HARBOR FLORIDA BANCSHARES, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 000-22817
HARBOR FLORIDA BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0813766
- --------------------------------- -------------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
100 S. SECOND STREET
FORT PIERCE, FL 34950
(Address of principal executive offices)
(ZIP code)
Registrant's telephone number, including area code (772) 461-2414
----------------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $0.10)
(Title of class)
1
Indicate by check mark 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 mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant computed by reference to the average
bid and asked price of the common stock as of December 5, 2003 ($29.75) was
$708,545,516.
The number of shares of common stock outstanding on December 5, 2003
was 23,816,656.
Indicate by check whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes X No
------ ------
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant computed by reference to the average
bid and asked price of the common stock as of March 31, 2003 ($23.36) was
$559,110,901.
The number of shares of common stock outstanding on March 31, 2003
was 23,934,542.
Documents incorporated by reference:
Parts II and IV of Form 10-K
Annual Report to Shareholders for the fiscal year ended
September 30, 2003. With the exception of those portions which
are incorporated by reference in this Form 10-K Annual Report,
the 2003 Annual Report to Shareholders is not deemed to be
filed as part of this report.
Part III of Form 10-K
Proxy Statement for the 2003 Annual Meeting of Shareholders.
2
TABLE OF CONTENTS
Item Page
No. No.
Part I
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1 Business.............................................................4
2 Properties..........................................................22
3 Legal Proceedings...................................................25
4 Submission of Matters to a Vote of Security-Holders.................25
Part II
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5 Market for Registrant's Common Equity and Related
Stockholder Matters.................................................25
6 Selected Financial Data.............................................26
7 Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................26
7A Quantitative and Qualitative Disclosures about Market
Risk................................................................26
8 Financial Statements and Supplementary Data.........................26
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................................26
9A Controls and Procedures.............................................27
Part III
--------
10 Directors and Executive Officers of the
Registrant..........................................................27
11 Executive Compensation..............................................27
12 Security Ownership of Certain Beneficial Owners and Management......27
13 Certain Relationships and Related
Transactions........................................................28
14 Principal Accounting Fees and
Services............................................................28
Part IV
-------
15 Exhibits, Financial Statement Schedules, and Reports on Form
8-K.................................................................29
Signatures..........................................................31
3
PART I
Item 1. Business
General
Harbor Florida Bancshares, Inc., (the "Company" or "Bancshares"), is a
Delaware corporation organized in 1998 and is the holding company for Harbor
Federal Savings Bank (the "Bank"), a federally chartered savings bank. The Bank
was founded in 1934 as a federally chartered savings institution. The Company
owns 100% of the Bank's common stock. Currently, the Company engages in no other
significant activities beyond its ownership of the Bank's common stock.
Consequently, its net income is derived from the Bank. The Bank provides a wide
range of banking and related insurance services and is engaged in the business
of attracting deposits primarily from the communities it serves and using these
and other funds to originate primarily one-to-four family first mortgage loans.
Harbor Insurance Agency, Inc., a wholly owned subsidiary of the Bank, also
provides a full range of insurance products.
Prior to March 18, 1998, the Company's predecessor entity, Harbor
Florida Bancorp, Inc. ("Bancorp"), was owned approximately 53.37% by Harbor
Financial M.H.C. ("Mutual Holding Company") and 46.63% by public shareholders.
On March 18, 1998, pursuant to a plan of conversion and reorganization, and
after a series of transactions: (1) Bancshares was formed and became the
surviving corporate entity, (2) Bancshares sold the ownership interest in
Bancorp previously held by the Mutual Holding Company to the public in a
subscription offering (the "Offering") (16,586,752 common shares at $10.00
resulting in net cash proceeds (after costs and funding the ESOP) of
approximately $150 million), (3) previous public shareholders of Bancorp had
their shares exchanged into 14,112,400 common shares of Bancshares (exchange
ratio of 6.0094 to 1) (the "Exchange"), and (4) the Mutual Holding Company
ceased to exist. The total number of shares of common stock outstanding
following the Offering and Exchange was 30,699,152. The reorganization was
accounted for in a manner similar to a pooling of interests and did not result
in any significant accounting adjustments.
Market Area
The Company serves communities in six growing and diverse Florida
counties. Its headquarters are in Fort Pierce, Florida, located on the eastern
coast of Florida between Stuart and Daytona Beach. In addition to its
headquarters, it has seventeen branch offices and three insurance agency offices
in St. Lucie, Indian River and Martin counties, located on Florida's "Treasure
Coast." This area is characterized by both a large retirement and vacation home
population and a significant agricultural economy, primarily citrus crops. The
Company has eight branch offices located in Brevard County, which encompasses
the "Space Coast" of the state. Brevard County has an industrial base fueled
primarily by companies related to NASA and the John F. Kennedy Space Center.
Prominent electronics concerns such as Harris Corporation are also major
employers in this area. The Company also has one branch office in Okeechobee
County, a rural, agricultural area, and seven branch offices in Volusia County,
where tourism and a large retirement population predominate.
Lending Activities
General. The Company's principal activity has historically been, and
will continue to be for the foreseeable future, the origination of one-to-four
family residential mortgage loans. The Company sells conforming loans, primarily
to the Federal National Mortgage Association ("FNMA"), and has, on rare
occasions, purchased whole loans and loan participations, but it primarily
focuses on the origination of loans and retains them in its portfolio for
investment. See "Lending Activities, One-to-Four Family Permanent Residential
Mortgage Loans" below. The Company also originates one-to-four family
residential construction and consumer loans, and consumer installment,
commercial real estate and commercial business loans. Substantially all of the
Company's mortgage loans are secured by property in its market area and
substantially all of its other loans are made to borrowers in its market area.
The Company offers both fixed-rate and adjustable rate mortgage ("ARM")
loans. The Company has sought to increase its origination of ARM loans to reduce
its interest rate risk. However, the Company's ability to originate ARM loans
has been limited by borrower preference for fixed-rate loans.
4
Loan and Mortgage - Backed Securities Portfolio Composition. The
following table sets forth a summary of the composition of the Company's loan
and mortgage-backed securities portfolio by type of loan at the dates indicated.
At September 30,
----------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Percent Percent Percent Percent Percent
of of of of of
Amount Total Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Mortgage Loans:
Construction 1-4 Family $ 190,315 10.81% $ 142,181 8.59% $ 119,648 7.95% $ 106,063 7.88% $ 91,922 7.94%
Permanent 1-4 Family 1,014,405 57.62 1,072,175 64.74 1,016,248 67.53 899,229 66.81 788,408 68.12
Multifamily 19,754 1.13 14,995 0.90 21,314 1.42 20,474 1.52 15,141 1.31
Nonresidential 181,752 10.32 153,635 9.28 129,875 8.63 120,067 8.92 99,824 8.63
Land 126,950 7.21 82,339 4.97 51,196 3.40 54,731 4.07 41,882 3.62
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total Mortgage
Loans 1,533,176 87.09 1,465,325 88.48 1,338,281 88.93 1,200,564 89.20 1,037,177 89.62
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Other Loans:
Commercial 56,268 3.20 34,172 2.06 31,945 2.12 28,606 2.13 21,192 1.83
Consumer:
Home Improvement 26,442 1.50 25,104 1.52 24,973 1.66 21,636 1.61 17,205 1.49
Manufactured
Housing 17,849 1.01 14,832 .90 14,607 .97 15,736 1.17 16,190 1.40
Other Consumer (1) 126,770 7.20 116,591 7.04 95,074 6.32 79,363 5.89 65,489 5.66
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total Other Loans 227,329 12.91 190,699 11.52 166,599 11.07 145,341 10.80 120,076 10.38
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
Total Loans Receivable 1,760,505 100.00% 1,656,024 100.00% 1,504,880 100.00% 1,345,905 100.00% 1,157,253 100.00%
--------- ====== --------- ====== --------- ====== --------- ====== --------- ======
Less:
Loans in process 124,427 93,999 84,777 77,074 70,722
Deferred loan fees and
discounts 8,494 6,180 4,813 4,433 4,244
Allowance for loan
losses 16,199 14,377 13,417 12,729 11,952
----------- ----------- ----------- ----------- -----------
Subtotal 149,120 114,556 103,007 94,236 86,918
----------- ----------- ----------- ----------- -----------
Total Loans Receivable,
Net 1,611,385 1,541,468 1,401,873 1,251,669 1,070,335
Loans Held for Sale 2,648 8,263 5,373 2,548 1,747
Mortgage-backed
Securities 308,075 181,269 153,714 165,059 196,971
----------- ----------- ----------- ----------- -----------
Total $ 1,922,108 $ 1,731,000 $ 1,560,960 $ 1,419,276 $ 1,269,053
=========== =========== =========== =========== ===========
(1) Includes home equity and other second mortgage loans.
