --- 50,000
Repayments of borrowings (15,020) (34)
Decrease in advance payments by borrowers for taxes and insurance (11,149) (11,715)
Dividends paid (5,462) (4,831)
Common stock options exercised 945 1,144
Purchase of treasury stock (2,974) (6,517)
-------- --------
Net cash provided by financing activities 69,281 156,267
-------- --------
Net (decrease) increase in cash and cash equivalents (63,730) 39,437
Cash and cash equivalents - beginning of period 147,625 92,792
-------- --------
Cash and cash equivalents - end of period $ 83,895 $ 132,229
======== ========
Supplemental disclosures:
Cash paid for:
Interest $ 26,021 $ 29,081
Taxes 12,791 12,425
Noncash investing and financing activities:
Additions to real estate acquired in settlement of loans
through foreclosure 195 307
Sale of real estate owned financed by the Company --- 144
Tax benefit of stock plans credited to capital 304 106
Change in unrealized gain (loss) on securities available for
sale 1,531 102
Change in deferred taxes related to securities available for
sale (590) (39)
Distribution of recognition and retention plan 55 52
Transfer to short-term borrowings from long-term debt --- 15,000
Note payable issued to purchase premises 900 ---
See accompanying notes to condensed consolidated financial statements.
5
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, 2002.
The Company's only significant business is holding the common stock of the Bank.
Consequently, its net income is primarily derived from the Bank.
In July 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("Statement 146") which requires,
among other things, recording a liability for costs associated with an exit or
disposal activity when that liability is incurred and can be measured at fair
value. Commitment to an exit plan or a plan of disposal expresses only
management's future actions and, therefore, does not meet the requirement for
recognizing a liability and the related expense. The provisions of Statement 146
are effective prospectively for exit and disposal activities initiated after
December 31, 2002, with early application encouraged. This statement did not
have a material impact on the Company's consolidated financial statements.
In November 2002, the FASB issued Financial Interpretation (FIN) 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB interpretation No. 34",
which requires disclosures about the guarantor's obligations and liquidity risks
related to guarantees issued. The disclosure requirements in this Interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. This interpretation did not have a material impact on the
Company's consolidated financial statements.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities, an interpretation of Accounting Research Bulletin No. 51", which
addresses consolidation by business enterprises of variable interest entities.
The Interpretation clarifies the application of Accounting Research Bulletin No.
51, Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. The
Interpretation applies immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. This interpretation did not have a material
impact on the Company's consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123"
("Statement 148") to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
provisions of Statement 148 are effective for interim periods beginning after
6
December 15, 2002, with early application encouraged. This statement did not
have a material impact on the Company's consolidated financial statements.
At March 31, 2003, the Company had stock option plans for the benefit of
directors, officers and other employees of the Company. The Company accounts for
those plans under the recognition and measurement principles of APB Opinion No.
25 "Accounting for Stock Issued to Employees", and related Interpretations.
Accordingly, no compensation cost has been recognized for the stock plans, since
stock option exercise prices are equal to market price at dates of grant.
Had compensation cost for the Company's stock-based compensation plans been
determined in accordance with the fair value based method in FASB Statement No.
123 "Accounting for Stock Based Compensation", the Company's net income and net
income per share would have been reduced to the pro forma amounts indicated
below:
Three months ended Six months ended
March 31, March 31,
--------- ---------
2003 2002 2003 2002
---- ---- ---- ----
(In thousands except per share data)
Net income As reported $ 9,345 $ 7,619 $ 18,621 $ 14,556
Less adjustments 342 330 683 650
------ ------ ------- -------
Pro forma $ 9,003 $ 7,289 $ 17,938 $ 13,906
====== ====== ======= =======
Net income per share - basic As reported .41 .34 .82 .64
Pro forma .40 .32 .79 .61
Net income per share - diluted As reported .40 .32 .80 .62
Pro forma .39 .31 .77 .60
7
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 and six months
ended March 31, 2003 and 2002. 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.
