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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
-----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2004
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 000-22817
HARBOR FLORIDA BANCSHARES, INC
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 65-0813766
--------- --------------------------
(State or other jurisdiction (IRS employer
of incorporation or organization) identification no.)
100 S. SECOND STREET
FORT PIERCE, FL 34950
(Address of principal executive offices/ZIP code)
Registrant's telephone number, including area code (772) 461-2414
--------------
Indicate by check whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X__ No ____
Indicate by check whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes__X__No ____
As of April 23, 2004, there were 23,793,950 shares of the Registrant's
common stock outstanding.
HARBOR FLORIDA BANCSHARES, INC.
Table of Contents
Part I.Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements
Condensed Consolidated Statements of Financial Condition as of
March 31, 2004 and September 30, 2003 (unaudited)...................2
Condensed Consolidated Statements of Earnings for the three and six
months ended March 31, 2004 and 2003 (unaudited)....................3
Condensed Consolidated Statements of Cash Flows for the three and six
months ended March 31, 2004 and 2003 (unaudited)....................4
Notes to Condensed Consolidated Financial Statements (unaudited)....6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................13
Item 3. Quantitative and Qualitative Disclosures about Market Risk and Asset
and Liability Management...........................................21
Item 4. Controls and Procedures............................................21
Part II. Other Information
Item 1. Legal Proceedings..................................................21
Item 2. Changes in Securities..............................................21
Item 3. Defaults Upon Senior Securities....................................21
Item 4. Submission of Matters to a Vote of Security Holders................22
Item 5. Other Information..................................................22
Item 6. Index of Exhibits and Reports on Form 8-K..........................22
Signature Page.....................................................25
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition (unaudited)
(In thousands)
March 31, September 30,
2004 2003
---- ----
Assets:
Cash and amounts due from depository institutions $ 62,387 $ 55,262
Interest-bearing deposits in other banks 7,940 4,432
Investment securities held to maturity 20,419 50,416
Investment securities available for sale 154,287 246,519
Mortgage-backed securities held to maturity 501,335 308,075
Loans held for sale 2,816 2,648
Loans, net 1,713,244 1,611,385
Accrued interest receivable 10,313 10,108
Real estate owned 602 906
Premises and equipment, net 33,192 30,935
Federal Home Loan Bank stock 28,075 25,525
Goodwill 3,591 3,719
Other assets 3,017 2,141
----------- -----------
Total assets $ 2,541,218 $ 2,352,071
=========== ===========
Liabilities and Stockholders' Equity:
Liabilities:
Deposits $ 1,691,149 $ 1,550,260
Short-term borrowings 55,821 25,071
Long-term debt 498,501 479,295
Advance payments by borrowers for taxes and insurance 14,192 25,523
Income taxes payable 1,370 2,246
Other liabilities 6,996 7,793
----------- -----------
Total liabilities 2,268,029 2,090,188
----------- -----------
Stockholders' Equity:
Preferred stock --- ---
Common stock 3,175 3,163
Paid-in capital 201,497 198,936
Retained earnings 185,885 173,150
Accumulated other comprehensive income, net 1,602 2,595
Common stock purchased by:
Employee stock ownership plan (ESOP) (9,603) (9,952)
Recognition and retention plan (RRP) (2,739) (2,795)
Treasury stock (106,628) (103,214)
----------- -----------
Total stockholders' equity 273,189 261,883
----------- -----------
Total liabilities and stockholders' equity $ 2,541,218 $ 2,352,071
=========== ===========
See accompanying notes to condensed consolidated financial statements.
2
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (unaudited)
(In thousands except per share data)
Three months ended Six months ended
March 31, March 31,
--------- ---------
2004 2003 2004 2003
---- ---- ---- ----
Interest income:
Loans $ 29,124 $ 28,901 $ 57,825 $ 58,226
Investment securities 1,423 2,183 3,362 4,084
Mortgage-backed securities 4,531 2,148 7,993 4,666
Other 21 179 55 508
-------- -------- -------- --------
Total interest income 35,099 33,411 69,235 67,484
-------- -------- -------- --------
Interest expense:
Deposits 5,834 6,901 11,746 14,838
Other 5,824 5,452 11,647 11,099
-------- -------- -------- --------
Total interest expense 11,658 12,353 23,393 25,937
-------- -------- -------- --------
Net interest income 23,441 21,058 45,842 41,547
Provision for loan losses 351 502 799 953
-------- -------- -------- --------
Net interest income after provision for
loan losses 23,090 20,556 45,043 40,594
-------- -------- -------- --------
Other income:
Fees and service charges 3,495 3,286 6,879 6,437
Insurance commissions and fees 884 612 1,606 1,182
Income from real estate operations 88 33 257 85
Gain on sale of mortgage loans 669 1,118 1,410 2,432
Gain on sale of equity securities 307 305 619 610
Gain on sale of debt securities 248 --- 248 ---
Other 10 1 5 7
-------- -------- -------- --------
Total other income 5,701 5,355 11,024 10,753
-------- -------- -------- --------
Other expenses:
Compensation and employee benefits 7,343 6,238 14,353 12,263
Occupancy 1,705 1,477 3,336 2,913
Data processing services 905 784 1,742 1,480
Advertising and promotion 382 387 725 731
Other 1,923 1,656 3,693 3,353
-------- -------- -------- --------
Total other expense 12,258 10,542 23,849 20,740
-------- -------- -------- --------
Income before income taxes 16,533 15,369 32,218 30,607
Income tax expense 6,462 6,024 12,599 11,986
-------- -------- -------- --------
Net income $ 10,071 $9,345 $ 19,619 $ 18,621
======== ======== ======== ========
Net income per share
Basic $ 0.45 $ 0.41 $ 0.87 $ 0.82
======== ======== ======== ========
Diluted $ 0.44 $ 0.40 $ 0.85 $ 0.80
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
3
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Six months ended
March 31,
---------
2004 2003
---- ----
Cash provided by operating activities:
Net income $ 19,619 $ 18,621
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of equity securities available for sale (619) (610)
Gain on sale of debt securities available for sale (59) ---
Gain on sale of mortgage-backed securities (189) ---
Loss (gain) on sale of premises and equipment 3 (1)
Gain on sale of real estate owned (172) (10)
Gain on sale of mortgage loans (1,410) (2,432)
Provision for loan losses 799 953
Depreciation and amortization 508 613
Deferred income tax expense (49) (486)
Originations of loans held for sale (53,480) (75,186)
Proceeds from sale of loans held for sale 54,722 82,320
Increase in deferred loan fees and costs 3,171 3,191
Increase in accrued interest receivable (205) (562)
Increase in other assets (890) (179)
Decrease in income taxes payable (427) (166)
Increase (decrease) in other liabilities 4 (354)
---------- ----------
Net cash provided by operating activities 21,326 25,712
---------- ----------
Cash used in investing activities:
Net increase in loans (102,634) (26,348)
Purchase of mortgage-backed securities (234,691) (10,275)
Proceeds from principal repayments of mortgage-backed securities 35,919 48,978
Proceeds from sale of mortgage-backed securities 5,178 ---
Proceeds from maturities and calls of investment securities held
to maturity 30,000 ---
Purchase of investment securities held to maturity --- (20,243)
Proceeds from maturities and calls of investment securities
available for sale 60,000 ---
Proceeds from sale of investment securities available for sale 51,055 1,375
Purchase of investment securities available for sale (20,000) (150,373)
Proceeds from sale of real estate owned 334 217
Purchase of premises and equipment (3,688) (1,727)
Proceeds from sale of premises and equipment 41 51
FHLB stock, net (2,550) 500
Purchase of insurance agency --- (591)
---------- ----------
Net cash used in investing activities (181,036) (158,436)
---------- ----------
4
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Six months ended
March 31,
---------
2004 2003
---- ----
Cash provided by financing activities:
Net increase in deposits $ 140,889 103,164
Net proceeds from short-term borrowings 25,000 (15,000)
Repayments of long-term debt (44) (20)
Net proceeds from long-term debt 25,000 ---
Decrease in advance payments by borrowers for taxes
and insurance (11,331) (11,195)
Dividends paid (6,884) (5,462)
Common stock options exercised 1,127 945
Purchase of treasury stock (3,414) (2,974)
---------- ----------
Net cash provided by financing activities 170,343 69,458
---------- ----------
Net increase (decrease) in cash and cash equivalents 10,633 (63,266)
Cash and cash equivalents - beginning of period 59,694 147,141
---------- ----------
Cash and cash equivalents - end of period $ 70,327 $ 83,875
========== ==========
Supplemental disclosures:
Cash paid for:
Interest $ 23,326 $ 26,021
Taxes 13,075 12,791
Noncash investing and financing activities:
Additions to real estate acquired in settlement of loans
through foreclosure 85 195
Sale of real estate owned financed by the Company 227 ---
Tax benefit of stock plans credited to capital 449 304
Change in unrealized gain on securities available for sale (1,618) 1,531
Change in deferred taxes related to securities available for
sale 625 (590)
Distribution of RRP shares 56 55
Transfer to short-term borrowings from long-term debt 5,750 ---
Note payable issued to purchase premises --- 900
Adjustment to goodwill for tax benefit related to insurance
agency purchase 128 ---
See accompanying notes to condensed consolidated financial statements.
5
Notes to Condensed Consolidated Financial Statements (unaudited)
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated interim financial statements for Harbor
Florida Bancshares, Inc. (the "Company") and its subsidiary Harbor Federal
Savings Bank (the "Bank") reflect all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management, are necessary to
present fairly the Company's consolidated financial condition and the
consolidated results of operations and cash flows for interim periods. The
results for interim periods are not necessarily indicative of trends or results
to be expected for the full year. These condensed consolidated interim financial
statements and notes should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended September 30, 2003.
The Company's only significant business is holding the common stock of the Bank.
Consequently, its net income is primarily derived from the Bank.
Certain amounts included in the March 31, 2003 consolidated financial statements
have been reclassified in order to conform to the March 31, 2004 presentation.
At March 31, 2004, the Company had stock option plans for the benefit of
directors, officers and other employees of the Company. The Company accounts for
those plans under the recognition and measurement principles of Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB
25"), and related interpretations. Accordingly, no compensation cost has been
recognized for the stock plans, since stock option exercise prices are equal to
market price at dates of grant.
Had compensation cost for the Company's stock-based compensation plans been
determined in accordance with the fair value based method in Financial
Accounting Standards Board (FASB) Statement No. 123 "Accounting for Stock Based
Compensation", the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:
Three months ended Six months ended
March 31, March 31,
--------- ---------
2004 2003 2004 2003
---- ---- ---- ----
(In thousands except per share data)
Net income - As reported $ 10,071 $ 9,345 $ 19,619 $ 18,621
Less: total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax (102) (342) (194) (683)
-------- ------- -------- --------
Pro forma net income $ 9,969 $ 9,003 $ 19,425 $ 17,938
======== ======= ======== ========
Net income per share - basic
As reported $ 0.45 $ 0.41 $ 0.87 $ 0.82
Pro forma 0.44 0.40 0.86 0.79
Net income per share - diluted
As reported 0.44 0.40 0.85 0.80
Pro forma 0.43 0.39 0.84 0.77
6
(2) NET INCOME PER SHARE
Net income per share was computed by dividing net income by the weighted average
number of shares of common stock outstanding during the three and six months
ended March 31, 2004 and 2003. Adjustments have been made, where material, to
give effect to the shares that would be outstanding, assuming the exercise of
dilutive stock options, all of which are considered common stock equivalents.