5
The following table shows the maturity or period to repricing of the
Company's loan and mortgage-backed securities portfolios at September 30, 2003.
Loans that have adjustable rates are shown as being due in the period in which
the interest rates are next subject to change. The table does not include
prepayments or scheduled principal amortization. Prepayments and scheduled
principal amortization on loans totaled $658.5 million, $446.9 million and
$384.4 million for fiscal years 2003, 2002 and 2001, respectively. Loans having
no stated maturity and no schedule of repayments (including delinquent loans),
and demand loans are reported as due within one year.
One Three Five
Within through through through Ten through Beyond twenty
one year three years five years ten years twenty years years Total
-------- ----------- ---------- --------- ------------ ----- -----
(In thousands)
Mortgage loans:
1-4 family $87,808 $62,838 $65,339 $74,329 $ 349,390 $ 443,360 $ 1,083,064
Other 101,939 39,678 42,851 64,766 76,296 985 326,515
Other loans:
Consumer 62,548 17,451 27,743 25,538 36,995 528 170,803
Commercial 24,847 5,893 14,222 4,042 7,125 --- 56,129
Nonperforming loans (1) 2,215 --- --- --- --- --- 2,215
Mortgage-backed
securities 4,169 2,291 40,345 197,232 64,038 --- 308,075
--------- --------- --------- --------- --------- --------- -----------
Sub-total $ 283,526 $ 128,151 $ 190,500 $ 365,907 $ 533,844 $ 444,873 $ 1,946,801
========= ========= ========= ========= ========= =========
Deferred loan fees and
discounts (8,494)
Allowance for loan losses (16,199)
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Total (2)(3) $ 1,922,108
==========
(1) All nonperforming loans are reported as due within one year regardless
of the actual maturity term.
(2) Amounts reported do not include principal repayment or prepayment
assumptions.
(3) Amounts include loans held for sale of $2.6 million at
September 30, 2003.
--------------
The following table sets forth the amount of fixed-rate and
adjustable-rate loans at September 30, 2003 due or repricing after September 30,
2004.
Adjustable
Fixed Rate Rate Total
---------- ---- -----
(In thousands)
Mortgage loans:
1-4 family $ 867,936 $ 127,320 $ 995,256
Other 111,441 113,135 224,576
Other loans:
Consumer 107,357 898 108,255
Commercial 27,017 4,265 31,282
----------- --------- -----------
Total loans 1,113,751 245,618 1,359,369
Mortgage-backed securities 303,906 --- 303,906
----------- --------- -----------
Total $ 1,417,657 $ 245,618 $ 1,663,275
=========== ========= ===========
--------------
6
One-to-Four Family Permanent Residential Mortgage Loans. The Company's
primary lending activities focus on the origination of one-to-four family
residential mortgage loans. The Company generally does not originate one-to-four
family residential loans on properties outside of its market area. At September
30, 2003, $1.0 billion or 57.6% of the Company's total loan portfolio and 43.1%
of total assets consisted of one-to-four family loans.
The Company's fixed rate loans generally are originated and
underwritten according to standards that permit sales in the secondary market.
The decision to sell depends on a number of factors including the yield and the
term of the loan, market conditions, and the Company's current portfolio
position. In addition, the Company sells loans under the single family Mortgage
Revenue Bond Programs through local County Housing Finance Authorities. The
servicing on these loans is released. Servicing is retained for all other sold
loans.
The Company currently offers one-to-four family residential mortgage
loans with fixed, adjustable or a combination of fixed/adjustable interest
rates. Adjustable rate loans enable the Company to create a loan portfolio more
sensitive to fluctuating interest rates. Originations of fixed rate mortgage
loans versus ARM loans are monitored on an ongoing basis and are affected
significantly by the level of market interest rates, customer preference, the
Company's interest rate gap position, and loan products offered by the Company's
competitors. In a low interest rate environment, borrowers typically prefer
fixed rate loans to ARM loans, and even if management's strategy is to emphasize
ARM loans, market conditions may be such that there is greater demand for fixed
rate mortgage loans.
The Company generates residential mortgage loan activity through local
advertising, its existing customers and referrals from local real estate brokers
and home builders. Residential loans are originated by Company loan officers,
none of whom have underwriting authority. Independent loan brokers are not used.
Residential loans are authorized and approved under central authority
by experienced underwriters. Underwriters have individual authority to approve
loans up to the maximum amount of $350,000. Residential mortgage loans in excess
of this amount are approved by management individually up to $750,000 or by
committee if above $750,000. The Company also has direct endorsement authority
from the Federal Housing Authority ("FHA") and Veteran's Administration (VA) to
allow for internal approval of FHA and VA insured loans. FHA and VA loans are
approved under central authority by an underwriter with a "Direct Endorsement"
designation from the FHA and VA. The Company's underwriting standards are
intended to ensure that borrowers are sufficiently credit worthy, and all of the
Company's lending is subject to written underwriting policies and guidelines
approved by the Company's Board of Directors. Detailed loan applications are
designed to determine the borrower's ability to repay the loan and certain
information solicited in these applications is verified through the use of
credit reports, financial statements and other confirmations. The Company
obtains an appraisal of substantially all of the proposed security property in
connection with residential mortgage loans. Additionally, title insurance is
required for all mortgage loans above $50,000.
The types, amounts, terms of and security for conventional loans (those
not insured or guaranteed by the U.S. government or agencies thereof, or state
housing agencies) originated by the Company are predominately prescribed by
federal regulation. The Office of Thrift Supervision ("OTS") regulations limit
the amount which the Company can lend up to specified percentages of the value
of the real property securing the loan, as determined by an appraisal at the
time the loan is originated (referred to as "loan-to-value ratios"). The Company
makes one-to-four family home loans and other residential real estate loans with
loan-to-value ratios generally of up to 80% of the appraised value of the
security property. In certain circumstances loan-to-value ratios exceed 80%, in
which case private mortgage insurance is generally required. A substantial part
of the Company's loan originations are made to borrowers to finance second homes
for vacation use or for use as a rental property. Such loans may be considered
to have a higher credit risk than loans to finance a primary residence.
One-to-Four Family Residential Construction Loans. A part of the
Company's loan originations are to finance the construction of one-to-four
family homes in the Company's market area. At September 30, 2003, the Company
had $190.3 million in such loans, representing 10.8% of total loans. It is the
Company's policy to disburse loan proceeds as construction progresses and as
warranted by inspections.
7
A portion of these loans is made directly to the individual who will
ultimately own and occupy the home. Of these, the vast majority are structured
at origination to guarantee the permanent financing to the Company as well. In
recent years, the origination of these construction loans to individuals is
second in volume only to the origination of traditional loans to finance the
purchase or refinance of an existing home. However, the significance of this
type of lending to the Company is not evident from the amount of these loans in
its portfolio at any given time because these construction loans to individuals
usually "roll" into permanent financing.
Consumer Loans. The Company originates consumer loans as an essential
element in its retail-oriented strategy. Secured consumer loans include
automobile, manufactured housing, boat and truck loans, home equity and home
improvement loans as well as loans secured by the borrower's deposit accounts
with the Company. The loans for manufactured housing are generally originated
within quality, retirement lifestyle communities spread throughout the six
county market area. Such communities generally feature amenities such as full
service clubhouse facilities, swimming pools, and, in a number of cases, golf
courses. These loans are subject to the normal underwriting standards of the
Company. Loans are made on either a fixed-rate or adjustable-rate basis, with
terms generally up to 15 years. A limited amount of unsecured consumer loans are
also originated. At September 30, 2003, consumer-oriented loans accounted for
$171.1 million or 9.7% of the Company's total loan portfolio.
Non-Residential and Land Mortgage Loans. Non-residential mortgage loans
are offered on properties within the Company's primary market area using both
fixed or adjustable rate programs. The Company originated $83.5 million, $46.7
million, and $30.7 million of non-residential mortgage loans in 2003, 2002 and
2001, respectively. At September 30, 2003, nonresidential loans constituted
$181.8 million or 10.3% of the Company's total loan portfolio. Origination of
these loans plays a secondary role to the origination of residential mortgage
loans.
Loans secured by non-residential real estate generally carry larger
balances and involve a greater degree of risk than one-to-four family
residential mortgage loans. This increased risk is a result of several factors,
including the concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income-producing
properties, and the increased difficulty of evaluating and monitoring these
loans. Furthermore, the repayment of loans secured by non-residential property
is typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired. See "Business -- Delinquent, Nonperforming and
Classified Assets."
The Company originates land loans to residential builders, developers
and individuals for future residential construction. The majority of these loans
are secured by fully developed residential lots. Lot loans are offered with
either a fixed or adjustable interest rate. Loan terms vary with a maximum term
of up to 15 years for individual borrowers. At September 30, 2003, land loans
accounted for $127.0 million or 7.2% of the Company's total loan portfolio.