Three months ended Six months ended
March 31, March 31,
--------- ---------
2003 2002 2003 2002
---- ---- ---- ----
Net income $ 9,345,104 $ 7,619,435 $18,620,510 $14,556,301
========== ========== ========== ==========
Weighted average common shares outstanding:
Shares outstanding 23,610,465 23,814,934 23,624,475 23,875,527
Less weighted average
uncommitted ESOP shares (1,041,566) (1,111,406) (1,050,298) (1,120,138)
---------- ----------- ---------- -----------
Total
22,568,899 22,703,528 22,574,177 22,755,389
========== ========== ========== ==========
Basic earnings per share $ 0.41 $ 0.34 $ 0.82 $ 0.64
========== ========== ========== ==========
Weighted average common shares outstanding 22,568,899 22,703,528 22,574,177 22,755,389
Additional dilutive shares related to
stock benefit plans 612,365 607,524 580,337 551,818
---------- ---------- ---------- ----------
Total weighted average common shares and
equivalents outstanding for diluted
earnings per share computation 23,181,264 23,311,052 23,154,514 23,307,207
========== ========== ========== ==========
Diluted earnings per share $ 0.40 $ 0.32 $ 0.80 $ 0.62
========== ========== ========== ==========
Additional dilutive shares are calculated under the treasury stock method
utilizing the average market value of the Company's stock for the period.
8
3). INVESTMENT AND MORTGAGE BACKED SECURITIES
The amortized cost and estimated market value of investment and mortgage-backed
securities as of March 31, 2003 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(In thousands)
Available for sale:
FHLMC notes $ 80,307 $ 835 $ --- $ 81,142
FHLB notes 150,332 1,520 --- 151,852
FNMA notes 60,051 426 --- 60,477
-------- -------- -------- --------
290,690 2,781 --- 293,471
Equity securities 1,999 2,558 --- 4,557
-------- -------- -------- --------
292,689 5,339 --- 298,028
-------- -------- -------- --------
Held to maturity:
FHLB notes 20,000 42 --- 20,042
Municipal securities 443 45 --- 488
-------- -------- -------- --------
20,443 87 --- 20,530
-------- -------- -------- --------
FHLMC mortgage-backed securities 76,992 3,282 --- 80,274
FNMA mortgage-backed securities 65,492 3,398 --- 68,890
-------- -------- -------- --------
142,484 6,680 --- 149,164
-------- -------- -------- --------
$ 455,616 $ 12,106 $ --- $ 467,722
======== ======== ======== ========
The amortized cost and estimated market value of investment and mortgage-backed
securities as of September 30, 2002 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(In thousands)
Available for sale:
FHLB notes $ 90,226 $ 1,413 $ --- $ 91,639
FHLMC notes 50,408 724 --- 51,132
-------- -------- -------- --------
140,634 2,137 --- 142,771
Equity securities 2,763 1,671 --- 4,434
-------- -------- -------- --------
143,397 3,808 --- 147,205
-------- -------- -------- --------
Held to maturity:
Municipal securities 200 45 --- 245
-------- -------- -------- --------
200 45 --- 245
-------- -------- -------- --------
FHLMC mortgage-backed securities 90,657 3,684 --- 94,341
FNMA mortgage-backed securities 90,612 3,900 --- 94,512
-------- -------- -------- --------
181,269 7,584 --- 188,853
-------- -------- -------- --------
$ 324,866 $ 11,437 $ --- $ 336,303
======== ======== ======== ========
9
The amortized cost and estimated market value of debt securities at March 31,
2003 and September 30, 2002 by contractual maturity are shown below. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
March 31, 2003 September 30, 2002
-------------- ------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
---- ----- ---- -----
(In thousands)
Available for sale:
Due in one year or less $ 60,150 $ 60,735 $ 60,306 $ 61,358
Due in one to five years 230,540 232,736 80,328 81,413
-------- -------- -------- --------
290,690 293,471 140,634 142,771
-------- -------- -------- --------
Held to maturity:
Due in one to five years 20,243 20,287 --- ---
Due after five years 200 243 200 245
-------- -------- -------- --------
20,443 20,530 200 245
-------- -------- -------- --------
FHLMC mortgage-backed securities 76,992 80,274 90,657 94,341
FNMA mortgage-backed securities 65,492 68,890 90,612 94,512
-------- -------- -------- --------
142,484 149,164 181,269 188,853
-------- -------- -------- --------
$ 453,617 $ 463,165 $ 322,103 $ 331,869
======== ======== ========= =========
As of March 31, 2003, the Company had pledged mortgage-backed securities with a
market value of $18,241,000 and a carrying value of $17,345,000 to collateralize
the public funds on deposit. The Company had also pledged mortgage-backed
securities with a market value of $877,000 and a carrying value of $814,000 to
collateralize treasury, tax and loan accounts as of March 31, 2003.
