<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark One
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
-------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
---------- ----------
COMMISSION FILE NUMBER: 333-45979
UNITY HOLDINGS, INC.
---------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
GEORGIA 58-2350609
- ------------------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
19 SOUTH PUBLIC SQUARE, CARTERSVILLE, GEORGIA 30120
---------------------------------------------------
(Address of principal executive offices)
(770) 606-0555
--------------------------
(Issuer's telephone number)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of November 1, 1999: 839,211; $0.01 par value.
Transitional Small Business Disclosure Format (Check One) Yes [ ] No [X]
<PAGE> 2
UNITY HOLDINGS, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET - SEPTEMBER 30, 1999...................3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS -
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 AND NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND 1998........................4
CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND 1998........................5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................7
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........18
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K............................18
SIGNATURES...........................................................19
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITY HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
ASSETS
<TABLE>
<S> <C>
Cash and due from banks $ 1,591,369
Interest-bearing deposits in banks 100,000
Securities available-for-sale, at fair value 2,432,002
Federal funds sold 1,050,000
Loans 31,365,851
Less allowance for loan losses 446,484
------------
Loans, net 30,919,367
------------
Premises and equipment 2,132,202
Other assets 652,639
------------
$ 38,877,579
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand $ 5,419,473
Interest-bearing demand 7,528,880
Savings 554,222
Time 17,879,962
------------
Total deposits 31,382,537
Other liabilities 318,869
------------
Total liabilities 31,701,406
------------
Commitments and contingent liabilities
Stockholders' equity
Preferred stock, par value $.01; 10,000,000 shares authorized;
none issued -
Common stock, par value $.01; 10,000,000 shares authorized;
839,211 shares issued and outstanding 8,392
Capital surplus 8,076,469
Accumulated deficit (904,782)
Accumulated other comprehensive loss (3,906)
------------
Total stockholders' equity 7,176,173
------------
$ 38,877,579
============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
UNITY HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 AND
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ----------------------------
1999 1998 1999 1998
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 761,498 $ - $ 1,533,057 $ -
Taxable securities 23,555 - 24,479 -
Federal funds sold 44,300 - 181,715 -
Deposits in banks - 74,535 531 76,952
--------- ----------- ----------- -----------
TOTAL INTEREST INCOME 829,353 74,535 1,739,782 76,952
--------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 260,863 - 492,933 -
Other borrowings - 22,016 - 36,218
--------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 260,863 22,016 492,933 36,218
--------- ----------- ----------- -----------
NET INTEREST INCOME 568,490 52,519 1,246,849 40,734
PROVISION FOR LOAN LOSSES 158,800 - 406,800 -
--------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 409,690 52,519 840,049 40,734
--------- ----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts 34,911 - 76,692 -
Other operating income 39,651 - 112,526 -
--------- ----------- ----------- -----------
74,562 - 189,218 -
--------- ----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits 284,319 73,602 761,117 165,047
Equipment and occupancy expenses 54,380 1,582 175,310 4,791
Other operating expenses 151,109 29,664 402,175 66,149
--------- ----------- ----------- -----------
489,808 104,848 1,338,602 235,987
--------- ----------- ----------- -----------
NET LOSS (5,556) (52,329) (309,335) (195,253)
OTHER COMPREHENSIVE LOSS
Unrealized losses on securities
available-for-sale arising during period (3,906) - (3,906) -
--------- ----------- ----------- -----------
COMPREHENSIVE LOSS $ (9,462) $ (52,329) $ (313,241) $ (195,253)
========= =========== =========== ===========
BASIC AND DILUTED LOSSES PER COMMON SHARE $ (0.01) $ (5,233.00) $ (0.37) $(19,525.00)
========= =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
(BASIC AND DILUTED) $ 839,211 $ 10 $ 839,211 $ 10
========= =========== =========== ===========
CASH DIVIDENDS PER SHARE OF COMMON STOCK $ - $ - $ - $ -
========= =========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
UNITY HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (309,335) $ (195,253)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 72,751 -