Other Loans. The balance of the Company's lending consists of
multi-family mortgage and commercial loans. At September 30, 2003, these loans
represented $19.8 million or 1.1% and $56.3 million or 3.2%, respectively, of
the Company's total loan portfolio. The multi-family mortgage loans are secured
primarily by apartment complexes. These loans are subject to the same lending
limits as apply to the Company's commercial real estate lending. The commercial
loans primarily represent equipment and other business loans to professionals
such as physicians and attorneys. These loans are an integral part of the
Company's strategy of seeking synergy between its various deposit and loan
products and as a service to existing customers.
Origination and Sale of Loans
Historically, the Company has sold conforming, newly originated or
refinanced 15 and 30-year fixed rate mortgage loans, primarily to the FNMA and
the Federal Home Loan Mortgage Corporation (FHLMC), with servicing retained. For
the year ending September 30, 2003, the Company sold $143.7 million of
conforming newly originated or refinanced 15-30 year fixed rate loans to FNMA.
In addition, the Company sells loans under the single family Mortgage
Revenue Bond Programs through local County Housing Finance Authorities. The
servicing on these loans is released, which means the Company does not retain
any administrative or collection responsibilities in connection with the loans.
For the year ending September 30, 2003, the Company sold $817,000 in fixed rate
loans to local County Housing Finance Authorities.
8
The purpose of selling a portion of fixed rate loans from current
production is to reduce interest rate risk by limiting the growth of longer term
fixed rate loans in the portfolio and to generate service fee income over time.
Historically, the Company has not purchased significant amounts of loans.
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
September 30, 2003 and 2002, no servicing assets and/or liabilities were
recognized.
The following table shows total loan origination activity including
mortgage-backed securities, during the periods indicated.
Years ended September 30,
-------------------------
2003 2002 2001
---- ---- ----
(In thousands)
Mortgage loans (gross):
At beginning of year (1) $ 1,473,615 $ 1,343,699 $ 1,203,146
Mortgage loans originated:
Construction 1-4 Family 271,796 212,956 151,440
Permanent 1-4 Family 395,210 310,545 228,169
Multi-family 15,787 10,122 2,739
Nonresidential 83,518 46,748 30,746
Land 100,581 46,676 21,316
----------- ----------- -----------
Total mortgage loans originated (2) 866,892 627,047 434,410
Mortgage loans sold (144,493) (104,177) (29,021)
Principal repayments (659,890) (392,039) (263,211)
Mortgage loans transferred to real estate owned (279) (915) (1,625)
----------- ----------- -----------
At end of year (1) $ 1,535,845 $ 1,473,615 $ 1,343,699
Other loans (gross):
At beginning of year $ 190,699 $ 166,599 $ 145,341
Other loans originated 121,821 109,068 143,631
Principal repayments (85,191) (84,968) (122,373)
----------- ----------- -----------
At end of year $ 227,329 $ 190,699 $ 166,599
=========== =========== ===========
Mortgage-backed securities:
At beginning of year $ 181,269 $ 153,714 $ 165,059
Mortgage-backed securities purchased 232,822 84,143 26,112
Principal repayments (106,016) (56,588) (37,457)
----------- ----------- -----------
At end of year $ 308,075 $ 181,269 $ 153,714
=========== =========== ===========
(1) Includes loans held for sale.
(2) Loans originated represent loans closed, however all loans may not be
fully disbursed at time of closing.
9
Mortgage-backed Securities
A substantial part of the Company's business involves investments in
mortgage-backed securities issued or guaranteed by an agency of the United
States government. Historically, the Company's mortgage-backed securities
portfolio has consisted primarily of pass-through mortgage participation
certificates issued by FHLMC and FNMA. These pass-through certificates represent
a participation interest in a pool of single-family mortgages, the principal and
interest payments on which are passed from the loans' originators, through the
FHLMC and FNMA that pools and packages the participation interests into the form
of securities, to investors such as the Company. The FHLMC and FNMA guarantee
the payment of principal and interest. The underlying pool of mortgages can
consist of either fixed-rate or adjustable-rate loans. At September 30, 2003,
the Company's portfolio of mortgage-backed securities consisted entirely of
FHLMC and FNMA participation certificates. Of the $308.1 million in
mortgage-backed securities at that date, approximately $3.1 million or 1.0%
represented adjustable-rate securities and $305.0 million or 99.0% represented
fixed-rate securities with anticipated maturity dates from 1 month to 24 years.
Adjustable-rate mortgage-backed securities ("ARM Securities") have
periodic adjustments in the coupons based on the underlying mortgages. These
periodic coupon adjustments are subject to annual and lifetime caps. The caps
serve as a limit to the amount that the coupon will change during any
coupon-reset period. As interest rates on the mortgages underlying the ARM
Securities are reset periodically (one to 12 months), the yields on these
securities will gradually adjust to reflect changes in market rates. Management
believes that the adjustable-rate feature of ARM Securities will help to reduce
sharp fluctuations in security value that result from normal changes in interest
rates.
During periods of declining interest rates, the coupon on ARM
Securities may adjust downward, resulting in lower yields and reduced income
from these securities. Thus, ARM Securities may have less potential for capital
appreciation as compared to fixed-rate debt securities. During periods of rising
interest rates, the coupon on ARM Securities may not fully adjust upward in
conjunction with changes in market rates due to annual or lifetime coupon
adjustment caps. This could result in ARM Securities that depreciate in value
similar to long-term, fixed-rate mortgage securities in a rising interest rate
environment.
The Company's fixed-rate mortgage-backed securities consist of both
long-term and balloon securities. The long-term securities have original
maturity terms of ten, fifteen and thirty years. The balloon securities have
principal and interest amortization based on a thirty-year maturity schedule
with final principal balloon payments due in five, seven or ten years from the
date of the security. Balloon mortgage-backed securities are held in the
portfolio as a means of reducing the average life of the fixed-rate portfolio. A
shorter average portfolio life will help reduce the interest rate risk
associated with these investments. As of September 30, 2003, long-term,
fixed-rate mortgage-backed securities amounted to $75 million, which included
$74 million in fifteen-year and $944,000 in thirty-year securities. In addition,
five-year, seven-year, and ten-year balloon mortgage-backed securities amounted
to $37.5 million, $190.6 million and $1.9 million, respectively.
During periods of declining interest rates, fixed-rate mortgage-backed
securities may have accelerated principal reductions due to increased
refinancing activity on the underlying mortgage loans. The reinvestment of the
accelerated principal reductions at lower prevailing rates could result in lower
overall portfolio yields and income. During periods of rising interest rates,
fixed-rate mortgage-backed securities will tend to depreciate in value. Thus,
total returns on fixed-rate mortgage-backed securities are expected to decline
as market interest rates rise.
If the Company purchases mortgage-backed securities at a premium,
accelerated principal repayments may result in some loss of principal investment
to the extent of the premium paid. Conversely, if mortgage-backed securities are
purchased at a discount, accelerated principal reductions will increase current
and total returns.
Delinquent, Nonperforming and Classified Assets
Delinquent Loans. All delinquent loan results are reviewed monthly by
the Company's Board of Directors. The Company believes it has an effective
process and policy for dealing with delinquent loans.
Residential delinquencies are handled by the Loan Collections
Department. This department begins collection efforts on residential loans when
a loan appears on the 15-day delinquent list. Borrowers are sent a notice to
accelerate the debt when the debt is 45 days delinquent. If the delinquent
account has not been corrected, foreclosure proceedings are begun generally at
the 75th day of delinquency. At September 30, 2003, residential loans delinquent
90 days and longer represented .1% of the total residential loan portfolio.
10
Commercial delinquent accounts are processed by the Special Asset and
Lending Departments. For commercial accounts classified as Substandard, as
defined below, or worse, the Special Asset Department has jurisdiction over the
collection efforts. As with residential delinquent loans, commercial loans are
placed on a non-accrual basis when they are 90 days past due or when the
collection of the interest or full principal is considered doubtful.
If a collection action is instituted on a consumer or commercial loan,
the Company, in compliance with the loan documents and the law, may repossess
and sell the collateral security for the loan through private sales or through
judicially ordered sales when necessary. Should the sale result in a deficiency
owing to the Company, the borrowers generally are pursued where such action is
deemed appropriate, including recourse based on personal loan guarantees by the
borrower's principals.
The following table shows the Company's loans delinquent 90 days or
more and loan delinquencies as a percent of total loans at the dates indicated.
September 30,
2003 2002 2001
---- ---- ----
Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ ------
(Dollars in thousands)
Mortgage loans:
Construction and land --- $ --- --- $ --- --- $ ---
Permanent 1-4 family 19 1,134 20 1,170 20 1,348
Other mortgage 1 475 1 67 3 791
------- ------- ------- ------- ------- -------
Total mortgage loans 20 1,609 21 1,237 23 2,139
Other loans 11 397 13 423 9 183
------- ------- ------- ------- ------- -------
Total loans 31 $ 2,006 34 $ 1,660 32 $ 2,322
======= ======= ======= ======= ======= =======
Delinquent loans to total loans .14% .11% .18%
As of September 30, 2003, 2002 and 2001, $209,000, $0, and $263,000,
respectively, of loans were on nonaccrual status which were less than 90 days
past due.
