<PAGE> 1
As filed with the Securities and Exchange Commission on December 8, 1998
Registration Statement No. 333-60431
333-60431-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 4 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
UNITED FINANCIAL HOLDINGS, INC.
UFH CAPITAL TRUST I
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 6022
DELAWARE 0000 59-2156002
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
NEIL W. SAVAGE
333 THIRD AVENUE NORTH 333 THIRD AVENUE NORTH
ST. PETERSBURG, FLORIDA 33701 ST. PETERSBURG, FLORIDA 33701
(727) 898-2265 (727) 898-2265
(Address and telephone number (Name, address and telephone number
of principal executive offices) of agent for service)
Copies of communications to:
CHESTER E. BACHELLER, ESQUIRE JOHN P. GREELEY, ESQUIRE
HOLLAND & KNIGHT LLP SMITH, MACKINNON, GREELEY,
400 NORTH ASHLEY DRIVE, SUITE 2300 BOWDOIN & EDWARDS, P.A.
TAMPA, FLORIDA 33602 255 SOUTH ORANGE AVENUE, SUITE 800
(813) 227-8500 P. O. BOX 2254
TELECOPIER NO. (813) 229-0134 ORLANDO, FLORIDA 32801
(407) 843-7300
TELECOPIER NO. (407) 843-2448
</TABLE>
---------------------
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 8, 1998
450,000 SHARES
UNITED FINANCIAL HOLDINGS, INC.
(UNITED FINANCIAL LOGO)
COMMON STOCK
$6,000,000
UFH CAPITAL TRUST I
1,200,000 SHARES OF % CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $5 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
UNITED FINANCIAL HOLDINGS, INC.
All of the 450,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Common Stock Offering") are being issued
and sold by United Financial Holdings, Inc. (the "Company"). See "Underwriting."
It is estimated that the Common Stock will be issued and sold at a price ranging
between $7.00 and $7.50 per share.
The % Cumulative Trust Preferred Securities (the "Preferred Securities"
and, together with the Common Stock, the "Securities") offered hereby (the
"Preferred Securities Offering" and, together with the Common Stock Offering,
the "Offerings") represent preferred undivided beneficial interests in the
assets of UFH Capital Trust I, a statutory business trust created under the laws
of the State of Delaware ("UFH Capital"). The Company will own all the common
securities representing undivided beneficial interests in the assets of UFH
Capital (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities"). The Common Stock Offering is contingent upon the
closing of the Preferred Stock Offering, and the Preferred Stock Offering is
contingent upon the closing of the Common Stock Offering.
(continued on inside cover)
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK AND THE PREFERRED SECURITIES.
------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK
AND ARE NOT INSURED BY THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER INSURER
OR GOVERNMENT AGENCY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC COMMISSION(1)(3) UFH CAPITAL(2)(3) COMPANY(2)(3)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share of Common Stock............ $ $ -- $
- --------------------------------------------------------------------------------------------------------------------------
Per Preferred Security............... $5.00 $ $5.00 $5.00
- --------------------------------------------------------------------------------------------------------------------------
Total Common Stock(4)................ $ $ -- $
- --------------------------------------------------------------------------------------------------------------------------
Total Preferred Securities(5)........ $6,000,000 $ $6,000,000 --
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) UFH Capital and the Company have each agreed to indemnify the Underwriter
against certain liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deduction of expenses payable by the Company estimated at $400,000.
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures of
the Company, the Company has agreed to pay to the Underwriter, as
compensation for arranging the investment therein of such proceeds,
$ per Preferred Security (or $ in the aggregate). See
"Underwriting."
(4) The Company has granted the Underwriter an option, exercisable within 30
days after the date of this Prospectus, to purchase an aggregate of up to
67,500 additional shares of Common Stock on the same terms and conditions as
set forth above to cover over-allotments, if any. If the Underwriter
exercises the over-allotment option in full, the total Price to Public,
Underwriting Commission, and Proceeds to Company will be $ , $ , and
$ , respectively. See "Underwriting."
(5) UFH Capital and the Company have granted the Underwriter an option,
exercisable within 30 days after the date of this Prospectus, to purchase up
to an additional $900,000 aggregate liquidation amount of the Preferred
Securities on the same terms as set forth above, solely to cover
over-allotments, if any. If such over-allotment option is exercised in full,
the total Price to Public and Proceeds to UFH Capital will be $6,900,000.
See "Underwriting."
The Securities are offered by the Underwriter subject to receipt and
acceptance by it, prior sale and the Underwriter's right to reject any order in
whole or in part and to withdraw, cancel or modify the offer without notice. It
is expected that delivery of the certificates representing shares of the Common
Stock will be made on or about , 1998 through the Depository Trust
Company or at the offices of William R. Hough & Co., St. Petersburg, Florida,
and that delivery of the Preferred Securities will be made in book-entry form
through the book-entry facilities of The Depository Trust Company on or about
, 1998 against payment therefor in immediately available funds.
(WILLIAM R. HOUGH & CO. LOGO)
The date of this Prospectus is , 1998
<PAGE> 3
(cover page continued)
Prior to the Common Stock Offering, there has been no public market for
the Common Stock of the Company. Without the prior consent of the Company, no
investor may purchase more than 100,000 shares of Common Stock in the Common
Stock Offering. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. Additionally,
application has been made to have the Common Stock listed for quotation on The
Nasdaq SmallCap Market under the symbol "UFHI." See "Risk Factors-Risk Factors
Relating to the Common Stock Offering-Absence of Prior Public Market for the
Common Stock; Determination of Offering Price."
Application has been made to list the Preferred Securities for quotation
on The Nasdaq Small-Cap Market under the symbol "UFHIP." See "Risk Factors-Risk
Factors Relating to the Preferred Securities Offering-Absence of Prior Public
Market for the Preferred Securities; Trading Price and Tax Considerations."
Wilmington Trust Company is the Property Trustee (as defined herein) of
UFH Capital. UFH Capital exists for the sole purpose of issuing the Trust
Securities and investing the gross proceeds thereof in an equivalent amount of
____% Junior Subordinated Debentures (the "Junior Subordinated Debentures") of
the Company. The Junior Subordinated Debentures will mature on ____________,
2028 (the "Stated Maturity"), which date may be shortened to a date not earlier
than ____________, 2003, if certain conditions are met (including the Company
having received prior approval by the Board of Governors of the Federal Reserve
System or any successor agency (the "Federal Reserve") if then required under
applicable Federal Reserve capital guidelines or policies). The Common
Securities will represent an aggregate liquidation amount equal to at least 3.0%
of the total capital of UFH Capital. The Preferred Securities will have a
preference under certain circumstances with respect to cash distributions and
amounts payable on liquidation, redemption or otherwise over the Common
Securities. See "Description of the Preferred Securities-Subordination of
Common Securities."
The Preferred Securities will be represented by one or more global
securities registered in the name of a nominee of The Depository Trust Company,
as depository ("DTC"). Beneficial interests in the global securities will be
shown on, and transfer thereof will be effected only through, records maintained
by DTC and its participants. Except as described under "Description of the
Preferred Securities," Preferred Securities in definitive form will not be
issued and owners of beneficial interests in the global securities will not be
considered holders of Preferred Securities. Settlement for the Preferred
Securities will be made in immediately available funds. The Preferred Securities
will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity for the Preferred Securities will therefore settle in
immediately available funds.
Holders of Preferred Securities will be entitled to receive preferential
cumulative cash distributions, at the annual rate of ____% of the liquidation
amount of $5 per Preferred Security (the "Liquidation Amount"), accruing from
the date of original issuance and payable quarterly in arrears on the last day
of March, June, September and December of each year, commencing March 31, 1999
(the "Distributions"). Such distributions are considered under current law to be
interest paid by the Company to the holders of Preferred Securities for United
States federal income tax purposes. Interest on the Junior Subordinated
Debentures will accrue at the same rate as distributions accrue on the Preferred
Securities. The Company has the right, so long as no Debenture Event of Default
(as defined herein) has occurred and is continuing, to defer payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not to exceed 20 consecutive quarters with respect to each deferral
period (each, an "Extended Interest Payment Period"); provided that no Extended
Interest Payment Period may extend beyond the Stated Maturity. Upon the
termination of any such Extended Interest Payment Period and the payment of all
amounts then due, the Company may elect to begin a new Extended Interest Payment
Period subject to the requirements set forth herein. If interest payments on the
Junior Subordinated Debentures are so deferred, Distributions on the Preferred
Securities will also be deferred, and the Company will not be permitted to
declare or pay any cash distributions with respect to debt securities that rank
pari passu with or junior to the Junior Subordinated Debentures or with respect
to its capital stock. During an Extended Interest Payment Period, interest on
the Junior Subordinated Debentures will continue to accrue (and the amount of
distributions to which holders of the Preferred Securities are entitled will
accumulate) at the rate of ____% per annum, compounded quarterly, and under such
circumstances holders of the Preferred Securities will be required to include
interest income (in the form
ii
<PAGE> 4
of original issue discount) in their gross income for United States federal
income tax purposes in advance of receipt of the cash distributions with respect
to such deferred interest payments. See "Description of the Junior Subordinated
Debentures-Option to Extend Interest Payment Period," "Material Federal Income
Tax Considerations-Interest Income and Original Issue Discount" and "-Sales of
Preferred Securities." The Company has no current intention of exercising its
right to defer payments of interest by extending the interest payment period on
the Junior Subordinated Debentures. The Company believes that the existence of
its right to defer interest payments should not cause the Preferred Securities
to be issued with original issue discount for federal income tax purposes. It is
possible, however, that the Internal Revenue Service could take the position
that the likelihood of deferral was not a remote contingency within the meaning
of applicable Treasury Regulations. See "Description of the Junior Subordinated
Debentures-Option to Extend Interest Payment Period" and "Material Federal
Income Tax Considerations-Interest Income and Original Issue Discount."
The Company and UFH Capital believe that, taken together, the obligations
of the Company under the Guarantee, the Trust Agreement, the Junior Subordinated
Debentures, the Indenture and the Expense Agreement (each as defined herein)
provide, in the aggregate, a full, irrevocable and unconditional guarantee, on a
subordinated basis, of all of the obligations of UFH Capital under the Preferred
Securities. See "Relationship Among the Preferred Securities, the Junior
Subordinated Debentures and the Guarantee-Full and Unconditional Guarantee." The
Guarantee of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Preferred Securities but only in each case to
the extent of funds held by UFH Capital, as described herein. See "Description
of the Guarantee-General." If the Company does not make interest payments on the
Junior Subordinated Debentures held by UFH Capital, UFH Capital will have
insufficient funds to pay Distributions on the Preferred Securities The
Guarantee does not cover payments of Distributions when UFH Capital does not
have sufficient funds to pay such Distributions. In such event, a holder of
Preferred Securities may in certain circumstances institute a legal proceeding
directly against the Company pursuant to the terms of the Indenture to enforce
payments of amounts equal to such Distributions to such holder. See "Description
of the Junior Subordinated Debentures-Enforcement of Certain Rights by Holders
of the Preferred Securities." The obligations of the Company under the Guarantee
with respect to the Preferred Securities are subordinate and junior in right of
payment to all Senior Debt and Subordinated Debt (each as defined herein) of the
Company. The Junior Subordinated Debentures are unsecured obligations of the
Company and are also subordinated to all Senior Debt and Subordinated Debt of
the Company. As of September 30, 1998, the Company had approximately $2.7
million of Senior Debt (which includes approximately $37,500 of debt of
subsidiary of the Company that is guaranteed by the Company), of which $15,000
is repayable prior to September 30, 1999. Of such $2.7 million of Senior Debt,
$2.6 million is to be repaid from the proceeds of the Offerings. The Company
also had $630 thousand of Subordinated Debt outstanding at September 30, 1998.
See "Use of Proceeds" and "Description of the Junior Subordinated
Debentures-Subordination."
The Preferred Securities have no stated maturity. They are subject to
mandatory redemption, in whole or in part, upon repayment of the Junior
Subordinated Debentures at maturity or their earlier redemption. Subject to
prior approval of the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies, the Junior Subordinated Debentures are
redeemable prior to maturity at the option of the Company (i) on or after
_________, 2003, in whole at any time or in part from time to time, or (ii) at
any time, in whole (but not in part), within 180 days following the occurrence
of a Tax Event, an Investment Company Event, or a Capital Treatment Event (each
as defined herein), in each case at a redemption price equal to the accrued and
unpaid interest on the Junior Subordinated Debentures so redeemed to the date
fixed for redemption, plus 100% of the principal amount thereof. See
"Description of the Preferred Securities-Redemption or Exchange."
The Company intends to take the position that the Junior Subordinated
Debentures will be classified under current law as indebtedness of the Company
for United States federal income tax purposes and, accordingly, the Company
intends to treat the interest payable by the Company on the Junior Subordinated
Debentures as deductible for United States federal income tax purposes. There is
no assurance that such position of the Company will not be challenged by the
Internal Revenue Service or, if challenged, that such a challenge will not be
successful. See "Risk Factors-Risk Factors Relating to the Preferred Securities
Offering-Redemption Due to Tax Event, Investment Company Event, or Capital
Treatment Event" and "Material Federal Income Tax Considerations-Classification
of the Junior Subordinated Debentures."
iii
<PAGE> 5
The Company, as the holder of the Common Securities, has the right at any
time to dissolve, wind-up or terminate UFH Capital subject to the Company having
received the prior approval of the Federal Reserve if then required under
applicable Federal Reserve capital guidelines or policies. In the event of the
voluntary or involuntary dissolution, winding up or termination of UFH Capital,
after satisfaction of liabilities to creditors of UFH Capital as required by
applicable law, the holders of Preferred Securities will be entitled to receive
a Liquidation Amount of $5 per Preferred Security, plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
Junior Subordinated Debenture, subject to certain exceptions. See "Description
of the Preferred Securities-Redemption or Exchange" and "-Liquidation
Distribution Upon Termination."
The Company will provide to the holders of the Preferred Securities
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements and annual reports containing financial
statements audited by the Company's independent auditors.
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALL-CAP
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
iv
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, all information in this Prospectus
assumes or gives effect to (i) a three-for-one split of the Common Stock
effected in the form of a stock dividend effective July 1, 1998, and (ii) no
exercise of the over-allotment option granted by the Company to the
Underwriters. Unless the context requires otherwise, the term "Company" refers
collectively to the Company and its subsidiaries, including the Bank.