Provision for loan losses 406,800 -
Increase in interest receivable (226,106) -
Increase in interest payable 209,328 -
Other operating activities 39,958 (23,964)
------------ -----------
Net cash provided by (used in) operating activities 193,396 (219,217)
------------ -----------
INVESTING ACTIVITIES
Net increase in interest-bearing deposits in banks (100,000) (7,357,791)
Purchases of securities available-for-sale (2,225,908) -
Net decrease in Federal funds sold 4,790,000 -
Net increase in loans (28,119,129) -
Purchase of premises and equipment (801,675) (868,342)
Purchase of life insurance policies (355,169) -
Increase in deferred stock issue and organization costs - (110,430)
Increase in options to purchase land - (70,030)
------------ -----------
Net cash used in investing activities (26,811,881) (8,406,593)
------------ -----------
FINANCING ACTIVITIES
Net increase in deposits 27,823,339 -
Net proceeds from the issuance of stock 5,000 -
Proceeds from stock subscription deposits - 7,664,784
Proceeds from notes payable - 960,840
------------ -----------
Net cash provided by financing activities 27,828,339 8,625,624
------------ -----------
Net increase (decrease) in cash and due from banks 1,209,854 (186)
Cash and due from banks at beginning of period 381,515 186
------------ -----------
Cash and due from banks at end of period $ 1,591,369 $ -
============ ===========
CASH FLOW INFORMATION
Cash paid during the period for interest $ 283,605 $ 36,218
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
UNITY HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The consolidated financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim
periods.
The results of operations for the nine month period ended September 30,
1999 are not necessarily indicative of the results to be expected for
the full year.
NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
The effective date of this statement has been deferred by SFAS No. 137
until fiscal years beginning after June 15, 2000. However, the
statement permits early adoption as of the beginning of any fiscal
quarter after its issuance. The Company expects to adopt this statement
effective January 1, 2001. SFAS No. 133 requires the Company to
recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. For derivatives that are not designated as
hedges, the gain or loss must be recognized in earnings in the period
of change. For derivatives that are designated as hedges, changes in
the fair value of the hedged assets, liabilities, or firm commitments
must be recognized in earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings, depending on
the nature of the hedge. The ineffective portion of a derivative's
change in fair value must be recognized in earnings immediately.
Management has not yet determined what effect the adoption of SFAS No.
133 will have on the Company's earnings or financial position.
There are no other recent accounting pronouncements that have had, or
are expected to have, a material effect on the Company's financial
statements.
6
<PAGE> 7
UNITY HOLDINGS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the financial position and
operating results of the Company and its subsidiary, Unity National
Bank, during the periods included in the accompanying consolidated
financial statements.
Unity Holdings, Inc. was incorporated in Georgia on October 8, 1997 as
a one bank holding company for Unity National Bank. The Bank began
operations as a national bank on November 30, 1998 at its main banking
location in Cartersville, Georgia. On January 4, 1999, the Bank opened
a branch office in Adairsville, Georgia. Because the Bank was not in
operation during the first nine months of 1998, comparative analysis
for the third quarter and first nine months of 1998 would not be
meaningful and has been omitted from this discussion. The Company
expects to experience losses until the Bank's assets grow to a point
where the assets generate an amount of revenue from operations that
exceed the Bank's fixed costs. A review of the Company's operating
results should be made with an understanding of its short history.
FORWARD LOOKING STATEMENTS
Certain of the statements made herein under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" ("MD&A") are forward-looking statements for purposes of the
Securities Act of 1933 (the "Securities Act") and the Securities
Exchange Act of 1934 (the "Exchange Act"), and as such may involve
known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to
be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.
Such forward looking statements include statements using the words such
as "may," "will," "anticipate," "should," "would," "believe,"
"contemplate," "expect," "estimate," "continue," "may," or "intend," or
other similar words and expressions of the future. Our actual results
may differ significantly from the results we discuss in these
forward-looking statements.