Three months ended Six months ended
March 31, March 31,
--------- ---------
2004 2003 2004 2003
---- ---- ---- ----
Net income $ 10,070,675 $ 9,345,104 $ 19,619,441 $18,620,510
============ =========== ============ ===========
Weighted average common shares outstanding:
Shares outstanding 23,612,989 23,610,465 23,577,759 23,624,475
Less weighted average
uncommitted ESOP shares (971,728) (1,041,566) (973,239) (1,050,298)
------------ ----------- ------------ -----------
Total 22,641,261 22,568,899 22,604,520 22,574,177
============ =========== ============ ===========
Basic net income per share $ 0.45 $ 0.41 $ 0.87 $ 0.82
============ =========== ============ ===========
Weighted average common shares
outstanding 22,641,261 22,568,899 22,604,520 22,574,177
Additional dilutive shares related to
stock options 580,082 612,365 578,957 580,337
------------ ----------- ------------ -----------
Total weighted average common shares
and equivalents outstanding for
diluted earnings per share computation 23,221,343 23,181,264 23,183,477 23,154,514
============ =========== ============ ===========
Diluted net income per share $ 0.44 $ 0.40 $ 0.85 $ 0.80
============ =========== ============ ===========
Additional dilutive shares are calculated under the treasury stock method
utilizing the average market value of the Company's stock for the period.
7
(3) INVESTMENT AND MORTGAGE BACKED SECURITIES
The amortized cost and estimated market value of investment and mortgage-backed
securities at March 31, 2004 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(In thousands)
Available for sale:
FHLB notes $ 100,207 $ 711 $ --- $ 100,918
FNMA notes 30,029 293 --- 30,322
FFCB notes 20,185 79 --- 20,264
--------- --------- --------- ---------
150,421 1,083 --- 151,504
Equity securities 1,258 1,525 --- 2,783
--------- --------- --------- ---------
151,679 2,608 --- 154,287
--------- --------- --------- ---------
Held to maturity:
FHLMC notes 19,979 38 --- 20,017
Municipal securities 440 45 --- 485
--------- --------- --------- ---------
20,419 83 --- 20,502
--------- --------- --------- ---------
FHLMC mortgage-backed securities 269,953 3,194 276 272,871
FNMA mortgage-backed securities 231,382 3,248 141 234,489
--------- --------- --------- ---------
501,335 6,442 417 507,360
--------- --------- --------- ---------
$ 673,433 $ 9,133 $ 417 $ 682,149
========= ========= ========= =========
The amortized cost and estimated market value of investment and mortgage-backed
securities at September 30, 2003 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(In thousands)
Available for sale:
FHLB notes $ 170,404 $ 1,478 $ --- $ 171,882
FNMA notes 60,039 380 88 60,331
FFCB note 10,296 42 --- 10,338
--------- --------- --------- ---------
240,739 1,900 88 242,551
Equity securities 1,554 2,414 --- 3,968
--------- --------- --------- ---------
242,293 4,314 88 246,519
--------- --------- --------- ---------
Held to maturity:
FHLB notes 30,000 128 --- 30,128
FHLMC notes 19,975 166 --- 20,141
Municipal securities 441 43 --- 484
--------- --------- --------- ---------
50,416 337 --- 50,753
--------- --------- --------- ---------
FHLMC mortgage-backed securities 138,884 1,911 1,237 139,558
FNMA mortgage-backed securities 169,191 2,200 1,027 170,364
--------- --------- --------- ---------
308,075 4,111 2,264 309,922
--------- --------- --------- ---------
$ 600,784 $ 8,762 $ 2,352 $ 607,194
========= ========= ========= =========
8
The amortized cost and estimated market value of debt securities at March 31,
2004 and September 30, 2003 by contractual maturity are shown below. Actual
maturities of investment securities may be substantially shorter than
contractual maturities because issuers may have the right to call obligations
without penalties. The average expected life of mortgage-backed securities may
be substantially shorter than contractual maturity because borrowers may prepay
or payoff underlying mortgages with or without prepayment penalties.
March 31, 2004 September 30, 2003
-------------- ------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
---- ----- ---- -----
(In thousands)
Investment securities:
Available for sale:
Due in one year or less $ 30,195 $ 30,291 $ 50,044 $ 50,535
Due in one to five years 120,226 121,213 190,695 192,016
--------- --------- --------- ---------
150,421 151,504 240,739 242,551
--------- --------- --------- ---------
Held to maturity:
Due in one year or less 156 156 --- ---
Due in one to five years 20,063 20,104 50,216 50,513
Due in five to ten years 200 242 200 240
--------- --------- --------- ---------
20,419 20,502 50,416 50,753
--------- --------- --------- ---------
Mortgage-backed securities:
Held to maturity:
Due in one year or less 1,073 1,080 1,056 1,072
Due in one to five years 48,858 49,298 42,635 42,827
Due in five to ten years 412,060 415,433 197,233 195,804
Due after ten years 39,344 41,549 67,151 70,219
--------- --------- --------- ---------
501,335 507,360 308,075 309,922
--------- --------- --------- ---------
$ 672,175 $ 679,366 $ 599,230 $ 603,226
========= ========= ========= =========
As of March 31, 2004, the Company had pledged mortgage-backed securities with a
market value of $26,599,000 and a carrying value of $25,178,000 to collateralize
the public funds on deposit. The Company had also pledged mortgage-backed
securities with a market value of $2,119,000 and a carrying value of $1,992,000
to collateralize treasury, tax and loan accounts as of March 31, 2004.
There were no continuous unrealized losses for twelve months or more as of March
31, 2004 and September 30, 2003. During the quarter ended March 31, 2004, the
Company recognized gain of approximately $189,000 on the sale of numerous small
balance mortgage-backed securities where more than 85% of the principal had been
repaid.
9
(4) LOANS
Loans are summarized below:
March 31, September 30,
2004 2003
---- ----
(In thousands)
Mortgage loans:
Construction 1-4 family $ 246,354 $ 190,315
Permanent 1-4 family 1,008,475 1,014,405
Multi-family 16,569 19,754
Nonresidential 215,486 181,752
Land 145,952 126,950
----------- -----------
Total mortgage loans 1,632,836 1,533,176
----------- -----------
Other loans:
Commercial 61,159 56,268
Home improvement 31,031 26,442
Manufactured housing 19,953 17,849
Other consumer 137,846 126,770
----------- -----------
Total other loans 249,989 227,329
----------- -----------
Total loans 1,882,825 1,760,505
------------ -----------
Less:
Loans in process 144,047 124,427
Net deferred loan fees and discounts 8,574 8,494
Allowance for loan losses 16,960 16,199
----------- -----------
169,581 149,120
----------- -----------
Total loans, net $ 1,713,244 $ 1,611,385
=========== ===========
An analysis of the allowance for loan losses follows:
Three months ended Six months ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
(In thousands)
Beginning balance $ 16,614 $ 14,700 $ 16,199 $ 14,377
Provision for loan losses 351 502 799 953
Charge-offs (13) (37) (54) (176)
Recoveries 8 27 16 38
-------- -------- -------- --------
Ending balance $ 16,960 $ 15,192 $ 16,960 $ 15,192
======== ======== ======== ========
The allowance for loan losses was $16,960,000 and $16,199,000 at March 31, 2004
and September 30, 2003, respectively. The Company evaluates impaired loans based
on (a) the present value of the expected future cash flows of the impaired loan
discounted at the loan's original effective interest rate, (b) the observable
market price of the impaired loan, or (c) the fair value of the collateral of a
collateral dependent loan. To the extent that an impaired loan's value is less
than the loan's recorded investment, a specific allowance is recorded. There
were no specific allowances recorded at March 31, 2004 and September 30, 2003.