THE COMPANY AND THE BANK
United Financial Holdings, Inc. (the "Company") is a registered bank
holding company formed in 1982, the principal subsidiary of which is United Bank
and Trust Company (the "Bank"), a Florida-chartered commercial bank
headquartered in St. Petersburg, Florida. The Bank was founded in 1979 and is a
community-oriented, full service commercial bank with four branch offices
serving the southern Pinellas County area of the State of Florida. The Bank
provides a broad range of traditional banking service with emphasis on
commercial loans and loans under the lending program of the U.S. Small Business
Administration (the "SBA"). The Company's operations include three business
segments: commercial banking, trust services, and investment advisory services,
which constituted 98.6%, (4.5%) and 5.9%, respectively, of the Company's 1997
net income before taxes and corporate overhead. At September 30, 1998, the
Company had consolidated total assets of $158.5 million, net loans of $108.1
million, deposits of $136.6 million and stockholders' equity of $12.0 million.
The Company and the Bank are currently regulated by the Federal Reserve,
and the Bank also is regulated by the Florida Department of Banking and Finance
(the "Department") and, to a lesser extent, the Federal Deposit Insurance
Corporation ("FDIC"). The Bank's deposits are insured by the FDIC up to
applicable limits.
The Company's other operating subsidiaries are Eickhoff, Pieper, &
Willoughby, Inc., an investment advisory firm registered under the Investment
Advisers Act of 1940 ("EPW") headquartered in Tampa, Florida, with an office in
Jacksonville, Florida, and United Trust Company, a Florida-chartered trust
company ("United Trust") registered with the Department and located in St.
Petersburg, Florida. EPW offers investment management services to corporate,
municipal and high net worth individual clients throughout the State of Florida.
As of September 30, 1998, EPW had $297.2 million in assets under management.
United Trust is a wholesale provider of data processing, administrative and
accounting support and asset custody services to professionals holding assets in
trust (primarily legal and accounting firms). United Trust also provides retail
trust and investment management services to individual and corporate clients. As
of September 30, 1998, United Trust had $251.5 million in assets under trust.
In 1986 a group of investors, headed by Neil W. Savage, the Company?s
President and Chief Executive Officer and the Bank's Chairman and Chief
Executive Officer, acquired control of the Company, then known as Pinellas
Bancshares Corporation. The Company's name was changed to its present name in
1995. In September 1995, the Company acquired Fiduciary Services Corp. ("FSC"),
a trust data processing and accounting service for professionals, and merged FSC
into the Company. In January, 1996, the Company acquired EPW. The Company formed
United Trust during the fourth quarter of 1997 and effective December 31, 1997,
transferred all of the Bank?s trust assets to United Trust.
The principal executive offices of the Company are located at 333 Third
Avenue North, St. Petersburg, Florida 33701, and its telephone number is (727)
898-2265.
1
<PAGE> 7
BUSINESS STRATEGY
The principal elements of the Company's business strategy are to increase
its market share in its existing business segments and to seek out niche
business segments in which the Company can compete effectively in order to
create new sources of non-interest income and increase traditional interest
income from new lending opportunities. The Company has sought to implement its
strategy of increasing its market share in its existing business segments by
expanding the Bank's market coverage through de novo branching, increasing the
Bank's emphasis on originating loans secured by real estate and other assets for
its own portfolio, originating secured and unsecured small business loans for
its own portfolio, and continuing to originate a high volume of SBA loans, both
for its own portfolio and for sale in the secondary market. A primary element of
the Company's business strategy as a community banking organization is to seek
to provide customers with a level of personalized service exceeding that
provided by its competitors, including the local banking operations of large
regional and national banking companies.
The Company has sought to add new sources of non-interest income through
the creation of United Trust, which receives fees for the wholesale trust
services it offers to legal and accounting firms and the retail trust and
investment management services it offers to other clients, and the acquisition
of EPW, which generates fee income from the investment management services it
offers to corporate, municipal and high net worth individual clients. By
expanding the range of trust and investment management services it offers, the
Company seeks to differentiate itself from other similarly sized community
banking organizations operating in the Company's market.
The results of the Company's business strategy have been substantial
asset and revenue growth. The Company's total assets have increased from
approximately $106.6 million at December 31, 1995 to $147.3 million at December
31, 1997. The Company's consolidated revenues (net interest income plus
non-interest income) increased from $7.1 million for the year ended December 31,
1995 to $9.9 million for the year ended December 31, 1997. During this period of
asset and revenue growth, the Company's net income decreased from $1.5 million
for the year ended December 31, 1995 to $1.4 million for the year ended December
31, 1997.
UFH CAPITAL TRUST I
UFH Capital is a statutory business trust formed under Delaware law
pursuant to (i) an initial trust agreement, dated as of July 30, 1998, executed
by the Company, as depositor, Wilmington Trust Company, as Property Trustee (the
"Property Trustee") and as Delaware Trustee (the "Delaware Trustee"), and the
administrative trustees (the "Administrative Trustees") named therein
(collectively, the "Trustees"), and (ii) a certificate of trust filed with the
Secretary of State of the State of Delaware on July 30, 1998. The initial trust
agreement will be amended and restated in its entirety (as so amended and
restated, the "Trust Agreement") substantially in the form filed as an exhibit
to the Registration Statement of which this Prospectus forms a part. The Trust
Agreement will be qualified as an indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred
Securities, the purchasers thereof will own all of the Preferred Securities and
the Company will acquire all of the Common Securities, which will represent an
aggregate liquidation amount equal to at least 3.0% of the total capital of UFH
Capital. The Common Securities will rank pari passu, and payments will be made
thereon pro rata with the Preferred Securities, except that upon the occurrence
and during the continuance of an Event of Default (as defined herein) under the
Trust Agreement resulting from a Debenture Event of Default, the rights of the
Company as holder of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Preferred Securities. See
"Description of the Preferred Securities-Subordination of Common Securities."
UFH Capital exists for the exclusive purposes of (i) issuing the Trust
Securities representing undivided beneficial interests in the assets of UFH
Capital, (ii) investing the gross proceeds of the Trust Securities in an
equivalent amount of the Junior Subordinated Debentures issued by the Company,
and (iii) engaging in only those other activities necessary thereto. The Junior
Subordinated Debentures and payments thereunder will be the only assets of UFH
Capital, and payments under the Junior Subordinated
2
<PAGE> 8
Debentures will be the only revenue of UFH Capital. UFH Capital has a term of 31
years, but may terminate earlier as provided in the Trust Agreement.
The principal executive offices of UFH Capital are located at 333 Third
Avenue North, St. Petersburg, Florida 33701, and its telephone number is (727)
898-2265.
THE OFFERINGS
<TABLE>
<S> <C>
COMMON STOCK OFFERING
Common Stock Offered by the Company...................450,000 shares of Common
Stock by the Company.
Without the prior consent
of the Company, no
investor may purchase more
than 100,000 shares of
Common Stock in the Common
Stock Offering. The
Company has granted the
Underwriter an option,
exercisable within 30 days
after the date of this
Prospectus, to purchase up
to an additional 67,500
shares of Common Stock on
the same terms and
conditions as the initial
offering, solely to cover
over-allotments, if
Offering Price........................................Between $7 and $7.50 per
share.
Common Stock to be outstanding
after the Common Stock Offering.......................3,963,858 shares.
Nasdaq Small-Cap Market Symbol........................Application has been made
to have the Common Stock
listed for quotation on
The Nasdaq SmallCap Market
under the symbol "UFHI."
PREFERRED SECURITIES OFFERING
Preferred Securities Offered..........................1,200,000 Preferred
Securities having no
stated maturity and a
Liquidation Amount of $5
per Preferred Security.
The Preferred Securities
represent preferred
undivided beneficial
interests in the assets of
UFH Capital, which will
consist solely of the
Junior Subordinated
Debentures and payments
thereunder. UFH Capital
has granted the
Underwriter an option,
exercisable within 30 days
after the date of this
Prospectus, to purchase up
to an additional 180
conditions as the initial
Preferred Securities
Offering, solely to cover
over-allotments, if any.
Offering Price........................................$5 per Preferred Security
(Liquidation Amount $5).
Distributions.........................................The Distributions payable
on each Preferred Security
will be fixed at a rate
per annum of ____% of the
Liquidation Amount of $5
per Preferred Security,
will be cumulative, will
accrue from the date of
issuance of the Preferred
Securities, and will be
payable quarterly in
arrears, on March 31, June
30, September 30 and
December 31 of each year,
commencing March 31, 1999.
See "Description of the
Preferred Securities-
Distributions-Payment
of Distributions."
</TABLE>
3
<PAGE> 9
<TABLE>
<S> <C>
Junior Subordinated Debentures........................UFH Capital will invest
the gross proceeds from
the issuance of the
Preferred Securities and
Common Securities in an
equivalent amount of ____%
Junior Subordinated
Debentures of the Company.
The Junior Subordinated
Debentures will mature on
the Stated Maturity. The
Junior Subordinated
Debentures will rank
subordinate and junior in
right of payment to all
existing and future Senior
Debt and Subordinated Debt
of the Company. In
addition, the Company's o
be structurally
subordinated to all
existing and future
liabilities and
obligations of its
subsidiaries.
Option to Extend Interest Payment Period..............The Company has the right,
at any time, so long as no
Debenture Event of Default
has occurred and is
continuing, to defer
payments of interest on
the Junior Subordinated
Debentures for a period
not exceeding 20
consecutive quarters;
provided, that no Extended
Interest Payment Period
may extend beyond the
Stated Maturity of the
Junior Subordinated
Debentures. During an
Extended Interest Payment
Period, quarterly
Distributions on the
Preferred Securitie
continue to accrue with
interest thereon
compounded quarterly just
as interest will continue
to accrue and compound on
the Junior Subordinated
Debentures. During an
Extended Interest Payment
Period, the Company and
any subsidiary will be
prohibited, subject to
certain exceptions
described herein, from
declaring or paying any
cash distributions with
respect to its debt
securities that rank pari
passu with or junior to
the Junior Subordinated
Debentures or with respect
to its capital stock. Upon
the termination of any
Extended Interest Payment
Period and the payment of
all amounts then due, the
Company ma subject to the
foregoing restrictions.
See "Description of the
Preferred
Securities-Distributions-
Extended Interest Payment
Period" and "Description
of the Junior Subordinated
Debentures-Option to
Extend Interest Payment
Period." Should an
Extended Interest Payment
Period occur, holders of
Preferred Securities will
be required to include
deferred interest income
in their gross income for
United States federal
income tax purposes in
advance of receipt
interest payments. See
"Material Federal Income
Tax
Considerations-Interest
Income and Original Issue
Discount." The Company has
no current intention of
exercising its right to
defer payments of interest
by extending the interest
payment period on the
Junior Subordinated
Debentures.
</TABLE>
4
<PAGE> 10
<TABLE>
<S> <C>
Redemption............................................The Preferred Securities
are subject to mandatory
redemption, in whole or in
part, upon repayment of
the Junior Subordinated
Debentures at the Stated
Maturity or their earlier
redemption. Subject to
Federal Reserve approval,
if then required under
applicable Federal Reserve
capital guidelines or
policies, the Junior
Subordinated Debentures
are redeemable prior to
the Stated Maturity at the
option of the Company (i)
on or after _______, 2003,
in whole time, in whole
(but not in part), within
180 days following the
occurrence of a Tax Event,
an Investment Company
Event or a Capital
Treatment Event, in each
case at a redemption price
equal to 100% of the
principal amount of the
Junior Subordinated
Debentures so redeemed,
together with any accrued
but unpaid interest to the
date fixed for redemption.
See "Description of the
Junior Subordinated
Debentures-Redemption or
Exchange."
Distribution of Junior Subordinated Debentures........Subject to receipt of any
required Federal Reserve
approvals, the Company, as
the holder of the Common
Securities, also has the
right at any time to
terminate UFH Capital and
cause the Junior
Subordinated Debentures to
be distributed to holders
of Preferred Securities in
liquidation of UFH
Capital. See "Description
of the Preferred
Securities-Redemption or
Exchange" and
"-Liquidation Distribution
Upon Termination."
Conditional Guarantee.................................Pursuant to the Guarantee,
the Company has guaranteed
the payment of
Distributions and payments
on liquidation or
redemption of the
Preferred securities;
however, the Company's
obligations under the
Guarantee apply only to
the extent of the funds
held by UFH Capital, as
described herein. If the
Company does not make
principal or interest
payments on the Junior
Subordinated Debentures,
UFH Capital will not have
sufficient funds to make
distributions o Guarantee
will not apply to such
distributions unless and
until UFH Capital has
sufficient funds available
therefor. The obligations
of the Company under the
Guarantee and the
Preferred Securities are
subordinate and junior in
right of payment to all
Senior Debt and
Subordinated Debt of the
Company. See "Description
of the Guarantee."
</TABLE>
5
<PAGE> 11
<TABLE>
<S> <C>
Full, Irrevocable and Unconditional Guarantee.........The Company and UFH
Capital believe that,
taken together, the
obligations of the Company
under the Guarantee, the
Trust Agreement, the
Junior Subordinated
Debentures, the Indenture
and the Expense Agreement
provide, in the aggregate,
or have the effect of a
full, irrevocable and
unconditional guarantee,
on a subordinated basis,
of payment of
Distributions and other
amounts due on the
Preferred Securities. No
single document standing
alone or operatin
documents constitutes such
guarantee. It is only the
combined operation of
these documents that has
the effect of providing a
full, irrevocable and
unconditional guarantee of
the obligations of UFH
Capital under the
Preferred Securities. See
"Relationship Among the
Preferred Securities, the
Junior Subordinated
Debentures and the
Guarantee."
Voting Rights.........................................Except in limited
circumstances, the holders
of the Preferred
Securities will have no
voting rights in UFH
Capital. See "Description
of the Preferred
Securities-Voting Rights;
Amendment of Trust
Agreement."
Nasdaq Small-Cap Market Symbol........................Application has been made
to have the Preferred
Securities listed for
quotation on The NASDAQ
Small-Cap Market under the
symbol "UFHIP."