Nonperforming Assets. The Company also places emphasis on improving
asset quality and asset quality has improved substantially each year since 1998
when nonperforming assets as a percentage of total assets was .37%. The
Company's nonperforming assets as a percentage of total assets has increased
from .11% at September 30, 2002 to .13% at September 30, 2003.
Loans 90 days past due are generally placed on non-accrual status. The
Company ceases to accrue interest on a loan once it is placed on non-accrual
status, and interest accrued but unpaid at that 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 non-accrual status. The Company
evaluates impaired loans (primarily consisting of classified 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 dependent loan. To the extent that an impaired loan's value is less
than the loan's recorded investment, a specific allowance is recorded.
The investment in impaired loans (primarily consisting of classified
loans), other than those evaluated collectively for impairment, at September 30,
2003, 2002 and 2001 was $6,259,000, $8,941,000 and $5,813,000, respectively. The
average recorded investment in impaired loans during the years ended September
30, 2003, 2002 and 2001 was approximately $8,011,000, $9,469,000 and $4,949,000,
respectively. There are no commitments to lend additional funds to these
borrowers. The total specific allowance for loan losses related to these loans
was $-0- at September 30, 2003 and 2002. Interest income on impaired loans of
approximately $584,000, $743,000 and $437,000 was recognized in the years ended
September 30, 2003, 2002 and 2001, respectively.
11
If a foreclosure action is instituted on a real estate-secured loan and
the loan is not reinstated, paid in full, refinanced, or deeded back to the
Company, the property is sold at a foreclosure sale at which the Company may be
the buyer. Thereafter, such acquired property is listed in the Company's real
estate owned ("REO") account or that of a subsidiary, until the property is
sold. Upon acquisition, the Company records all REO at fair value at the date of
foreclosure, establishing a new cost basis. The fair value is based upon the
most recent appraisal and management's evaluation. If the fair value of the
asset is less than the loan balance outstanding, the difference is charged
against the Company's loan loss allowance prior to transferring the asset to
REO. Should the foreclosure sale not produce sufficient proceeds to pay the loan
balance and court costs, the Company's attorneys, where appropriate, may pursue
the collection of a deficiency judgment against the responsible borrower.
It is the Company's policy to try to liquidate its holdings in REO on a
timely basis while considering both market conditions and the cost of carrying
REO properties. The Company also finances the sales of REO properties, subject
to certain initial investment criteria by the borrower. Administration of REO
property is handled by the Special Assets Department, which is responsible for
the sale of all residential and commercial properties. In those instances where
the property may be located outside the Company's market area or where the
property, due to its nature, requires certain expertise (i.e., hotels, apartment
complexes), outside management firms may be utilized.
At the dates indicated, nonperforming assets in the Company's portfolio
were as follows:
September 30,
---------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(Dollars in thousands)
Non-accrual mortgage loans:
Delinquent less than 90 days $ 209 $ --- $ 87 $ --- $ ---
Delinquent 90 days or more 1,609 1,237 2,139 2,031 2,343
------- ------- ------- ------- -------
Total 1,818 1,237 2,226 2,031 2,343
------- ------- ------- ------- -------
Non-accrual other loans:
Delinquent less than 90 days --- --- 176 505 ---
Delinquent 90 days or more 397 423 183 230 198
------- ------- ------- ------- -------
Total 397 423 359 735 198
------- ------- ------- ------- -------
Total non-accrual loans 2,215 1,660 2,585 2,766 2,541
Accruing loans 90 days or more delinquent --- --- --- --- ---
------- ------- ------- ------- -------
Total nonperforming loans 2,215 1,660 2,585 2,766 2,541
------- ------- ------- ------- -------
Other nonperforming assets:
Real estate owned 906 733 917 871 911
Less allowance for losses --- --- --- --- ---
------- ------- ------- ------- -------
Total 906 733 917 871 911
------- ------- ------- ------- -------
Total nonperforming assets, net $ 3,121 $ 2,393 $ 3,502 $ 3,637 $ 3,452
======= ======= ======= ======= =======
Nonperforming loans to total net loans 0.14% 0.11% 0.18% 0.22% 0.24%
Total nonperforming assets to total assets 0.13% 0.11% 0.20% 0.23% 0.24%
For the year ended September 30, 2003, interest income of $147,000
would have been recorded on loans accounted for on a non-accrual basis if the
loans had been current throughout the period. No interest income was actually
included in net income regarding non-accrual loans during the same period.
12
No allowance was recorded on REO property at September 30, 2003 and
2002. At September 30, 2001, the allowance was as follows (in thousands):
2001
-------------
Beginning balance $---
Provision for losses 4
Charge offs (4)
------
Ending balance $---
======
After foreclosure, management periodically performs valuations and the
real estate is carried at the lower of carrying amount or fair value less cost
to sell. Revenue and expenses from operations and changes in the valuation
allowance are included in income from real estate operations on the consolidated
statement of earnings.
Not included in the preceding table are net gains on the sale of real
estate owned of $78,000, $35,000, and $215,000 for the years ended September 30,
2003, 2002 and 2001, respectively.
Classified Assets. Under OTS regulations, problem assets of insured
institutions are classified as either "substandard," "doubtful" or "loss." An
asset is considered "substandard" if the current net worth and paying capacity
of the obligor and/or the value of the collateral pledged are no longer adequate
to support the loan. "Substandard" assets are characterized by the "distinct
possibility" that the insured institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified "loss" are those considered
"uncollectible" and of such little value that the continuance as assets without
the establishment of a specific loss reserve is not warranted. In addition to
the classification of assets as "substandard," "doubtful" or "loss," the OTS
regulations also require that assets that do not currently expose the Company to
a sufficient degree of risk to warrant one of the three foregoing
classifications but which do possess credit deficiencies or potential weaknesses
deserving management's close attention must be designated "special mention."
When an insured institution classifies problem assets as either
substandard or doubtful, it is required to establish specific allowances for
loan losses in an amount considered appropriate by management. See "--Allowance
for Loan Losses" below. Additionally, the institution establishes general
allowances to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When an insured institution classifies problem assets as "loss,"
it is required either to establish a specific allowance for losses equal to 100%
of the amount of the asset so classified or to charge off such amount. An
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the OTS, which can
order the establishment of additional general or specific loss allowances.
The following table presents the Company's classified assets at the dates
indicated.
September 30,
2003 2002 2001
---- ---- ----
(In thousands)
Substandard:
Real Estate Owned $ 906 $ 733 $ 917
Loans 6,449 6,348 5,098
------- ------- -------
Total Substandard 7,355 7,081 6,015
Doubtful 140 203 229
Loss --- --- ---
------- ------- -------
$ 7,495 $ 7,284 $ 6,244
======= ======= =======
13
Allowance for Loan Losses
Provisions for loan losses are charged to operations to establish an
allowance for loan losses; recognized loan losses (recoveries) are then charged
(credited) to the allowance. The Company evaluates the outstanding loan
portfolio with respect to the adequacy of the allowance for loan losses at least
quarterly.
Management's policy is to provide for estimated losses on the Company's
loan portfolio based on management's evaluation of the probable losses (existing
and inherent). Such evaluations are made for all major loans on which full
collectibility of interest and/or principal may not be reasonably assured. The
factors that the Company considers are the estimated value of the underlying
collateral, the management of the borrower, and current operating results,
trends and cash flow. In addition to analyzing individual loans, management also
analyzes on a regular basis its asset classification and recent loss experience
on other loans to help insure that prudent general allowances are maintained on
one-to-four family loans, automobile loans and home equity loans. Management
periodically evaluates the allowance percentages utilized for general allowance
purposes based upon delinquencies, charge off, underwriting, and other trends.
The Company segregates the loan portfolio for loan loss purposes into
the following broad segments: commercial real estate, residential real estate,
commercial business and consumer loans.
The Company provides for a general allowance for losses inherent in the
portfolio by the above categories, which consists of two components: (1) General
loss percentages are calculated based upon historical analyses. (2) A
supplemental portion of the allowance is calculated for inherent losses which
probably exist as of the evaluation date even though they might not have been
identified by the more objective processes used for the portion of the allowance
described above. This is due to the risk of error and/or inherent imprecision in
the process. This portion of the allowance is particularly subjective and
requires judgments based on qualitative factors which do not lend themselves to
exact mathematical calculations such as: trends in delinquencies and
nonaccruals; migration trends in the portfolio; trends in volume, terms, and
portfolio mix; new credit products and/or changes in the geographic distribution
of those products; changes in lending policies and procedures; loan review
reports on the efficacy of the risk identification process; changes in the
outlook for local, regional and national economic conditions; concentrations of
credit; and peer group comparisons.