10
The investment in impaired loans (primarily consisting of classified loans),
other than those evaluated collectively for impairment, was $5,891,000 and
$6,259,000 at March 31, 2004 and September 30, 2003 respectively.
At March 31, 2004 and September 30, 2003, loans with unpaid principal balances
of approximately $1,918,000 and $2,215,000, respectively, were 90 days or more
contractually delinquent or on nonaccrual status. As of March 31, 2004 and
September 30, 2003, approximately $1,319,000 and $1,638,000, respectively, of
loans 90 days or more contractually delinquent were in the process of
foreclosure.
(5) COMPREHENSIVE INCOME
The following table sets forth the components of the Company's comprehensive
income:
Three months ended Six months ended
March 31, March 31,
--------- ---------
2004 2003 2004 2003
---- ---- ---- ----
(In thousands)
Net income $ 10,071 $ 9,345 $ 19,619 $ 18,621
Other comprehensive income, net of tax:
Change in unrealized gain on securities available for sale
(net of deferred tax of $40 and $196 for the three
months ended March 31, 2004 and 2003, respectively,
and $625 and $590 for the six months ended March 31,
2004 and 2003, respectively) (63) 312 (993) 941
-------- -------- -------- --------
Comprehensive income $ 10,008 $ 9,657 $ 18,626 $ 19,562
======== ======== ======== ========
(6) TRANSFERS OF FINANCIAL ASSETS AND SERVICING RIGHTS RETAINED
Transfers of financial assets, primarily mortgage loans, are accounted for as
sales when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been
isolated from the Company, (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective
control over the transferred assets through an agreement to repurchase them
before their maturity.
Upon completion of a transfer of assets that satisfies the conditions described
above to be accounted for as a sale, the Company:
a. Derecognizes all assets sold;
b. Recognizes all assets obtained and liabilities incurred in consideration
as proceeds of the sale;
c. Initially measures, at fair value, assets obtained and liabilities
incurred in a sale; and
d. Recognizes in earnings any gain or loss on the sale.
11
The Company recognized gains on sales of mortgage loans of $669,000 and
$1,118,000, respectively, for the three months ended March 31, 2004 and 2003.
For the six months ended March 31, 2004 and 2003, the Company recognized gains
on sale of mortgage loans of $1,410,000 and $2,432,000, respectively.
The Company receives fees for servicing activities on loans it has sold. These
activities include, but are not limited to, collecting principal, interest and
escrow payments from borrowers; paying taxes and insurance from escrowed funds;
monitoring delinquencies; and accounting for and remitting principal and
interest payments. To the extent that the servicing fees exceed or do not
provide adequate compensation for the services provided, the Company records a
servicing asset or liability for the fair value of the servicing retained.
Currently, the servicing fees retained by the Company are just adequate to
compensate the Company for the servicing responsibilities. As of March 31, 2004,
no servicing assets and/or liabilities were recognized.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Special Note Regarding Forward-Looking Statements
This report contains certain "forward-looking statements." Harbor Florida
Bancshares, Inc. (the "Company") desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing itself of the
protections of the safe harbor with respect to all such forward-looking
statements. These forward-looking statements, which are included in Management's
Discussion and Analysis, describe future plans or strategies and include the
Company's expectations of future financial results. The words "believe,"
"expect," "anticipate," "estimate," "project," and similar expressions identify
forward-looking statements.
The Company's ability to predict results or the effect of future plans or
strategies or qualitative or quantitative changes based on market risk exposure
is inherently uncertain.
Factors which could affect actual results include but are not limited to i)
change in general market interest rates, ii) general economic conditions, iii)
legislative/regulatory changes, iv) monetary and fiscal policies of the U.S.
Treasury and the Federal Reserve, v) changes in the quality or composition of
the Company's loan and investment portfolios, vi) demand for loan products, vii)
deposit flows, viii) competition, and ix) demand for financial services in the
Company's markets. These factors should be considered in evaluating the
forward-looking statements, and undue reliance should not be placed on such
statements.
Overview
The Company owns 100% of the common stock of Harbor Federal Savings Bank ("the
Bank"), a federal savings bank whose deposits are insured by the Federal Deposit
Insurance Corporation (FDIC). The Bank provides a wide range of banking and
related insurance services but is principally engaged in the business of
attracting deposits predominately from the communities it serves and using these
and other funds to originate primarily one-to-four family first mortgage loans.
The Company's results of operations are highly dependent on net interest income.
Net interest income is a function of the balances of loans and investments
("interest-bearing assets") outstanding in any one period, the yields earned on
such loans and investments, and the interest incurred on deposits and borrowed
funds ("interest-bearing liabilities") that were outstanding in that same
period. The Company's noninterest income consists primarily of fees and service
charges, insurance commissions, gains on sale of mortgage loans, gains on sale
of securities, gains on sale of premises and equipment and, depending on the
period, real estate operations which have either provided income or loss. The
results of operations are also significantly impacted by the amount of
provisions for loan losses, which, in turn, is dependent upon, among other
things, the size and makeup of the loan portfolio, loan quality, and other
credit trends. The noninterest expenses consist primarily of employee
compensation and benefits, occupancy expense and data processing services.
Results of operations are affected by general economic and competitive
conditions, including changes in prevailing interest rates and the policies of
regulatory agencies.