These forward-looking statements involve risks and uncertainties and
may not be realized due to a variety of factors, including, without
limitation: the effects of future economic conditions; governmental
monetary and fiscal policies, as well as legislative and regulatory
changes; the risks of changes in interest rates on the level and
composition of deposits, loan demand, and the values of loan
collateral, securities, and other interest-sensitive assets and
liabilities; interest rate risks; the effects of competition from other
commercial banks, thrifts, mortgage banking firms, consumer finance
companies, credit unions, securities brokerage firms, insurance
companies, money market and other mutual funds and other financial
institutions operating in the Company's market area and elsewhere,
including institutions operating regionally, nationally, and
internationally, together with such competitors offering banking
products and services by mail, telephone, computer, and the Internet;
and the possible effects of the Year 2000 issues on the Company.
7
<PAGE> 8
Management's current assessment and estimates with respect to the
Company's Year 2000 compliance efforts and the impact of Year 2000
issues on the Company's business and operations have been included in
the MD&A. Various factors could cause actual plans and results to
differ materially from those contemplated by such assessments,
estimates and forward-looking statements, many of which are beyond the
control of the Company. Some of these factors include, but are not
limited to, representations by the Company's vendors and
counterparties, technological advances, economic considerations, and
consumer perceptions. The Company's Year 2000 compliance program is an
ongoing process involving continual evaluation and may be subject to
change in response to new developments.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the liquidity ratio of the Bank, as determined under
guidelines established by regulatory authorities, was satisfactory.
As of September 30, 1999, the capital ratios of the Company and the Bank were
adequate based on regulatory minimum capital requirements. The minimum capital
requirements and the actual capital ratios for the Company and the Bank are as
follows:
<TABLE>
<CAPTION>
ACTUAL
-------------------
UNITY UNITY
HOLDINGS, NATIONAL REGULATORY
INC. BANK REQUIREMENT
--------- -------- -----------
<S> <C> <C> <C>
Leverage capital ratios 20.28% 20.21% 4.00%
Risk-based capital ratios:
Tier I capital 22.12 22.04 4.00
Total capital 23.37 23.29 8.00
</TABLE>
As the Company continues to grow, the capital ratios will decrease rapidly
during the next twelve months to levels closer to, but still in excess of,
regulatory minimum requirements.
9
<PAGE> 10
FINANCIAL CONDITION
Following is a summary of the Company's balance sheets for the periods
indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998 INCREASE (DECREASE)
--------------- ---------------- ---------------------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENT
------------------------------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 1,591 $ 382 $ 1,209 316.49%
Interest-bearing deposits in banks 100 - 100 -
Securities 2,432 210 2,222 1,058.10
Federal funds sold 1,050 5,840 (4,790) (82.02)
Loans 30,920 3,207 27,713 864.14
Premises and equipment 2,132 1,403 729 51.96
Other assets 653 56 597 1,066.07
--------------- --------------- --------------
$ 38,878 $ 11,098 $ 27,780 250.32
=============== =============== ==============
Deposits $ 31,383 $ 3,559 $ 27,824 781.79%
Other liabilities 319 55 264 480.00
Stockholders' equity 7,176 7,484 (308) (4.12)
--------------- --------------- --------------
$ 38,878 $ 11,098 $ 27,780 250.32
=============== =============== ==============
</TABLE>
As indicated in the above table, the Company's total assets grew at a rate of
250.32%. This high rate of growth is not uncommon for a de novo bank. The
Company's loan portfolio increased from $3,207,000 at December 31, 1998 to
$30,920,000 at September 30, 1999. The Company funded this increase primarily
through an increase in deposits of $27,824,000 and a reduction in Federal funds
sold of $4,790,000. The Company's loan to deposit ratio at September 30, 1999
was 99.95% as compared to 91.22% at December 31, 1998, which is primarily a
reflection of the short amount of time in which the Company has been in business
and the rapid growth that the Company has experienced during this time.