Specific allowances are provided in the event that the specific
collateral analysis on each classified loan indicates that the probable loss
upon liquidation of collateral would be in excess of the general percentage
allocation. The provision for loan losses is debited or credited in order to
state the allowance for loan losses to the required level as determined above.
The Company considers a loan to be impaired when it is probable that
the Company will be unable to collect all amounts due, both principal and
interest, according to the contractual terms of the loan agreement. When a loan
is impaired, the Company may measure impairment 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-dependent
loan. The Company selects the measurement method on a loan-by-loan basis, except
collateral-dependent loans for which foreclosure is probable, must be measured
at the fair value of the collateral. In a troubled debt restructuring involving
a restructured loan, the Company measures impairment by discounting the total
expected future cash flows at the loan's original effective rate of interest.
14
The following tables set forth an analysis of the Company's allowance for
loan losses at the dates indicated.
Years ended September 30,
-----------------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(Dollars in thousands)
Balance at beginning of year... $ 14,377 $ 13,417 $ 12,729 $ 11,952 $ 11,818
Provision for losses 1,946 1,515 798 847 816
Charge offs:
Residential (50) (15) (20) (75) (22)
Commercial real estate --- (87) --- (30) (49)
Consumer (169) (266) (231) (125) (324)
Other --- (299) (102) (3) (367)
-------- -------- -------- -------- --------
Total charge offs (219) (667) (353) (233) (762)
Recoveries:
Residential 14 49 25 40 39
Commercial real estate 2 2 --- 39 21
Consumer 75 56 21 70 14
Other 4 5 197 14 6
-------- -------- -------- -------- --------
Total recoveries 95 112 243 163 80
Balance at end of year $ 16,199 $ 14,377 $ 13,417 $ 12,729 $ 11,952
======== ======== ======== ======== ========
Allowance for loan losses to total
net loans 1.01% .93% .96% 1.02% 1.12%
Allowance for loan losses to total
nonperforming loans 731.34% 865.87% 519.01% 460.19% 470.31%
Allowance for loan losses and
allowance for REO to total
nonperforming assets 519.10% 600.72% 383.09% 350.02% 346.20%
Net charge offs to average loans
outstanding during the period 0.01% 0.04% 0.01% 0.01% 0.07%
Classified loans to total net loans 0.41% 0.43% 0.38% 0.37% 0.48%
15
The following table presents an allocation of the entire allowance for
loan losses among various loan classifications and sets forth the percentage of
loans in each category to total loans. The allowance shown in the table should
not be interpreted as an indication that charge offs in future periods will
occur in these amounts or proportions or that the analysis indicates future
charge off trends.
September 30,
-----------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
% of Loans % of Loans % of Loans % of Loans % of Loans
in Each in Each in Each in Each in Each
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
Allowance at end of
period applicable to:
Residential $ 2,957 68.43% $ 3,160 73.33% $ 3,177 75.48% $ 2,820 74.69% $ 2,605 76.06%
Commercial real estate 8,152 18.66 6,884 15.15 5,931 13.45 6,192 14.51 6,142 13.56
Consumer 3,238 9.71 3,056 9.46 2,786 8.95 2,432 8.67 2,128 8.55
Commercial business 1,852 3.20 1,277 2.06 1,523 2.12 1,285 2.13 1,077 1.83
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total $ 16,199 100.00% $ 14,377 100.00% $ 13,417 100.00% $ 12,729 100.00% $ 11,952 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Investment Activities
The Company invests primarily in overnight funds, U.S. Government and
agency obligations, and Federal Home Loan Bank capital stock. The Company does
not invest in derivatives, collateralized mortgage obligations or other hedging
instruments.
The table below summarizes the carrying value and estimated market
value of the Company's portfolio of investment securities at the dates
indicated.
September 30,
2003 2002 2001
---- ---- ----
(In thousands)
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
Available for sale:
FHLB notes $ 171,882 $ 171,882 $ 91,639 $ 91,639 $ 30,991 $ 30,991
FNMA notes 60,331 60,331 --- --- --- ---
FHLMC notes --- --- 51,132 51,132 10,458 10,458
FFCB note 10,338 10,338 --- --- --- ---
Equity securities 3,968 3,968 4,434 4,434 4,965 4,965
--------- --------- --------- --------- -------- --------
Total $ 246,519 $ 246,519 $ 147,205 $ 147,205 $ 46,414 $ 46,414
========= ========= ========= ========= ======== ========
Held to maturity:
FHLB notes 30,000 30,128 --- --- --- ---
FHLMC notes 19,975 20,141 --- --- --- ---
Municipal securities 441 484 200 245 200 220
--------- --------- --------- --------- -------- --------
Total $ 50,416 $ 50,753 $ 200 $ 245 $ 200 $ 220
========= ========= ========= ========= ======== ========
FHLB stock $25,525 $25,525 $22,276 $22,276 $15,027 $15,027
16
The table below presents the contractual maturities and weighted
average yields of investment securities at September 30, 2003 excluding FHLB
stock and equity securities. Yields on tax exempt obligations are not reported
on a tax equivalent basis.
Total Investment
One Year or Less One to Five Years More Than Five Years Securities
---------------- ----------------- -------------------- ----------
(Dollars in thousands)
Average
Weighted Weighted Weighted Remaining Weighted
Carrying Average Carrying Average Carrying Average Years to Carrying Market Average
Value Yield Value Yield Value Yield Maturity Value Value Yield
----- ----- ----- ----- ----- ----- -------- ----- ----- -----
FHLB Notes $50,535 3.03% $ 151,347 2.44% $ --- ---% 2.0 $ 201,882 $ 202,010 2.59%
FNMA Notes --- --- 60,331 2.36 --- --- 2.3 60,331 60,331 2.36
FHLMC Notes --- --- 19,975 2.55 --- --- 2.6 19,975 20,141 2.55
FFCB Notes --- --- 10,338 1.62 --- --- 1.3 10,338 10,338 1.62
Municipal
Securities --- --- 241 2.29 200 7.40 4.4 441 484 4.61
------------------
Sources of Funds
Deposits. The Company offers a number of different deposit accounts,
including regular savings, interest-bearing checking or NOW accounts,
non-interest checking, money market accounts, term certificate accounts and
individual retirement accounts.
The Company has thirty-two full-service banking offices and one
in-store branch location in addition to its home office in Fort Pierce. The
Company's strategy has been to have conveniently located offices in growth
markets as one of its main methods of attracting funds. The Company's deposits
primarily are obtained from areas surrounding its offices. Certificate accounts
in excess of $100,000 are not actively solicited nor are brokers used to obtain
deposits.
During the year ended September 30, 2000, the Company began offering
internet banking services. This online service allows customers the ability to
access their accounts through any computer terminal that has internet browser
capabilities, using secure technology. Customers benefit by having access to
their accounts and being able to initiate transactions at the time that suits
them best. The Company also offers a bill pay service.
Management believes that demand and passbook accounts are less
sensitive to changes in interest rates than other types of accounts, such as
certificate accounts. As of September 30, 2003, the Company had 46.13% of its
deposits in passbook and demand accounts, 52.62% in certificate accounts and
1.25% in official checks. When management determines the levels of its deposit
rates, consideration is given to local competition, U.S. Treasury securities
offerings, and anticipated funding requirements.
17
The following table sets forth the distribution of the Company's
deposit accounts at the dates indicated and the weighted average interest rates
on each category of deposits presented. Management does not believe that the use
of year-end balances instead of average monthly balances produces any material
difference in the information presented:
September 30,
2003 2002 2001
----- ----- ----
Weighted Weighted
Weighted Average Average
Average Nominal Nominal
Amount Percent Nominal Rate Amount Percent Rate Amount Percent Rate
------ ------- ------------ ------ ------- ---- ------ ------- ----
(Dollars in thousands)
Demand accounts:
Non-interest
Bearing demand $ 245,665 15.85% N/A $ 158,599 11.55% N/A $ 122,115 10.18% N/A
NOW accounts 115,054 7.42 .10% 97,150 7.08 .30% 80,342 6.69 .50%
Money market accounts 213,961 13.80 1.00 166,004 12.09 1.44 128,454 10.70 2.54
---------- ------ ---- ---------- ------ ---- ---------- ------ ----
Subtotal 574,680 37.07 .66 421,753 30.72 .64 330,911 27.57 1.11
Savings accounts:
Passbook 140,432 9.06 .27 115,306 8.40 .52 96,516 8.04 1.05
Certificate accounts 815,727 52.62 2.60 814,127 59.30 3.74 756,727 63.06 5.43
Official checks 19,421 1.25 N/A 21,697 1.58 N/A 15,938 1.33 N/A
---------- ------ ---- ---------- ------ ---- ---------- ------ ----
Total deposits $1,550,260 100.00% 1.54% $1,372,883 100.00% 2.46% $1,200,092 100.00% 3.81%
========== ====== ==== ========== ====== ==== ========== ====== ====
The following table sets forth the Company's certificate accounts classified
by rates as of the dates indicated.
