<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 JUNE 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 August 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>
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET - JUNE 30, 1999....................................................... 3
CONSOLIDATED STATEMENT OF OPERATIONS -
THREE MONTHS ENDED JUNE 30, 1999 AND 1998 AND SIX
MONTHS ENDED JUNE 30, 1999 AND 1998........................................................... 4
CONSOLIDATED STATEMENT OF CASH FLOWS - SIX
MONTHS ENDED JUNE 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......................................... 17
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K............................................................ 17
SIGNATURES........................................................................................... 18
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITY HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Cash and due from banks $ 934,815
Securities available-for-sale, at value 350,609
Federal funds sold 3,460,000
Loans 21,689,511
Less allowance for loan losses 287,684
------------
Loans, net 21,401,827
------------
Premises and equipment 1,743,725
Other assets 541,340
------------
$ 28,432,316
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits
Noninterest-bearing demand $ 4,082,436
Interest-bearing demand 5,646,256
Savings 489,766
Time 10,867,137
------------
Total deposits 21,085,595
Other liabilities 161,086
------------
Total liabilities 21,246,681
------------
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 (899,226)
Total stockholders' equity 7,185,635
------------
$ 28,432,316
============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
UNITY HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998 AND
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-----------------------------------------------------------------------
1999 1998 1999 1998
------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 503,516 $ 2,417 $ 771,559 $ 2,417
Taxable securities - - 924 -
Federal funds sold 61,552 - 137,415 -
Deposits in banks - - 531 -
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME 565,068 2,417 910,429 2,417
------------ ------------ ------------ ------------
INTEREST EXPENSE
Deposits 152,227 - 232,070 -
Other borrowings - 9,995 - 14,202
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE 152,227 9,995 232,070 14,202
------------ ------------ ------------ ------------
NET INTEREST INCOME (EXPENSE) 412,841 (7,578) 678,359 (11,785)
PROVISION FOR LOAN LOSSES 122,000 - 248,000 -
------------ ------------ ------------ ------------
NET INTEREST INCOME (EXPENSE) AFTER
PROVISION FOR LOAN LOSSES 290,841 (7,578) 430,359 (11,785)
------------ ------------ ------------ ------------
OTHER INCOME
Service charges on deposit accounts 29,419 - 41,781 -
Other operating income 45,541 - 72,875 -
------------ ------------ ------------ ------------
74,960 - 114,656 -
------------ ------------ ------------ ------------
OTHER EXPENSES
Salaries and employee benefits 235,852 63,001 476,798 90,695
Equipment and occupancy expenses 65,753 1,900 120,930 3,209
Other operating expenses 138,868 26,297 251,066 36,485
------------ ------------ ------------ ------------
440,473 91,198 848,794 130,389
------------ ------------ ------------ ------------
NET LOSS $ (74,672) $ (98,776) $ (303,779) $ (142,174)
============ ============ ============ ============
BASIC AND DILUTED LOSSES PER COMMON SHARE $ (0.09) $ (9,878.00) $ (0.36) $ (14,217.00)
============ ============ ============ ============
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
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (303,779) $ (142,174)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 33,820 -
Provision for loan losses 248,000 -
Increase in interest receivable (131,317) -
Increase in interest payable 119,382 -
Other operating activities (11,369) 9,350
------------ ------------
Net cash used in operating activities (45,263) (132,824)
------------ ------------
INVESTING ACTIVITIES
Net increase in interest-bearing deposits 0 (5,566,308)
Purchases of securities available-for-sale (140,609) -
Net increase in Federal funds sold 2,380,000 -
Net increase in loans (18,442,789) -
Purchase of premises and equipment (374,267) (2,215)
Purchase of life insurance policies (355,169)
Increase in deferred stock issue and organization costs - (100,058)
Increase in options to purchase land - (67,815)
------------ ------------
Net cash used in investing activities (16,932,834) (5,736,396)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 17,526,397 -
Net proceeds from the issuance of stock 5,000 -
Proceeds from stock subscription deposits - 5,563,890
Proceeds from notes payable - 305,144
------------ ------------
Net cash provided by financing activities 17,531,397 5,869,034
------------ ------------
Net increase (decrease) in cash and due from banks 553,300 (186)
Cash and due from banks at beginning of period 381,515 186
------------ ------------
Cash and due from banks at end of period $ 934,815 $ -
============ ============
CASH FLOW INFORMATION
Cash paid during the period for interest $ 112,688 $ -
</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 three month period ended June 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 six months of 1998, comparative information
for the second quarter and first six 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 June 30, 1999, the liquidity ratio of the Bank, as determined under
guidelines established by regulatory authorities, was satisfactory.