The Company is currently engaged in the construction of its main office
facilities. As of September 30, 1999, the Company has expended $429,000 of the
total $1,800,000 contract price. Additionally, $203,169 has been expended for
architectural fees, site grading, and banking equipment prepayments. The Company
has entered into a contract for the construction of a full-service branch
facility in Adairsville, Georgia at a contract price of $773,000. As of
September 30, 1999, no progress payments have been made to the contractor;
however, $102,000 has been expended for architectural fees, site grading, and
banking equipment prepayments.
10
<PAGE> 11
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Following is a summary of the Company's operations for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
1999 1998
---------------- -----------------
(DOLLARS IN THOUSANDS)
-----------------------------------
<S> <C> <C>
Interest income $ 829 $ 75
Interest expense 261 22
Net interest income 568 53
Provision for loan losses 159 -
Other income 75 -
Other expense 490 105
Net loss (6) (52)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
1999 1998
----------------- -----------------
(DOLLARS IN THOUSANDS)
------------------------------------
<S> <C> <C>
Interest income $ 1,740 $ 77
Interest expense 493 36
Net interest income 1,247 41
Provision for loan losses 407 -
Other income 189 -
Other expense 1,338 236
Net loss (309) (195)
</TABLE>
The Company's net interest income was $568,000 and $1,247,000 for the third
quarter and first nine months of 1999, respectively. The Company's net interest
margin increased to 7.11% during the first nine months of 1999 as compared to
4.88% for the year ended December 31, 1998. The increase in the net interest
margin is due primarily to the significant loan growth during 1999, as the Bank
began operations on November 30, 1998, and reflects the related loan fees
generated by the loan growth. In addition, more available funds have been
applied to the higher yielding loan portfolio as opposed to Federal funds sold
or securities during this period.
While the Company anticipates that its loan portfolio will continue to grow in
the near future, both in aggregate terms and as a percentage of deposits, the
net interest margin will likely decline over time. The current net interest
margin is partly a function of the relatively small size of the loan portfolio,
which means that several attractive individual loan rates and fees are more apt
to affect the portfolio average.
11
<PAGE> 12
The provision for loan losses was $159,000 and $407,000 for the third quarter
and first nine months of 1999, respectively. This increase is due exclusively to
loan growth. The Company's allowance for loan losses as a percentage of total
loans amounted to 1.42% at September 30, 1999 as compared to 1.23% at December
31, 1998. The allowance for loan losses is maintained at a level that is deemed
appropriate by management to adequately cover all known and inherent risks in
the loan portfolio. Management's evaluation of the loan portfolio includes a
continuing review of current economic conditions which may affect the borrower's
ability to repay, and the underlying collateral value. This evaluation is
inherently subjective as it requires estimates that are susceptible to
significant change. Ultimately, losses may vary from current estimates and
future additions to the allowance may be necessary. The Company had no
nonperforming loans at September 30, 1999 and has never had any loan
charge-offs. Nevertheless, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan losses as estimated at any point
in time.
12
<PAGE> 13
Information with respect to nonaccrual, past due and restructured loans at
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1999
---------------
(DOLLARS IN
THOUSANDS)
---------------
<S> <C>
Nonaccrual loans $ -
Loans contractually past due ninety days or more as to interest
or principal payments and still accruing -
Restructured loans -
Loans, now current but about which there are serious doubts as to the
ability of the borrower to comply with loan repayment terms -
Interest income that would have been recorded on nonaccrual
and restructured loans under original terms -
Interest income that was recorded on nonaccrual and restructured loans -
</TABLE>
The Company discontinues the accrual of interest income when, in the opinion of
management, collection of such interest becomes doubtful. This status is
accorded such interest when (1) there is a significant deterioration in the
financial condition of the borrower and full repayment of principal and interest
is not expected and (2) the principal or interest is more than ninety days past
due, unless the loan is both well-secured and in the process of collection.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources.