September 30,
-----------------------------------------------------
2003 2002 2001
---- ---- ----
(Dollars in thousands)
0.00 - 3.00% $ 587,931 $ 227,361 $ 10,875
3.01 - 4.00% 134,985 318,683 90,812
4.01 - 5.00% 69,737 122,280 181,100
5.01 - 6.00% 17,614 56,015 183,727
6.01 - 7.00% 5,460 87,692 282,215
7.01 - 8.00% --- 2,096 7,980
8.01 - 9.00% --- --- 18
--------- --------- ---------
Total certificate accounts $ 815,727 $ 814,127 $ 756,727
========= ========= =========
18
At September 30, 2003, the Company had certificate accounts in amounts
of $100,000 or more maturing as follows:
Amount
------
Maturity Period (In thousands)
- ---------------
3 Months or Less $ 35,214
Over 3 to 6 Months 42,592
Over 6 to 12 Months 34,374
Over 12 Months 55,111
---------
Total $ 167,291
=========
The following table contains information regarding deposit account
activity for the periods shown.
Years ended September 30,
---------------------------------------------------
2003 2002 2001
---- ---- ----
(Dollars in thousands)
Net increase before interest credited $ 154,208 $ 140,568 $ 57,794
Interest credited 23,169 31,794 43,807
--------- --------- ---------
Deposit account increase $ 177,377 $ 172,362 $ 101,601
========= ========= =========
Weighted average cost of deposits during the year 1.88% 2.93% 4.34%
Weighted average cost of deposits at end of year 1.54% 2.46% 3.81%
Borrowings. The Company is a member of the FHLB. The FHLB offers
various fixed rate and variable rate advances to its members. The FHLB
underwrites each advance request based on factors such as adequacy and stability
of capital position, quality and composition of assets, liquidity management,
level of borrowings from all sources and other such factors. Pursuant to a
collateral agreement with the FHLB, advances are secured by all stock in the
FHLB and a blanket floating lien that requires the Company to maintain
qualifying first mortgage loans as pledged collateral in an amount equal to,
when discounted at 75% of the unpaid principal balances, the advances.
As of September 30, 2003, the Company had $503.5 million of outstanding
FHLB advances. Of this amount, $478.5 million have maturity dates of fifteen
months or longer. The remaining $25 million of FHLB advances are short-term,
with maturity dates of twelve months or less. Of the $478.5 million long-term
FHLB advances, the FHLB could call $90 million on specified dates in 2005, $75
million on specified dates in 2006, $160 million on specified dates in 2007, and
$50 million on specified dates in 2008.
As of September 30, 2003, the Company had a total credit limit of
$588.0 million and an availability limit of $84.5 million with the FHLB.
In addition to FHLB advances, the Company had $289.4 million of
unpledged mortgage-backed securities at September 30, 2003. These unpledged
mortgage-backed securities could be used as collateral under reverse repurchase
transactions with various security dealers. Such borrowing transactions could
provide additional cash and liquidity to the Company in the event of sudden or
unforeseen deposit withdrawals.
19
The following table sets forth information regarding the Company's
borrowing at and for the periods indicated:
At or for the year ended September 30,
2003 2002 2001
---- ---- ----
(Dollars in thousands)
FHLB Advances:
Average balance $ 457,300 $ 352,199 $ 266,340
Maximum balance at any month-end 510,512 445,528 295,544
Balance at year end 503,511 445,528 295,544
Weighted average interest rate during the year 4.89% 5.34% 5.56%
Weighted average interest rate at year end 4.50% 4.97% 5.40%
Other Borrowings:
Average balance $ 591 $ 20 $ 69
Maximum balance at any month-end 900 43 91
Balance at year end 855 --- 43
Weighted average interest rate during the year 5.96% 13.82% 18.84%
Weighted average interest rate at year end 6.00% .00% 8.00%
Total Borrowings:
Average balance $ 457,891 $ 352,219 $ 266,409
Maximum balance at any month-end 511,373 445,528 295,587
Balance at year end 504,366 445,528 295,587
Weighted average interest rate during the year 4.89% 5.34% 5.57%
Weighted average interest rate at year end 4.50% 4.97% 5.40%
---------------
Subsidiaries
Federal associations generally may invest up to 2% of their assets in
service corporations plus an additional 1% of assets for community purposes. In
addition, federal associations such as the Bank may invest up to 50% of their
regulatory capital in conforming loans to service corporations. In addition to
investments in service corporations, federal associations are permitted to
invest an unlimited amount in operating subsidiaries engaged solely in
activities that a federal association may engage in directly.
The Company has four active subsidiary corporations. Appraisal
Analysts, Inc. provides real estate appraisal services to the Company as well as
third parties. H. F. Development Company, Inc. serves as a repository for some
of the Company's commercial REO properties held for disposition. See "Business
- -- Delinquent, Nonperforming and Classified Assets". Harbor Insurance Agency,
Inc. specializes in property and casualty insurance and provides a full range of
insurance products to its customers. (See Note 17 to Consolidated Financial
Statements on page 60 in the Annual Report). Harbor Florida Financial Services,
Inc. offers non-deposit investment products for sale through the Bank's branch
offices.
Competition
The Company encounters strong competition both in attracting deposits
and in originating real estate, commercial, and consumer loans. Its most direct
competition for deposits has come historically from commercial banks, brokerage
houses, other savings associations and credit unions in its market area. The
Company expects continued strong competition from such financial institutions in
the foreseeable future. The Company's market area includes branches of a number
of commercial banks that are substantially larger than the Company in terms of
statewide deposits. The Company competes for deposits by offering depositors a
high level of personal service, convenient locations and competitive interest
rates.
The competition for real estate and other loans comes principally from
commercial banks, mortgage banking companies and other savings associations.
Lending competition has increased substantially in recent years as a result of
the large number of institutions seeking to benefit from the growth in the
Company's market area.
20
The Company competes for loans primarily through the interest rates and
loan fees it charges, the types of loans it offers, and the efficiency and
quality of services it provides borrowers, real estate brokers and builders.
Factors that affect competition include general and local economic conditions,
current interest rate levels and volatility of the mortgage markets. Based on
total assets, as of September 30, 2003, the Company was the largest savings
institution headquartered in the six county area served by the Company.
Employees
At September 30, 2003, the Company had a total of 575 full-time and 68
part-time employees, none of whom were represented by a collective bargaining
unit. The Company considers its relations with its employees to be good.
Financial Services Modernization Bill
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley-Financial Services Modernization Act of 1999 (the "Act"),
federal legislation intended to modernize the financial services industry by
establishing a comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms and other financial service
providers. Generally, the Act: (i) repeals the historical restrictions and
eliminates many federal and state law barriers to affiliations among banks,
securities firms, insurance companies and other financial service providers;
(ii) provides a uniform framework for the functional regulation of the
activities of banks, savings institutions and their holding companies; (iii)
broadens the activities that may be conducted by national banks, banking
subsidiaries of bank holding companies and their financial subsidiaries; (iv)
provides an enhanced framework for protecting the privacy of consumer
information; (v) adopts a number of provisions related to the capitalization,
membership, corporate governance and other measures designed to modernize the
Federal Home Loan Bank system; (vi) modifies the laws governing the
implementation of the Community Reinvestment Act; and (vii) addresses a variety
of other legal and regulatory issues affecting day-to-day operations and
long-term activities of financial institutions.
Thrift holding companies such as the Company will be permitted to
engage in financial activities in the same manner as bank holding companies with
respect to insurance and securities activities. In addition, in a change from
prior law, thrift holding companies can be owned, controlled or acquired only by
companies engaged in financially-related activities.
The Company does not believe that the Act has had a material adverse
effect on its operations. However, to the extent that the Act has permitted
banks, securities firms and insurance companies to affiliate, the financial
services industry may experience further consolidation. This could result in a
growing number of larger financial institutions that can offer a wider variety
of financial services than the Company currently offers and that can
aggressively compete in the markets the Company currently serves.
Available Information
The Company's website address is www.harborfederal.com. The Company
makes available, free of charge, on or through its website, its annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, and beneficial ownership reports
on Forms 3, 4, and 5 as soon as reasonably practicable after electronically
filing such material with, or furnishing it to, the Securities and Exchange
Commission. The information found on the Company's website is not incorporated
by reference in this or any other report the Company files or furnishes to the
Securities and Exchange Commission.
