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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, 2005
--------------
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 22, 2005, there were 23,887,242 shares of the Registrant's common
stock outstanding.
HARBOR FLORIDA BANCSHARES, INC.
Table of Contents
Part I. Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements (unaudited).
Condensed Consolidated Statements of Financial Condition as of
March 31, 2005 and September 30, 2004.............................2
Condensed Consolidated Statements of Earnings for the three and
six months ended March 31, 2005 and 2004 .........................3
Condensed Consolidated Statements of Cash Flows for the six months
ended March 31, 2005 and 2004 ....................................4
Notes to Condensed Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................15
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......23
Item 4. Controls and Procedures..........................................23
Part II. Other Information
- --------------------------
Item 1. Legal Proceedings................................................23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds......23
Item 3. Defaults Upon Senior Securities..................................24
Item 4. Submission of Matters to a Vote of Security Holders..............24
Item 5. Other Information................................................24
Item 6. Index of Exhibits ...............................................24
Signature Page...................................................27
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, 2005 September 30, 2004
-------------- ------------------
Assets:
Cash and amounts due from depository institutions $ 71,703 $ 67,822
Interest-bearing deposits in other banks 58,033 7,053
Investment securities held to maturity 285 440
Investment securities available for sale 158,263 129,760
Mortgage-backed securities held to maturity 451,632 443,060
Loans held for sale 2,268 2,438
Loans, net 2,076,392 1,891,169
Accrued interest receivable 11,793 11,243
Premises and equipment, net 42,711 36,529
Federal Home Loan Bank stock 31,647 29,175
Goodwill 3,591 3,591
Other assets 4,962 4,829
----------- -----------
Total assets $ 2,913,280 $ 2,627,109
=========== ===========
Liabilities and Stockholders' Equity:
Liabilities:
Deposits $ 2,008,993 $ 1,744,830
Short-term borrowings 13,000 13,785
Long-term debt 565,483 540,492
Advance payments by borrowers for taxes and insurance 15,240 26,328
Income taxes payable 1,648 7,584
Other liabilities 6,261 7,446
----------- -----------
Total liabilities 2,610,625 2,340,465
----------- -----------
Stockholders' Equity:
Preferred stock; $.10 par value; authorized 10,000,000 shares; none
issued and outstanding --- ---
Common stock; $.10 par value; authorized 70,000,000 shares;
31,875,967 shares issued and 23,866,837 outstanding at March 31,
2005 and 31,793,040 shares issued and 23,789,228 outstanding at
September 30, 2004 3,188 3,179
Paid-in capital 205,413 202,904
Retained earnings 214,119 200,040
Accumulated other comprehensive loss, net (1,108) (298)
Common stock purchased by:
Employee stock ownership plan (ESOP) (8,904) (9,254)
Recognition and retention plan (RRP) (2,172) (2,228)
Treasury stock, at cost, 8,009,130 shares at March 31, 2005 and
8,003,812 shares at September 30, 2004 (107,881) (107,699)
----------- -----------
Total stockholders' equity 302,655 286,644
----------- -----------
Total liabilities and stockholders' equity $ 2,913,280 $ 2,627,109
=========== ===========
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,
--------- ---------
2005 2004 2005 2004
---- ---- ---- ----
Interest income:
Loans $ 33,876 $ 29,124 $ 66,256 $ 57,825
Investment securities 1,350 1,423 2,410 3,362
Mortgage-backed securities 4,442 4,531 8,935 7,993
Other 248 21 645 55
-------- -------- -------- --------
Total interest income 39,916 35,099 78,246 69,235
-------- -------- -------- --------
Interest expense:
Deposits 6,868 5,834 13,515 11,746
Borrowings and debt 5,973 5,824 12,131 11,647
-------- -------- -------- --------
Total interest expense 12,841 11,658 25,646 23,393
-------- -------- -------- --------
Net interest income 27,075 23,441 52,600 45,842
Provision for loan losses 538 351 988 799
-------- -------- -------- --------
Net interest income after provision for
loan losses 26,537 23,090 51,612 45,043
-------- -------- -------- --------
Other income:
Fees and service charges 4,091 3,495 7,763 6,879
Insurance commissions and fees 850 884 1,495 1,606
Income from real estate operations 45 88 93 257
Gain on sale of mortgage loans 564 669 1,032 1,410
Gain (loss) on disposal of premises and equipment (8) (1) 295 (3)
Gain on sale of equity securities --- 307 --- 619
Gain on sale of debt securities --- 248 --- 248
Other 7 11 14 8
-------- -------- -------- --------
Total other income 5,549 5,701 10,692 11,024
-------- -------- -------- --------
Other expenses:
Compensation and employee benefits 7,828 7,343 15,313 14,353
Occupancy 1,877 1,705 3,672 3,336
Data processing services 966 905 1,812 1,742
Advertising and promotion 474 382 934 725
Other 2,128 1,923 4,020 3,693
-------- -------- -------- --------
Total other expense 13,273 12,258 25,751 23,849
-------- -------- -------- --------
Income before income taxes 18,813 16,533 36,553 32,218
Income tax expense 7,358 6,462 14,308 12,599
-------- -------- -------- --------
Net income $ 11,455 $ 10,071 $ 22,245 $ 19,619
======== ======== ======== ========
Net income per share
Basic $ 0.50 $ 0.45 $ 0.98 $ 0.87
======== ======== ======== ========
Diluted $ 0.49 $ 0.44 $ 0.96 $ 0.85
======== ======== ======== ========
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,
---------
2005 2004
---- ----
Cash flows from operating activities:
Net income $ 22,245 $ 19,619
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of equity securities available for sale --- (619)
Gain on sale of debt securities available for sale --- (59)
(Gain) loss on disposal of premises and equipment (295) 3
Gain on sale of mortgage-backed securities --- (189)
Gain on sale of real estate owned (42) (172)
Gain on sale of mortgage loans (1,032) (1,410)
Provision for loan losses 988 799
Provision for losses on real estate owned 15 ---
Depreciation and amortization 613 508
Deferred income tax expense (benefit) 110 (49)
Originations of loans held for sale (41,687) (53,480)
Proceeds from sale of loans held for sale 41,560 54,722
Increase in deferred loan fees and costs 3,812 3,171
Increase in accrued interest receivable (550) (205)
Increase in other assets (24) (890)
Decrease in income taxes payable (5,497) (427)
(Decrease) increase in other liabilities (1,185) 4
-------- ---------
Net cash provided by operating activities 19,031 21,326
-------- ---------
Cash flows from investing activities:
Net increase in loans (185,747) (102,634)
Purchase of mortgage-backed securities (55,145) (234,691)
Proceeds from principal repayments of mortgage-backed securities 46,058 35,919
Proceeds from sale of mortgage-backed securities --- 5,178
Proceeds from maturities and calls of investment securities
held to maturity 155 30,000
Proceeds from maturities and calls of investment securities
available for sale 10,000 60,000
Proceeds from sale of investment securities available for sale --- 51,055
Purchase of investment securities available for sale (39,954) (20,000)
Proceeds from sale of real estate owned 143 334
Purchase of premises and equipment (7,653) (3,688)
Proceeds from disposal of premises and equipment 565 41
FHLB stock, net (2,472) (2,550)
-------- ---------
Net cash used in investing activities (234,050) (181,036)
-------- ---------
4
HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Six months ended
March 31,
---------
2005 2004
---- ----
Cash flows from financing activities:
Net increase in deposits 264,163 140,889
Net proceeds of short-term borrowings (5,785) 25,000
Net proceeds of long-term debt 30,000 25,000
Repayments of long-term debt (9) (44)
Decrease in advance payments by borrowers for taxes
and insurance (11,088) (11,331)
Dividends paid (8,166) (6,884)
Common stock options exercised 947 1,127
Purchase of treasury stock (182) (3,414)
-------- ---------
Net cash provided by financing activities 269,880 170,343
-------- ---------
Net increase in cash and cash equivalents 54,861 10,633
Cash and cash equivalents - beginning of period 74,875 59,694
-------- ---------
Cash and cash equivalents - end of period $ 129,736 $ 70,327
========= =========
Supplemental disclosures:
Cash paid for:
Interest $ 25,561 $ 23,326
Taxes 19,695 13,075
Noncash investing and financing activities:
Additions to real estate acquired in settlement of loans
through foreclosure 92 85
Sale of real estate owned financed by the Company --- 227
Tax benefit of stock plans credited to capital 439 449
Change in unrealized loss on securities available for sale (1,319) (1,618)
Change in deferred taxes related to securities available
for sale 509 625
Distribution of RRP shares 56 56
Transfer to short-term borrowings from long-term debt 5,000 5,750
Non-accrual loan made available for sale 1,329 ---
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, 2004.