</TABLE>
USE OF PROCEEDS FROM THE OFFERINGS
UFH Capital will use the gross proceeds received from the sale of the
Preferred Securities to purchase the Junior Subordinated Debentures from the
Company. The net proceeds to the Company from the sale of the Junior
Subordinated Debentures to UFH Capital and the sale of the Common Stock by the
Company (assuming an offering price of $7.25 per share of Common Stock) will be
approximately $8.4 million. A portion of such proceeds will be used to repay the
Company's indebtedness under its existing credit facility (which had an
outstanding balance of approximately $2.6 million on September 30, 1998, bears
interest at an annual rate of 8.25% and matures on November 1, 2007) and to
initially contribute $1 to $2 million to the capital of the Bank to support
future asset growth and fund the approximately $600,000 cost of establishing a
new branch. The remaining $4 to $5 million of proceeds will be used for general
corporate purposes, including working capital, with the anticipation that the
Company wil use a portion of such proceeds to make additional capital
contributions to the Bank from time to time to support further growth and branch
expansion, and finance the Company's expansion into banking-related businesses
and additional financial services businesses. See "Use of Proceeds" and
"Business-Business Strategy."
RISK FACTORS
Before making an investment decision, prospective investors should
consider all of the information contained in this Prospectus. In particular,
prospective investors should evaluate the factors discussed under "Risk
Factors."
6
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following summary historical financial data, insofar as it relates to
each of the five years ended December 31, 1997, and the nine months ended
September 30, 1998 and September 30, 1997 has been derived from Company-prepared
financial information and should be read in conjunction with the audited
financial statements, including the consolidated balance sheets at December 31,
1997 and 1996 and the related consolidated statements of operations, statement
of change in equity, and statements of cas flows for each of the years in the
three-year period ended December 31, 1997 and the notes thereto appearing
elsewhere herein, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The selected financial ratios for the nine
months ended September 30, 1998 and 1997 have been annualized. Historical
financial information is not necessarily indicative of results of operations for
any future period or financial condition as of any future date.
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations and Other Data
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------------ ------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income $ 9,325 $ 7,904 $ 10,792 $ 9,595 $ 9,124 $ 6,941 $ 5,665
Interest expense 3,934 2,971 4,101 3,420 3,212 2,113 2,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income 5,391 4,933 6,691 6,175 5,912 4,828 3,665
Provision for loan loss 340 90 90 150 180 140 365
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision
for loan losses 5,051 4,843 6,601 6,025 5,732 4,688 3,300
Other noninterest income 3,089 2,253 3,240 2,572 1,237 1,359 1,196
General and administrative
("G&A") expenses 5,926 5,216 7,112 6,115 4,500 3,793 3,200
Other noninterest expense -- 393 393 -- -- -- --
Amortization of goodwill 52 48 66 111 121 116 116
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before taxes 2,162 1,439 2,270 2,371 2,348 2,138 1,180
Income tax expense 787 555 860 891 871 774 421
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 1,375 $ 884 $ 1,410 $ 1,480 $ 1,477 $ 1,364 $ 759
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings per share, basic $ 0.39 $ 0.25 $ 0.41 $ 0.47 $ 0.64 $ 0.78 $ 0.45
Weighted average shares
outstanding, basic 3,492,702 3,430,942 3,432,768 3,026,619 2,163,117 1,578,471 1,419,393
Earnings per share, diluted $ 0.36 $ 0.24 $ 0.38 $ 0.40 $ 0.43 $ 0.38 $ 0.23
Weighted average shares
outstanding, diluted 3,845,944 3,795,861 3,785,712 3,761,406 3,442,245 3,603,549 3,477,555
</TABLE>
7
<PAGE> 13
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Years Ended December 31,
------------------------- --------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
(at end of period)
Total assets ................... $ 158,496 $ 138,846 $ 147,319 $ 122,733 $ 106,594 $ 104,051 $ 81,178
Investment securities .......... 28,998 24,811 21,569 18,706 17,957 18,508 19,982
Loans, net of unearned
income ........................ 108,129 87,590 96,469 80,872 75,534 65,097 52,326
Allowance for loan losses ...... 1,826 1,633 1,647 1,610 1,527 1,335 875
Intangible assets .............. 1,378 1,392 1,336 1,440 919 604 719
Deposits ....................... 136,611 124,964 130,219 108,145 93,252 94,103 72,659
Stockholders' equity ........... 12,012 10,045 10,491 9,492 8,487 6,385 4,902
SELECTED FINANCIAL RATIOS
(annualized)
Return on average assets ....... 1.15% 0.92% 1.08% 1.32% 1.45% 1.56% 1.00%
Return on average equity ....... 16.09% 12.10% 14.25% 16.55% 20.84% 23.71% 16.29%
Equity to Assets ............... 7.18% 7.63% 7.56% 7.96% 6.95% 6.57% 6.15%
Dividend Payout ................ 28.31% 40.65% 33.65% 28.81% 25.69% 17.22% 21.97%
Net interest spread ............ 4.77% 5.30% 5.27% 5.58% 5.60% 5.64% 5.01%
Net interest margin ............ 5.28% 5.99% 5.95% 6.27% 6.38% 6.10% 5.53%
G&A expense to average assets .. 4.98% 5.45% 5.44% 5.44% 4.42% 4.34% 4.22%
G&A efficiency ratio ........... 69.88% 72.59% 71.61% 69.90% 62.95% 61.31% 65.82%
Non-accrual loans to total
loans (at period end) ......... 2.71% 0.60% 0.41% 0.46% 0.02% -- .05%
Nonperforming assets to
total assets .................. 2.15% 0.39% 0.27% 0.30% 0.02% 0.02% 0.41%
Loan loss allowance to
total loans .................... 1.65% 1.82% 1.70% 1.98% 2.02% 2.04% 1.61%
Loan loss allowance to
nonperforming loans ........... 60.91% 304.66% 411.75% 432.80% 10,180.00% N/M% 2.86%
OTHER DATA (at period end)
Number of branches ............. 4 4 4 4 3 3 3
Number of full-time
equivalent employees .......... 82 85 89 74 63 47 43
</TABLE>
8
<PAGE> 14
RISK FACTORS
An investment in the Securities involves a high degree of risk.
Prospective investors should carefully consider, together with the other
information contained and incorporated by reference in this Prospectus, the
following factors in evaluating the Company, its business and UFH Capital before
purchasing the Securities offered hereby. Prospective investors should note, in
particular, that this Prospectus contains forward-looking statements that
involve substantial risks and uncertainties. When used in this Prospectus, or in
the documents incorporated by reference herein, the words "anticipate",
"believe", "estimate", "may", "intend" and "expect" and similar expressions
identify certain of such forward-looking statements. Actual results, performance
or achievements could differ materially from those contemplated, expressed or
implied by the forward-looking statements contained herein. The considerations
listed below represent certain important factors the Company believes could
cause such results to differ. These considerations are not intended to represent
a complete list of the general or specific risks that may affect the Company and
UFH Capital. It should be recognized that other risks, including general
economic factors and business strategies, may be significant, presently or in
the future, and the risks set forth below may affect the Company and UFH Capital
to a greater extent than indicated.
RISK FACTORS RELATING TO THE COMPANY
IMPACT OF CHANGES IN REAL ESTATE VALUES
A significant portion of the Company's loan portfolio consists of loans
secured by real estate. At September 30, 1998, 6.6% of the Company's loans were
secured by one-to-four family residential real estate, 57.9% were secured by
commercial real estate and multifamily residential, 2.9% were construction loans
and the Company had other real estate ("ORE") acquired through foreclosure with
a book value of $0.3 million. The properties securing these loans are
concentrated in Florida. Real estate values and real estate markets generally
are affected by, among other things, changes in national, regional or local
economic conditions, fluctuations in interest rates and the availability of
loans to potential purchasers, changes in the tax laws and other governmental
statutes, regulations and policies and acts of nature. Any decline in real
estate prices, particularly in Florida, could significantly reduce the value of
the real estate collateral securing the Company's real estate loans, increase
the level of the Company's nonperforming loans, require write-downs in the book
value of its ORE, and have a material negative impact on the Company's financial
performance.
NONPERFORMING ASSETS
The Company's ratio of nonperforming assets to total assets was 2.15% at
September 30, 1998, which is above the average level of other similarly-sized
financial institutions. While the Company carefully manages its loan portfolio
with a view to minimizing its nonperforming assets, there can be no assurance
that the Company's ratio of nonperforming assets to total assets will improve or
not increase, particularly if general economic conditions deteriorate.
ADEQUACY OF ALLOWANCE FOR LOAN LOSSES
Industry experience indicates that a portion of the Company's loans will
become delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria utilized by the Company,
losses may be experienced as a result of various factors beyond the Company's
control, including, among other things, changes in market conditions affecting
the value of properties and problems affecting the credit of the borrower. The
Company's determination of the adequacy of its allowance for loan losses is
based on various considerations, including an analysis of the risk
characteristics of various classifications of loans, previous loan loss
experience, specific loans which would have loan loss potential, delinquency
trends, estimated fair value of the underlying collateral, current economic
conditions, the view of the Company's regulators, and geographic and industry
loan concentration. If, however, delinquency levels were to increase as a result
of adverse general economic conditions, especially in Florida, the loan loss
reserve so determined by the Company may not be adequate. To the extent that the
Company's loan losses exceed its allowance for loan losses, the Company's
results of operations would be adversely affected. There can be no assurance
that the Company's allowance
9
<PAGE> 15
for loan losses will be adequate to cover its loan losses or that the Company
will not experience losses in its loan portfolio which may require significant
increases to the allowance for loan losses in the future.
DISCRETION OF COMPANY CONCERNING USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock and the
Junior Subordinated Debentures will be approximately $8.4 million, of which
approximately $5.8 million, or 69.0% of the net proceeds, is not being used to
repay debt. Approximately $1 to $2 million of the estimated $5.8 million of net
proceeds that is not being used to repay debt is anticipated to be contributed
to the capital of the Bank to support growth and fund the cost of establishing a
new branch. The balance of such proceeds may be used by the Company to make
additional capital contributions to support further growth and branch expansion
to finance possible expansion into banking-related businesses and additional
financial services businesses. It is anticipated that pending such uses, such
proceeds will be invested by the Company in certain short-term obligations. The
net proceeds of the Offerings, together with the Company's existing working
capital, will make a significant amount of funds available to the Company The
Company will have substantial discretion over the use of such funds. There can
be no assurance the Company will deploy such funds in a manner that will enhance
the financial condition or results of operations of the Company. See "Use of
Proceeds."
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Company's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities. The Company, like most financial institutions, is affected by
changes in general interest rate levels, which are currently at relatively low
levels, and by other economic factors beyond its control. Interest rate risk
arises from mismatches (i.e., the interest sensitivity gap) between the dollar
amount of repricing or maturing assets and liabilities, and is measured in terms
of the ratio of the interest rate sensitivity gap to total assets. More assets
repricing or maturing than liabilities over a given time frame is considered
asset-sensitive and is reflected as a positive gap, and more liabilities
repricing or maturing than assets over a given time frame is considered
liability-sensitive and is reflected as a negative gap. An asset-sensitive
position (i.e., a positive gap) will generally enhance earnings in a rising
interest rate environment and will negatively impact earnings in a falling
interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment. Fluctuations in interest rates are not predictable or controllable.
The Company has attempted to structure its asset and liability management
strategies to mitigate the impact on net interest income of changes in market
interest rates. At September 30, 1998, the Company had a one year cumulative
negative gap of 17.8%. This negative one year gap position may, as noted above,
have a negative impact on earnings in a rising interest rate environment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
REGULATORY OVERSIGHT
The Bank is subject to extensive regulation, supervision and examination
by the Department as its chartering authority and primary regulator, by the
Federal Reserve as its federal regulator and by the FDIC as administrator of the
insurance fund that insures the Bank's deposits up to applicable limits. As the
holding company of the Bank, the Company is subject to regulation and oversight
by the Federal Reserve. Such regulation and supervision governs the activities
in which an institution may engage and is intended primarily for the protection
of the FDIC insurance funds and depositors. Regulatory authorities have been
granted extensive discretion in connection with their supervisory and
enforcement activities and regulations have been implemented which have
increased capital requirements, increased insurance premiums and have resulted
in increased administrative, professional and compensation expenses. Any change
in the regulatory structure or the applicable statutes or regulations could have
a material impact on the Company, the Bank and their operations. Additional
legislation and regulations may be enacted or adopted in the future which could
significantly affect the powers, authority and operations of the Bank and the
Bank's competitors which in turn could have a material adverse affect on the
Bank and its operations. See "Business-Supervision and Regulation."
10
<PAGE> 16
DEPENDENCE ON EXISTING MANAGEMENT
The Company's business depends in large part upon the availability of the
services of its senior management, including Neil W. Savage, Ward J. Curtis,
Jr., Harold J. Winner and William A. Eickhoff. If the services of any of such
senior management personnel were to become unavailable to the Company, the
Company's business and operating results could be adversely affected. While the
Company maintains key man life insurance policies on certain of its senior
management personnel, naming the Company a beneficiary, there can be no
assurance that the proceeds of any such policies would adequately compensate the
Company for the loss of the services of any of such persons. Neither Mr. Savage
nor Mr. Winner have entered into a non-competition agreement with the Company or
the Bank. Although both Mr. Eickhoff's and Mr. Curtis's employment contracts
contain non-competition clauses, the provisions terminate under certain
conditions. See "Management-Employment Contracts with Officers."
CONTROL BY EXISTING SHAREHOLDERS
Upon the completion of the Common Stock Offering, the Company's directors
and executive officers (and their respective affiliates and immediate family
members) will own approximately 51.4% of the outstanding Common Stock (or
approximately 50.7% if the Underwriter's over-allotment is exercised in full),
assuming such directors and officers do not purchase any shares of Common Stock
in the Offerings. As a result of such ownership, these persons will likely be
able to effectively control the election of the Company's directors and the
outcome of matters requiring shareholder approval, and thereby control the
management and policies of the Company.
COMPETITION
The Company competes with various types of financial institutions,
including other commercial banks and savings institutions, and with finance
companies, mortgage banking companies, money market mutual funds, investment
advisory firms and companies and credit unions, many of which have substantially
greater financial resources than the Company and, in some cases, operate under
fewer regulatory constraints. See "Business-Competition" and "-Supervision and
Regulation."