These classified loans do not represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
13
<PAGE> 14
Information regarding certain loans and allowance for loan loss data through
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999
----------------------
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Average amount of loans outstanding $ 17,793
=====================
Balance of allowance for loan losses at beginning of period $ 40
---------------------
Loans charged off
Commercial and financial $ -
Real estate mortgage -
Instalment -
---------------------
-
---------------------
Loans recovered
Commercial and financial -
Real estate mortgage -
Instalment -
---------------------
-
---------------------
Net charge-offs -
---------------------
Additions to allowance charged to
operating expense during period 407
---------------------
Balance of allowance for loan losses at end of period $ 447
=====================
Ratio of net loans charged off during the period to
average loans outstanding - %
=====================
</TABLE>
Other income was $75,000 and $189,000 for the third quarter and first nine
months of 1999, respectively, consisting of service charges on deposit accounts,
mortgage origination fees, and other miscellaneous fees.
Other expenses were $490,000 and $1,338,000 for the third quarter and first nine
months of 1999, respectively. Salaries and employee benefits of $284,000 and
$761,000, respectively, were the largest component of total other expenses.
The Company has recorded no provision for income taxes due to cumulative net
operating losses.
14
<PAGE> 15
YEAR 2000 DISCLOSURES
Like many financial institutions, we rely on computers to conduct our business
and information systems processing. Industry experts are concerned that on
January 1, 2000, some computers may not be able to interpret the new year
properly, causing computer malfunctions. In June 1996, the Federal Financial
Institutions Examination Council alerted the banking industry that serious
challenges could be encountered with Year 2000 issues. In addition, the OCC has
issued guidelines to require compliance with Year 2000 issues. In accordance
with these guidelines, we have developed and are executing a plan to ensure that
our computer and telecommunication systems do not have these Year 2000 problems
and we do not anticipate that the Year 2000 issue will materially impact our
business or operations. We rely on third party vendors to supply our computer
and telecommunication systems and other office equipment, and we also rely on a
third party to process our data and account information.
We have prepared a comprehensive Year 2000 plan to monitor and insure the Year
2000 compliance of our third party vendors of computer and telecommunication
systems, data processing services, and other office equipment. We have budgeted
$12,000 for the execution of this plan and the plan calls for us to have all
systems in place and be fully Year 2000 compliant by August 31, 1999, although
the plan calls for us to continue to monitor the situation through the end of
the year and beyond. We are executing this plan under the supervision of our
chief financial officer and vice president of operations, with oversight from
our board of directors. Under the plan, we have completed our investigation of
the Year 2000 readiness testing of each vendor that provides a mission critical
system or service to our company. The results of our investigation have been
reported to and approved by the Board of Directors. Satisfactory testing of
internal systems was completed as of June 30, 1999.
The Intercept Group, Inc. provides our mission critical computer software and
data processing services. The Intercept Group is a well-established company and
provides computer systems and data processing services to hundreds of financial
institutions throughout the United States. The Intercept Group has tested its
systems for Year 2000 issues. Rather than test all of its customers
individually, The Intercept Group, like other vendors, tested its systems on
selected financial institutions which run its systems under a variety of
conditions and configurations. The purpose of this selective testing was to
avoid the prohibitive cost and expense of testing every installed system, while
still providing a high level of comfort that its systems will perform under all
conditions. Banking regulators have approved this type of testing as a valid
means of testing. The Intercept Group has completed testing its systems for Year
2000 readiness as well as loan and deposit platform systems that interface with
their data processing system. The results of all testing have been reviewed by
us and approved by our Board of Directors.
Our Year 2000 plan extends to our other less critical vendors as well, including
telephone systems, credit card processors, and suppliers of office equipment
such as copy and fax machines. Under our plan, we have reviewed the test
results, assurances and warranties of all of these vendors, and are satisfied
that all systems provided are Year 2000 compliant. Based on our review of our
vendors' systems and Year 2000 testing results to date, we do not believe that
any of them will have any significant Year 2000 problems. The Office of the
Comptroller of the Currency and the FDIC are also monitoring the Year 2000
readiness of the banking industry.