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, 2004 consolidated financial statements
have been reclassified in order to conform to the March 31, 2005 presentation.
In March 2004, the Emerging Issues Task Force (EITF) issued EITF 03-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments" (EITF 03-1) to provide recognition and measurement guidance
regarding when impairments of equity and debt securities are considered
other-than-temporary requiring a charge to earnings, and also requires
additional annual disclosures for investments in unrealized loss positions. In
September 2004, the Financial Accounting Standards Board (FASB) issued FASB
Staff Position EITF 03-1-1, which delayed the recognition and measurements
provisions of EITF 03-1 pending the issuance of further implementation guidance.
In December 2004, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 123R, which is a revision of FASB Statement No. 123 "Accounting for
Stock Based Compensation". This statement, which supersedes Accounting
Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to Employees"
("Statement No. 123"), would eliminate the ability to account for share-based
compensation transactions using APB Opinion No. 25 and require all share-based
payments to employees, including grants of employee stock options, to be
recognized in the Financial Statements based on their fair values. The provision
of SFAS No. 123R will be effective prospectively beginning October 1, 2005. The
implementation of this statement is expected to result in approximately $390,000
additional expense, net of tax, in fiscal year 2006.
At March 31, 2005, the Company had stock option plans for the benefit of
directors, officers and other employees of the Company. The Company currently
accounts for those plans under the recognition and measurement principles of APB
Opinion No. 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.
6
Had compensation cost for the Company's stock-based compensation plans been
determined in accordance with the fair value based method in Statement No. 123,
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,
--------- ---------
2005 2004 2005 2004
---- ---- ---- ----
(In thousands except per share data)
Net income - As reported $ 11,455 $ 10,071 $ 22,245 $ 19,619
Less: total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax (111) (102) (232) (194)
-------- -------- -------- --------
Pro forma net income $ 11,344 $ 9,969 $ 22,013 $ 19,425
======== ======== ======== ========
Net income per share - basic
As reported $ 0.50 $ 0.45 $ 0.98 $ 0.87
Pro forma 0.50 0.44 0.97 0.86
Net income per share - diluted
As reported 0.49 0.44 0.96 0.85
Pro forma 0.49 0.43 0.95 0.84
The following per share weighted average fair values of stock options granted
during the three and six months ended March 31, 2005 and 2004 were calculated
using the Binomial option pricing model and the following weighted average
assumptions:
Three months ended Six months ended
March 31, March 31,
--------- ---------
2005 2004 2005 2004
---- ---- ---- ----
Options granted 7,500 --- 20,000 22,520
Grant date fair value $ 10.83 --- $ 11.32 $ 13.06
Excercise price $ 34.23 --- $ 34.93 $ 30.45
Risk free interest rate 4.06% --- 3.79% 3.41%
Expected life (years) 5 --- 6 6
Expected volatility 25.38% --- 25.89% 38.71%
Expected dividend $ 1.11 --- $ 1.01 $ .94
7
7
(2) NET INCOME PER SHARE
Net income per share was computed by dividing net income by the weighted average
number of shares of common stock outstanding during the three and six months
ended March 31, 2005 and 2004. Adjustments have been made 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,
--------- ---------
2005 2004 2005 2004
---- ---- ---- ----
Net income $ 11,455,226 $ 10,070,675 $ 22,245,025 $ 19,619,441
============ ============ ============ ============
Weighted average common shares outstanding:
Shares outstanding 23,668,166 23,612,989 23,635,914 23,577,759
Less: weighted average
uncommitted ESOP shares (901,886) (971,728) (910,587) (973,239)
------------ ------------ ------------ ------------
Total 22,766,280 22,641,261 22,725,327 22,604,520
============ ============ ============ ============
Basic net income per share $ 0.50 $ 0.45 $ 0.98 $ 0.87
============ ============ ============ ============
Weighted average common shares
outstanding 22,766,280 22,641,261 22,725,327 22,604,520
Additional dilutive shares related to
stock options 535,723 580,082 533,351 578,957
------------ ------------ ------------ ------------
Total weighted average common shares
and equivalents outstanding for
diluted earnings per share
computation 23,302,003 23,221,343 23,258,678 23,183,477
============ ============ ============ ============
Diluted net income per share $ 0.49 $ 0.44 $ 0.96 $ 0.85
============ ============ ============ ============
Additional dilutive shares are calculated under the treasury stock method
utilizing the average market value of the Company's stock for the period.
8
(3) INVESTMENT AND MORTGAGE BACKED SECURITIES
The amortized cost and estimated market value of investment and mortgage-backed
securities at March 31, 2005 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(In thousands)
Available for sale:
FHLB notes $ 120,034 $ --- $ 1,260 $ 118,774
FNMA notes 30,006 --- 460 29,546
FFCB notes 10,000 --- 83 9,917
--------- --- --------- ---------
160,040 --- 1,803 158,237
Equity securities 26 --- --- 26
--------- --------- --------- ---------
160,066 --- 1,803 158,263
--------- --------- --------- ---------
Held to maturity:
Municipal securities 285 30 --- 315
FHLMC mortgage-backed securities 268,647 662 6,316 262,993
FNMA mortgage-backed securities 182,985 666 4,150 179,501
--------- --------- --------- ---------
451,632 1,328 10,466 442,494
--------- --------- --------- ---------
$ 611,983 $ 1,358 $ 12,269 $ 601,072
========= ========= ========= =========
The amortized cost and estimated market value of investment and mortgage-backed
securities at September 30, 2004 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---- ----- ------ -----
(In thousands)
Available for sale:
FHLB notes $ 80,127 $ 15 $ 273 $ 79,869
FNMA notes 30,018 11 177 29,852
FFCB note 20,074 --- 60 20,014
--------- --------- --------- ---------
130,219 26 510 129,735
Equity securities 25 --- --- 25
--------- --------- --------- ---------
130,244 26 510 129,760
--------- --------- --------- ---------
Held to maturity:
Municipal securities 440 37 --- 477
FHLMC mortgage-backed securities 239,339 1,244 2,279 238,304
FNMA mortgage-backed securities 203,721 1,235 1,709 203,247
--------- --------- --------- ---------
443,060 2,479 3,988 441,551
--------- --------- --------- ---------
$ 573,744 $ 2,542 $ 4,498 $ 571,788
========= ========= ========= =========
9
The amortized cost and estimated market value of debt securities at March 31,
2005 and September 30, 2004 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, 2005 September 30, 2004
-------------- ------------------
Estimated Estimated
Amortized market Amortized market
cost value cost value
---- ----- ---- -----
(In thousands)
Investment Securities:
Available for sale:
Due in one year or less $ 79,989 $ 79,474 $ 30,175 $ 30,091
Due in one to five years 80,051 78,763 100,044 99,644
--------- --------- --------- ---------
160,040 158,237 130,219 129,735
--------- --------- --------- ---------
Held to maturity:
Due in one year or less 85 85 155 155
Due in one to five years --- --- 85 86
Due in five to ten years 200 230 200 236
--------- --------- --------- ---------
285 315 440 477
--------- --------- --------- ---------
Mortgage-backed Securities:
Held to maturity:
Due in one year or less 277 275 599 591
Due in one to five years 79,392 77,467 39,963 39,833
Due in five to ten years 348,654 340,669 374,365 371,609
Due after ten years 23,309 24,083 28,133 29,518
--------- --------- --------- ---------
451,632 442,494 443,060 441,551
--------- --------- --------- ---------
$ 611,957 $ 601,046 $ 573,719 $ 571,763
========= ========= ========= =========
As of March 31, 2005, the Company had pledged mortgage-backed securities with a
market value of $41,512,000 and a carrying value of $41,618,000 to collateralize
the public funds on deposit. The Company had also pledged mortgage-backed
securities with a market value of $1,337,000 and a carrying value of $1,281,000
to collateralize treasury, tax and loan accounts as of March 31, 2005.