10
4). LOANS
Loans are summarized below:
March 31, September 30,
2003 2002
---- ----
(In thousands)
Mortgage loans:
Construction 1-4 family $ 156,657 $ 142,181
Permanent 1-4 family 1,034,134 1,072,175
Multi-family 14,960 14,995
Nonresidential 167,213 153,635
Land 103,912 82,339
--------- ---------
Total mortgage loans 1,476,876 1,465,325
--------- ---------
Other loans:
Commercial 44,114 34,172
Home improvement 25,787 25,104
Manufactured housing 15,551 14,832
Other consumer 121,122 116,591
--------- ---------
Total other loans 206,574 190,699
--------- ---------
Total loans 1,683,450 1,656,024
--------- ---------
Less:
Loans in process 95,491 93,999
Net deferred loan fees and discounts 7,044 6,180
Allowance for loan losses 15,192 14,377
--------- ---------
117,727 114,556
--------- ---------
Total loans, net $ 1,565,723 $ 1,541,468
========= =========
An analysis of the allowance for loan losses follows:
Three months ended Six months ended
March 31, March 31,
--------- --------
2003 2002 2003 2002
---- ---- ---- ----
(In thousands)
Beginning balance $ 14,700 $ 13,643 $ 14,377 $ 13,417
Provision for loan losses 502 408 953 714
Charge-offs (37) (149) (176) (257)
Recoveries 27 12 38 40
------- ------- ------- -------
Ending balance $ 15,192 $ 13,914 $ 15,192 $ 13,914
======= ======= ======= ========
11
The allowance for loan losses consists of general allowances of $15,190,000 and
$14,377,000 and specific allowances of $2,000 and $-0- at March 31, 2003 and
September 30, 2002, respectively. Impaired loans (primarily consisting of
classified loans), other than those evaluated collectively, were $8,044,000 and
$8,941,000 at March 31, 2003 and September 30, 2002, respectively. The Company
evaluates impaired loans based on (a) the present value of the expected future
cash flows of the impaired loan discounted at the loan's original effective
interest rate, (b) the observable market price of the impaired loan, or (c) the
fair value of the collateral of a collateral dependant loan. To the extent that
an impaired loan's value is less than the loan's recorded investment, a specific
allowance is recorded.
At March 31, 2003 and September 30, 2002, loans with unpaid principal balances
of approximately $2,594,000 and $1,660,000, respectively, were 90 days or more
contractually delinquent or on nonaccrual status. As of March 31, 2003 and
September 30, 2002, approximately $2,235,000 and $1,209,000, respectively, of
these loans were in the process of foreclosure.
As of March 31, 2003 and September 30, 2002, mortgage loans which had been sold
on a recourse basis had outstanding principal balances of approximately $301,000
and $370,000 respectively.
5). COMPREHENSIVE INCOME
The following table sets forth the components of the Company's comprehensive
income:
Three months ended Six months ended
March 31, March 31,
--------- ---------
2003 2002 2003 2002
---- ---- ---- ----
(In thousands)
Net income $ 9,345 $ 7,619 $ 18,621 $ 14,556
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale
(net of deferred tax of $196 and $103 for the
three months ended March 31, 2003 and 2002,
respectively, and $590 and $39 for the six months
ended March 31, 2003 and 2002, respectively) 312 163 941 63
----- ----- ------ ------
Comprehensive income $ 9,657 $ 7,782 $ 19,562 $ 14,619
===== ===== ====== ======
6). TRANSFERS OF FINANCIAL ASSETS AND SERVICING RIGHTS RETAINED
Transfers of financial assets, primarily mortgage loans, are accounted for as
sales when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been
isolated from the Company, (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective
control over the transferred assets through an agreement to repurchase them
before their maturity.
12
Upon completion of a transfer of assets that satisfies the conditions described
above to be accounted for as a sale, the Company:
a. Derecognizes all assets sold
b. Recognizes all assets obtained and liabilities incurred in consideration as
proceeds of the sale
c. Initially measures, at fair value, assets obtained and liabilities incurred
in a sale
d. Recognizes in earnings any gain or loss on the sale.