ANTI-TAKEOVER CONSIDERATIONS
The Company's articles of incorporation and bylaws and Florida law
contain certain provisions that may discourage or make more difficult any
attempt by a person or group to obtain control of the Company. In addition, the
board of directors of the Company is empowered to issue from time to time one or
more series of Undesignated Preferred Stock without shareholder approval, the
terms of which could have the effect of delaying or preventing a change in
control of the Company. See "Description of Capital Stock."
YEAR 2000 CONSIDERATIONS
During the next two years, many businesses, including financial
institutions such as the Company, will face potentially serious issues
associated with the inability of existing data processing hardware and software
to appropriately recognize calendar dates beginning in the year 2000. Many
computer programs that can only distinguish the final two digits of the year
entered may read entries for the year 2000 as the year 1900 and compute payment,
interest or delinquency based on the wrong date, or ar expected to be unable to
compute payment, interest or delinquency. If "Year 2000" problems were to
develop, given the reliance of the Company on data processing services to
maintain customer balances, service customer accounts and to perform other
record keeping and service oriented functions associated with the Company's
three primary business segments, the occurrence of such an event could have a
material impact on the Company's results of operations, liquidity, and financial
condition. In 1997, the Company began the process of identifying the many
software applications and hardware devices expected to be impacted by this
issue. The Company outsources its principal data processing activities to a
third party and purchases most of its software applications from third party
vendors. The Company believes that its vendors and its significant customers are
actively addressing the potential problems associated with the Year 2000
11
<PAGE> 17
issue. There can be no assurance, however, that the Company will not be
adversely affected by the failure of third party vendors or significant
customers of the Bank to become Year 2000 compliant. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Year
2000 Considerations."
SECURITIES ARE NOT INSURED
Neither the Common Stock, the Preferred Securities nor the Junior
Subordinated Debentures are insured by the Bank Insurance Fund ("BIF"), the
Savings Association Insurance Fund ("SAIF"), or the FDIC or by any other insurer
or government agency.
RISK FACTORS RELATING TO THE COMMON STOCK OFFERING
ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK; DETERMINATION OF OFFERING
PRICE
Prior to the Common Stock Offering, there has been no public market for
the Common Stock. Application has been made to the National Association of
Securities Dealers, Inc. ("NASD") to have the Common Stock listed for quotation
on The Nasdaq SmallCap Market. One of the requirements for initial listing,
however, is the presence of three market makers for the Common Stock, and a
requirement for continued listing is the presence of two market makers for the
Common Stock. The Company has been advised that the Underwriter intends to make
a market in the Common Stock. The Underwriter is not obligated to do so,
however, and such market making may be discontinued at any time. Although the
Company has submitted an application to have the Common Stock approved for
quotation on The Nasdaq SmallCap Market, there can be no assurance that an
active public trading market for the Common Stock will develop or be sustained
after the Common Stock Offering. The initial public offering price for the
Common Stock has been determined by negotiations between the Company and the
Underwriter, based on several factors, and may not be indicative of the price at
which the Common Stock will trade after the Common Stock Offering. See
"Underwriting." There can be no assurance that the market price for the Common
Stock will not fall below the initial public offering price.
POSSIBLE VOLATILITY OF SHARE PRICE
The market price of the Common Stock may experience fluctuations that are
unrelated to the operating performance of the Company. The market price of the
Common Stock may be affected by conditions in the securities markets generally
as well as developments in the banking industry or the United States or world
economy. Any securities exchange on which the Common Stock may be traded may
from time to time experience significant price and volume fluctuations that may
be unrelated to the operating performance of particular companies. The market
price of the Common Stock, like the stock prices of many publicly traded bank
holding companies, may prove to be highly volatile.
DILUTION
Purchasers of the Common Stock in the Common Stock Offering will pay a
significantly higher price per share than the prices paid to the Company for
substantially all of its currently outstanding shares of Common Stock, and will
be subject to additional dilution upon the exercise of outstanding options to
purchase Common Stock. See "Dilution."
RESTRICTIONS ON ABILITY TO PAY DIVIDENDS
The Company is primarily a holding company with no material business
operations, sources of income or assets of its own other than the shares of its
subsidiaries. Because substantially all of the Company's operations are
conducted through subsidiaries, the Company's cash flow and, consequently, its
ability to pay dividends or make other distributions is dependent upon either
third-party borrowings made by the Company or the cash flow of its subsidiaries
and the payment of funds by those subsidiaries, including the Bank, to the
Company in the form of loans, dividends, fees or otherwise. The Company's
subsidiaries are separate and distinct legal entities and will have no
obligation, contingent or otherwise, to make any funds available, whether in the
form of loans, dividends or otherwise. Regulatory limitations on the Bank
restrict its ability to make loans or distributions to the Company. In addition,
if the Company exercises its right to defer payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not to
exceed 20
12
<PAGE> 18
consecutive quarters with respect to each deferral period, the Company will not
be permitted to (i) declare or pay any cash dividends or distributions with
respect to its capital stock, including the Common Stock or (ii) make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Company that rank pari passu with or junior in
interest to the Junior Subordinate Debentures or make any guarantee payments
with respect to any guarantee by the Company of the debt securities of any
subsidiary of the Company if such guarantee ranks pari passu with or junior in
interest to the Junior Subordinated Debentures.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES OFFERING
SOURCE OF PAYMENTS TO HOLDERS OF PREFERRED SECURITIES
The ability of UFH Capital to pay amounts due on the Preferred Securities
is entirely dependent upon the Company making payments on the Junior
Subordinated Debentures as and when required. The ability of the Company to pay
interest on the principal of the Junior Subordinated Debentures to UFH Capital
(and consequently, UFH Capital's ability to pay Distributions on the Preferred
Securities and the Company's ability to pay its obligations under the Guarantee)
will depend to a significant degree on th Bank's ability to pay dividends to the
Company in amounts sufficient to service the Company's obligations. The Company
is currently obligated to pay $271,300 in annual interest on indebtedness which
will rank senior to, or pari passu with, the Junior Subordinated Debentures
($220,900 of which relates to indebtedness to be repaid from the proceeds of the
Offerings), and will be obligated to make any other payments with respect to
securities issued by the Company in the future which are pari passu or have a
preference over the Junior Subordinated Debentures issued to UFH Capital with
respect to the payment of principal, interest or dividends. There is no
restriction on the ability of the Company to issue, or limitation on the amount
of, securities which are pari passu or have a preference over the Junior
Subordinated Debentures issued to UFH Capital, nor is there any restriction on
the ability of the Company or the Bank to issue additional capital stock or
incur additional indebtedness.
The Bank's ability to pay dividends or make other capital distributions
to the Company is governed by both federal and Florida law and regulations
promulgated by the Federal Reserve and the Department, and is based on, among
other things, the Bank's regulatory capital levels and net income. Under the
Federal Reserve's capital regulations, the Bank is prohibited from making a
capital distribution that would cause it to become "undercapitalized" or if it
is already undercapitalized (i.e., has a risk-based capital ratio of less than
8.0%, a Tier 1 risk-based capital ratio of less than 4.0%, or a leverage ratio
of less than 3.0%). Under the Florida Financial Institutions Code, the prior
approval of the Department is required if the total of all dividends declared by
a bank in any calendar year will exceed the sum of the bank's net profits for
that year and its retained net profits for the preceding two years. Any
additional capital distributions would require prior Federal Reserve and
Department approval. As of September 30, 1998, the Bank was a well-capitalized
institution for purposes of the Federal Reserve's capital regulations and had
$3.3 million available for distribution as dividends to the Company. There is no
assurance that the Bank will remain a well-capitalized institution or that it
will be in a position to make dividend payments to the Company in an amount
sufficient for the Company to service the Junior Subordinated Debentures or for
UFH Capital to pay amounts due on the Preferred Securities. See
"Business-Supervision and Regulation."
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued for the benefit
of the holders of Preferred Securities and under the Junior Subordinated
Debentures issued to UFH Capital are unsecured and rank subordinate and junior
in right of payment to all existing and future Senior Debt and Subordinated Debt
of the Company. At September 30, 1998, the Company had $2.7 million of Senior
Debt outstanding ($2.6 million of which is to be repaid from the proceeds of the
Offerings) and $630 thousand of outstanding Subordinated Debt. Only the capital
stock of the Company is currently junior in right of payment to the Junior
Subordinated Debentures issued to UFH Capital. Because the Company is a holding
company, the right of the Company to participate in any distribution of assets
of a subsidiary, including the Bank, upon a liquidation or reorganization or
otherwise of such subsidiary (and thus the ability of holders of the Preferred
Securities to benefit indirectly from such distribution) is subject to the prior
claims of creditors of the subsidiary (including depositors in the Bank), except
to the extent that the Company may itself be recognized as a creditor of the
subsidiary. If the Company is a creditor of a subsidiary, the claims of the
Company would be subject to any prior security interest in the
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<PAGE> 19
assets of the subsidiary and any indebtedness of the subsidiary senior to that
of the Company. The Junior Subordinated Debentures, therefore, will be
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries, including the Bank. At September 30, 1998, the Bank had
liabilities of $143.5 million (including $137.4 million in deposits). Holders of
Junior Subordinated Debentures and the Preferred Securities should look only to
the assets of the Company for payments on the Junior Subordinated Debentures.
Neither the Indenture, the Guarantee nor the Trust Agreement places any
limitation on the amount of secured or unsecured debt, including Senior Debt and
Subordinated Debt, that may be incurred by the Company or any of its
subsidiaries. See "Description of the Guarantee-Status of the Guarantee" and
"Description of the Junior Subordinated Debentures-Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
The Company has the right under the Indenture, so long as no Debenture
Event of Default has occurred and is continuing, to defer the payment of
interest on the Junior Subordinated Debentures at any time or from time to time
for a period not exceeding 20 consecutive quarters with respect to each Extended
Interest Payment Period; provided that no Extended Interest Payment Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. In the
event of any such deferral, quarterly Distributions on the Preferred Securities
by UFH Capital will be deferred (and the amount of Distributions to which
holders of the Preferred Securities are entitled will accumulate additional
Distributions thereon at the rate of ____% per annum, compounded quarterly from
the relevant payment date for such Distributions) during such Extended Interest
Payment Period. During any such Extended Interest Payment Period, the Company
may not and may not permit any subsidiary to (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock (other than (a) the
reclassification of any class of the Company's capital stock into another class
of capital stock, (b) dividends or distributions payable in any class of the
Company's capital stock, (c) any declaration of a dividend in connection with
the implementation of a shareholder rights plan, or the issuance of stock under
any such plan in the future, or the redemptio or repurchase of any such rights
pursuant thereto and (d) purchases of the Company's capital stock related to the
rights under any of the Company's benefit plans for its or its subsidiaries'
directors, officers or employees), (ii) make any payment of principal, interest
or premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu with or junior in interest to the Junior
Subordinated Debentures or make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any subsidiary of the Company
if such guarantee ranks pari passu with or junior in interest to the Junior
Subordinated Debentures (other than payments under the Guarantee), or (iii)
redeem, purchase or acquire less than all of the Junior Subordinated Debentures
or any of the Preferred Securities. Prior to the termination of any such
Extended Interest Payment Period, the Company may further defer the payment of
interest; provided that no Extended Interest Payment Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any Extended Interest Payment
Period and the payment of all interest then accrued and unpaid (together with
interest thereon at the annual rate of ____% compounded quarterly, to the extent
permitted by applicable law), the Company may elect to begin a new Extended
Interest Payment Period, subject to the above restrictions. Subject only to
compliance with the foregoing, there is no limit on the number of times that the
Company may elect to begin an Extended Interest Payment Period so long as no
Debenture Event of Default has occurred and is continuing. See "Description of
the Preferred Securities-Distributions-Extended Interest Payment Period" and
"Description of the Junior Subordinated Debentures-Option to Extend Interest
Payment Period."
Should an Extended Interest Payment Period occur, each holder of
Preferred Securities will be required to accrue and recognize as income (in the
form of original issue discount) in respect of its pro rata share of the
interest accruing on the Junior Subordinated Debentures held by UFH Capital for
United States federal income tax purposes. A holder of Preferred Securities
would, as a result, be required to include such income in gross income for
United States federal income tax purposes in advance of the receipt of cash, and
will not receive the cash related to such income from UFH Capital if the holder
disposes of the Preferred Securities prior to the record date for the payment of
the related Distributions. See "-Absence of Prior Public Market for the
Preferred Securities; Trading Price and Tax Considerations" and "Material
Federal Income Tax Considerations-Interest Income and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. Should the Company elect to exercise such right in the
future, however, the market price of the Preferred Securities is likely to be
adversely affected. As a result of the existence of the
14
<PAGE> 20
Company's right to defer interest payments, the market price of the Preferred
Securities may be more volatile than the market prices of other securities on
which original issue discount accrues that do not provide for such optional
deferrals.
REDEMPTION DUE TO TAX EVENT, INVESTMENT COMPANY EVENT, OR CAPITAL TREATMENT
EVENT
The Company has the right to redeem the Junior Subordinated Debentures in
whole (but not in part) within 180 days following the occurrence of a Tax Event,
an Investment Company Event or a Capital Treatment Event (whether occurring
before or after _________, 2003), and, therefore, cause a mandatory redemption
of the Preferred Securities. The exercise of such right is subject to the
Company having received prior Federal Reserve approval to do so if then required
under applicable Federal Reserve capital guidelines or policies.
"Tax Event" means the receipt by the Company or UFH Capital of an opinion
of counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change), in the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the Preferred Securities, there is more than an insubstantial risk that (i) UFH
Capital is, or will be within 90 days of the date of such opinion, subject to
United States federal income tax with respect to income received or accrued on
the Junior Subordinated Debentures, (ii) interest payable by the Company on the
Junior Subordinated Debentures is not, or, within 90 days of such opinion, will
not be deductible by the Company, in whole or in part, for United States federal
income tax purposes, or (iii) UFH Capital is, or will be within 90 days of the
date of the opinion, subject to more than a de minimis amount of other taxes,
duties or other governmental charges. The Company must request and receive an
opinion with regard to such matters within a reasonable period of time after it
becomes aware of the possible occurrence of any of the events described in
clauses (i) through (iii) above.