10
Gross unrealized losses on investment securities and the fair value of the
related securities, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, at
March 31, 2005, were as follows:
Less than 12 months 12 months or more Total
------------------- ----------------- -----
Unrealized Unrealized Unrealized
Fair value losses Fair value losses Fair value losses
---------- ------ ---------- ------ ---------- ------
(In thousands)
Available for sale
Agency securities $ 79,515 $ 539 $ 78,722 $ 1,264 $ 158,237 $ 1,803
Held to maturity
Mortgage-backed
securities 199,748 4,132 202,114 6,334 401,862 10,466
--------- --------- --------- --------- --------- ---------
Total $ 279,263 $ 4,671 $ 280,836 $ 7,598 $ 560,099 $ 12,269
========= ========= ========= ========= ========= =========
Agency securities: The securities are all AAA rated and the unrealized losses on
investments were caused by interest rate increases. The Company has the ability
and intent to hold these investments until a market price recovery or maturity.
Therefore, these investments are not considered other-than-temporarily impaired.
Mortgage-backed securities: The securities are all AAA rated and the unrealized
losses on investments in mortgage-backed securities were caused by interest rate
increases. The contractual cash flows of these securities are guaranteed by FNMA
and FHLMC. The decline in fair value is attributable to changes in interest
rates and not credit downgrades. The Company has the ability and intent to hold
these investments until a market price recovery or maturity. Therefore, these
investments are not considered other-than-temporarily impaired.
11
(4) LOANS
Loans are summarized below:
March 31, September 30,
2005 2004
---- ----
(In thousands)
Mortgage loans:
Construction 1-4 family $ 314,961 $ 298,585
Permanent 1-4 family 1,160,625 1,069,514
Multi-family 34,636 27,276
Nonresidential 271,240 235,083
Land 244,061 198,937
----------- -----------
Total mortgage loans 2,025,523 1,829,395
----------- -----------
Other loans:
Commercial 79,944 72,276
Home equity lines of credit 64,098 59,838
Other consumer secured by real estate 112,115 103,621
Other consumer 44,124 43,945
----------- -----------
Total other loans 300,281 279,680
----------- -----------
Total loans 2,325,804 2,109,075
----------- -----------
Less:
Loans in process 220,194 190,453
Net deferred loan fees and discounts 10,396 9,651
Allowance for loan losses 18,822 17,802
----------- -----------
249,412 217,906
----------- -----------
Total loans, net $ 2,076,392 $ 1,891,169
=========== ===========
An analysis of the allowance for loan losses follows:
Three months ended Six months ended
March 31, March 31,
--------- ---------
2005 2004 2005 2004
---- ---- ---- ----
(In thousands)
Beginning balance $ 18,246 $ 16,614 $ 17,802 $ 16,199
Provision for loan losses 538 351 988 799
Charge-offs (23) (13) (41) (54)
Recoveries 61 8 73 16
--------- --------- --------- ---------
Ending balance $ 18,822 $ 16,960 $ 18,822 $ 16,960
========= ========= ========= =========
The allowance for loan losses was $18,822,000 and $17,802,000 at March 31, 2005
and September 30, 2004, 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, 2005 and September 30, 2004.
12
The investment in impaired loans (primarily consisting of classified loans),
other than those evaluated collectively for impairment, was $3,038,000 and
$4,627,000 at March 31, 2005 and September 30, 2004 respectively.
At March 31, 2005 and September 30, 2004, loans with unpaid principal balances
of approximately $1,251,000 and $3,032,000, respectively, were 90 days or more
contractually delinquent or on nonaccrual status. As of March 31, 2005 and
September 30, 2004, approximately $1,135,000 and $2,777,000, 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,
--------- ---------
2005 2004 2005 2004
---- ---- ---- ----
(In thousands)
Net income $ 11,455 $ 10,071 $ 22,245 $ 19,619
Other comprehensive loss:
Net unrealized losses (780) (103) (1,319) (1,618)
Tax effect 301 40 509 625
-------- -------- -------- --------
Other comprehensive loss, net of tax (479) (63) (810) (993)
-------- -------- -------- --------
Comprehensive income $ 10,976 $ 10,008 $ 21,435 $ 18,626
======== ======== ======== ========
(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 andliabilities incurred
in a sale; and
d. Recognizes in earnings any gain or loss on the sale.
The Company recognized gains on sales of mortgage loans of $564,000 and
$669,000, respectively, for the three months ended March 31, 2005 and 2004. For
the six months ended March 31, 2005 and 2004, the Company recognized gains on
sales of mortgage loans of $1,032,000 and $1,410,000, respectively.
13
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, 2005,
no servicing assets and/or liabilities were recognized.
(7) PENSION PLAN
The Company has a noncontributory-defined benefit pension plan covering all
full-time employees hired before January 1, 2003 who have attained one year of
service. The plan is a multi-employer plan. Separate actuarial evaluations are
not made for each employer nor are plan assets so segregated. The Company
elected to freeze the plan to all participants effective June 30, 2004 and, as a
result, expects to expense approximately $800,000 for fiscal year 2005. The
Company recorded pension expense of approximately $433,000 and $647,000 for the
six months ended March 31, 2005 and 2004, respectively.
14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Special Note Regarding Forward-Looking Statements
This report contains certain "forward-looking statements" which are based on
assumptions and describe future plans. 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 and
elsewhere, 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 the
following (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, (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 or losses on disposal 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.
The Company currently utilizes the following strategies to reduce interest rate
risk: (a) the Company seeks to originate and hold in the 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 may
utilize long-
15
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. These securities
have expected average lives in the three to four-year range. Management expects
that cash flow from investment maturities and repayments can be reinvested at
higher yields in a rising interest rate environment.
The Company operates primarily in seven counties on the east coast of Florida.
As such, the Company's results of operations are affected by the general and
economic conditions of the area. Management believes that the area's rapid
population growth and expanding real estate market will support continued
earning's growth.