The Company attempts to manage its assets and liabilities in a manner that
stabilizes net interest income and net economic value under a broad range of
interest rate environments. This is accomplished by matching maturity and
repricing periods on loans and investments to maturity and repricing periods on
deposits and borrowings.
13
The Company currently utilizes the following strategies to reduce interest rate
risk: (a) the Company seeks to originate and hold in portfolio adjustable rate
loans which have periodic interest rate adjustments; (b) the Company sells a
portion of newly originated fixed rate residential mortgage loans; (c) the
Company seeks to lengthen the maturities of deposits when deemed cost effective
through the pricing and promotion of certificates of deposits; (d) the Company
seeks to attract low cost checking and transaction accounts which tend to be
less interest rate sensitive when interest rates rise; and (e) the Company has
utilized long term Federal Home Loan Bank ("FHLB") advances to fund the
origination of fixed rate loans. The Company also maintains a high level of
liquid assets consisting of short-term securities as well as medium-term
securities with expected average lives in the three to four year range, which
are expected to increase in yield as interest rates rise.
Critical Accounting Policies
The determination of the allowance for loan losses is considered by management
to be a critical accounting policy and is based upon estimates made by
management. Critical accounting policies are defined as policies which are
material to the portrayal of the Company's financial condition and results of
operations, and require management's most difficult, subjective, or complex
judgements. The Company's financial results could differ significantly if
different judgements or estimates are applied in the application of these
policies.
The allowance for loan losses was $16,960,000 and $16,199,000 at March 31, 2004
and September 30, 2003, respectively. Impaired loans (primarily consisting of
classified loans), other than those evaluated collectively for impairment, were
$5,891,000 and $6,259,000 at March 31, 2004 and September 30, 2003,
respectively. The Company evaluates impaired loans based on (a) the present
value of the expected future cash flows of the impaired loan discounted at the
loan's original effective interest rate, (b) the observable market price of the
impaired loan, or (c) the fair value of the collateral of a collateral dependant
loan. To the extent that an impaired loan's value is less than the loan's
recorded investment, a specific allowance is recorded. There were no specific
allowances recorded at March 31, 2004 and September 30, 2003.
Results of Operations
Comparisons of quarterly results of operations in this section are between the
three months ended March 31, 2004 and March 31, 2003. Comparison of fiscal year
to date results is between the six months then ended.
General. Diluted earnings per share for the second fiscal quarter ended March
31, 2004, increased 10.0% to 44 cents per share on net income of $10.1 million,
compared to 40 cents per share on net income of $9.3 million for the same period
last year. Diluted earnings per share for the six months ended March 31, 2004,
increased 6.3% to 85 cents per share on net income of $19.6 million, compared to
80 cents per share on net income of $18.6 million for the same period last year.
The increase for both the three and six month periods was due primarily to an
increase in net interest income resulting from an increase in average
interest-earning assets due to purchases of mortgage-backed securities and
origination of loans. This growth was funded with low cost core deposits and
FHLB advances. The increase in net interest income was partially offset by a
decrease in gain on sale of mortgage loans and an increase in other expenses.
Net Interest Income. Net interest income increased 11.3% to $23.4 million for
the quarter ended March 31, 2004, from $21.1 million for the same period last
year. For the six months ended March 31, 2004, net interest income increased
10.3% to $45.8 million from $41.5 million for the same period last year. The
increase for three and six month periods was due primarily to a 15.1% and 14.0%
increase, respectively, in average interest-earning assets that were funded
primarily with low cost, core deposits and FHLB advances. The average balance of
mortgage-backed securities for the quarter ended March 31, 2004 increased $306.7
million from the quarter ended March 31, 2003, partially offset by a decrease of
$66.6 million in investment securities and $50.4 million in interest-bearing
deposits in other banks.
14
The Company's investment strategy has been to shift the securities portfolio
from lower yielding, shorter term investment securities into higher yielding
balloon mortgage-backed securities, with expected average lives in the three to
four year range. Total loans increased by $122.2 million. The average balance of
core deposits increased by $204.5 million and FHLB advances increased by $93.5
million. The average deposit composition changed to 49.9% and 50.1% of core
deposits and certificate accounts, respectively, for the three months ended
March 31, 2004 from 42.9% and 57.1%, respectively, for the same period last
year.
The average balance of mortgage-backed securities for the six months ended March
31, 2004 increased $238.4 million from the six months ended March 31, 2003,
partially offset by a decrease of $60.7 million in interest-bearing deposits in
other banks. Average total loans increased by $103.3 million. The average
balance of core deposits increased by $189.1 million and FHLB advances increased
by $79.9 million. The average balance of core deposits increased to 49.0% of
total average deposits for the six months ended March 31, 2004 from 42.4% for
the same period last year.
The net interest margin decreased to 3.94% for the six months ended March 31,
2004, from 4.06% for the same period last year due primarily to the yield on
interest-earning assets decreasing more than the cost of interest-bearing
liabilities in the declining interest rate environment.
Provision for Loan Losses. The determination of the allowance for loan losses is
considered by management to be a critical accounting policy and is based upon
estimates made by management.
The provision for loan losses was $351,000 for the quarter ended March 31, 2004,
compared to $502,000 for the same period last year. The provision for the
quarters ended March 31, 2004 and 2003 was principally comprised of a charge of
$500,000 and $518,000, respectively, due to increased credit risk resulting from
growth in the loan portfolio, primarily commercial real estate loans, partially
offset by a decrease of $155,000 and $27,000, respectively, due to changes in
the level of classified loans.
For the six months ended March 31, 2004, the provision for loan losses was
$799,000 compared to $953,000 for the same period last year. The provision for
the six months ended March 31, 2004 was principally comprised of a charge of
$849,000, due to increased credit risk resulting from growth in the loan
portfolio, primarily commercial real estate loans, partially offset by a
decrease in the level of classified loans. The provision for the six months
ended March 31, 2003 was principally comprised of a charge of $770,000 due to
increased credit risk resulting from growth in the loan portfolio, primarily
commercial real estate loans, $138,000 in net charge offs, and $45,000 due to
changes in the level of classified loans.