At June 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 27.38 % 27.30 % 4.00 %
Risk-based capital ratios:
Tier I capital 33.63 33.53 4.00
Total capital 34.87 34.78 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>
JUNE 30, DECEMBER 31,
1999 1998 INCREASE (DECREASE)
------------ ------------- -----------------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENT
----------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 935 $ 382 $ 553 144.76%
Securities 351 210 141 67.14
Federal funds sold 3,460 5,840 (2,380) (40.75)
Loans 21,402 3,207 18,195 567.35
Premises and equipment 1,743 1,403 340 24.23
Other assets 541 56 485 817.86
--------- --------- ---------
$ 28,432 $ 11,098 $ 17,334 156.19
========= ========= =========
Deposits $ 21,086 $ 3,559 $ 17,527 492.47%
Other liabilities 161 55 106 192.73
Stockholders' equity 7,185 7,484 (299) (4.00)
-------- --------- ---------
$ 28,432 $ 11,098 $ 17,334 156.19
========= ========= =========
</TABLE>
As indicated in the above table, the Company's total assets grew at a rate of
156.19%. 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
$21,402,000 at June 30, 1999. The Company funded this increase primarily
through an increase in deposits of $17,527,000 and a reduction in Federal funds
sold of $2,380,000. The Company's loan to deposit ratio at June 30, 1999 was
102.86% 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 June 30, 1999, the Company has expended $328,000 of the total
$1,800,000 contract price. The Company is currently involved in negotiations
for the construction of its branch facilities.
10
<PAGE> 11
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998 AND FOR
THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Following is a summary of the Company's operations for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
---------- -----------
(DOLLARS IN THOUSANDS)
--------------------------
<S> <C> <C>
Interest income $ 565 $ 2
Interest expense 152 10
Net interest income (expense) 413 (8)
Provision for loan losses 122 --
Other income 75 --
Other expense 441 91
Net loss (75) (99)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------------
1999 1998
---------- -----------
(DOLLARS IN THOUSANDS)
--------------------------
<S> <C> <C>
Interest income $ 910 $ 2
Interest expense 232 14
Net interest income (expense) 678 (12)
Provision for loan losses 248 --
Other income 115 --
Other expense 849 130
Net loss (304) (142)
</TABLE>
The Company's net interest income was $413,000 and $678,000 for the second
quarter and first six months of 1999, respectively. The Company's net interest
margin increased to 7.03% during the first six months of 1999 as compared to
4.88% for 1998. The increase in the net interest margin is due primarily to the
significant loan growth during 1999 and reflects the related loan fees
generated by the loan growth. In addition, more earning assets have been
applied to the higher yielding loan portfolio as opposed to Federal funds sold
or investment 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 $122,000 and $248,000 for the second quarter
and first six months of 1999, respectively. This increase is due exclusively to
loan growth. The Company's reserve for loan losses amounted to 1.32% at June
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 June 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 June
30, 1999 is as follows:
<TABLE>
<CAPTION>
JUNE 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
June 30, 1999 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1999
------------------
(DOLLARS IN
THOUSANDS)
------------------
<S> <C>
Average amount of loans outstanding $ 13,317
==================
Balance of allowance for loan losses at beginning of period $ 40
------------------
Loans charged off
Commercial and financial $ --
Real estate mortgage --
Installment --
------------------
------------------
------------------
Loans recovered
Commercial and financial --
Real estate mortgage --
Installment --
------------------
------------------
------------------
Net charge-offs --
------------------
Additions to allowance charged to
operating expense during period 248
------------------
Balance of allowance for loan losses at end of period $ 288
==================
Ratio of net loans charged off during the period to
average loans outstanding --%
==================
</TABLE>
Other income was $75,000 and $115,000 for the second quarter and first six
months of 1999, respectively, consisting of service charges on deposit
accounts, mortgage origination fees, and other miscellaneous fees.