21
Item 2. Properties
The Company conducts its business from its headquarters in Fort Pierce and
through 33 full-service banking offices, one loan production office, one
in-store branch location and three insurance agency locations. These offices are
located in Brevard, Indian River, Martin, Okeechobee, St. Lucie, and Volusia
counties, Florida. The net book value at September 30, 2003 of the Company's
offices was $24.9 million. The following table sets forth information regarding
the Company's offices.
Year Lease
Location Opened Owned/Leased Expiration Date
-------- ------ ------------ ---------------
ST. LUCIE COUNTY
Main Office 1934 Owned
100 South Second Street
Fort Pierce, FL 34950
Virginia Avenue 1968 Owned
500 Virginia Avenue
Fort Pierce, FL 34982
Port St. Lucie Main 1975 Owned
7181 South U.S. Highway 1
Port St. Lucie, FL 34952
Harbor Federal Center 1981 Owned
2400 S.E. Midport Road, Suite 100
Port St. Lucie, FL 34952
Lakewood Park 1981 Owned
5100 Turnpike Feeder Road
Fort Pierce, FL 34951
Darwin Square 1991 Owned
3201 S.W. Port St. Lucie Boulevard
Port St. Lucie, FL 34953
Orange Blossom 1984 Owned
4156 Okeechobee Road
Fort Pierce, FL 34947
St. Lucie West 1993 Owned
1320 S.W. St. Lucie West Boulevard
Port St. Lucie, FL 34986
Harbor Insurance Agency, Inc.
2222 Colonial Road 2000 Leased 01/14/06
Suite 100
Fort Pierce, FL 34950
Harbor Insurance Agency, Inc.
2400 SE Midport Road 2003 Owned
Suite 110
Port St. Lucie, FL 34952
St. James
5493 NW St. James Drive 2003 Owned
Port St. Lucie, FL 34983
22
Year Lease
Location Opened Owned/Leased Expiration Date
-------- ------ ------------ ---------------
INDIAN RIVER
Vero Main 1973 Owned
655 21st Street
Vero Beach, FL 32960
Causeway 1981 Owned
1700 A1A
Vero Beach, FL 32963
Indian River Mall 1997 Owned
6080 20th Street
Vero Beach, FL 32966
Harbor Insurance Agency, Inc. 2001 Owned
6078 20th Street
Vero Beach, FL 32966
Sebastian
13397 U.S. Highway #1 1979 Owned
Sebastian, FL 32958
West Sebastian 1998 Owned
993 Sebastian Boulevard
Sebastian, FL 32958
MARTIN COUNTY
Palm City 1978 Owned
1251 S.W. 27th Street
Palm City, FL 34990
East Ocean 1981 Owned
1500 E. Ocean Boulevard
Stuart, FL 34996
Stuart Main 1996 Leased 08/14/05
789 S. Federal Highway
Stuart, FL 34994
Jensen Beach 1999 Leased 05/31/05
3639 N.W. Federal Highway
Jensen Beach, FL 34957
BREVARD COUNTY
Palm Bay 1981 Owned
5295 Babcock Street, N.E.
Palm Bay, FL 32905
Indialantic 1981 Owned
305 5th Avenue
Indialantic, FL 32903
West Melbourne 1982 Owned
2950 W. New Haven Avenue
West Melbourne, FL 32904
Viera/Baytree 1995 Owned
100 Capron Trail
Melbourne, FL 32940
Wal-Mart Superstore 1998 Leased 08/31/05
1000 N. Wickham Road
Melbourne, FL 32935
Palm Bay West 2001 Owned
122 Malabar Road, S.W.
Palm Bay, FL 32907
23
Year Lease
Location Opened Owned/Leased Expiration Date
-------- ------ ------------ ---------------
Rockledge 2001 Owned
630 Barnes Boulevard
Rockledge, FL 32955
Cocoa Commons 2002 Owned
2323 Highway 524
Cocoa, FL 32926
Loan Production Office 1998 Leased 07/31/04
1355 N Courtenay Parkway
Suite I
Merritt Island, FL 32953
OKEECHOBEE COUNTY
Okeechobee 1980 Owned
2801 Highway #441 South
Okeechobee, FL 34974
VOLUSIA COUNTY
New Smyrna Beach 1988 Owned
2230 State Road #44
New Smyrna Beach, FL 32168
Port Orange 1983 Owned
4035 S. Nova Road
Port Orange, FL 32127
Ormond Beach 1984 Owned
75 N. Nova Road
Ormond Beach, FL 32174
Deltona 1998 Owned
2901 Howland Boulevard
Deltona, FL 32725
Deland
312 N. Woodland Boulevard 1999 Owned
Deland, FL 32720
Ormond By The Sea
1190 Ocean Shore Boulevard 1999 Owned
Ormond Beach, FL 32176
Orange City/DeBary 2002 Owned
884 Saxon Boulevard
Orange City, FL 32763
Subject to business decisions which may occur from time to time on
selected leases, leases are anticipated to renew upon their expiration.
The Company uses a data processing service located in Milwaukee,
Wisconsin for record keeping activities. The data processor specializes in
servicing financial institutions. The Company's current contract expires in
2006. All data processing equipment that is used internally by the Company is
owned by the Company. The net book value of such data processing equipment and
related software as of September 30, 2003 was $3,544,000.
Item 3. 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 4. Submission of Matters to a Vote of Security-Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock trades on the NASDAQ National Market under
the symbol HARB. The approximate number of shareholders of record and beneficial
shareholders of the common stock at December 5, 2003 was 7,541, some of which
are street name holders.
25
The Company paid $0.5500 in cash dividends per share for the twelve
months ended in fiscal 2003. Payments were $0.1125 in the first quarter, $0.1300
in the second and third quarters and $0.1450 in the fourth quarter. The Company
currently expects that comparable cash dividends will continue to be paid in the
future.
On December 5, 2003, the closing sales price of the Company's common
stock was $29.75 per share. The following table sets forth the market price
range of the high and low closing sales price and cash dividends paid per share
of common stock as reported by the NASDAQ stock market for the four quarters of
fiscal years 2003 and 2002.
Low High Dividends
FISCAL 2003
First Quarter................ $19.06 $23.14 $.1125
Second Quarter .............. 22.46 24.77 .1300
Third Quarter................ 23.51 27.25 .1300
Fourth Quarter............... 23.97 27.76 .1450
FISCAL 2002
First Quarter................ $15.90 $17.65 $.1000
Second Quarter .............. 16.92 20.00 .1125
Third Quarter................ 19.03 24.33 .1125
Fourth Quarter............... 18.55 24.63 .1125
Information concerning securities authorized for issuance under the
Company's equity compensation plans is set forth in "Item 12. Security Ownership
of Certain Beneficial Owners and Management -- Equity Compensation Plan
Information," and is incorporated herein by reference.
Item 6. Selected Financial Data
The information contained in the table captioned "Selected Consolidated
Financial Data" in the Annual Report on pages 18 through 19 is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 19 through 32 in the Annual Report is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information contained in the sections captioned "Disclosure on
Quantitative and Qualitative Market Risk and Asset and Liability Management",
"Interest Rate Sensitivity", "Interest Rate Risk" and "Equity Pricing Risk" is
contained on pages 20 through 23 in the Annual Report and is incorporated herein
by reference.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements listed in Item 15
herein, together with the report thereon by KPMG LLP, are found in the Annual
Report on pages 33 through 64 and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
26
Item 9A. Controls and Procedures
Based on their evaluation, 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 as of
September 30, 2003 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. During
the last fiscal quarter, there have been no changes in the internal control over
financial reporting that have materially affected, or are reasonably likely to
materially affect the internal control over financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained under the sections captioned "Beneficial
Ownership of Common Stock," on pages 2 through 4, "Board Meetings and
Committees" on pages 7 and 8 and "Section 16(A) Beneficial Ownership Reporting
Compliances" on page 15 of the Proxy Statement of Harbor Florida Bancshares,
Inc. (the "Proxy Statement) filed with the SEC on December 17, 2003 is
incorporated herein by reference.
The Company has adopted a code of ethics for financial professionals
that applies to its chief executive officer, chief financial officer and
controller. A copy of the Company's code of ethics is attached as Exhibit 14.1
to this Form 10-K and is also posted on its Internet site at
www.harborfederal.com. In the event that the Company makes any amendment to, or
grants any waiver from, a provision of the code of ethics that applies to the
chief executive officer, chief financial officer or controller and that requires
disclosure under applicable SEC rules, the Company intends to disclose such
amendment or waiver and the reasons therefor on its Internet site.
Item 11. Executive Compensation
The information contained under the sections captioned "Executive
Compensation" on pages 10 through 12 of the Proxy Statement filed with the SEC
on December 17, 2003 is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a)Security Ownership of Certain Beneficial Owners
The information required by this item under the sections captioned
"Voting Procedures" on page 1 and "Beneficial Ownership of Common Stock" on
pages 2 through 4 of the Proxy Statement filed with the SEC on December 17, 2003
is incorporated herein by reference.