The Company recognized gains on sales of mortgage loans of $1,118,000 and
$493,000, respectively, for the three months ended March 31, 2003 and 2002. For
the six months ended March 31, 2003 and 2002, the Company recognized gains on
sale of mortgage loans of $2,432,000 and $952,000, respectively.
The Company receives fees for servicing activities on loans it has sold. These
activities include, but are not limited to, collecting principal, interest and
escrow payments from borrowers; paying taxes and insurance from escrowed funds;
monitoring delinquencies; and accounting for and remitting principal and
interest payments. To the extent that the servicing fees exceed or do not
provide adequate compensation for the services provided, the Company records a
servicing asset or liability for the fair value of the servicing retained.
Currently, the servicing fees retained by the Company are just adequate to
compensate the Company for the servicing responsibilities. As of March 31, 2003,
no servicing assets and/or liabilities were recognized.
7). ACQUISITION OF INSURANCE AGENCY
On March 27, 2003, Harbor Insurance Agency, a subsidiary of Harbor Federal
Savings Bank, completed its acquisition of the David G. Willbur Insurance
Agency. David G. Willbur Insurance Agency has specialized in property and
casualty insurance and has served the residents and businesses of St. Lucie
county for over 76 years. The principal owner, David G. Willbur, joins the
management team for Harbor Insurance Agency, Inc. The acquisition further
complements Harbor Insurance Agency's existing line of insurance products and
provides an even broader range of insurance company providers to meet the
changing and growing needs of our customers.
The acquisition was accounted for using the purchase method. The results of
operations of the insurance agency acquired are included in the consolidated
financial statements of the Company from the date of acquisition.
13
The fair value of assets acquired and liabilities assumed in conjunction with
the acquisition of the insurance agency was as follows:
(In thousands)
Cash $ 1
Premises and equipment 6
Goodwill 319
Other intangibles subject to amortization 415
Other assets 63
---
Fair value of assets acquired 804
---
Deferred tax liability 160
Other liabilities 65
---
Fair value of liabilities assumed 225
---
Fair value of net assets acquired 579
Acquisition costs 13
---
Purchase of insurance agency 592
Less cash acquired 1
---
Net cash used by purchase of insurance agency $591
===
Results of operations as if the acquisition had been completed as of October 1,
2002 were not significantly different than actual amounts.
14
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 of operations in this section are between the
three months ended March 31, 2003 and March 31, 2002. Comparison of fiscal year
to date results is between the six months then ended.
General. Diluted earnings per share for the second fiscal quarter ended March
31, 2003, increased 25.0% to 40 cents per share on net income of $9.3 million,
compared to 32 cents per share on net income of $7.6 million for the same period
last year. Diluted earnings per share for the six months ended March 31, 2003,
increased 29.0% to 80 cents per share on net income of $18.6 million, compared
to 62 cents per share on net income of $14.6 million for the same period last
year. The increases for both the three and six month periods were due primarily
to the increase in net interest income as a result of decreases in interest
expense on deposits and growth in loans and investment securities. The decreases
in interest expense on deposits were caused by a continuation of historically
low interest rates, notwithstanding growth in total average deposits in both the
three and six month periods. Diluted earnings per share for the three and six
months ended March 31, 2003 included nonrecurring income of $187,000 and
$375,000, respectively, or 1 and 2 cents per share, respectively, after tax,
from gains on the sale of equity securities.
Net Interest Income. Net interest income increased 14.7% to $21.1 million for
the quarter ended March 31, 2003, from $18.4 million for the same period last
year. For the six months ended March 31, 2003, net interest income increased
17.3% to $41.5 million from $35.4 million for the same period last year. This
increase was due primarily to the decrease in interest expense on deposits
(notwithstanding total average deposit growth of $154.2 million for the six
month period) and growth in loans and investment securities. The decreased
interest expense, due substantially to lower costs of deposits, reflects a
continuation of historically low interest rates. Average interest-earning assets
increased by $284.9 million to $2.051 billion for the six months ended March 31,
2003, from $1.766 billion for the same period last year. The average balance of
the loan portfolio increased by $117.0 million. The average balance of
investment securities increased by $180.9 million. The net interest margin
increased to 4.06% for the six months ended March 31, 2003, from 4.02% for the
same period last year due primarily to the cost of
15
interest-bearing liabilities decreasing more than the yield on interest-earning
assets in the declining interest rate environment. The average deposit mix
changed to 42.4% and 57.6% of core deposits and certificate accounts,
respectively, for the six months ended March 31, 2003 from 38.6% and 61.4%,
respectively, for the same period last year.