"Investment Company Event" means the receipt by the Company or UFH
Capital of an opinion of counsel to the Company experienced in such matters to
the effect that, as a result of the occurrence of a change in law or regulation
or a written change (including any announced prospective change) in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority, there is more than an
insubstantial risk that UFH Capital is or will be considered an "investment
company" that is required to be registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), which change or prospective
change becomes effective or would become effective, as the case may be, on or
after the date of original issuance of the Preferred Securities.
"Capital Treatment Event" means the reasonable determination by the
Company that, as a result of any amendment to, or change (including any proposed
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any Federal Reserve
or other official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or such proposed change, pronouncement, action or decision is
announced on or after the date of original issuance of the Preferred Securities,
there is more than an insubstantial risk that the Company will not be entitled
to treat an amount equal to the Liquidation Amount of the Preferred Securities
as "Tier 1 Capital" except as otherwise restricted under the 25% Capital
Limitation (as defined herein), for purposes of the risk-based capital adequacy
guidelines of the Federal Reserve as then in effect and applicable to the
Company.
Future legislation or administrative or judicial interpretations could
give rise to a Tax Event, which may permit the Company to cause a redemption of
the Preferred Securities prior to _________, 2003. See "Material Federal Income
Tax Considerations-Possible Legislative and Other Actions Affecting Tax
Consequences." For a discussion of possible tax consequences of a redemption,
see "-Exchange of Preferred Securities for Junior Subordinated Debentures;
Redemption and Tax Consequences."
POSSIBLE SHORTENING OF MATURITY OF JUNIOR SUBORDINATED DEBENTURES
The Company has the right, at any time, to shorten the Stated Maturity of
the Junior Subordinated Debentures to a date not earlier than ___________, 2003.
The exercise of such right is subject to the Company having received prior
15
<PAGE> 21
Federal Reserve approval if then required under applicable capital guidelines or
regulatory policies. See "Description of the Junior Subordinated
Debentures-General."
LIMITED RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities, to
the extent not paid by UFH Capital, (i) any accrued and unpaid Distributions
required to be paid on the Preferred Securities, to the extent that UFH Capital
has funds available therefor at such time, (ii) the Redemption Price (as defined
herein) with respect to any Preferred Securities called for redemption, to the
extent that UFH Capital has funds available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding-up or liquidation of UFH
Capital (other than in connection with the distribution of Junior Subordinated
Debentures to the holders of Preferred Securities or a redemption of all of the
Preferred Securities), the lesser of (a) the amount of the Liquidation
Distribution (as defined herein), to the extent UFH Capital has funds available
therefor at such time, and (b) the amount of assets of UFH Capital remaining
available for distribution to holders of the Preferred Securities upon
liquidation of UFH Capital. The holders of not less than a majority in
Liquidation Amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee (as defined in the Guarantee) in respect of the Guarantee
or to direct the exercise of any trust power conferred upon the Guarantee
Trustee under the Guarantee. Any holder of the Preferred Securities may
institute a legal proceeding directly against the Company to enforce its rights
under the Guarantee without first instituting a legal proceeding against UFH
Capital, the Guarantee Trustee or any other Person (as defined in the
Guarantee). If the Company were to default on its obligation to pay amounts
payable under the Junior Subordinated Debentures, UFH Capital would lack funds
for the payment of Distributions or amounts payable on redemption of the
Preferred Securities or otherwise, and, in such event, holders of Preferred
Securities would not be able to rely upon the Guarantee for such amounts. In the
event, however, that a Debenture Event of Default has occurred and is continuing
and such event is attributable to the failure of the Company to pay interest on
or principal of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of the principal of or interest on such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). The exercise by the Company of its right, as described herein, to
defer the payment of interest on the Junior Subordinated Debentures does not
constitute a Debenture Event of Default. In connection with such Direct Action,
the Company will have a right of set-off under the Indenture to the extent of
any payment made by the Company to such holder of Preferred Securities in the
Direct Action. Except as described herein, holders of Preferred Securities will
not be able to exercise directly any other remedy available to the holders of
the Junior Subordinated Debentures or assert directly any other rights in
respect of the Junior Subordinated Debentures. See "Description of the Junior
Subordinated Debentures-Enforcement of Certain Rights by Holders of the
Preferred Securities," and "-Debenture Events of Default" and "Description of
the Guarantee." The Trust Agreement provides that each holder of the Preferred
Securities by acceptance thereof agrees to the provisions of the Guarantee and
the Indenture.
EXCHANGE OF PREFERRED SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES; REDEMPTION
AND TAX CONSEQUENCES
The Company, as the holder of the Common Securities, has the right at any
time to dissolve, wind-up or terminate UFH Capital and cause the Junior
Subordinated Debentures to be distributed to the holders of the Preferred
Securities in exchange therefor upon liquidation of UFH Capital. The exercise of
such right is subject to the Company having received prior Federal Reserve
approval if then required under applicable capital guidelines or regulatory
policies. The Company will have the right, in certain circumstances, to redeem
the Junior Subordinated Debentures in whole or in part, in lieu of a
distribution of the Junior Subordinated Debentures by UFH Capital, in which
event UFH Capital will redeem the Trust Securities on a pro rata basis to the
same extent as the Junior Subordinated Debentures are redeemed by the Company.
Any such distribution or redemption prior to the Stated Maturity will be subject
to prior Federal Reserve approval if then required under applicable Federal
Reserve capital guidelines or regulatory policies. See "Description of the
Preferred Securities-Redemption or Exchange-Tax Event Redemption, Investment
Company Event Redemption or Capital Treatment Event Redemption."
Under current United States federal income tax law, a distribution of
Junior Subordinated Debentures upon the dissolution of UFH Capital should not be
a taxable event to holders of the Preferred Securities. If, however, UFH Capital
16
<PAGE> 22
is characterized as an association taxable as a corporation at the time of the
dissolution of UFH Capital, the distribution of the Junior Subordinated
Debentures would constitute a taxable event to holders of Preferred Securities.
Moreover, any redemption of the Preferre Securities for cash would be a taxable
event to such holders. See "Material Federal Income Tax Considerations-Receipt
of Junior Subordinated Debentures or Cash Upon Liquidation of UFH Capital."
There can be no assurance as to the market prices for the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities upon a dissolution or liquidation of UFH
Capital. The Preferred Securities or the Junior Subordinated Debentures may
trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby. Because holders of Preferred Securities may
receive Junior Subordinated Debentures, prospective purchasers of Preferred
Securities are also making an investment decision with regard to the Junior
Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained herein.
While there is no assurance that listing will be achieved, if the Junior
Subordinated Debentures are distributed to the holders of Preferred Securities
upon the liquidation of UFH Capital, the Company will use all reasonable efforts
to list the Junior Subordinated Debentures on The Nasdaq SmallCap Market or such
stock exchanges, if any, on which the Preferred Securities are then listed.
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have no voting rights in UFH Capital
except in limited circumstances relating only to the modification of the
Preferred Securities and the exercise of the rights of UFH Capital as holder of
the Junior Subordinated Debentures and the Guarantee. Holders of Preferred
Securities will not be entitled to vote to appoint, remove or replace the
Property Trustee or the Delaware Trustee, as such voting rights are vested
exclusively in the holder of the Common Securities (except upon the occurrence
of certain events described herein). The Property Trustee, the Delaware Trustee,
the Administrative Trustees and the Company may amend the Trust Agreement
without the consent of holders of Preferred Securities to ensure that UFH
Capital will be classified for United States federal income tax purposes as a
grantor trust even if such action adversely affects the interests of such
holders. See "Description of the Preferred Securities-Voting Rights; Amendment
of Trust Agreement" and "Description of the Preferred Securities-Removal of UFH
Capital Trustee."
LIMITED COVENANTS
The covenants in the Indenture are limited and there are no covenants in
the Trust Agreement. As a result, neither the Indenture nor the Trust Agreement
protects holders of Junior Subordinated Debentures or Preferred Securities,
respectively, in the event of a material adverse change in the Company's
financial condition or results of operations or limits the ability of the
Company or any subsidiary to incur or assume additional indebtedness or other
obligations. Additionally, neither the Indenture nor the Trust Agreement contain
any financial ratios or specified levels of liquidity to which the Company must
adhere. Therefore, the provisions of these governing instruments should not be
considered a significant factor in evaluating whether the Company will be able
to comply with its obligations under the Junior Subordinated Debentures or the
Guarantee.
ABSENCE OF PRIOR PUBLIC MARKET FOR THE PREFERRED SECURITIES; TRADING PRICE AND
TAX CONSIDERATIONS
The Preferred Securities are a new issue. Application has been made to
the National Association of Securities Dealers, Inc. ("NASD") to have the
Preferred Securities listed for quotation on The Nasdaq SmallCap Market. One of
the requirements for initial listing, however, is the presence of three market
makers for the Preferred Securities, and a requirement for continued listing is
the presence of two market makers for the Preferred Securities. The Company has
been advised that the Underwriter intends to make a market in the Preferred
Securities. The Underwriter is not obligated to do so, however, and such market
making may be discontinued at any time. Therefore, there is no assurance that
the Preferred Securities will be listed or will continue to be listed on The
Nasdaq SmallCap Market, that an active trading market will develop for the
Preferred Securities or, if such market develops, that it will be maintained or
that the market price will equal or exceed the public offering price set forth
on the cover page of this Prospectus. Accordingly, holders
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<PAGE> 23
of the Preferred Securities may experience difficulty reselling Preferred
Securities or may be unable to sell the Preferred Securities at all. The
offering price and terms of the Preferred Securities has been determined through
negotiations between the Company and the Underwriter. Future prices for the
Preferred Securities will be determined in the marketplace and may be influenced
by many factors, including prevailing interest rates, the liquidity of the
market for the Preferred Securities, investor perceptions of the Company and
general industry and economic conditions. See "Underwriting."
Further, should the Company exercise its option to defer any payment of
interest on the Junior Subordinated Debentures, the Preferred Securities may
trade at prices that do not fully reflect the value of accrued but unpaid
interest with respect to the underlying Junior Subordinated Debentures. In the
event of such a deferral, a holder of the Preferred Securities who disposes of
the Preferred Securities between record dates for payments of Distributions (and
consequently does not receive a Distribution from UFH Capital for the period
prior to such disposition) will nevertheless be required to include accrued but
unpaid interest on the Junior Subordinated Debentures through the date of
disposition in income as ordinary income and to add such amount to the adjusted
tax basis in the holder's pro rata share of the underlying Junior Subordinated
Debentures deemed disposed of. Such holder will recognize a capital loss to the
extent the selling price (which may not fully reflect the value of accrued but
unpaid interest) is less than its adjusted tax basis (which will include all
accrued but unpaid interest). Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes. See "Material Federal Income Tax Considerations-Sales of
Preferred Securities."
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<PAGE> 24
USE OF PROCEEDS
It is anticipated that there will be $8.4 million (assuming an offering
price of $7.25 per share of Common Stock) of net proceeds from the Offerings
($9.8 million if the Underwriter's over-allotment option is exercised in full),
from which the Company will use approximately $2.6 million to repay debt and
contribute $1 to $2 million immediately to the capital of the Bank. That will
leave approximately $4 to $5 million of net proceeds at the Company level
(assuming $1 to $2 million are initially contributed to the Capital of the
Bank). It is currently anticipated that approximately $600,000 of the net
proceeds from the Offerings will likely be used by the Bank and/or the Company
to fund the cost of acquiring a currently vacant bank branch building and
establishing a new branch for the Bank.
The Company currently anticipates using the remaining approximately $4 to
$5 million of net proceeds in principally two different ways. First, the Company
will make capital contributions to the Bank from time to time to support further
internal growth and to finance opening new branches, whether by acquisition or
establishment of de novo branches. Other than the aforereferenced branch that
the Bank anticipates spending $600,000 to establish, the Company currently does
not have any agreements in place or definitive plans to open additional
branches. However, the Company has in the past and will continue in the future
to evaluate additional branch locations in Pinellas County, Florida. The
Company's five year business plan contemplates the Bank opening approximately
one new branch each year. However, there can be no assurance that such goal will
be met or not be changed in the future.
The second use of the remaining proceeds from the Offerings will be to
acquire, make investments in or establish various ancillary businesses. The
Company continuously evaluates opportunities to add to the Company's noninterest
income. In the past, that led to the establishment of United Trust, the
Company's trust business, as well as the acquisition of EPW, the Company's
investment advisory business. The Company currently has no agreements or
definitive plans to expand into any particular ancillary business. However, the
Company recently retained the services of a consultant to explore the
possibility of the Company making a minority investment either in an existing
business or in a new business that would engage in the property casualty
underwriting insurance business in Florida. The consultant's work is ongoing and
it recently recommended to the Company that it consider making a minority
investment in a newly established entity to engage in such a business and seek
third party investor to complete the financing of such business venture. The
consultant suggested that such entity should have at least $6 million of
capital. The Company does not yet know if any such third party investors will be
interested in any such opportunity, or whether the Company will ultimately
determine to pursue such opportunity. The consultant's efforts will be on going.
Other than such consultant, the Company has not retained anyone to engage in any
other exploratory evaluations on behalf of the Company. Th Company's efforts to
pursue additional various potential additional sources of non-interest income
will continue into the future. However, the Company currently has no agreements
or definitive plans to expand into any particular ancillary business. If the
Company decides to pursue a specific opportunity, the proceeds from the
offerings will be available to finance such efforts.
In evaluating whether to go public, the Company considered a variety of
factors, including the costs associated with undertaking and completing a public
offering, the potential need for additional capital in the future for further
branch and other Bank expansion, the number of holders of the Preferred
Securities and Common Stock that are needed to list the securities on NASDAQ's
SmallCap Market and the Company's underwriter's recommendation of the minimum
outstanding amount of Preferred Securities and Common Stock needed to provide
some liquidity for the secondary market. To address those issues, the Company
determined it was appropriate to pursue the specific type and size securities
offerings set forth in herein, rather than pursue separate offerings from time
to time in the future when there may be a specific pressing need for capital. As
the amount of capital that will need to be contributed to the Bank over time or
be available to invest in ancillary businesses is not currently known, nor th
timing of the needs for such capital, the Company has determined that it will
leave the remaining net proceeds at the Company level. This will permit the
Company in the future to contribute capital to the Bank from time to time as
needed or invest in existing or future ancillary businesses. Such net proceeds
will initially be invested by the Company in short-term obligations.