Nonperforming loans decreased to $1.9 million at March 31, 2004 from $2.6
million at March 31, 2003. The ratio of the allowance for loan losses to total
nonperforming loans increased to 884.36% at March 31, 2004 from 585.61% at March
31, 2003. The ratio of the allowance for loan losses to total net loans
decreased to .99% of loans as of March 31, 2004, from 1.01% of total net loans
for the same period last year.
There were no significant changes in the estimation methods or fundamental
assumptions used in the calculation of the allowance for loan losses at March
31, 2004, compared to September 30, 2003. Furthermore, there was no reallocation
of the allowance from September 30, 2003. While the Company's management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions.
Other Income. Other income increased to $5.7 million for the quarter ended March
31, 2004, from $5.4 million for the same period last year. The increase was due
primarily to increases of $272,000 in insurance commissions and fees, $248,000
in gain on sale of debt securities, and $209,000 in other fees and service
charges, partially offset by a decrease of $449,000 in gain on sale of mortgage
loans.
15
Insurance commissions and fees were $884,000 and $612,000 for the three
months ended March 31, 2004 and 2003, respectively. This increase was due
primarily to increased sales, primarily resulting from the purchase of an
additional insurance agency in March 2003. The gain on sale of debt securities
was primarily due to the sale of numerous small-dollar mortgage-backed
securities where a substantial portion of the principal had been repaid. Fees
and service charges (primarily from fees and service charges on deposit
products) were $3.5 million and $3.3 million for the quarters ended March 31,
2004 and 2003, respectively. This increase was due primarily to the growth in
transaction accounts. Gain on the sale of mortgage loans was $669,000 and $1.1
million for the quarters ended March 31, 2004 and 2003, respectively. This
decrease was due primarily to a decline in the originations of fixed rate
residential one-to-four family mortgage loans available for sale as a result of
a change in customer preference to adjustable rate loans. Total fixed rate
residential loan originations decreased by $14.5 million; however, adjustable
rate loan originations increased by $32.2 million compared to the same period
last year. The Company sells loans in order to reduce interest rate risk by
limiting the growth of long term fixed rate loans in the portfolio.
Other income increased to $11.0 million for the six months ended March 31, 2004,
compared to $10.8 million for the same period last year. This increase was due
primarily to increases of $442,000 in fees and service charges, $424,000 in
insurance commission and fees, $248,000 in gain on sale of debt securities, and
$172,000 in income from real estate operations, partially offset by a decrease
of $1.0 million in gain on sale of mortgage loans, principally residential fixed
rate mortgage loans. Fees and service charges (primarily from fees and service
charges on deposit products) were $6.9 million and $6.4 million for the six
months ended March 31, 2004 and 2003, respectively. This increase was due
primarily to the growth in transaction accounts. Insurance commissions and fees
were $1.6 million and $1.2 million for the six months ended March 31, 2004 and
2003, respectively. This increase was due primarily to increased sales,
primarily resulting from the purchase of an additional insurance agency in March
2003. The gain on sale of debt securities was primarily due to the sale of
numerous small-dollar mortgage-backed securities where a substantial portion of
the principal had been repaid. Income from real estate operations were $257,000
and $85,000 for the six months ended March 31, 2004 and 2003. This increase was
due primarily to gains on sales of real estate acquired in settlement of loans
through foreclosure. Gain on sale of mortgage loans was $1.4 million and $2.4
million for the six months ended March 31, 2004 and 2003, respectively. This
decrease was due primarily to a decline in the originations of fixed rate
residential one-to-four family mortgage loans available for sale as a result of
a change in customer preference to adjustable rate loans. Total fixed rate
residential loan originations decreased by $36.7 million; however, adjustable
rate loan originations increased by $50.9 million compared to the same period
last year. The Company sells loans in order to reduce interest rate risk by
limiting the growth of long term fixed rate loans in the portfolio.
Other Expenses. Other expenses increased to $12.3 million for the quarter ended
March 31, 2004, from $10.5 million for the same period last year, due primarily
to increases of $1.1 million in compensation and benefits, $267,000 in other
expenses, $228,000 in occupancy expense, and $121,000 in data processing
services. The increase in compensation and benefits was due primarily to annual
salary increases, additional staff required to support the growth in loans and
deposits and contributions to the defined benefit plan. The increase in
occupancy expense was primarily due to expenses incurred in closing the West
Melbourne branch in the Wal-Mart Supercenter and growth in branch operations.
The increases in other expenses and data processing services were due primarily
to increases resulting from the growth in loans and deposits.
For the six months ended March 31, 2004, other expenses increased to $23.8
million compared to $20.7 million for the same period last year. This increase
was due primarily to increases of $2.1 million in compensation and benefits,
$423,000 in occupancy expense, $262,000 in data processing services, and
$340,000 in other expenses. The increase in compensation and benefits was due
primarily to annual salary increases, additional staff required to support the
growth in loans and deposits, and contributions to the defined benefit plan. The
increase in occupancy expense was due primarily to an increase in data
16
processing equipment expense and expenses incurred in closing the West Melbourne
branch in the Wal-Mart Supercenter. The increases in data processing services
and other expenses were due primarily to increases resulting from the growth in
loans and deposits.
The Company has a non-contributory defined benefit pension plan (the "Plan")
covering all full-time employees who were hired before January 1, 2003 and have
attained one year of service and 21 years of age. The Plan is part of a
multi-employer plan and separate actuarial evaluations are not made for each
employer nor are plan assets so segregated. As a result of the decline in market
value of the investments held in the Plan, the Company, based on actuarial
calculations, currently expects to be required to increase its pension
contribution to approximately $1.2 million for fiscal year 2004. The Company has
elected to freeze the Plan effective June 30, 2004 and, as a result, expects to
be required to contribute approximately $500,000 for fiscal year 2005. The
Company recorded pension expense of approximately $647,000 and $210,000 for the
six months ended March 31, 2004 and 2003, respectively.
Income Taxes. Income tax expense increased to $6.5 million for the quarter ended
March 31, 2004, from $6.0 million for the same period last year due primarily to
an increase in pretax accounting income. The effective tax rates were 39.1% and
39.2% for the quarters ended March 31, 2004 and 2003, respectively.