(b)Security Ownership of Management
The information required by this item under the section captioned
"Beneficial Ownership of Common Stock" on pages 2 through 4 of the Proxy
Statement filed with the SEC on December 17, 2003 is incorporated herein by
reference.
(c)Changes in Control
Management of the Company knows of no arrangements, including any
pledge by any persons of securities of the Company, the operation of which may,
at a subsequent date, result in a change in control of the Registrant.
27
(d) Equity Compensation Plan Information
The following table provides information about the Company's common
stock that may be issued under the Company's 1994 Incentive Stock Option Plan,
1994 Stock Option Plan for Outside Directors, Directors Deferred Compensation
Plan and 1998 Stock Incentive Plan for Directors, Officers and Employees. The
Company does not have any equity compensation plan that was not approved by
shareholders, except for its employee stock ownership plan and as indicated
below.
Number of securities remaining
Number of securities to be available for future issuance
issued upon exercise of Weighted-average exercise under equity compensation plans
outstanding options, price of outstanding (excluding securities reflected
Plan Category warrants and rights options, warrants and rights in (a))
- ----------------------------------- ---------------------------- ------------------------------ ---------------------------------
(a) (b) (c)
Equity compensation plans
approved by shareholders:
Incentive stock option plans 1,188,620 $11.99 176,292
1998 Recognition and Retention
Plan 218,327 N/A 40,237
Equity Compensation plans not
approved by shareholders(1):
Director's Deferred
Compensation Plan 312,166 N/A N/A
(1) Includes shares to be distributed in accordance with the Directors' Deferred
Compensation Plan. The plan permits directors to elect to defer all or part of
their annual director fees. Under the plan, directors may elect to have their
deferred compensation invested in shares of the Company's common stock. Shares
to be distributed will increase in future years, subject to the elections of
directors under the plan. The plan, which is more fully described in Note 16 to
the Company's Consolidated Financial Statements and originally adopted in 1971,
was most recently amended in 1998 and was not submitted to shareholder vote and,
therefore, not approved by shareholders.
Item 13. Certain Relationships and Related Transactions
The information required by this item under the sections captioned
"Voting Procedures" on page 1, "Beneficial Ownership of Common Stock" on pages 2
through 4 and "Certain Transactions" on page 14 of the Proxy Statement filed
with the SEC on December 17, 2003 is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item under the section captioned
"Independent Auditors" on page 16 of the Proxy Statement filed with the SEC on
December 17, 2003 is incorporated herein by reference.
28
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as a part of this Report:
(1) The Consolidated Financial Statements of the Registrant as listed
below (See Exhibit 13):
Pages in
Annual Report
-------------
Independent Auditors' Report 33
Consolidated Statements of Financial Condition 34
Consolidated Statements of Earnings 35
Consolidated Statements of Stockholders' Equity and
Comprehensive Income 36
Consolidated Statements of Cash Flows 38
Notes to Consolidated Financial Statements 40
(2) The Consolidated Financial Statement Schedules of the Registrant as
required to be filed in this Report are either not applicable or are included
elsewhere in this Report.
(3) Exhibit Index
The exhibits listed below are included with this Report or are
incorporated herein by reference to an identified document previously filed with
the Securities and Exchange Commission as set forth parenthetically.
3(i) *Certificate of Incorporation of Registrant (Exhibit 3.3 to
Pre-effective Amendment No. 1 to the Registration Statement on Form
S-1, No. 333-37275 filed November 10, 1997)
3(ii) *Bylaws of Registrant (Exhibit 3.4 to Pre-Effective Amendment No. 1 to
the Registration Statement on Form S-1, No. 333-37275, filed November
10, 1997)
10(i) *Employment contract with Michael J. Brown, Sr. (Exhibit 10(a) to the
Registration Statement on Form S-4 filed December 20, 1996)
10(ii) *1994 Incentive Stock Option Plan (Exhibit 10(b) to the Registration
Statement on Form S-4 filed December 20, 1996)
10(iii) *1994 Stock Option Plan for Outside Directors (Exhibit 10(c) to the
Registration Statement on Form S-4 filed December 20, 1996)
10(iv) *Harbor Federal Savings Bank Non-Employee Directors' Retirement Plan
(Exhibit 10(vi) to Form 10-Q for the quarter ended December 31, 1997
filed August 11, 1997)
10(v) *Unfunded Deferred Compensation Plan for Directors (Exhibit 10(vii) to
Form 10-K for the year ended September 30, 1998 filed December 24,
1998)
29
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)
10(viii) *Change of Control Agreement (Exhibit 10(viii) to Form 10-Q for the
quarter ended June 30, 2003 filed August 14, 2003)
10(ix) **Change of Control Agreement
10(x) **Amendment to employment contract with Michael J. Brown, Sr.
10(xi) **Senior Officer Incentive Plan for fiscal year 2004.
13 **Excerpts from the 2003 Annual Report to Shareholders filed herewith.
Such Annual Report, except for those portions specifically incorporated
by reference, is furnished to the SEC for information purposes only and
should not be deemed to be filed.
14.1 **Code of Ethics
21 **Subsidiaries of the Registrant
31.1 **Certification by Michael J. Brown, Sr., Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 **Certification by H. Michael Callahan, Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 **Certification by Michael J. Brown, Sr., Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
Sarbanes-Oxley Act of 2002.
32.2 **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.
99 *Proxy Statement for the 2003 Annual Meeting of Shareholders filed with
the SEC on December 17, 2003
*Incorporated by reference.
**Included with this report.
(b) Reports on Form 8-K
On July 10, 2003, the Company furnished a report on Form 8-K announcing
an increase to dividends and its earnings for the third quarter of the 2003
fiscal year.
On July 29, 2003, the Company furnished a report on Form 8-K announcing
that it would be participating in the Keefe, Bruyette & Woods Fourth Annual
Community Bank Investor Conference in New York on July 29 thru 31.
On September 25, 2003, the Company furnished a report on Form 8-K
announcing that it will report its 2003 fiscal year earnings on Wednesday,
October 15, 2003.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
Dated: December 24, 2003 By: /s/
-------------------------------------
Michael J. Brown, Sr.
President and Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/ December 24, 2003
- ---------------------------------------------
Michael J. Brown, Sr.
President, Chief Executive
Officer and Director
/s/ December 24, 2003
- ---------------------------------------------
H. Michael Callahan
Chief Financial Officer
/s/ December 24, 2003
- ---------------------------------------------
Bruce R. Abernethy, Sr., Director
/s/ December 24, 2003
- ----------------------------------------------
Richard N. Bird, Director
/s/ December 24, 2003
- ---------------------------------------------
Edward G. Enns, Director
/s/ December 24, 2003
- ---------------------------------------------
Frank H. Fee, III, Director
/s/ December 24, 2003
- ---------------------------------------------
Richard B. Hellstrom, Director
/s/ December 24, 2003
- -------------------------------------------
Larry Lee, Jr., Director
/s/ December 24, 2003
- --------------------------------------------
Richard L. Lynch, Director
/s/ December 24, 2003
- -------------------------------------------
Dr. Edwin R. Massey, Director
/s/ December 24, 2003
- -------------------------------------------
Richard V. Neill, Sr., Director
31
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The Registrant has one wholly-owned subsidiary corporation, the Bank,
and the Bank has eight wholly-owned subsidiary corporations. Each is a Florida
corporation.
1. Appraisal Analysts, Inc.
2. H. F. Development Company, Inc.
3. Indigo Tree, Inc. (inactive)
4. The Palm Bay Inn Corporation (inactive)
5. Highland Communities, Inc. (inactive)
6. CFD, Inc. (inactive)
7. Harbor Insurance Agency, Inc.
8. Harbor Florida Financial Services, Inc.
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael J. Brown, Sr., Chief Executive Officer of Harbor Florida Bancshares,
Inc., certify that:
1. I have reviewed this report on Form 10-K of Harbor Florida Bancshares,
Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, 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 report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, 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 and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; 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 over financial reporting.
/s/
- ------------------------------
Michael J. Brown, Sr.
Chief Executive Officer
December 24, 2003
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, H. Michael Callahan, Chief Financial Officer of Harbor Florida Bancshares,
Inc., certify that:
1. I have reviewed this report on Form 10-K of Harbor Florida Bancshares,
Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, 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 report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, 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 and material weaknesses in the
design or operationof internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; 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 over financial reporting.
/s/
- -------------------------------
H. Michael Callahan
Chief Financial Officer
December 24, 2003
EXHIBIT 32.1
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 Annual Report of Harbor Florida Bancshares, Inc. (the
"Company") on Form 10-K for the period ending September 30, 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
December 24, 2003
EXHIBIT 32.2
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 Annual Report of Harbor Florida Bancshares, Inc. (the
"Company") on Form 10-K for the period ending September 30, 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/
- ----------------------------------
H. Michael Callahan
Chief Financial Officer
December 24, 2003