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<PAGE> 25
MARKET FOR THE SECURITIES AND RELATED MATTERS
Application has been made to have the Common Stock and Preferred
Securities approved for quotation on The Nasdaq SmallCap Market under the
symbols "UFHI" and "UFHIP", respectively. One of the requirements for initial
listing is the presence of three market makers and a requirement of continued
listing is the presence of two market makers. Although the Underwriter has
informed the Company that it presently intends to make a market in the Common
Stock and Preferred Securities, the Underwriter is not obligated to do so and
any such market making may be discontinued at any time. Accordingly, there is no
assurance that the Common Stock or Preferred Securities will be listed or remain
listed on The Nasdaq SmallCap Market, that an active and liquid trading market
will develop or, if developed, that such a market will be sustained. The
offering prices of the Securities and the distribution rate of the Preferred
Securities are determined by negotiations among representatives of the Company
and the Underwriter and the offering price of the Securities may not be
indicative of the market price following the Offerings. See "Underwriting."
Since 1995, the Company has declared and paid quarterly cash dividends on
the Common Stock to record holders of the Common Stock at each calendar quarter
end, payable on the last day of the following month. Starting in the first
quarter of 1997, such dividends were paid at the rate of $0.03 1/3 per share of
Common Stock until the third quarter of 1998, when a dividend of $0.04 per share
was declared. The ability of the Company to continue paying dividends on the
outstanding Common Stock, including the Common Stock offered hereby, is
dependent upon its continuing to receive dividends from its subsidiaries,
primarily the Bank. Dividends paid by the Bank are restricted by federal and
state regulations. The Company also pays cash dividends on the shares of
preferred stock, par value $10.00 per share, bearing a dividend commitment of 7%
per annum (the "7% Preferred Stock") to holders of record on March 31 and
September 30 of each year, at the rate of 3.5% per semi-annual period. See "Risk
Factors-Restrictions on Ability to Pay Dividends."
ACCOUNTING TREATMENT
For financial reporting purposes, UFH Capital will be treated as a
subsidiary of the Company and, accordingly, the accounts of UFH Capital will be
included in the consolidated financial statements of the Company. The Preferred
Securities will be presented as a separate line item in the consolidated balance
sheet of the Company under the caption "Company-obligated mandatorily redeemable
capital securities of subsidiary trust holding solely subordinated debentures of
the Company," and appropriate disclosures about the Preferred Securities, the
Guarantee and the Junior Subordinated Debentures will be included in the notes
to consolidated financial statements.
As long as any Preferred Securities remain outstanding, all future
reports of the Company filed under the Exchange Act of 1934, as amended
(the"Exchange Act") will (a) present the Trust Securities issued by UFH Capital
on the balance sheet as a separate line-item entitled "Company-obligated
mandatorily redeemable capital securities of subsidiary trust holding solely
subordinated debentures of the Company," (b) include in a footnote to the
financial statements disclosure that the sole assets of UFH Capital are the
Junior Subordinated Debentures (including the outstanding principal amount,
interest rate and maturity date of such Junior Subordinated Debentures), and (c)
include in an audited footnote to the financial statements disclosure that the
Company owns all of the Common Securities of UFH Capital, the sole assets of UFH
Capital are the Junior Subordinated Debentures, and the back-up obligations, in
the aggregate, constitute a full and unconditional guarantee by the Company of
the obligations of UFH Capital under the Preferred Securities.
20
<PAGE> 26
CAPITALIZATION
The following table sets forth the actual and as adjusted consolidated
capitalization of the Company at September 30, 1998 (dollars in thousands). The
as adjusted capitalization gives effect to the Offerings, assumes an offering
price for the Common Stock of $7.25 per share, and is net of underwriting
discounts and estimated offering expenses of $400 thousand. The information set
forth below should be read in conjunction with the Consolidated Financial
Statements (and the related notes) of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
September 30, 1998
----------------------
As
Actual Adjusted
-------- ----------
<S> <C> <C>
Company-obligated mandatorily redeemable capital securities of subsidiary trust
holding solely junior sbordinated debentures Company(1) .............................................. $ -- $ 6,000
Stockholder Equity:
7% convertible preferred stock $10 par value: 150,000 shares
authorized; 20,850 shares issued and outstanding at September 30, 1998;........................ 209 209
Common Stock, $.01 par value; 20,000,000 shares authorized;
3,513,858 shares and 3,963,858 shares issued and outstanding at
September 30, 1998 Actual and As Adjusted, respectively........................................ 35 40
Paid-in Capital..................................................................................... 6,214 8,636
Net unrealized gain on securities available for sale, net........................................... 193 193
Retained Earnings................................................................................... 5,361 5,361
-------- -------
Total stockholders' equity.......................................................................... 12,012 14,439
-------- -------
Total Capitalization.................................................................................. $ 12,012 $20,439
======== =======
</TABLE>
- -------------------------------
(1) Represents beneficial interests in an aggregate amount of $6.0 million of
Junior Subordinated Debentures of the Company.
21
<PAGE> 27
DILUTION
Purchasers of the Common Stock in the Common Stock Offering will pay a
significantly higher price per share than the prices paid to the Company by
officers, directors and their affiliates for Common Stock purchased by them
during the past five years. The following table summarizes the total
consideration paid to the Company and the average price per share paid by
officers, directors and their affiliates for Common Stock purchased by them from
the Company since January 1, 1993, and by new investors purchasing shares of the
Common Stock in the Common Stock Offering.
<TABLE>
<CAPTION>
Average
Shares Total Price
Purchased Consideration Per Share
--------- ------------- ---------
<S> <C> <C> <C>
Existing Shareholders (1) .............. 210,054 $ 680,923 $ 3.24
New Investors........................... 450,000 3,262,500 7.25
---------- ---------- ------
Total.............................. $3,943,423
==========
</TABLE>
- --------------------
(1) Includes persons who are currently, or who were at the time of purchase
of Common Stock from the Company, officers or directors of the Company or
any of its subsidiaries or affiliates of any such persons.
The foregoing table excludes (i) 718,000 shares of Common Stock reserved
for issuance under the Company's existing stock option plans; (ii) up to 225,000
shares of Common Stock originally reserved for possible issuance upon the
achievement of certain performance criteria of the Company's trust operations
entered into in connection with the acquisition of FSC and EPW, and the 5,013
shares of Common Stock that have been issued to date pursuant thereto; (iii)
40,500 shares of Common Stock reserved for issuance upon exercise of other
outstanding options granted to certain officers of the Company; (iv) up to
90,000 shares of Common Stock originally reserved for possible issuance upon the
achievement of certain revenue-based criteria of United Trust and EPW under
certain stock incentive plans, and the 9,000 shares of Common Stock that have
been issued pursuant thereto; and (v) 919,650 shares of Common Stock issued
since January 1, 1993, upon conversion of shares of convertible preferred stock
and convertible debentures issued and sold prior to January 1, 1993, at an
average conversion price of $1.26 per share.
As of September 30, 1998, the following were outstanding: (i) options
granted under the above referenced stock option plans to acquire an aggregate of
508,500 shares of Common Stock at a weighted average exercise price of $7.88 per
share, (ii) shares of 7% Preferred Stock convertible into an aggregate of
175,210 shares of Common Stock at an average conversion price of $1.19 per
share, and (ii) 8% debentures convertible into an aggregate of 152,913 shares of
Common Stock at a conversion price of $4.12 per share.
22
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's balance sheets and
statements of operations should be read in conjunction with the Consolidated
Financial Statements and the related notes included elsewhere in this
Prospectus.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
COMPARISON OF BALANCE SHEETS AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
Overview
At September 30, 1998, total assets of the Company were $158.5 million as
compared to $147.3 million at December 31, 1997, an increase of $11.2 million or
7.6%. This growth was primarily due to increases in NOW and Money Market
accounts as well as increases in Securities Sold under Repurchase Agreements.
Earning assets increased by a similar amount, with loans and securities growing
by a combined $20.7 million and Fed Funds Sold decreasing by $7.2 million.
Investment Securities
Investment securities, consisting of U.S. Treasury, federal agency,
obligations of state and political subdivisions, mortgage-backed, and corporate
debt securities, were $28.8 million at September 30, 1998, compared to $21.6
million at December 31, 1997, an increase of $7.2 million or 33.3%. Included in
investment securities at September 30, 1998, were $16.1 million of securities
recorded at market value held as "available for sale" to provide the Bank
greater flexibility to respond to changes in interest rates.
Loans
Total loans were $110.6 million at September 30, 1998, compared to $97.0
million at December 31, 1997, an increase of $13.6 million or 14.0%. Real estate
mortgage loans increased $10.6 million or 16.5%, commercial loans increased $3.0
million or 9.5%, and all other loans, including consumer loans, were virtually
unchanged. Loans net of allowance for loan losses were $108.1 million at
September 30, 1998, compared to $94.8 million at December 31, 1997.
Allowance for Loan Losses
The allowance for loan losses amounted to $1.8 million at September 30,
1998 or 1.63% of loans, compared to $1.6 million at December 31, 1997 or 1.71%
of loans. During the nine months ended September 30, 1998, $169 thousand in
loans were charged off, $340 thousand was added to the allowance through a
provision which was accounted for as an expense to reduce net income, and $8
thousand in loans were recovered from loans previously charged off.
Nonperforming Assets
Nonperforming assets were $3.4 million at September 30, 1998, compared to
$0.7 million at December 31, 1997. Nonperforming assets at September 30, 1998
consisted of nonperforming loans of $3.1 million and other real estate owned of
$0.3 million. A nonperforming loan of $1.1 million is in foreclosure and
management believes that the underlying collateral will be sufficient to repay
most of the loan. Another of the nonperforming loans in the amount of $1.3
million is being paid on a monthly basis on a pre-judgment stipulation and
interest and principal are being recorded on a cash basis as received. ORE owned
consisted of one property which has been listed for sale. Management believes
that this property is carried at a value that is equal to its current market
value.
23
<PAGE> 29
Bank Premises and Equipment
Bank premises and equipment totaled $9.2 million at September 30, 1998,
compared to $9.5 million at December 31, 1997, a decrease of $0.3 million. This
decrease was primarily due to depreciation of buildings and equipment and
amortization of leasehold improvements.
Deposits
Total deposits were $ 136.6 million at September 30, 1998, compared to
$130.2 million at December 31, 1997, an increase of $6.4 million or 4.9%. From
December 31, 1997 to September 30, 1998, demand deposits decreased $2.8 million,
NOW and money market deposits increased $13.9 million, savings deposits
decreased $0.8 million, time deposits of $100 thousand or greater decreased $0.9
million, and other time deposits decreased $3.1 million.
Long-term Debt and Convertible Subordinated Debentures
Long-term debt outstanding was $2.7 million at September 30, 1998,
virtually unchanged from December 31, 1997.
Stockholders' Equity
Stockholders' equity was $12.0 million at September 30, 1998, or 7.57% of
total assets, compared to $10.5 million or 7.12% of total assets at December 31,
1997. The increase in stockholders' equity was attributable to net income during
the period of $1.4 million, the issuance of $0.4 million of Common Stock and an
increase of $0.1 million in other comprehensive income, partially offset by $0.4
million of dividend payments on Preferred and Common Stock. At September 30,
1998, the Bank's Tier I (core) Capital ratio was 7.14%, its Tier I Risk-based
Capital ratio was 9.00%, and its Total Risk-based Capital ratio was 10.25%. The
capital ratios of the Bank at that date exceeded the minimum regulatory
guidelines for an institution to be considered "well capitalized." See
"Business-Supervision and Regulation."
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997
Overview
Net income for the nine months ended September 30, 1998 was $1.4 million
or $0.36 per share, diluted, compared to $0.9 million or $0.24 per share,
diluted, for the same period in 1997. The increase of $0.5 million was primarily
the result of increases in interest income and non-interest income offset
partially by increases in the provision for loan losses, non-interest expenses,
and income taxes.
24
<PAGE> 30
Business Segment Information
The Company's operations include three business segments, the Bank, EPW,
and United Trust. Each of these are a separate corporate entity and wholly owned
subsidiary of the Company. The following are the results of operations for these
three segments for the nine months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------------------------------------------
1998 1997
---------------------------------------- -------------------------------------
(dollars in thousands)
Commercial United Company Commercial United Company
Banking Trust EPW Total Banking Trust EPW Total
------- ----- --- ----- ------- ----- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income.......................... 9,253 $123 $ 0 $9,376 $ 7,902 $ 0 $ 0 $7,902
Interest expense......................... 3,793 0 3 3,796 2,885 0 4 2,889
------ ---- ------ ------ ------- ---- ------ ------
Net interest income...................... 5,460 123 (3) 5,580 5,017 0 (4) 5,013
Loan loss provision...................... 340 0 0 340 90 0 0 90
------ ---- ------ ------ ------- ----- ------ ------
Net interest income after loan
loss provision........................ 5,120 123 (3) 5,240 4,927 0 (4) 4,923
Noninterest income....................... 1,255 689 1,102 3,046 879 505 905 2,289
General and administrative
("G&A") expenses...................... 4,273 700 956 5,929 3,739 651 798 5,188
Other noninterest expense................ 0 0 0 0 393 0 0 393
Amortization of goodwill................. 11 17 0 28 11 13 0 24
------ ---- ------ ------ ------- ----- ------ ------
Total noninterest expense................ 4,284 717 956 5,957 4,143 664 798 5,605
------ ---- ------ ------ ------- ----- ------ ------
Net income before taxes.................. $2,091 $ 95 $ 143 2,329 $ 1,663 $(159) $ 103 1,607
====== ==== ====== ======= ===== ====== ======
Net corporate overhead expense........... 167 168
Income tax expense....................... 787 555
------ -----
Net income............................... $1,375 $ 884
====== =====
</TABLE>
Commercial Banking Activities. Net interest income from commercial
banking activities was $5.5 million for the nine months ended September 30,
1998, compared to $5.0 million for the same period in 1997, a $0.5 million or
10.0% increase. The loan loss provision was $340 thousand for the nine months
ended September 30, 1998, compared to $90 thousand for the same period of 1997,
a $250 thousand or 277.8% increase. The increase in the provision was made to
increase the Bank's allowance for loan losses. The allowance was increased due
to growth in the loan portfolio of approximately $20 million and to an increase
in non-performing assets at September 30, 1998. See "Business-Asset Quality."