Other expenses were $441,000 and $849,000 for the second quarter and first six
months of 1999. Salaries and employee benefits of $236,000 and $437,000,
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 has been 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
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of the stockholders of the Company was
held on May 19, 1999.
(b) The following Class I directors were elected at the
meeting to serve terms for three years:
Donald D. George
John S. Lewis
Michael L. McPherson
Set forth below is the number of votes cast for, against, or
withheld, as well as the number of abstentions and broker
non-votes, with respect to each nominee for office:
<TABLE>
<CAPTION>
# OF
DONALD D. GEORGE SHARES
------------
<S> <C>
For 451,381
Against 1,500
Abstained --
Not voted --
------------
Total 452,881
============
</TABLE>
<TABLE>
<CAPTION>
# OF
JOHN S. LEWIS SHARES
------------
<S> <C>
For 451,381
Against 1,500
Abstained --
Not voted --
------------
Total 452,881
============
</TABLE>
<TABLE>
<CAPTION>
# OF
MICHAEL L. MCPHERSON SHARES
-------------
<S> <C>
For 451,381
Against 1,500
Abstained --
Not voted --
------------
Total 452,881
============
</TABLE>
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
The terms of the Class II directors expire at the 2000 Annual
Shareholders Meeting. The terms of the Class III directors
will expire at the 2001 Annual Shareholders Meeting. Our
directors and their classes are:
<TABLE>
<S> <C> <C>
Class I Class II Class III
Donald D. George Sam R. McCleskey Kenneth R. Bishop
John S. Lewis Stephen A. Taylor Jerry W. Braden
Michael L. McPherson B. Don Temples
</TABLE>
(c) The 1999 stock option plan was approved.
Set forth below is the number of votes cast for,
against, or withheld, as well as the number of
abstentions and broker non-votes, with respect to
the plan:
# OF
SHARES
-----------
For 417,936
Against 12,595
Abstained 6,000
Not voted 16,350
---------
Total 452,881
=========
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: August 13, 1999 BY: /s/ Michael L. McPherson
------------------- --------------------------------------------
Michael L. McPherson, President and C.E.O.
(Principal Executive Officer)
DATE: August 13, 1999 BY: /s/ James D. Timmons
------------------- --------------------------------------------
James D. Timmons, CFO
(Principal Financial and Accounting Officer)
19
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 934,815
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,460,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 350,609
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 21,689,511
<ALLOWANCE> 287,684
<TOTAL-ASSETS> 28,432,316
<DEPOSITS> 21,085,595
<SHORT-TERM> 0
<LIABILITIES-OTHER> 161,086
<LONG-TERM> 0
0
0
<COMMON> 8,392
<OTHER-SE> 7,177,243
<TOTAL-LIABILITIES-AND-EQUITY> 28,432,316
<INTEREST-LOAN> 771,559
<INTEREST-INVEST> 924
<INTEREST-OTHER> 137,946
<INTEREST-TOTAL> 910,429
<INTEREST-DEPOSIT> 232,070
<INTEREST-EXPENSE> 232,070
<INTEREST-INCOME-NET> 678,359
<LOAN-LOSSES> 248,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 848,794
<INCOME-PRETAX> (303,779)
<INCOME-PRE-EXTRAORDINARY> (303,779)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (303,779)
<EPS-BASIC> (.36)
<EPS-DILUTED> (.36)
<YIELD-ACTUAL> 7.03
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 40,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 288,000
<ALLOWANCE-DOMESTIC> 288,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