The Company noted a significant increase in deposits during the six months ended
March 31, 2005 primarily due to a net increase of $206.1 million in core
deposits (transaction accounts, consisting of checking, money market and
passbook accounts) and $58.0 million in certificate accounts. The increase in
core deposits reflects disaster relief funds and insurance proceeds flowing into
the Company's market area as a result of the hurricanes that passed over our
market area in August and September 2004, as well as the customer's continued
preference for shorter-term investments in a low interest rate environment and
growth in the Company's market area. The Company continues to emphasize growth
in transaction accounts. However, the Company believes that some of the
significant growth during the six months was attributable to short-term
accumulation of funds for the purpose of repairs to properties by homeowners and
businesses. Future growth in such deposits may, therefore, be less than the
amounts obtained year to date.
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
judgments. The Company's financial results could differ significantly if
different judgments or estimates are applied in the application of these
policies.
The Company follows a consistent procedural discipline and accounts for loan
loss contingencies in accordance with Statement of Financial Accounting
Standards (SFAS) No. 5, "Accounting for Contingencies" and SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" . The following is a
description of how each portion of the allowance for loan losses is determined.
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. The Company provides for a general allowance
for losses inherent in the portfolio by the above categories, which consists of
two components. First, general loss percentages are established based upon
historical analyses. Second, a supplemental portion of the allowance is
established 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. 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 impaired 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.
16
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, 2005, compared to September 30, 2004. Furthermore, there was no reallocation
of the allowance from September 30, 2004. 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.
Results of Operations
Comparisons of quarterly results of operations in this section are between the
three months ended March 31, 2005 and March 31, 2004. 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, 2005, increased 11.4% to 49 cents per share on net income of $11.5 million,
compared to 44 cents per share on net income of $10.1 million for the same
period last year. Diluted earnings per share for the six months ended March 31,
2005, increased 12.9% to 96 cents per share on net income of $22.2 million,
compared to 85 cents per share on net income of $19.6 million for the same
period last year. The increases for both the three and six month periods were
due primarily to increased net interest income, resulting from an increase in
average interest-earning assets due primarily to origination of loans. This
growth was funded primarily with low cost core deposits. The increases in net
interest income were partially offset by decreases in other income and increases
in other expenses for both periods.
Net Interest Income. Net interest income increased 15.5% to $27.1 million for
the quarter ended March 31, 2005, from $23.4 million for the same period last
year. For the six months ended March 31, 2005, net interest income increased
14.7% to $52.6 million from $45.8 million for the same period last year. The
increases for both the three and six month periods were due primarily to a 13.8%
and 14.3% increase, respectively, in average interest-earning assets primarily
due to originations of loans funded predominately with low cost core deposits.
Average total loans for the quarter ended March 31, 2005 increased by $317.9
million, reflecting strong loan originations. The average balance of
mortgage-backed securities for the three months ended March 31, 2005 increased
$7.3 million and average interest earning deposits in other banks increased
$33.7 million. This was offset by a decrease of $31.6 million in investment
securities from the same period last year. The average balance of core deposits
increased to 55.4% of average total deposits for the three months ended March
31, 2005 compared to 49.9% for the three months ended March 31, 2004.
Average total loans for the six months ended March 31, 2005 increased $301.9
million or 18.1% from the same period last year. The average balance of
mortgage-backed securities for the six months ended March 31, 2005 increased
$66.9 million and average interest bearing deposits in other banks increased
$50.1 million, partially offset by a decrease of $84.9 million in investment
securities from the same period last year. The average deposit composition
changed to 55.0% and 45.0% of core deposits and certificate accounts,
respectively, for the six months ended March 31, 2005 from 49.0% and 51.0%,
respectively, for the same period last year.
The net interest margin increased to 4.01% for the three months ended March 31,
2005 from 3.95% for the three months ended March 31, 2004. The net interest
margin increased slightly to 3.95% for the six months ended March 31, 2005
compared to 3.94% for the same period last year. The increase for the three and
six month period was due mainly to a decrease in the cost of interest-bearing
liabilities, primarily due to growth in low cost core deposits e.g. checking
accounts and money market accounts. The increase in core deposits is the primary
source of funding of the origination of loans, resulting in higher interest rate
spreads and higher interest margins.
17
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 $538,000 for the three months ended March 31,
2005, compared to $351,000 for the same period last year. The provision for the
three months ended March 31, 2005 was principally comprised of a charge of
$633,000 due to increased credit risk resulting from growth in the loan
portfolio, partially offset by a decrease of $57,000 due to changes in the level
of classified loans and $38,000 in net recoveries.
For the six months ended March 31, 2005, the provision for loan losses was
$988,000 compared to $799,000 for the same period last year. The provision for
the six months ended March 31, 2005 was principally comprised of a charge of
$1.1 million due to increased credit risk resulting from growth in the loan
portfolio, partially offset by a decrease of $34,000 due to changes in the level
of classified loans and $33,000 in net recoveries.
For the six months ended March 31, 2005, nonperforming loans decreased to $1.3
million from $1.9 million for the same period last year. The ratio of the
allowance for loan losses to total net loans decreased to .91% as of March 31,
2005 from .99% of total net loans for the same period last year.
Other Income. Other income decreased to $5.5 million for the quarter ended March
31, 2005, from $5.7 million for the same period last year. The decrease was due
primarily to a decrease of $555,000 in gain on sale of debt and equity
securities and a decrease of $105,000 in gain on sale of mortgage loans,
partially offset by an increase of $596,000 in fees and service charges. Fees
and service charges (primarily from fees and service charges on deposit
products) were $4.1 million and $3.5 million for the quarters ended March 31,
2005 and 2004, respectively. This increase was due primarily to the growth in
transaction accounts. Gain on the sale of mortgage loans was $564,000 and
$669,000 for the quarters ended March 31, 2005 and 2004, respectively. Gain on
the sale of mortgage loans for the quarter ended March 31, 2005 included a
$205,000 gain on the sale of a $1.3 million commercial real estate nonaccrual
loan. The remaining decrease of $310,000 was due primarily to a decline in
originations of fixed rate residential one-to-four family mortgage loans
available for sale partly as a result of a change in customer preference to
adjustable rate loans. 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 decreased to $10.7 million for the six months ended March 31, 2005,
compared to $11.0 million for the same period last year. This decrease was due
primarily to decreases of $867,000 in gain on sale of debt and equity
securities, $378,000 in gain on sale of loans, $164,000 in income from real
estate operations, and $111,000 in insurance commission and fees, partially
offset by increases of $884,000 in fees and service charges and $298,000 in gain
on disposal of premises and equipment. Fees and service charges (primarily from
fees and service charges on deposit products) were $7.8 million and $6.9 million
for the six months ended March 31, 2005 and 2004, respectively. This increase
was due primarily to the growth in transaction accounts. Insurance commissions
and fees were $1.5 million and $1.6 million for the six months ended March 31,
2005 and 2004, respectively. This decrease was due primarily to decreased
annuity sales. Income from real estate operations decreased $164,000 to $93,000
for the six months ended March 31, 2005, primarily due to decreased gains on
sale of real estate owned acquired in settlement of loans through foreclosure.
Gain on sale of mortgage loans was $1.0 million and $1.4 million for the six
months ended March 31, 2005 and 2004, respectively. Gain on the sale of mortgage
loans for the quarter ended March 31, 2005 included a $205,000 gain on the sale
of a $1.3 million commercial real estate nonaccrual loan. The remaining decrease
of $583,000 was due primarily to a decline in originations of fixed rate
residential one-to-four family mortgage loans available for sale partly as a
result of a change in customer preference to adjustable rate loans. The Company
sells loans in order to reduce interest rate risk by limiting the growth of long
term fixed rate loans in the portfolio. The gain on disposal of premises and
equipment was primarily due to insurance proceeds related to hurricane damaged
premises and
18
equipment.