15
<PAGE> 16
Our agreements with each of our vendors, including the Intercept Group, do and
will include contractual assurances and warranties regarding Year 2000
compliance. Some of these warranties are limited by disclaimers of liability
which specifically exclude special, incidental, indirect, and consequential
damages. These limitations could limit our ability to obtain recourse against a
vendor who is not Year 2000 compliant by excluding damages for things such as
lost profits and customer lawsuits. Based on the information currently
available, we do not believe that we have much Year 2000 exposure and believe
that we will be able to continue to operate the business if one or more of our
vendors experience unanticipated Year 2000 problems, although we cannot
eliminate the risks of these problems.
We have evaluated our worst case scenario based upon conclusions derived from
Year 2000 readiness testing and review and developed contingency plans in case
Year 2000 issues arise.
We expect to identify and resolve all Year 2000 issues that could materially
adversely affect our business. However, we recognize that it is not possible to
determine with complete certainty that all Year 2000 issues have been identified
or corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, we cannot accurately
predict how many failures related to the Year 2000 will occur with our
suppliers, customers, or other third parties or the severity, duration, or
financial consequences of such failures.
As a result, we expect that we could possibly suffer the following consequences:
- - There may be a number of operational inconveniences and inefficiencies
for the Company, its service providers, or its customers that may
divert the Company's time and attention and financial and human
resources from its ordinary business activities; and
- - System malfunctions could occur that may require significant efforts by
the Company or its service providers or customers to prevent or
alleviate material business disruptions.
Depending on the systems affected, our contingency plans to identify and correct
Year 2000 issues include (a) accelerated replacement of affected equipment or
software; (b) short term use of backup equipment and software; (c) increased
work hours for the Company's personnel or use of contract personnel to correct,
on an accelerated schedule, any Year 2000 problems which arise; and (d) other
similar approaches. If the Company is required to implement any of these
contingency plans, these plans could have a material adverse effect on its
business.
Our customers may also have Year 2000 issues. Such issues could disrupt certain
businesses with high Year 2000 risk and affect their deposit balances and their
ability to repay their loans. We have identified and reviewed customers with
significant credit exposure and deposit balances. This investigation has
revealed no significant exposure to Year 2000 issues by our customers although
we understand that it is very difficult to accurately assess the Year 2000
readiness of any particular borrower or depositor. Additionally, there may be a
higher than usual demand for liquidity immediately prior to the century change
due to deposit withdrawals by customers concerned about Year 2000 issues. To
address this possible demand, we plan to have a substantial portion of our
investment portfolio in readily accessible funds during this time frame.
The Company is not aware of any known trends, events or uncertainties, other
than the effect of events as described above, that will have or that are
reasonably likely to have a material effect on its liquidity, capital resources
or operations. The Company is also not aware of any current recommendations by
the regulatory authorities which, if they were implemented, would have such an
effect.
16
<PAGE> 17
PROPOSED LEGISLATION
On November 4, 1999, the U.S. Senate and House of Representatives each passed
the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act is expected to be signed into law by
President Clinton in early November 1999. Among other things, the Act repeals
the restrictions on banks affiliating with securities firms contained in
Sections 20 and 32 of the Glass-Steagall Act. The Act also creates a new
"financial holding company" under the Bank Holding Company Act, which will
permit holding companies to engage in a statutorily provided list of financial
activities, including insurance and securities underwriting and agency
activities, merchant banking, and insurance company portfolio investment
activities. The Act also authorizes activities that are "complementary" to
financial activities. The Act is intended to grant to community banks certain
powers as a matter of right that larger institutions have accumulated on an ad
hoc basis. Nevertheless, the Act may have the result of increasing the amount of
competition that the Company faces from larger institutions and other types of
companies. In fact, it is not possible to predict the full effect that the Act
will have on the Company.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None
18
<PAGE> 19
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITY HOLDINGS, INC.
(Registrant)
DATE: November 13, 1999 BY: /s/ Michael L. McPherson
----------------- --------------------------------------------
Michael L. McPherson, President and C.E.O.
(Principal Executive Officer)
DATE: November 13, 1999 BY: /s/ James D. Timmons
----------------- --------------------------------------------
James D. Timmons, CFO
(Principal Financial and Accounting Officer)
19
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<PERIOD-START> JAN-01-1999
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