For the six months ended March 31, 2004, income tax expense increased to $12.6
million from $12.0 million for the same period last year due primarily to an
increase in pretax accounting income. The effective tax rates were 39.1% and
39.2% for the six months ended March 31, 2004 and 2003, respectively.
Financial Condition
Comparisons of financial condition in this section are from the end of the
preceding fiscal year to March 31, 2004.
Total assets increased to $2.541 billion at March 31, 2004, from $2.352 billion
at the fiscal year ended September 30, 2003. The increase is due primarily to an
increase in mortgage-backed securities and loans, partially offset by a decrease
in investment securities.
Investment securities available for sale decreased to $154.3 million at March
31, 2004, from $246.5 million at September 30, 2003. The decrease is due
primarily to maturities and calls of $60.0 million, sales of $51.1 million,
partially offset by purchases of $20.0 million.
Investment securities held to maturity decreased to $20.4 million at March 31,
2004 from $50.4 million at September 30, 2003. The decrease is due primarily to
maturities and calls of $30.0 million.
Mortgage-backed securities increased to $501.3 million at March 31, 2004, from
$308.1 million at September 30, 2003. The increase is due primarily to purchases
of $234.7 million of 5 and 7 year fixed-rate balloon securities, partially
offset by repayments of $35.9 million. The purchases were funded with proceeds
from maturities and calls of investment securities and excess cash provided by
the net increase in deposits. The Company's investment strategy has been to
shift the portfolio from lower yielding, shorter term investment securities into
higher yielding balloon mortgage-backed securities, with expected average lives
in the three to four year range. These securities will provide future monthly
principal and interest repayment cash flow to fund loan growth or other
investment alternatives.
Net loans increased to $1.713 billion at March 31, 2004, from $1.611 billion at
September 30, 2003. The increase is due primarily to loan disbursements of
$433.0 million, partially offset by repayments of $277.7 million, and sales of
mortgage loans of $53.3 million, primarily residential one-to-four family
fixed-rate mortgage loans. The increase in net loans for the six months is due
primarily to a net increase of $29.8 million in residential one-to-four mortgage
17
loans, $18.8 million in land loans, $34.8 million in nonresidential mortgage
loans, and $17.8 million in consumer loans.
Deposits increased to $1.691 billion at March 31, 2004, from $1.550 billion at
September 30, 2003. The increase is due primarily to a net increase in deposits
before interest credited of $126.2 million and interest credited of $14.7
million. The increase in deposits for the six months is due primarily to a net
increase of $131.1 million in core deposits, and $9.8 million in certificate
accounts. This change reflects the Company's emphasis on growing transaction
accounts, the customer's preference for shorter-term investments in a low
interest rate environment and growth in the Company's market area.
FHLB advances increased to $553.5 million from $503.5 million at March 31, 2004,
from September 30, 2003. The increase was due to $25.0 million in daily rate
advances and $25.0 million of new long-term fixed rate convertible advances,
callable quarterly, maturing in 2009. These advances were taken in order to fund
the purchase of mortgage-backed securities and other daily cash needs.
Stockholders' equity increased to $273.2 million at March 31, 2004, from $261.9
million at September 30, 2003. The increase is due primarily to $19.6 million of
earnings for the six months partially offset by $6.9 million of dividends paid
and the repurchase of $3.4 million of Company common stock to be held as
treasury stock. During the six months, the Company repurchased 120,381 shares at
an average price of $28.37 per share to be held as treasury stock in accordance
with the Company's stock repurchase program.
At March 31, 2004, the Bank exceeded all regulatory capital requirements as
follows:
Required Actual Excess of
-------- ------ Actual Over
% of % of Regulatory
Amount Assets Amount Assets Requirements
------ ------ ------ ------ ------------
(Dollars in thousands)
Tangible Capital $ 38,009 1.50% $ 251,501 9.93% $ 213,492
Core Capital 76,019 3.00% 251,501 9.93% 175,482
Risk-Based Capital 109,576 8.00% 267,756 19.55% 158,180
Cash Flow
The Bank's primary sources of funds are deposits, repayments of loans and
mortgage-backed securities, maturities of investment securities and other
short-term investments, and earnings and funds from operations. The Bank will
consider increasing its borrowings from the Federal Home Loan Bank (FHLB) from
time to time as an alternative to increasing deposit account interest rates. In
addition, the Bank holds unpledged fixed and adjustable rate mortgage-backed
securities totaling $474.2 million at March 31, 2004 that could be used as
collateral under repurchase transactions with securities dealers. Repurchase
transactions serve as secured borrowings and provide a source of short-term
liquidity for the Bank.
At March 31, 2004, the Bank had $825.5 million or 48.8% of the Bank's deposits
in certificate accounts. Based on past experience, management believes that a
substantial percentage of these certificates will be renewed at maturity,
although there can be no assurance that this will occur. The Bank would use
borrowings from the FHLB or repurchase transactions with securities dealers if
replacement funding was needed as a result of maturing certificate accounts.
18
Net cash provided by the Company's operating activities (i.e. cash items
affecting net income) was $21.3 million and $25.7 million for the six months
ended March 31, 2004 and 2003, respectively.
Net cash used by the Company's investing activities (i.e. cash used primarily
from its investment securities, mortgage-backed securities and loan portfolios)
was $181.0 million and $158.4 million for the six months ended March 31, 2004
and 2003, respectively. The increase in cash used in 2004 was principally due to
an increase of $224.4 million in the purchase of mortgage-backed securities, an
increase of $76.3 million in the net increase in loans, a $13.1 million decrease
in repayments of mortgage-backed securities, offset by a decrease of $150.6
million in the purchase of investment securities and a $139.7 million increase
in proceeds from sales, maturities and calls of investment securities.
Net cash provided by the Company's financing activities (i.e. cash receipts
primarily from net increases (decreases) in deposits and net FHLB advances) was
$170.3 million and $69.5 million for the six months ended March 31, 2004 and
2003, respectively. The increase in cash flows in 2004 was primarily due to a
$40.0 million increase in proceeds from short-term borrowings, $37.7 million
increase in the net increase in deposits, and $25.0 million increase in net
proceeds from long-term debt.
