HBTC

Harbourton Capital Group, Inc. ("Harbourton" or the "Company") (OTC: HBTC) today reported net income after tax of $42,977, or $0.01 per common share, for the three months ended September 30, 2005, compared with net income after tax of $792,973, or $0.16 per common share, for the same period in 2004. Net income after tax for the nine months ended September 30, 2005 was $621,899, or $0.12 per common share, as compared with $1,885,434, or $0.37 per common share, for the respective period in 2004. The return on average equity for the quarter and nine months ended September 30, 2005 was 0.6% and 3.0%, respectively, as compared with 12.7% and 10.3% for the same periods in 2004. Total shareholders' equity at September 30, 2005 increased to $27.7 million, with a corresponding book value of $5.48 per share, as compared with total shareholders' equity at December 31, 2004 of $27.1 million, or $5.35 per share. There were 5,061,388 shares of common stock outstanding during the three and nine months ended September 30, 2005 and 2004. The results for the quarter reflect the significant margin and competitive pressures existing in the national mortgage market in which Harbourton Mortgage Investment Corporation ("HMIC"), the Company's wholesale mortgage subsidiary, operates. The impact from the increase in short term interest rates and the surge of negative news and public commentary directed at specific mortgage products associated with the sub-prime market contributed to the lower prices received by HMIC on loans sold in the secondary market. During the quarter HMIC's income was negatively impacted by a significant decline in its net sales margin (gain on sale of loans less costs to produce the loans), additional costs resulting from its plan to aggressively increase loan fundings in the eastern United States, and operating costs associated with implementing the company's new automated underwriting and loan operating platform "HELPS" (Harbourton Electronic Loan Processing Solution). The effort to increase funding on the east coast, thereby diversifying our production of loans, is proving successful as indicated by the increasing ratio of HMIC's loans closed in this region. HMIC introduced the first stage of HELPS on November 1, with the rollout of the full platform expected prior to year-end. HELPS will enable HMIC clients to submit loans via the Internet and receive an underwriting decision immediately. Management believes HELPS will be a major contributor to increased operating efficiencies in 2006 based on its advanced technology to receive loan submissions, access third party vendor requirements (credit report and appraisal), provide automated underwriting, and efficiently process loans to final sale in the secondary market. During the quarter ended September 30, 2005, HMIC recorded loan fundings of $280.4 million and loan sales of $251.4 million, as compared with loan fundings of $219.2 million and loan sales of $222.4 million during the previous quarter ended June 30, 2005. Third quarter revenue of Harbourton Financial Corporation (HFC), the Company's mezzanine lending subsidiary, was hindered by the higher level of non-earning assets principally resulting from the foreclosure of two projects related to the same builder/borrower. A 26-unit project was acquired at the end of the first quarter, completed by the end of the second quarter, with 15 of the units currently sold. The second project of eight units was on non-accrual during the quarter, was acquired September 30, 2005, and will follow a similar process of completion and marketing to the buying public. During the quarter, demand for our mezzanine loan product was strong, with HFC closing on two new mezzanine transactions, in Washington D.C. and Dallas, Texas. J. Kenneth McLendon, president and CEO stated, "Regarding HMIC, the national mortgage market continues to be difficult, facing a decline in the mortgage activity resulting from rising interest rates and a reduction in prices paid by investors in the secondary market for mortgage loans. The Company raised its underwriting and performance benchmarks for HFC's mezzanine lending activities and believes the markets will continue to produce excellent opportunities in this arena, despite a moderation in residential price inflation." He continued, "Our board and management are committed to (1) achieving growth in both business segments even in the difficult markets that exists, (2) accomplishing efficiencies in all areas of our business, and (3) adjusting operating expenses where necessary to provide maximum return for our shareholders. These markets will undoubtedly present the Company with opportunities for significant profits in both business segments." Harbourton is a holding company comprising two main financial businesses, mezzanine lending conducted by the HFC subsidiary and mortgage banking by HMIC. HFC's primary business is originating loans to builders and developers of residential projects. The loans include financing for acquisition, development and construction of residential single-family homes, townhouses, and condominiums. HMIC's primary business consists of originating and purchasing both conforming and non-conforming mortgage loans and the subsequent sale of these loans servicing released to investors in the secondary market. This press release may contain various "forward-looking statements," within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that represent the Company's expectations or beliefs concerning future events. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties. Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include changes in the timing and amount of earning assets which may be originated by the Company, changes in revenue and expense trends (including trends affecting charge-offs) of the Company, changes in the Company's markets and changes in the economy (particularly in the markets served by the Company). -0- *T Selected Financial Data: (000's except per share data) September December September 30, 2005 31, 2004 30, 2004 --------------------------------- Total Assets $131,584.2 $90,430.3 $91,327.5 Total Liabilities 103,868.3 63,327.9 66,051.7 Shareholders' Equity 27,715.9 27,102.4 25,275.8 Book Value Per Share $5.48 $5.35 $4.99 Common Shares Outstanding 5,061.4 5,061.4 5,061.4 Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Revenues: Interest income $2,487.2 $1,760.7 $6,057.3 $4,240.0 Interest expense (1,567.1) (658.3) (3,496.9) (1,463.8) --------- --------- --------- --------- Net interest income before provision 920.1 1,102.4 2,560.4 2,776.2 Provision for loss (286.1) (372.0) (911.2) (609.1) --------- --------- --------- --------- Net interest income after provision 634.0 730.4 1,649.2 2,167.1 Fees and other income 3,724.0 3,853.0 11,277.6 8,718.8 --------- --------- --------- --------- Total net revenues 4,358.0 4,583.4 12,926.8 10,885.9 Expenses Compensation and benefits 3,180.2 2,486.7 8,759.4 5,664.5 General & administrative 862.1 607.2 2,281.3 1,583.4 Loan Expenses 91.9 93.6 239.6 247.2 Professional fees 177.3 39.7 427.9 154.4 Depreciation (21.0) 48.7 227.6 122.4 --------- --------- --------- --------- Total Expenses 4,290.5 3,275.9 11,935.8 7,771.9 Income before income tax 67.5 1,307.5 991.0 3,114.0 Income tax 24.5 514.5 369.1 1,228.6 --------- --------- --------- --------- Net income $43.0 $793.0 $621.9 $1,885.4 ========= ========= ========= ========= Income per common share $0.01 $0.16 $0.12 $0.37 Weighted average shares outstanding 5,061.4 5,061.4 5,061.4 5,061.4 Return on average equity ("ROAE") 0.6% 12.7% 3.0% 10.3% *T