Provision for Loan Losses. The determination of the allowance for loan losses is
considered by management to be a critical accounting policy and is based upon
estimates made by management. The provision for loan losses was $502,000 for the
quarter ended March 31, 2003, compared to $408,000 for the same period last
year. The provision for the quarter ended March 31, 2003 was principally
comprised of a charge of $518,000 due to growth in the loan portfolio, primarily
in the commercial real estate and commercial business loan portfolios, and
$10,000 for net charge offs partially offset by a decrease of $26,000 due to
changes in the levels of classified loans. The provision for the quarter ended
March 31, 2002 was principally comprised of a charge of $271,000 related to
growth in the loan portfolio and to an increase in the level of classified
loans, due primarily to the change in classification of a commercial real estate
loan, and $137,000 in net charge offs.
For the six months ended March 31, 2003, the provision for loan losses was
$953,000 compared to $714,000 for the same period last year. The provision for
the six months ended March 31, 2003 was principally comprised of a charge of
$770,000 related to growth in the loan portfolio, primarily commercial real
estate and commercial business loans, $138,000 in net charge offs, and $45,000
due to changes in the levels of classified loans. The provision for the six
months ended March 31, 2002 was principally comprised of a charge of $497,000
related to growth in the loan portfolio and to an increase in the level of
classified loans, due primarily to the change in classifications of two
commercial real estate loans, and $217,000 in net charge offs. Nonperforming
loans decreased to $2.6 million at March 31, 2003 from $3.3 million at March 31,
2002. The ratio of the allowance for loan losses to total nonperforming loans
increased to 585.61% at March 31, 2003 from 423.02% at March 31, 2002.
There were no significant changes in the estimation methods or fundamental
assumptions used in the calculation of the allowance for loan losses at March
31, 2003, compared to September 30, 2002. Furthermore, there was no reallocation
of the allowance from September 30, 2002. 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 $5.4 million for the quarter ended March
31, 2003, from $3.8 million for the same period last year. The increase was due
primarily to increases of $639,000 in fees and service charges, $625,000 in gain
on sale of mortgage loans, principally residential fixed rate mortgage loans,
and $305,000 in gain on sale of securities. Fees and service charges, primarily
from fees and service charges on deposit products, were $3.3 million and $2.6
million for the quarters ended March 31, 2003 and 2002, respectively. This
increase was due primarily to the growth in transaction accounts. Gain on the
sale of mortgage loans was $1.1 million and $493,000 for the quarters ended
March 31, 2003 and 2002, respectively. This increase was due to an increase in
the sale of residential one-to-four family fixed rate mortgage loans to reduce
interest rate risk by limiting the growth of long term fixed rate loans in the
portfolio. Gain on sale of securities, primarily equity securities, was $305,000
and $-0- for the quarters ended March 31, 2003 and 2002, respectively.
Other income increased to $10.8 million for the six months ended March 31, 2003,
compared to $7.1 million for the same period last year. This increase was due
primarily to increases of $1.4 million in fees and service charges, $1.5 million
in gain on sale of mortgage loans, and $610,000 in gain on sale of equity
securities in the six months ended March 31, 2003. Fees and service charges,
primarily from fees and service charges on deposit products, were $6.4 million
and $5.0 million for the six months ended March 31, 2003 and 2002, respectively.
This increase was due primarily to the growth in transaction accounts. Gain on
sale of mortgage loans was $2.4 million and $952,000 for the six months ended
March 31, 2003 and 2002, respectively.
16
This increase was due to an increase in the sale of residential one-to-four
family fixed rate mortgage loans to reduce interestrate risk by limiting the
growth of long term fixed rate loans in the portfolio. Gain on the sale of
securities, primarily equity securities, was $610,000 and $-0- for the six
months ended March 31, 2003 and 2002, respectively.