CONTRACTURAL OBLIGATIONS
The following table shows the aggregated amounts of payments due under specified
contractual obligations, aggregated by category of contractual obligation, for
specified time periods:
One Three More
Within through through than
one year three years five years five years Total
-------- ----------- ---------- ---------- -----
(In thousands)
FHLB advances $ 55,000 $ 13,000 $ 170,000 $ 315,502 $ 553,502
Operating leases 317 284 170 1,247 2,018
Purchase obligations 6,427 2,162 137 5 8,731
-------- -------- --------- --------- ---------
Total $ 61,744 $ 15,446 $ 170,307 $ 316,754 $ 564,251
======== ======== ========= ========= =========
The Company also expects to contribute an additional $570,000 for fiscal year
2004 and $500,000 for fiscal year 2005 for its non-contributory defined benefit
pension plan. The Company also has an unfunded supplemental executive retirement
plan for the benefit of Michael J. Brown, Sr. The liability related to this plan
was $1.1 million as of March 31, 2004.
19
Asset Quality
Loans 90 days past due are generally placed on nonaccrual status. The Company
ceases to accrue interest on a loan once it is placed on nonaccrual status, and
interest accrued but unpaid at the time is charged against interest income.
Additionally, any loan where it appears evident that the collection of interest
is in doubt is also placed on a nonaccrual status. The Company carries real
estate owned at the lower of cost or fair value, less cost to dispose.
Management regularly reviews assets to determine proper valuation.
The following table sets forth information regarding the Company's nonaccrual
loans and foreclosed real estate at the dates indicated:
March 31, September 30,
2004 2003
---- ----
(Dollars in thousands)
Nonaccrual mortgage loans:
Delinquent less than 90 days $ --- $ 209
Delinquent 90 days or more 1,373 1,609
------- -------
Total 1,373 1,818
------- -------
Nonaccrual other loans:
Delinquent less than 90 days $ 44 $ ---
Delinquent 90 days or more 501 397
------- -------
Total 545 397
------- -------
Total nonperforming loans 1,918 2,215
Real estate owned, net of related allowance 602 906
------- -------
Total nonperforming assets $ 2,520 $ 3,121
======= =======
Nonperforming loans to total net loans .11% .14%
Total nonperforming assets to total assets .10% .13%
Allowance for loan losses to total net loans .99% 1.01%
Allowance for loan losses to nonperforming loans 884.36% 731.34%
Allowance for loan losses to classified loans 291.31% 245.86%
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.
20
Item 3. Quantitative and Qualitative Disclosures about Market Risk and Asset and
Liability Management.
For a discussion of the Company's asset and liability management policies as
well as the potential impact of interest rate changes upon the market value of
the Company's portfolio equity, see the Company's Annual Report on Form 10-K for
the year ended September 30, 2003. The Company believes there has been no
material change in the Company's asset and liability position or the market
value of the Company's portfolio equity since September 30, 2003.
Item 4. 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 March 31,
2004, 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 II. OTHER INFORMATION
Item 1. Legal Proceedings.
There are various claims and lawsuits in which the Company is periodically
involved incident to the Company's business. In the opinion of management, no
material loss is anticipated from any such pending claims or lawsuits.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
None
21
Item 4. Submission of Matters to a Vote of Security-Holders.
An Annual Meeting of Stockholders of the Company was held January 23, 2004 for
the purpose of considering and voting upon the following matters:
1. Approval of the election of each of Directors Michael J. Brown,
Sr., Richard B. Hellstrom and Larry Lee, Jr. to serve for a
three-year term.
2. To ratify the appointment by the Company's Board of Directors of
the firm of KPMG LLP, Certified Public Accountants, as
independent public accountants for the Company for the fiscal
year ending September 30, 2004.
The following table sets forth the results as to each matter voted upon:
BROKER
PROPOSAL FOR AGAINST ABSTAIN % APPROVED NON-VOTES
-------- --- ------- ------- --------- ---------
No. 1
Michael J. Brown, Sr 21,204,012 72,152 --- 99.7% ---
Richard B. Hellstrom 21,218,529 57,635 --- 99.7% ---
Larry Lee, Jr. 21,154,616 121,548 --- 99.4% ---
No. 2 20,929,890 295,067 51,207 98.4% ---
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
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)
22
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)
10(vi) *1998 Stock Incentive Plan for Directors, Officer 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 (Exhibit 10(ix) to Form 10-K for
the year ended September 30, 2003 filed December 29, 2003)
10(x) *Amendment to employment contract with Michael J. Brown, Sr.
(Exhibit 10(x) to Form 10-K for the year ended September 30, 2003
filed December 29, 2003)
10(xi) *Senior Officer Incentive Plan for fiscal year 2004 (Exhibit
10(xi) to Form 10-K for the year ended September 30, 2003 filed
December 29, 2003)
14.1 *Code of Ethics (Exhibit 14.1 to Form 10-K for the year ended
September 30, 2003 filed December 29, 2003)
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 of the 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 pursuan to
Section 906 of the Sarbanes-Oxley Act of 2002.
*Incorporated by reference.
**Included with this report.
23
(b) Reports on Form 8-K
On January 14, 2004, the Company furnished a Form 8K announcing its earnings for
the first quarter of the 2004 fiscal year.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARBOR FLORIDA BANCSHARES, INC.
Date: May 13, 2004 /s/
----------------------------------------
Michael J. Brown, Sr.
President and Chief Executive Officer
Date: May 13, 2004 /s/
----------------------------------------
H. Michael Callahan
Senior Vice President, Finance and
Chief Financial Officer
25
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-Q 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
May 13, 2004
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-Q 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/
- ------------------------
H. Michael Callahan
Chief Financial Officer
May 13, 2004
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 Quarterly Report of Harbor Florida Bancshares, Inc. (the
"Company") on Form 10-Q for the period ending March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Michael J. Brown, Sr., Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
/s/
- -------------------------
Michael J. Brown, Sr.
Chief Executive Officer
May 13, 2004
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 Quarterly Report of Harbor Florida Bancshares, Inc.
(the "Company") on Form 10-Q for the period ending March 31, 2004 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
May 13, 2004