Other Expenses. Other expenses increased to $13.3 million for the quarter ended
March 31, 2005, from $12.3 million for the same period last year, due primarily
to increases of $485,000 in compensation and benefits, $172,000 in occupancy,
$92,000 in advertising and promotion, and $205,000 in other. Compensation and
employee benefits was $7.8 million and $7.3 million for the quarters ended March
31, 2005 and 2004, respectively. The increase for the quarter ended March 31,
2005 was due primarily to additional staff required to support the growth in
loans and deposits as well as the opening of new branches. Occupancy,
advertising and promotion and other increased primarily due to expenses incurred
in the opening of new branches and growth in loans and deposits.
For the six months ended March 31, 2005, other expenses increased to $25.8
million compared to $23.8 million for the same period last year. This increase
was due primarily to increases of $960,000 in compensation and benefits,
$336,000 in occupancy expense, $209,000 in advertising and promotion, and
$327,000 in other. The increase in compensation and benefits was due primarily
to additional staff required to support the growth in loans and deposits as well
as the opening of new branches. Occupancy, advertising and promotion and other
increased primarily due to expenses incurred in the opening of new branches and
growth in loans and deposits.
The Company has also incurred additional expense related to compliance with the
Sarbanes-Oxley Act of 2002 and the Bank Secrecy Act during the six months ended
March 31, 2005. The Company anticipates that additional increases in operating
expense are also likely in future quarters as the Company continues to implement
the additional requirements imposed by these regulations.
Income Taxes. Income tax expense increased to $7.4 million for the quarter ended
March 31, 2005, from $6.5 million for the same period last year due primarily to
an increase in pretax accounting income. For the six months ended March 31,
2005, income tax expense increased to $14.3 million from $12.6 million for the
same period last year due primarily to an increase in pretax accounting income.
The effective tax rates were 39.1% for the three and six-months periods ended
March 31, 2005 and 2004 respectively.
Financial Condition
Comparisons of financial condition in this section are from the end of the
preceding fiscal year to March 31, 2005.
Total assets increased to $2.913 billion at March 31, 2005, from $2.627 billion
at the fiscal year ended September 30, 2004. The increase is due primarily to
increases in loans, interest bearing deposits in other banks and investment
securities.
Interest bearing deposits in other banks increased to $58.0 million at March 31,
2005, from $7.1 million at September 30, 2004. This increase is due primarily to
the excess cash provided by the net increase in deposits.
Investment securities available for sale increased to $158.3 million at March
31, 2005, from $129.8 million at September 30, 2004. The increase is due
primarily to purchases of $40.0 million, offset by maturities of $10.0 million.
Mortgage-backed securities increased to $451.6 million at March 31, 2005, from
$443.1 million at September 30, 2004. The increase is due primarily to purchases
of $55.1 million of 5 and 7 year fixed-rate balloon securities with expected
average lives in the three to four year range, partially offset by repayments of
$46.1 million. The purchases were funded by repayments and the excess cash
provided by
19
the net increase in deposits. These securities will provide future
monthly principal and interest repayment cash flow to fund loan growth or other
investment alternatives.
Net loans increased to $2.076 billion at March 31, 2005, from $1.891 billion at
September 30, 2004. The increase is due primarily to net increases of $81.7
million in residential one-to-four mortgage loans, $45.0 million in land loans,
$31.4 million in nonresidential mortgage loans, $12.9 million in consumer loans,
and $7.6 million in commercial business loans. These increases were due to
strong loan originations during the six months ended March 31, 2005 as compared
to the same period last year. Residential one-to-four mortgage loan originations
increased 21.0% from the same period last year to $395.0 million for the six
months ended March 31, 2005. Consumer loan originations increased 18.9% to $85.1
million for the six months ended March 31, 2005. Commercial business loan
originations were $30.5 million for the six months ended March 31, 2005, up
53.9% from the same period last year. Commercial real estate loan originations
increased 33.6% from the same period last year to $140.0 million for the six
months ended March 31, 2005.
Deposits increased to $2.009 billion at March 31, 2005, from $1.745 billion at
September 30, 2004. The significant growth in deposits of 15.1% was due
primarily to a significant net increase of $206.1 million in core deposits and
$58.0 million in certificate accounts. The increase in core deposits reflects
disaster relief funds and insurance proceeds flowing into the Company's market
area, as well as the customer's continued preference for shorter-term
investments in a low interest rate environment and growth in the Company's
market area. The Company continues to emphasize growth in core deposit accounts.
However, the Company believes that some of the significant growth during the six
months was attributable to short-term accumulation of funds for the purpose of
repairs to properties by homeowners and businesses. Future growth in such
deposits may, therefore, be less than the amounts obtained year to date.
FHLB advances increased to $578.5 million from $553.5 million at March 31, 2005,
from September 30, 2004. The increase was due to a $30.0 million long-term fixed
rate convertible advance, callable in 2010, offset by a $5.0 million fixed rate
advance that matured during the six months. The advances were taken in order to
fund the origination of fixed rate loans.
Stockholders' equity increased to $302.7 million at March 31, 2005, from $286.6
million at September 30, 2004. The increase is due primarily to $22.2 million of
earnings for the six months partially offset by $8.2 million of dividends paid
and $2.5 million increase in paid in capital, primarily as a result of
amortization and tax benefits of stock benefit plans.
At March 31, 2005, 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 $43,685 1.50% $291,511 10.01% $247,826
Core Capital 87,371 3.00% 291,511 10.01% 204,140
Risk-Based Capital 137,509 8.00% 309,661 18.02% 172,152
20
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 $408.7 million at March 31, 2005 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, 2005, the Bank had $901.6 million or 44.9% of the Bank's deposits
in certificate accounts. Based on past experience, management believes that a
substantial percentage of these certificates will be renewed at maturity,
although there can be no assurance that this will occur. The Bank would use
borrowings from the FHLB or repurchase transactions with securities dealers if
replacement funding was needed as a result of maturing certificate accounts.
Net cash flows provided by the Company's operating activities (i.e. cash items
affecting net income) was $19.0 million and $21.3 million for the six months
ended March 31, 2005 and 2004, respectively.
Net cash flows used in the Company's investing activities (i.e. cash flows from
its investment securities, mortgage-backed securities and loan portfolios) was
$234.1 million and $181.0 million for the six months ended March 31, 2005 and
2004, respectively. The increase in cash used for the six months ending March
31, 2005 was principally due to an increase of $83.1 million in the net increase
in loans, a decrease of $79.8 million in proceeds from maturities and calls of
investment securities, a decrease of $51.1 million in proceeds from the sale of
investment securities, and an increase of $20.0 million in the purchase of
investment securities, partially offset by a $179.5 million decrease in the
purchase of mortgage-backed securities.
Net cash flows provided by the Company's financing activities (i.e. cash flows
primarily from net increases (decreases) in deposits and net FHLB advances) was
$269.9 million and $170.3 million for the six months ended March 31, 2005 and
2004, respectively. The increase in cash flows for the six months ending March
31, 2005 was primarily due to a $123.3 million increase in the net increase in
deposits, and a $5.0 million increase in net proceeds from long-term debt,
partially offset by an $30.8 million decrease in net proceeds from short-term
borrowings.