Other Expenses. Other expenses increased to $10.6 million for the quarter ended
March 31, 2003, from $9.2 million for the same period last year, due primarily
to increases of $841,000 in compensation and benefits, $188,000 in occupancy
expense, $108,000 in data processing services, $65,000 in advertising and
promotion, and $113,000 in other expense. The increase in compensation and
benefits was due primarily to annual salary increases, additional staff required
to support the growth in loans and deposits and contributions to the defined
benefit plan. The increase in occupancy expense was due primarily to an increase
in data processing equipment expense. The increases in data processing services,
advertising and promotion, and other expenses were due primarily to increases
resulting from the growth in loans and deposits.
For the six months ended March 31, 2003, other expenses increased to $20.7
million compared to $18.0 million for the same period last year. This increase
was due primarily to increases of $1.8 million in compensation and benefits,
$363,000 in occupancy expense, $217,000 in data processing services, $174,000 in
advertising and promotion, and $250,000 in other expenses. The increase in
compensation and benefits was due primarily to annual salary increases,
additional staff required to support the growth in loans and deposits, and
contributions to the defined benefit plan. The increase in occupancy expense was
due primarily to an increase in data processing equipment expense. The increases
in data processing services, advertising and promotion and other expenses were
due primarily to increases resulting from the growth in loans and deposits.
Income Taxes. Income tax expense increased to $6.0 million for the quarter ended
March 31, 2003, from $4.9 million for the same period last year due primarily to
an increase in pretax accounting income. The effective tax rates were 39.2% and
39.1% for the quarters ended March 31, 2003 and 2002, respectively.
For the six months ended March 31, 2003, income tax expense increased to $12.0
million from $9.3 million for the same period last year due primarily to an
increase in pretax accounting income. The effective tax rates were 39.2% and
39.0% for the six months ended March 31, 2003 and 2002, respectively.
Financial Condition
Comparisons of financial condition in this section are from the end of the
preceding fiscal year to March 31, 2003.
Total assets increased to $2.182 billion at March 31, 2003, from $2.091 billion
at the fiscal year ended September 30, 2002. The increase is due primarily to an
increase in investment securities, partially offset by a decrease in interest
bearing deposits in other banks and repayments of mortgage-backed securities.
Interest-bearing deposits in other banks decreased to $25.3 million at March 31,
2003, from $95.3 million at September 30, 2002. The decrease is due primarily to
a decrease in funds on deposit at the FHLB to fund purchases of investment
securities.
Investment securities available for sale increased to $298.0 million at March
31, 2003, from $147.2 million at September 30, 2002. The increase is due
primarily to the purchase of $150.4 million FHLMC, FHLB, and FNMA notes. The
purchases were funded with excess cash provided by the net increase in deposits
and the decrease in interest bearing deposits in other banks.
17
Investment securities held to maturity increased to $20.4 million at March 31,
2003 from $200,000 at September 30, 2002. The increase is due primarily to the
purchase of $20.2 million FHLB notes, funded with excess cash provided by the
net increase in deposits and the decrease in interest bearing deposits in other
banks.
Mortgage-backed securities decreased to $142.5 million at March 31, 2003, from
$181.2 million at September 30, 2002. The decrease is due primarily to
repayments of $49.0 million partially offset by the purchase of $10.3 million of
five year fixed rate balloon securities.
Net loans increased to $1.566 billion at March 31, 2003, from $1.541 billion at
September 30, 2002. The increase is due primarily to loan disbursements of
$388.0 million partially offset by repayments of $279.4 million and sale of
mortgage loans of $82.3 million. The increase in net loans for the six months
ended March 31, 2003 is due primarily to a net increase of $21.4 million in land
loans, $16.1 million in nonresidential mortgage loans, $9.9 million in
commercial business loans, and $5.9 million in consumer loans, partially offset
by a $33.0 million decrease in residential 1-4 family mortgage loans.
Deposits increased to $1.475 billion at March 31, 2003, from $1.372 billion at
September 30, 2002. The increase is due primarily to a net increase in deposits
before interest credited of $90.3 million and interest credited of $12.6
million. The increase in deposits for the six months ended March 31, 2003 is due
primarily to a net increase of $97.1 million in core deposits and an increase of
$5.8 million in deposits in certificate accounts.
FHLB advances decreased to $430.5 million from $445.5 million at March 31, 2003,
from September 30, 2002 due to the payoff of maturing advances.
Stockholders' equity increased to $252.5 million at March 31, 2003, from $238.9
million at September 30, 2002. The increase is due primarily to $18.6 million of
earnings for the six months partially offset by $5.5 million of dividends paid
and the repurchase of $3.0 million of Company common stock to be held as
treasury stock. During the six months, the Company repurchased 141,607 shares at
an average price of $21.01 per share to be held as treasury stock in accordance
with the Company's stock repurchase program.