The Company believes that the allowance was adequate at September 30, 1998.
Non-interest income for the nine months ended September 30, 1998 was $1.3
million, compared to $0.9 million for the same period of 1997, a $0.4 million or
44.4% increase. Total non-interest expense was $4.3 million for the nine months
ended September 30, 1998, compared to $4.1 million for the same period in 1997,
a decrease of $0.2 million or 4.9%. Net income before taxes was $2.1 million for
the nine months ended September 30, 1998, compared to $1.7 million for the same
period in 1997, a $0.4 million or 23.5% increase.
Trust Activities. United Trust reported net income before taxes of $95
thousand for the nine months ended September 30, 1998, compared to a loss of
$159 thousand for the same period in 1997, an improvement of $254 thousand. This
improvement was the result of additional fees generated by an increased volume
of trust accounts.
Investment Advisory Activities. Net income before taxes for EPW was $143
thousand for the nine months ended September 30, 1998, compared to $103 thousand
for the same period in 1997, an increase of $40 thousand or
25
<PAGE> 31
38.8%. This increase was due to an increase in the volume of assets under
management by EPW, due primarily to appreciation in the market values of the
portfolios under management.
Analysis of Net Interest Income
Net interest income for the nine months ended September 30, 1998 was $5.4
million as compared to $4.9 million for the same period in 1997, a $0.5 million
or 10.2% increase. Interest income was $9.3 million for the nine months ended
September 30, 1998, compared to $7.9 million for the same period in 1997, a $1.4
million or 17.7% increase. Interest expense was $3.9 million for the nine months
ended September 30, 1998, compared to $3.0 million for the same period in 1997,
a $0.9 million or 30.0% increase.
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the nine months ended September 30, 1998 and 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------------------
1998 1997
------------------------------------ -----------------------------------
Summary of average rates/interest Average Average Average Average
earning assets: Balance Interest Rate Balance Interest Rate
------- -------- ------ -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net(1) ........................ $ 98,441 $ 7,553 10.23% $ 81,088 $6,524 10.73%
Securities:
Investment securities - taxable ...... 26,152 1,282 6.53 22,825 1,133 6.61
Investment securities - non-taxable .. 447 19 8.99 502 21 8.85
Federal funds sold ................... 11,408 471 5.50 5,609 226 5.39
-------- -------- ------ -------- ------ -----
Total earning assets ................. 136,448 9,325 9.12% 110,024 7,904 9.59%
Non-earning assets ................... 22,305 17,659
-------- --------
Total average assets ................. $158,753 $127,683
======== ========
Interest bearing liabilities:
NOW & money market ................... $ 48,488 1,146 3.15% $ 29,693 570 2.56%
Savings .............................. 4,804 73 2.03 4,725 72 2.03
Time, $100,000 & over ................ 9,776 401 5.47 7,040 293 5.55
Time other ........................... 50,314 2,045 5.42 46,535 1,882 5.39
Convertible subordinated debentures .. 630 38 8.00 630 38 8.00
Long-term debt ....................... 2,492 155 8.29 712 48 8.99
Other borrowings ..................... 3,995 76 2.54 2,865 68 3.16
-------- -------- ------ ------- ----- ----
Total interest bearing liabilities ... 120,499 3,934 4.35% 92,200 2,971 4.30%
Non-interest bearing liabilities:
Deposits ............................. 25,134 24,559
Other ................................ 1,726 1,186
Stockholders' equity ................. 11,394 9,738
-------- --------
Total liabilities and stockholders'
equity .............................. $158,753 $127,683
======== ========
Net interest income & net interest
spread ............................... $ 5,391 4.77% $4,933 5.30%
======== ==== ====== ====
Net interest margin .................... 5.28% 5.99%
==== ====
</TABLE>
- --------------------------
(1) Includes non-accrual loans. See "Business-Asset Quality."
26
<PAGE> 32
The following table reflects the change in net interest income due to
changes in the volume and rate of the Company's assets and liabilities for the
nine month period ended September 30, 1998:
<TABLE>
<CAPTION>
Increase
(Decrease)
---------------------------------------------------
Changes in net interest income Combination
(dollars in thousands) Volume Rate Rate/Volume Total
-------- ------ -------------- -------
<S> <C> <C> <C> <C>
Interest earning assets:
Loans, net ................................ $ 1,396 $(303) $ (65) $ 1,028
Securities:
Investment securities - taxable ........... 165 (12) (2) 151
Investment securities - non-taxable ....... (4) 1 1 (2)
Federal funds sold ........................ 235 5 5 245
------- ----- ----- -------
Total change in interest income ........... 1,792 (309) (61) 1,422
------- ----- ----- -------
Interest-bearing liabilities:
NOW & money market ........................ 361 132 83 576
Savings ................................... 1 (0) (0) 1
Time, $100,000 & over ..................... 114 (4) (2) 108
Time other ................................ 153 9 1 163
Convertible subordinated debentures ....... -- -- -- --
Long-term debt ............................ 120 (4) (9) 107
Other borrowings .......................... 27 (13) (5) 9
------- ----- ----- -------
Total change in interest expense ............ 776 120 68 964
------- ----- ----- -------
Increase (decrease) in net interest income .. $ 1,016 $(429) $(129) $ 458
======= ===== ===== =======
</TABLE>
Noninterest Income
Noninterest income for the nine months ended September 30, 1998 was $3.0
million, compared to $2.3 million for the same period in 1997, an increase of
$0.7 million or 30.4%. The increase was primarily due to increased income from
EPW and United Trust whose combined revenue increased $381 thousand during this
same period. Service charge income on deposits also increased by $20 thousand
during this same period and other income increased $120 thousand during this
period.
The following table indicates the components of noninterest income for
the nine months ended September 30, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
Increase/
1998 1997 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Service charges on deposit Accounts............ $ 529 $ 490 $ 39
Trust and investment management income......... 1,755 1,323 432
Loan servicing fees............................ 109 133 (24)
Gain on sale of SBA loans...................... 191 135 56
Gain on sale of securities..................... 79 -- 79
Net trading account profit..................... 79 -- 79
Other service charges, fees, and income........ 347 173 174
------ ------ ----
Total noninterest income..................... $3,089 $2,254 $835
====== ====== ====
</TABLE>
27
<PAGE> 33
Noninterest Expense
Total noninterest expense for the nine months ended September 30, 1998
was $6.0 million, compared to $5.7 million for the same period in 1997, an
increase of $0.3 million.
The following table reflects the components of noninterest expense for
the nine months ended September 30, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
Increase/
1998 1997 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Salaries and employee benefits............ $3,430 $2,960 $ 470
Occupancy expense......................... 419 372 47
Furniture and equipment expense........... 382 339 43
Data processing expense................... 331 313 18
Legal and professional fees............... 124 95 29
Amortization of intangible assets......... 52 48 4
Advertising............................... 260 205 55
Relocation expense........................ -- 138 (138)
Stationery and Supplies................... 103 112 (9)
Directors fees............................ 126 150 (24)
Securities write-down..................... -- 255 (255)
Other operating expenses.................. 752 670 82
------ ------ ------
Total noninterest expense............... $5,979 $5,657 $ 322
====== ====== ======
</TABLE>
YEARS ENDED DECEMBER 31, 1997 AND 1996
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
Overview
Total assets of the Company were $147.3 million at December 31, 1997,
compared to $122.7 million at December 31, 1996, an increase of $24.6 million or
20.0%. This increase was primarily the result of the Company's internal growth
of earning assets (primarily loans) funded by an increase in deposits.
Investment Securities
Investment securities, consisting of U.S. Treasury and federal agency
securities, obligations of state and political subdivisions and mortgage-backed
and corporate debt securities, were $21.6 million at December 31, 1997, compared
to $18.7 million at December 31, 1996, an increase of $2.9 million or 15.3%. At
December 31, 1997, the Company held certain securities totaling $11.5 million as
"available for sale". These securities have been recorded at market value.
Loans
Total loans were $97.0 million at December 31, 1997, compared to $81.2
million at December 31, 1996, an increase of $15.8 million or 19.4%. For the
same period, real estate mortgage loans increased by $11.1 million or 22.5%,
commercial loans increased by $5.3 million or 21.0%, and all other loans
including consumer loans were virtually unchanged. Net loans were $94.8 million
at December 31, 1997, compared to $79.3 million at December 31, 1996.
28
<PAGE> 34
Allowance for Loan Losses
The allowance for loan losses amounted to $1.6 million at December 31,
1997, virtually unchanged from December 31, 1996. During 1997, $90.9 thousand in
loans were charged off, $90 thousand was added to the allowance for loan losses
through a provision, which was accounted for as an expense, reducing net income,
and $38 thousand was recovered from loans previously charged off.
Nonperforming Assets
Nonperforming assets were $651 thousand at December 31, 1997, compared to
$372 thousand at December 31, 1996, an increase of $279 thousand or 75.0%. All
nonperforming assets consisted of nonperforming loans.
Bank Premises and Equipment
Bank premises and equipment was $9.5 million at December 31, 1997,
compared to $6.0 million at December 31, 1996, an increase of $3.5 million or
58.3%. This increase was primarily due to the final funding of the building and
equipment related to the Company's new headquarters facility which opened in May
1997.
Deposits
Total deposits were $130.2 million at December 31, 1997, compared to
$108.1 million at December 31, 1996, an increase of $22.1 million or 20.4%. Of
the $22.1 million increase, $1.7 million was in demand deposits, $8.5 million
was in NOW and money market deposits, $0.6 million was in savings deposits, $4.9
million was in time deposits of $100,000 or greater, and $6.4 million was in
other time deposits.
Long-term Debt and Convertible Subordinated Debentures
Long-term debt outstanding was $2.7 million at December 31, 1997,
compared to $0.8 million at December 31, 1996, an increase of $1.9 million. This
increase was due primarily to borrowings from a non-affiliated bank secured by
the Bank's common stock to fund the capitalization of United Trust.
Stockholders' Equity
Stockholders' equity was $10.5 million at December 31, 1997, or 7.12% of
total assets, compared to $9.5 million, or 7.73% of total assets at December 31,
1996. At December 31, 1997, the Bank's Tier I (core) Capital ratio was 6.77%,
its Tier I Risk-based Capital ratio was 8.90%, and its Total Risk-based Capital
ratio was 10.15%. The capital ratios of the Bank at that date all exceeded the
minimum regulatory guidelines for an institution to be considered "well
capitalized".
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1996
Overview
Net income for the year ended December 31, 1997 was $1.4 million or $0.38
per share diluted, compared to $1.5 million or $0.40 per share diluted for the
same period in 1996. On a pre-tax basis, United Trust lost $114 thousand in 1997
and $421 thousand in 1996, EPW's pre-tax profits increased to $149 thousand from
$92 thousand during this period and the Bank's pre-tax profits declined to $2.5
million from $2.8 million during this same period.
29
<PAGE> 35
Business Segment Information
The Company's operations include three business segments: commercial
banking, trust services (operated through United Trust) and investment
management services (operated through EPW). The following are the results of
operations for these three segments for the years ended December 31, 1997 and
1996 (dollars in thousands).
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------------------
1997 1996
----------------------------------------------- -----------------------------------------
Commercial United Company Commercial United Company
Banking Trust EPW Total Banking Trust EPW(1) Total
------- ------- ------- ------- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income ................... $10,785 $ 0 $ 0 $10,785 $9,577 $ 0 $ 0 $9,577
Interest Expense .................. 3,970 0 5 3,975 3,278 0 5 3,283
------- ------- ------- ------- ------ ----- ----- ------
Net Interest Income ............... 6,815 0 (5) 6,810 6,299 0 (5) 6,294
Loan Loss Provision ............... 90 0 0 90 150 0 0 150
------- ------- ------- ------- ------ ----- ----- ------
Net Interest Income after loan loss
provision ...................... 6,725 0 (5) 6,720 6,149 0 (5) 6,144
Noninterest Income ................ 1,286 765 1,238 3,289 1,251 381 936 2,568
General and Administrative ("G&A")
expenses ....................... 5,124 852 1,084 7,060 4,532 780 839 6,151
Other noninterest expense ......... 384 9 0 393 0 0 0 0
Amortization of goodwill .......... 15 18 0 33 14 22 0 36
------- ------- ------- ------- ------ ----- ----- ------
Total noninterest expense ......... 5,523 879 1,084 7,486 4,546 802 839 6,187
------- ------- ------- ------- ------ ----- ----- ------
Net Income before taxes ........... $2,488 $(114) $ 149 $2,523 $2,854 $(421) $ 92 $2,525
======= ======= ======= ====== ===== =====
Net Corporate Overhead expense .... 253 154
Income tax expense ................ 860 891
------- ------
Net income ........................ $ 1,410 $1,480
======= ======
</TABLE>
- ----------
(1) For the eleven months ended December 31, 1996
Commercial Banking Activities. The Company's commercial banking activities
are conducted through the Bank. Net interest income of the Bank for the year
ended December 31, 1997 was $6.8 million, compared to $6.3 million for the same
period in 1996, a $0.5 million or 7.9% increase. Based on the Company's analysis
of its loan portfolio and loan loss reserve, the loan loss provision was reduced
$90 thousand for 1997, compared to $150 thousand for 1996, a 40.0% decrease.
Non-interest income for 1997 was $1.3 million, compared to $1.3 million for
1996. Total non-interest expense was $5.5 million for 1997, compared to $4.6
million for 1996, a 19.6% increase. Net income before taxes was $2.5 million for
1997, compared to $2.9 million for 1996, a 13.8% decrease.
The decline in the Bank's net income before taxes in 1997 compared to 1996
was mainly due to increases in noninterest expenses. The principal components of
this increase were an increase in Company general and administrative expenses of
$592 thousand, a one time write-down of $255 thousand in the value of a security
held in portfolio, and $138 thousand from the write-off of leasehold
improvements in a facility which was abandoned. Other increases in general and
administrative expenses were substantially due to the full year impact from a
new branch which was opened in September 1996, expenses associated with moving
into the new headquarters building, and additional employees hired for
accounting and credit administration functions and other support operations.