CONTRACTUAL OBLIGATIONS
The following table shows the aggregated amounts at March 31, 2005 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 $ 13,000 $ 25,000 $ 120,000 $ 420,483 $ 578,483
Operating leases 332 415 177 1,183 2,107
Purchase obligations 8,330 2,952 528 --- 11,810
--------- --------- --------- --------- ---------
Total $ 21,662 $ 28,367 $ 120,705 $ 421,666 $ 592,400
========= ========= ========= ========= =========
Outstanding commitments to fund mortgage loans to be held for investment
purposes (excluding loans in process), that generally expire in 60 days,
amounted to approximately $78.0 million as of March 31, 2005. In addition, as of
March 31, 2005, the Company had determined that $127.9 million might be lent to
21
certain homebuilders on a variable rate and home-by-home basis, subject to
underwriting and product approval by the Company. Outstanding commitments to
fund other loans as of March 31, 2005 were approximately $1.7 million.
The Company expects to contribute an additional $175,000 to its non-contributory
defined benefit pension plan before September 30, 2005. 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 $1.3 million as of March 31,
2005. The Company elected to freeze these plans to all participants effective
June 30, 2004.
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,
2005 2004
---- ----
(Dollars in thousands)
Nonaccrual mortgage loans:
Delinquent 90 days or more $ 1,113 $ 2,949
Nonaccrual other loans:
Delinquent 90 days or more 139 83
------- -------
Total nonperforming loans 1,252 3,032
Real estate owned, net of related allowance 24 48
------- -------
Total nonperforming assets $ 1,276 $ 3,080
======= =======
Nonperforming loans to total net loans .06% .16%
Total nonperforming assets to total assets .04% .12%
Allowance for loan losses to total net loans .91% .94%
Allowance for loan losses to nonperforming loans 1,504.25% 587.20%
Allowance for loan losses to classified loans 556.58% 383.37%
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.
22
Item 3. Quantitative and Qualitative Disclosures about Market Risk and Asset and
Liability Management.
The Company's assets consist primarily of fixed-rate, variable rate and floating
rate loans and fixed-rate mortgage-backed securities. These assets are funded by
customer deposits and borrowings from the FHLB. Customer deposits are comprised
of non-maturity transaction accounts, passbook accounts and certificate
accounts. The Company believes that the non-maturity transaction accounts and
passbook accounts provide a stable source of funding even during periods of
rising interest rates. Historically, balances in these accounts have been
relatively insensitive to changes in interest rates. The Company also uses
long-term borrowings from the FHLB as a means of managing exposure to higher
interest rates.
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, 2004.
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, 2005
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 and is accumulated and
communicated to the Company's management, including its principal executive and
principal financial officers, as appropriate to allow timely decisions regarding
required disclosure. During the last fiscal quarter, there have been no
significant 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. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table sets forth the Company's treasury stock purchases for the
quarter ended March 31, 2005:
Total number of shares purchased as Maximum number of shares
Total number of Average part of the stock repurchase plan that may yet be purchased
shares purchased price extended on October 13, 2004 under the plan
---------------- ----- ---------------------------- --------------
January 4,000 33.63 --- 734,800
February --- N/A --- 734,800
March --- N/A --- 734,800
The current stock repurchase program permits repurchases of up to 1.2 million
shares through October 14, 2005. The Company from time to time purchases shares
from participants in its stock options plans and restricted stock award plans
pursuant to terms of the plans permitting participants at their discretion to
use shares to pay federal income tax withholding liabilities. Those shares are
purchased at fair market value at
23
the time the transactions occur. The Companypurchased 4,000 shares during the
quarter ended March 31, 2005.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
An Annual Meeting of Stockholders of the Company was held January 28, 2005 for
the purpose of considering and voting upon the following matters:
1. Approval of the election of each of Directors Bruce R.
Abernethy, Sr., Standish C. Crippen, Richard L. Lynch and Edwin
R. Massey 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, 2005.
The following table sets forth the results as to each matter voted upon:
% BROKER
PROPOSAL FOR AGAINST ABSTAIN APPROVED NON-VOTES
-------- --- ------- ------- -------- ---------
No. 1
Bruce R. Abernethy, Sr. 20,896,601 173,555 --- 99.2% ---
Standish C. Crippen 20,898,072 172,084 --- 99.2% ---
Richard L. Lynch 20,907,421 162,735 --- 99.2% ---
Edwin R. Massey 20,903,663 166,493 --- 99.2% ---
No. 2 20,861,923 107,092 101,141 99.0% ---
Item 5. Other Information.
None
Item 6. Exhibits.
(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)
24
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)
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 (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) *Amendments to Change of Control Agreements (Exhibit
10(xii) to Form 10-Q for the quarter ended June 30, 2004 filed
August 13, 2004)
10(xii) *Senior Officer Incentive Plan for fiscal year 2005
(Exhibit 10(xii) to Form 10-Q for the quarter ended December 31,
2004 filed February 9, 2005)
10(xiii) **Amendments to Change of Control Agreements
14.1 *Code of Ethics (Exhibit 14.1 to Form 10-K for the year
ended September 30, 2003 filed December 29, 2003)
25
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 pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
*Incorporated by reference.
**Included with this report.
26
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 9, 2005 /s/
----------------------------------------
Michael J. Brown, Sr.
President and Chief Executive Officer
Date: May 9, 2005 /s/
----------------------------------------
H. Michael Callahan
Senior Vice President, Finance and
Chief Financial Officer
27
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 (the registrant's fourth
fiscal quarter in the case of an annual report) 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 control over financial reporting.
/s/
- -----------------------
Michael J. Brown, Sr.
Chief Executive Officer
May 9, 2005
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 (the registrant's fourth
fiscal quarter in the case of an annual report) 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 control over financial reporting.
/s/
- ------------------------
H. Michael Callahan
Chief Financial Officer
May 9, 2005
18
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
The following certification accompanies the issuer's Quarterly Report on Form
10-Q and is not filed, as provided in SEC Release Nos. 33-8238, 34-47986 dated
June 5, 2003.
In connection with the Quarterly Report of Harbor Florida Bancshares, Inc. (the
"Company") on Form 10-Q for the period ending March 31, 2005 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 as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
/s/
- -----------------------
Michael J. Brown, Sr.
Chief Executive Officer
May 9, 2005
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
The following certification accompanies the issuer's Quarterly Report on Form
10-Q and is not filed, as provided in SEC Release Nos. 33-8238, 34-47986 dated
June 5, 2003.
In connection with the Quarterly Report of Harbor Florida Bancshares, Inc. (the
"Company") on Form 10-Q for the period ending March 31, 2005 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 as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
/s/
- -----------------------
H. Michael Callahan
Chief Financial Officer
May 9, 2005
Exhibit 10(xiii)
AMENDMENT NUMBER TWO TO THE
CHANGE IN CONTROL AND NON-COMPETE AGREEMENT
BETWEEN J. HAL ROBERTS AND
HARBOR FEDERAL SAVINGS BANK
The Change in Control and Non-compete Agreement between J. Hal
Roberts and Harbor Federal Savings Bank is hereby amended as follows:
1. Amended Paragraphs to the Agreement to read as follows:
1. 4. TERMINATION BENEFITS. (b) Delete entire paragraph.
--------------------
2. 4. TERMINATION BENEFITS. (c) At the effective date of the
--------------------
Agreement and prior to December 31st each year thereafter,
Executive shall make the election referred to in Section 4(a)
hereof with respect to whether any amounts payable under said
Section 4(a) during the following year shall be paid in a lump
sum or on a monthly basis. Such election shall be irrevocable
for the year for which such election is made and shall
continue in effect until the executive has made his next
annual election.