At March 31, 2003, the Bank exceeded all regulatory capital requirements as
follows:
Required Actual Excess of
-------- ------ Actual Over
% of % of Regulatory
Amount Assets Amount Assets Requirements
------ ------ ------ ------- ------------
(Dollars in thousands)
Tangible Capital 32,578 1.50% 212,101 9.77% 179,523
Core Capital 65,156 3.00% 212,101 9.77% 146,945
Risk-Based Capital 96,831 8.00% 226,496 18.71% 129,665
18
Cash Flow
The Bank's primary sources of funds are deposits, repayments of loans and
mortgage-backed securities, maturities of investment securities and other
short-term investments, and earnings and funds from operations. The Bank will
consider increasing its borrowings from the Federal Home Loan Bank (FHLB) from
time to time as an alternative to increasing deposit account interest rates. In
addition, the Bank holds unpledged fixed and adjustable rate mortgage-backed
securities totaling $124.3 million at March 31, 2003 that could be used as
collateral under repurchase transactions with securities dealers.
Repurchase transactions serve as secured borrowings and provide a source of
short-term liquidity for the Bank. At March 31, 2003, the Bank had $820.0
million or 55.6% of the Bank's deposits in certificate accounts. Based on past
experience, management believes that a substantial percentage of these
certificates will be renewed at maturity, although there can be no assurance
that this will occur. The Bank would use borrowings from the FHLB or repurchase
transactions with securities dealers if replacement funding was needed as a
result of maturing certificate accounts.
Net cash provided by the Company's operating activities (i.e. cash items
affecting net income) was $25.4 million and $20.7 million for the six months
ended March 31, 2003 and 2002, 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 $158.4 million and $137.5 million for the six months ended March 31, 2003
and 2002, respectively. The increase in cash used in 2003 was principally due to
an increase of $139.9 million in the purchases of investment securities and a
$10 million decrease in proceeds from maturities of investment securities
available for sale, partially offset by a $63.9 million decrease in the purchase
of mortgage-backed securities, a $40.4 million decrease in the net increase in
loans and a $21.1 million increase in the proceeds from repayments of
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
$69.3 million and $156.3 million for the six months ended March 31, 2003 and
2002, respectively. The decrease in cash flows in 2003 was primarily due to a
decrease of $50.0 million in proceeds from FHLB advances, a decrease of $25.3
million in the net increase in deposits, a $15.0 million increase in repayments
of borrowings, and a $3.5 million decrease in the purchases of treasury stock.
Critical Accounting Policies
The determination of the allowance for loan losses is considered by management
to be a critical accounting policy and is based upon estimates made by
management. The allowance for loan losses consists of general allowances of
$15,190,000 and $14,377,000 and specific allowances of $2,000 and $-0- at March
31, 2003 and September 30, 2002, respectively. Impaired loans (primarily
consisting of classified loans), other than those evaluated collectively, were
$8,044,000 and $8,941,000 at March 31, 2003 and September 30, 2002,
respectively. The Company evaluates impaired loans based on (a) the present
value of the expected future cash flows of the impaired loan discounted at the
loan's original effective interest rate, (b) the observable market price of the
impaired loan, or (c) the fair value of the collateral of a collateral dependant
loan. To the extent that an impaired loan's value is less than the loan's
recorded investment, a specific allowance is recorded.
19
Asset Quality
Loans 90 days past due are generally placed on nonaccrual status. The Company
ceases to accrue interest on a loan once it is placed on nonaccrual status, and
interest accrued but unpaid at the time is charged against interest income.
Additionally, any loan where it appears evident that the collection of interest
is in doubt is also placed on a nonaccrual status. The Company carries real
estate owned at the lower of cost or fair value, less cost to dispose.
Management regularly reviews assets to determine proper valuation.