DATE: April 18, 2005 HARBOR FEDERAL SAVINGS BANK
EMPLOYER:
/s/
------------------------------------
Michael J. Brown, Sr.,
President
EMPLOYEE:
/s/
------------------------------------
J. Hal Roberts
1
Exhibit 10(xiii)
AMENDMENT NUMBER TWO TO THE
CHANGE IN CONTROL AND NON-COMPETE AGREEMENT
BETWEEN DAVID C. HANKLE AND
HARBOR FEDERAL SAVINGS BANK
The Change in Control and Non-compete Agreement between David
C. Hankle and Harbor Federal Savings Bank is hereby amended as follows:
1. Amended Paragraphs to the Agreement to read as follows:
1. 4. TERMINATION BENEFITS. (a) Upon the occurrence of a Change of
--------------------
Control,followed at any time during the term of this Agreement by the
voluntary or involuntary termination of the Executive's employment, other
than for Termination for Cause, the Bank and the company shall pay the
Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal three times the sum of (i) the
Employee's base salary from the Employer during the 12-month period
immediately preceding the Date of Termination, plus (ii) the amount of the
bonuses received by the Employee from the Employer during the 12-month
period immediately preceding the Date of Termination, plus (iii) the cost
to the Employer of all benefits to which the Employee was entitled during
the 12-month period immediately preceding the Date of Termination. At the
election of the Executive such payment may be made in a lump sum or paid in
equal monthly installments during the thirty-six (36) months following the
Executive's termination. In the event that no election is made, payment to
the Executive will be in equal monthly installments.
2. 4. TERMINATION BENEFITS. (b) Delete entire paragraph.
--------------------
3. 4. TERMINATION BENEFITS. (c) At the effective date of the Agreement
--------------------
and prior to December 31st each year thereafter, Executive shall make the
election referred to in Section 4(a) hereof with respect to whether any
amounts payable under said Section 4(a) during the following year shall be
paid in a lump sum or on a monthly basis. Such election shall be
irrevocable for the year for which such election is made and shall continue
in effect until the executive has made his next annual election.
4. 4. TERMINATION BENEFITS. (d) Notwithstanding the preceding paragraphs
--------------------
of this Section 4, in no event shall the aggregate payments or benefits
(excluding any payments or benefits which occur solely as a result of terms
requiring acceleration in plans for stock related benefits such as stock
options or restricted stock) to be made or afforded to Executive under said
paragraphs (the "Terminations Benefits") constitute an "excess parachute
payment" under Section 280G of the code or any successor thereto, and in
order to avoid such a result Termination Benefits will be reduced, if
necessary, to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to three (3) times Executive's "base amount", as determined in
accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by the preceding paragraphs
of this Section 4 shall be determined by the Executive.
5. 7.NON-COMPEITION AND CONFIDENTIAL INFORMATION (a)
------------------------------------------------------
During the term of this Agreement, and for two (2) years after the
date the Executive isterminated by the Bank or of this Agreement, and
for Bancshares, whether voluntarily or involuntarily, with or without
cause, the Executive shall not compete directly or indirectly in the
Florida counties of St. Lucie, Martin, Indian River, Brevard, Volusia
or Okeechobee (collectively, the "Counties") with any business then
being conducted by the Bank or Bancshares without their prior written
consent. The term "compete" means rendering any service by the
Executive, whether as an employee, director, consultant, independent
contractor, partner, co-venturer or investor (excluding any interest
of the Executive through investment of up to an aggregate of 10% in
the equity or debt securities or equivalent partnership interest of
any person required to register under Section 12(g) of the securities
Exchange Act of 1934) to or on behalf of any organization, including
but not limited to any commercial bank, savings bank, savings and loan
association, credit union, mortgage banking company, insurance company
or brokerage firm, conducting any business then competitive to that of
the Bank or Bancshares in the Counties.
DATE: April 18, 2005 HARBOR FEDERAL SAVINGS BANK
EMPLOYER:
/s/
-----------------------------
Michael J. Brown, Sr.,
President
EMPLOYEE:
/s/
------------------------------------
David C. Hankle
2
Exhibit 10(xiii)
AMENDMENT NUMBER TWO TO THE
CHANGE IN CONTROL AND NON-COMPETE AGREEMENT
BETWEEN MICHAEL J. BROWN, JR. AND
HARBOR FEDERAL SAVINGS BANK
The Change in Control and Non-compete Agreement between
Michael J. Brown, Jr. and Harbor Federal Savings Bank is hereby amended as
follows:
1. Amended Paragraphs to the Agreement to read as follows:
1. 4. TERMINATION BENEFITS. (a) Upon the occurrence of a Change of
---------------------
Control, followed at any time during the term of this Agreement by the
voluntary or involuntary termination of the Executive's employment, other
than for Termination for Cause, the Bank and the company shall pay the
Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal three times the sum of (i) the
Employee's base salary from the Employer during the 12-month period
immediately preceding the Date of Termination, plus (ii) the amount of the
bonuses received by the Employee from the Employer during the 12-month
period immediately preceding the Date of Termination, plus (iii) the cost
to the Employer of all benefits to which the Employee was entitled during
the 12-month period immediately preceding the Date of Termination. At the
election of the Executive such payment may be made in a lump sum or paid in
equal monthly installments during the thirty-six (36) months following the
Executive's termination. In the event that no election is made, payment to
the Executive will be in equal monthly installments.
2. 4. TERMINATION BENEFITS. (b) Delete entire paragraph.
--------------------
3. 4. TERMINATION BENEFITS. (c) At the effective date of the Agreement
--------------------
and prior to December 31st each year thereafter, Executive shall make the
election referred to in Section 4(a) hereof with respect to whether any
amounts payable under said Section 4(a) during the following year shall be
paid in a lump sum or on a monthly basis. Such election shall be
irrevocable for the year for which such election is made and shall continue
in effect until the executive has made his next annual election.
4. 4. TERMINATION BENEFITS. (d) Notwithstanding the preceding
----------------------
paragraphs of this Section 4, in no event shall the aggregate payments or
benefits (excluding any payments or benefits which occur solely as a result
of terms requiring acceleration in plans for stock related benefits such as
stock options or restricted stock) to be made or afforded to Executive
under said paragraphs (the "Terminations Benefits") constitute an "excess
parachute payment" under Section 280G of the code or any successor thereto,
and in order to avoid such a result Termination Benefits will be reduced,
if necessary, to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as
determined in accordance with said Section 280G. The allocation of the
reduction required hereby among the Termination Benefits provided by
the preceding paragraphs of this Section 4 shall be determined by the
Executive.
5. 7.NON-COMPETITION AND CONFIDENTIAL INFORMATION (a) During the term of
---------------------------------------------
this Agreement, and for two (2) years after the date the Executive is
terminated by the Bank or Bancshares, whether voluntarily or involuntarily,
with or without cause, the Executive shall not compete directly or
indirectly in the Florida counties of St. Lucie, Martin, Indian River,
Brevard, Volusia or Okeechobee (collectively, the "Counties") with any
business then being conducted by the Bank or Bancshares without their prior
written consent. The term "compete" means rendering any service by the
Executive, whether as an employee, director, consultant, independent
contractor, partner, co-venturer or investor (excluding any interest of the
Executive through investment of up to an aggregate of 10% in the equity or
debt securities or equivalent partnership interest of any person required
to register under Section 12(g) of the securities Exchange Act of 1934) to
or on behalf of any organization, including but not limited to any
commercial bank, savings bank, savings and loan association, credit union,
mortgage banking company, insurance company or brokerage firm, conducting
any business then competitive to that of the Bank or Bancshares in the
Counties.
DATE: April 18 2005 HARBOR FEDERAL SAVINGS BANK
EMPLOYER:
/s/
-------------------------
Michael J. Brown, Sr.,
President
EMPLOYEE:
/s/
-------------------------
Michael J. Brown, Jr.
Exhibit 10(xiii)
AMENDMENT NUMBER TWO TO THE
CHANGE IN CONTROL AND NON-COMPETE AGREEMENT
BETWEEN ALBERT L. FORT AND
HARBOR FEDERAL SAVINGS BANK
The Change in Control and Non-compete Agreement between
Albert L. Fort and Harbor Federal Savings Bank is hereby amended as follows:
1. Amended Paragraphs to the Agreement to read as follows:
1. 4. TERMINATION BENEFITS. (a) Upon the occurrence of a Change of
---------------------
Control, followed at any time during the term of this Agreement by the
voluntary or involuntary termination of the Executive's employment, other
than for Termination for Cause, the Bank and the company shall pay the
Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal three times the sum of (i) the
Employee's base salary from the Employer during the 12-month period
immediately preceding the Date of Termination, plus (ii) the amount of the
bonuses received by the Employee from the Employer during the 12-month
period immediately preceding the Date of Termination, plus (iii) the cost
to the Employer of all benefits to which the Employee was entitled during
the 12-month period immediately preceding the Date of Termination. At the
election of the Executive such payment may be made in a lump sum or paid in
equal monthly installments during the thirty-six (36) months following the
Executive's termination. In the event that no election is made, payment to
the Executive will be in equal monthly installments.
2. 4. TERMINATION BENEFITS. (b) Delete entire paragraph.
--------------------
3. 4. TERMINATION BENEFITS. (c) At the effective date of the Agreement
--------------------
and prior to December 31st each year thereafter, Executive shall make the
election referred to in Section 4(a) hereof with respect to whether any
amounts payable under said Section 4(a) during the following year shall be
paid in a lump sum or on a monthly basis. Such election shall be
irrevocable for the year for which such election is made and shall continue
in effect until the executive has made his next annual election.
4. 4. TERMINATION BENEFITS. (d) Notwithstanding the preceding
---------------------
paragraphs of this Section 4, in no event shall the aggregat payments or
benefits (excluding any payments or benefits which occur solely as a result
of terms requiring acceleration in plans for stock related benefits such as
stock options or restricted stock) to be made or afforded to Executive
under said paragraphs (the "Terminations Benefits") constitute an "excess
parachute payment" under Section 280G of the code or any successor thereto,
and in order to avoid such a result Termination Benefits will be reduced,
if necessary, to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to three (3) times Executive's "base amount", as determined in
accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by the preceding paragraphs
of this Section 4 shall be determined by the Executive.
5. 7.NON-COMPETITION AND CONFIDENTIAL INFORMATION (a) During the term of
---------------------------------------------
this Agreement, and for two (2) years after the date the Executive is
terminated by the Bank or Bancshares, whether voluntarily or involuntarily,
with or without cause, the Executive shall not compete directly or
indirectly in the Florida counties of St. Lucie, Martin, Indian River,
Brevard, Volusia or Okeechobee (collectively, the "Counties") with any
business then being conducted by the Bank or Bancshares without their prior
written consent. The term "compete" means rendering any service by the
Executive, whether as an employee, director, consultant, independent
contractor, partner, co-venturer or investor (excluding any interest of the
Executive through investment of up to an aggregate of 10% in the equity or
debt securities or equivalent partnership interest of any person required
to register under Section 12(g) of the securities Exchange Act of 1934) to
or on behalf of any organization, including but not limited to any
commercial bank, savings bank, savings and loan association, credit union,
mortgage banking company, insurance company or brokerage firm, conducting
any business then competitive to that of the Bank or Bancshares in the
Counties.
DATE: April 18 2005 HARBOR FEDERAL SAVINGS BANK
EMPLOYER:
/s/
-------------------------
Michael J. Brown, Sr.,
President
EMPLOYEE:
/s/
-------------------------
Albert L. Fort
Exhibit 10(xiii)
AMENDMENT NUMBER TWO TO THE
CHANGE IN CONTROL AND NON-COMPETE AGREEMENT
BETWEEN H. MICHAEL CALLAHAN AND
HARBOR FEDERAL SAVINGS BANK
The Change in Control and Non-compete Agreement between H.
Michael Callahan and Harbor Federal Savings Bank is hereby amended as follows:
1. Amended Paragraphs to the Agreement to read as follows:
1. 4. TERMINATION BENEFITS. (a) Upon the occurrence of a Change of
---------------------
Control, followed at any time during the term of thisAgreement by the
voluntary or involuntary termination of the Executive's employment, other
than for Termination for Cause, the Bank and the company shall pay the
Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal three times the sum of (i) the
Employee's base salary from the Employer during the 12-month period
immediately preceding the Date of Termination, plus (ii) the amount of the
bonuses received by the Employee from the Employer during the 12-month
period immediately preceding the Date of Termination, plus (iii) the cost
to the Employer of all benefits to which the Employee was entitled during
the 12-month period immediately preceding the Date of Termination. At the
election of the Executive such payment may be made in a lump sum or paid in
equal monthly installments during the thirty-six (36) months following the
Executive's termination. In the event that no election is made, payment to
the Executive will be in equal monthly installments.
2. 4. TERMINATION BENEFITS. (b) Delete entire paragraph.
--------------------
3. 4. TERMINATION BENEFITS. (c) At the effective date of the Agreement
--------------------
and prior to December 31st each year thereafter, Executive shall make the
election referred to in Section 4(a) hereof with respect to whether any
amounts payable under said Section 4(a) during the following year shall be
paid in a lump sum or on a monthly basis. Such election shall be
irrevocable for the year for which such election is made and shall continue
in effect until the executive has made his next annual election.
4. 4. TERMINATION BENEFITS. (d) Notwithstanding the preceding
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paragraphs of this Section 4, in no event shall the aggregate payments or
benefits (excluding any payments or benefits which occur solely as a result
of terms requiring acceleration in plans for stock related benefits such as
stock options or restricted stock) to be made or afforded to Executive
under said paragraphs (the "Terminations Benefits") constitute an "excess
parachute payment" under Section 280G of the code or any successor thereto,
and in order to avoid such a result Termination Benefits will be reduced,
if necessary, to an amount (the "Non
-Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to three (3) times Executive's "base amount", as determined in
accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by the preceding paragraphs
of this Section 4 shall be determined by the Executive.
5. 7.NON-COMPETITION AND CONFIDENTIAL INFORMATION (a) During the term
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of this Agreement, and for two (2) years after the date the Executive is
terminated by the Bank or Bancshares, whether voluntarily or involuntarily,
with or without cause, the Executive shall not compete directly or
indirectly in the Florida counties of St. Lucie, Martin, Indian River,
Brevard, Volusia or Okeechobee (collectively, the "Counties") with any
business then being conducted by the Bank or Bancshares without their prior
written consent. The term "compete" means rendering any service by the
Executive, whether as an employee, director, consultant, independent
contractor, partner, co-venturer or investor (excluding any interest of the
Executive through investment of up to an aggregate of 10% in the equity or
debt securities or equivalent partnership interest of any person required
to register under Section 12(g) of the securities Exchange Act of 1934) to
or on behalf of any organization, including but not limited to any
commercial bank, savings bank, savings and loan association, credit union,
mortgage banking company, insurance company or brokerage firm, conducting
any business then competitive to that of the Bank or Bancshares in the
Counties.
DATE: April 18 2005 HARBOR FEDERAL SAVINGS BANK
EMPLOYER:
/s/
---------------------------------
Michael J. Brown, Sr.,
President
EMPLOYEE:
/s/
---------------------------------
H. Michael Callahan