The following table sets forth information regarding the Company's
nonaccrual loans and foreclosed real estate at the dates indicated:
March 31, September 30,
2003 2002
---- ----
(Dollars in thousands)
Nonaccrual mortgage loans:
Delinquent less than 90 days $ --- $ ---
Delinquent 90 days or more 2,036 1,237
----- -----
Total 2,036 1,237
----- -----
Nonaccrual other loans:
Delinquent less than 90 days --- ---
Delinquent 90 days or more 558 423
----- -----
Total 558 423
----- -----
Total nonperforming loans 2,594 1,660
Real estate owned, net of related allowance 721 733
----- -----
Total nonperforming assets $ 3,315 $ 2,393
====== ======
Nonperforming loans to total net loans .17% .11%
Total nonperforming assets to total assets .15% .11%
Allowance for loan losses to total net loans .97% .93%
Allowance for loan losses to nonperforming loans 585.61% 865.87%
Allowance for loan losses to classified loans 191.40% 219.44%
20
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, 2002. 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, 2002.
Item 4. Controls and Procedures
Based on their evaluation as of a date within 90 days of the filing of this Form
10-Q, the Company's Chief Executive Officer, Michael J. Brown, Sr. and Chief
Financial Officer, H. Michael Callahan, have concluded the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed in the reports that the Company files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms. There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect those controls subsequent to
the date of their evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are various claims and lawsuits in which the Company is periodically
involved incident to the Company's business. In the opinion of management, no
material loss is anticipated from any such pending claims or lawsuits.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security-Holders.
An Annual Meeting of Stockholders of the Company was held January 24, 2003 for
the purpose of considering and voting upon the following matters:
1. Approval of the election of Directors Larry Lee, Jr. to serve
for a one-year term, Richard L. Lynch and Edwin R. Massey to
serve for a two-year term each, and Richard N. Bird, Frank H.
Fee, III and Richard V. Neill, Sr. to serve for a three-year
term each.
2. To ratify the appointment by the Company's Board of Directors of
the firm of KPMG LLP as independent public accountants for the
Company for the fiscal year ending September 30, 2003.
21
The following table sets forth the results as to each matter voted upon:
PROPOSAL FOR AGAINST ABSTAIN % APPROVED BROKER NON-VOTES
-------- --- ------- ------- ---------- ----------------
No. 1
Larry Lee, Jr. 19,926,115 156,017 --- 99% ---
Richard L. Lynch 19,926,715 155,417 --- 99% ---
Edwin R. Massey 19,925,113 157,019 --- 99% ---
Richard N. Bird 19,923,586 158,546 --- 99% ---
Frank H. Fee, III 19,887,673 194,459 --- 99% ---
Richard V. Neill, Sr. 19,928,175 153,957 --- 99% ---
No. 2 19,854,390 203,711 24,031 99% ---
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)
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
Form 10-Q for the quarter ended December 31, 1997 filed
August 11, 1997)
22
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(vii) to Form 10-K for the
year ended September 30, 2000 filed December 29, 2000)
99.1 Certification by Michael J. Brown, Sr., Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification by H. Michael Callahan, Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
On January 15, 2003, the Company filed a report on Form 8-K announcing its
earnings for the first quarter of the 2003 fiscal year.
23
>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARBOR FLORIDA BANCSHARES, INC.
Date: May 8, 2003 /s/
--------------------------------------
Michael J. Brown, Sr.
President and Chief Executive Officer
Date: May 8, 2003 /s/
--------------------------------------
H. Michael Callahan
Senior Vice President, Finance and
Principal Financial Officer
24
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBARNES-OXLEY ACT OF 2002
I, Michael J. Brown, Sr., Chief Executive Officer of Harbor Florida
Bancshares, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Harbor Florida
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/
- -------------------------
Michael J. Brown, Sr.
Chief Executive Officer
May 8, 2003
25
CERTIFICATION OF CHIEF FINANCIAL OFFICER
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBARNES-OXLEY ACT OF 2002
I, H. Michael Callahan, Chief Financial Officer of Harbor Florida
Bancshares, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Harbor Florida
Bancshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/
- -------------------------
H. Michael Callahan
Chief Financial Officer
May 8, 2003
26
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Harbor Florida Bancshares, Inc. (the
"Company") on Form 10-Q for the period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Michael
J. Brown, Sr., Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
/s/
- --------------------------
Michael J. Brown, Sr.
Chief Executive Officer
May 8, 2003
27
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Harbor Florida Bancshares, Inc. (the
"Company") on Form 10-Q for the period ending March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, H.
Michael Callahan, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
/s/
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H. Michael Callahan
Chief Financial Officer
May 8, 2003
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