Trust Activities. United Trust reported a net loss before taxes of $114
thousand for the year ended December 31, 1997, compared to a loss of $421
thousand for 1996, an improvement of $307 thousand. This improvement was the
result of the increased volume of trust accounts.
30
<PAGE> 36
Investment Advisory Activities. Net income before taxes for EPW was $149
thousand for the year ended December 31, 1997, compared to $92 thousand for the
same period of 1996, a $57 thousand or 61.9% increase. This increase was
primarily due to an increase in the volume of assets under management by EPW
resulting from higher market values of the assets under management.
Analysis of Net Interest Income
Net interest income for the year ended December 31, 1997 was $6.7 million,
compared to $6.2 million for the same period in 1996, a $0.5 million or 8.2%
increase. Interest income was $10.8 million for the year ended December 31,
1997, compared to $9.6 million for the same period in 1996, a $1.2 million or
12.5% increase. Interest expense was $4.1 million for the year ended December
31, 1997, compared to $3.4 million for the same period in 1996, a $0.7 million
or 20.6% increase.
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the years ended December 31, 1997 and 1996 (dollars in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------
1997 1996
------------------------------------ --------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Summary of average rates/interest
earning assets:
Interest earning assets:
Loans, net(1) ..................... $ 83,614 $ 8,961 10.72% $ 75,590 $8,121 10.74%
Securities:
Investment securities - taxable ... 22,995 1,508 6.56 18,168 1,216 6.69
Investment securities - non-taxable 494 29 9.09 659 38 9.22
Federal funds sold ................ 5,447 295 5.42 4,144 220 5.31
-------- ------- -------- ------
Total earning assets .............. 112,550 10,793 9.60% 98,561 9,595 9.76%
Non-earning assets ................ 18,230 13,774
-------- --------
Total average assets ................ $130,780 $112,335
======== ========
Interest bearing liabilities:
NOW & money market ................ $ 30,692 $ 795 2.59% $ 23,938 $ 542 2.26%
Savings ........................... 4,774 97 2.02 4,977 108 2.16
Time, $100,000 & over ............. 7,518 419 5.57 4,307 242 5.61
Time other ........................ 47,445 2,604 5.49 43,089 2,315 5.37
Convertible subordinated debentures 630 50 8.00 578 46 7.96
Long-term debt .................... 1,037 80 7.73 886 78 8.80
Other borrowings .................. 2,638 56 2.13 3,959 89 2.26
-------- ------- -------- ------
Total interest bearing liabilities .. 94,734 4,101 4.33 81,733 3,420 4.18
Non-Interest bearing liabilities:
Deposits .......................... 24,774 20,421
Other ............................. 1,380 1,235
Stockholders' equity .............. 9,892 8,945
-------- --------
Total liabilities and stockholders'
equity ......................... $130,780 $112,335
======== ========
Net interest & net interest spread $ 6,692 5.27% $6,175 5.58%
======= ==== ====== ====
Net interest margin ............... 5.96% 6.27%
==== ====
</TABLE>
- ----------
(1) Includes non-accrual loans. See "Business-Asset Quality."
31
<PAGE> 37
The following table reflects the change in net interest income due to
changes in the volume and rate of the Company's assets and liabilities for the
twelve month period ended December 31, 1997:
<TABLE>
<CAPTION>
Increase (Decrease)
-------------------------------------------------------
Combination
Changes in net interest income (dollars in thousands) Volume Rate Rate/Volume Total
------ ---- ----------- -----
<S> <C> <C> <C> <C>
Interest earning assets:
Loans, net ............................. $ 861 $ (24) $ 2 $ 839
Securities:
Investment securities - taxable ........ 323 (24) (6) 293
Investment securities - non-taxable .... (15) (1) 6 (10)
Federal funds sold ..................... 69 5 1 75
------ ----- ---- ------
Total change in interest income .......... 1,238 (44) 3 1,197
Interest bearing liabilities:
NOW & money market ..................... 153 78 22 253
Savings ................................ (4) (7) -- (11)
Time, $100,000 & over .................. 180 (2) (1) 177
Time other ............................. 234 50 5 289
Convertible subordinated debentures .... 4 -- -- 4
Long-term debt ......................... 13 (9) (2) 2
Other Borrowings ....................... (30) (5) 2 (33)
------ ----- ---- ------
Total change in interest expense ......... 550 105 26 681
------ ----- ---- ------
Increase (decrease) in net interest income $ 688 $(149) $(23) $ 516
====== ===== ==== ======
</TABLE>
Noninterest Income
Noninterest income for the year ended December 31, 1997 was $3.2 million
compared to $2.5 million for the same period in 1996, an increase of $0.7
million or 28.0%. This increase was primarily due to increased revenues from EPW
and United Trust whose combined revenues increased $657 thousand during this
period. Service charge income on deposits also increased by $119 thousand during
this same period. Gain on sale of SBA loans declined $135 thousand during this
period.
The following table indicates the components of noninterest income for
the years ended December 31, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------------------------
Increase/
1997 1996 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Service charges on deposit accounts ... $ 675 $ 556 $ 119
Trust and investment management income 1,886 1,229 657
Other service charges, fees, and income 225 209 16
Loan servicing fees ................... 164 153 11
Gain on sale of SBA loans ............. 290 425 (135)
------ ------ -----
Total noninterest income .............. $3,240 $2,572 $ 668
====== ====== =====
</TABLE>
32
<PAGE> 38
Noninterest Expense
Total noninterest expense for the year ended December 31, 1997 was $7.6
million, compared to $6.2 million for the same period in 1996, an increase of
$1.3 million or 22.6%. The increase is mainly due to the inclusion of a full
year of EPW's operations and the St. Petersburg Beach branch in the 1997
results, versus the inclusion of only eleven and four months of operations,
respectively, in 1996, as well as the expansion of the Bank's facilities,
expansion of United Trust and EPW's operations and a one-time write-down of $255
thousand in the Bank's investment securities portfolio.
The following table reflects the components of noninterest expense for
the years ended December 31, 1997 and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------------------
Increase/
1997 1996 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Salaries and employee benefits ....... $4,048 $3,724 $ 324
Occupancy expense .................... 514 387 127
Furniture and equipment expense ...... 494 423 71
Data processing expense .............. 418 375 43
Legal and professional fees .......... 177 153 24
Amortization of intangible assets..... 67 111 (44)
Advertising .......................... 133 124 9
Relocation expense ................... 138 -- 138
Stationery and supplies .............. 150 141 9
Directors fees ....................... 199 143 56
Securities write-down ................ 255 -- 255
Other operating expenses ............. 979 645 334
------ ------ -------
Total noninterest expense ............ $7,572 $6,226 $1,346
====== ====== =======
</TABLE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1996 AND DECEMBER 31, 1995
Overview
Total assets of the Company were $122.7 million at December 31, 1996,
compared to $106.6 million at December 31, 1995, an increase of $16.1 million or
15.1%. This growth was primarily due to the Company's internal growth of earning
assets (primarily loans) funded by an increase in deposits.
Investment Securities
Investment securities, consisting of U.S. Treasury and federal agency
securities, obligations of state and political subdivisions and mortgage-backed
and corporate debt securities, were $19.0 million at December 31, 1996, compared
to $18.0 million at December 31, 1995, an increase of $1.1 million or 5.6%. At
December 31, 1996, the Company held certain securities totaling $9.5 million as
"available for sale". These securities have been recorded at market value.
Loans
Total loans were $81.2 million at December 31, 1996, compared to $75.8
million at December 31, 1995, an increase of $5.4 million or 7.1%. Commercial
loans increased $5.5 million or 28.1%, and real estate mortgage loans and all
other loans including consumer loans were virtually unchanged. Net loans (net of
allowance for loan losses and unearned fees) were $79.3 million at December 31,
1996, compared to $74.0 million at December 31, 1995.
33
<PAGE> 39
Allowance for Loan Losses
The allowance for loan losses totaled $1.6 million at December 31, 1996,
compared to $1.5 million at December 31, 1995, an increase of $0.1 million.
During 1996, $68.5 thousand in loans were charged off, $150 thousand was added
to the allowance through a provision which was accounted for as an expense,
reducing net income, and $1.6 thousand was recovered from loans previously
charged off.
Nonperforming Assets
Nonperforming assets totaled $372 thousand at December 31, 1996, compared
to $21 thousand at December 31, 1995, an increase of $351 thousand. All
nonperforming assets consisted of nonperforming loans.
Bank Premises and Equipment
Bank premises and equipment totaled $6.0 million at December 31, 1996,
compared to $3.5 million at December 31, 1995, an increase of $2.5 million or
71.4%. This increase was primarily due to the purchase of the building and
equipment related to the Bank's St. Petersburg Beach branch office opened during
September 1996 and the construction in progress of the Company's new
headquarters facility.
Deposits
Total deposits were $108.1 million at December 31, 1996, compared to $93.3
million at December 31, 1995, an increase of $14.9 million or 16.0%. Of the
$14.9 million increase, $5.7 million was in demand deposits, $7.0 million was in
NOW and money market deposits, $0.3 million was in time deposits of $100,000 or
greater, and $2.0 million was in other time deposits. Regular savings deposits
decreased $0.1 million.
Long-term Debt and Convertible Subordinated Debentures
Long-term debt outstanding (excluding convertible subordinated debentures)
was $814 thousand at December 31, 1996, compared to $875 thousand at December
31, 1995, a decrease of $61 thousand. This debt is payable to an unrelated bank.
In addition, $630 thousand in convertible subordinated debentures were issued
during 1996 to purchase EPW.
Stockholders' Equity
Stockholders' equity was $9.5 million at December 31, 1996, or 7.73% of
total assets, compared to $8.5 million, or 7.96% of total assets at December 31,
1995. At December 31, 1996, the Bank's Tier I (core) Capital ratio was 7.2%, its
Tier I Risk-based Capital ratio was 10.1%, and its Total Risk-based Capital
ratio was 11.3%. The capital ratios of the Bank at that date all exceeded the
minimum regulatory guidelines for an institution to be considered "well
capitalized." See "Business-Supervision and Regulation."
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
1995
Overview
Net income for the year ended December 31, 1996 was $1.48 million or $0.40
per share diluted, compared to $1.48 million or $0.43 per share diluted for the
same period in 1995. Results for fiscal year 1996 included a full year of
operations of the Bank's trust department, versus three months of trust
operations in 1995, four months of operations of the Bank's St. Petersburg Beach
branch office, which opened during September 1996, and eleven months of
operations of EPW, which was acquired in January 1996. The effect of the
inclusion of these operations was to reduce the Company's net income for 1996 by
approximately $319 thousand as a result of the losses these activities generated
during their initial periods of operation.
34
<PAGE> 40
Analysis of Net Interest Income
Net interest income for the year ended December 31, 1996 was $6.2 million,
compared to $5.9 million for the same period in 1995, a $0.3 million or 4.5%
increase. Interest income was $9.6 million for the year ended December 31, 1996,
compared to $9.1 million for the same period in 1995, a $0.5 million or 5.2%
increase. Interest expense was $3.4 million for the year ended December 31,
1996, compared to $3.2 million for the same period in 1996, a $0.2 million or
6.5% increase.
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the years ended December 31, 1996 and 1995 (dollars in
thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------------------
1996 1995
-------------------------------- --------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Summary of average rates/interest
earning assets:
Interest earning assets:
Loans, net(1) .......................... $ 75,590 $8,121 10.74% $ 69,525 $7,590 10.92%
Securities:
Investment securities - taxable ........ 18,167 1,216 6.69 17,808 1,220 6.85
Investment securities - non-taxable..... 659 38 9.22 658 38 9.22
Federal funds sold ..................... 4,144 220 5.31 4,733 276 5.83
-------- ------ -------- ------
Total earning assets ................... 98,560 9,595 9.76% 92,724 9,124 9.86%
Non-earning assets ..................... 13,774 9,198
-------- --------
Total average assets ..................... $112,334 $101,922
======== ========
Interest bearing liabilities:
NOW & money market ..................... $ 23,938 $ 542 2.26% $ 25,184 $ 665 2.64%
Savings ................................ 4,977 108 2.16 4,943 121 2.45
Time, $100,000 & over .................. 4,307 242 5.61 3,626 211 5.80
Time other ............................. 43,089 2,315 5.37 35,118 1,941 5.53
Convertible subordinated debentures..... 577 46 8.00 -- -- --
Long-term debt ......................... 886 78 8.84 901 86 9.58
Other borrowings ....................... 3,959 89 2.26 5,634 188 3.33
-------- ------ -------- ------
Total interest bearing liabilities ....... 81,733 3,420 4.18 75,406 3,212 4.26
Non-Interest bearing liabilities:
Deposits ............................... 20,421 18,402
Other .................................. 1,236 1,029
Stockholders' equity ................... 8,944 7,085
-------- --------
Total liabilities and stockholders'
equity .............................. $112,334 $101,922
======== ========
------ ------
Net interest & net interest spread ..... $6,175 5.58% $5,912 5.60%
====== ==== ====== ====
Net interest margin .................... 6.26% 6.38%
==== ====
</TABLE>
- --------------------------
(1) Includes non-accrual loans. See "Business-Asset Quality."
35
<PAGE> 41
The following table reflects the change in net interest income due to
changes in the volume and rate of the Company's assets and liabilities for the
twelve month period ended December, 1996:
<TABLE>
<CAPTION>
Increase (Decrease)
-----------------------------------------------------
Combination
Volume Rate Rate/Volume Total
------ ---- ----------- -----
<S> <C> <C> <C> <C>
Changes in Net Interest Income
(dollars in thousands)
Interest earning assets:
Loans, net .............................. $662 $(125) $ (6) $ 531
Securities:
Investment securities - taxable ........ 25 (28) (1) (4)
Investment securities - non-taxable .... -- -- -- --
Federal funds sold ...................... (34) (25) 3 (56)
---- ----- ---- -----
Total earning assets ..................... 653 (178) (4) 471
Interest bearing liabilities:
NOW & money market ...................... (33) (95) 5 (123)
Savings ................................. 1 (15) -- (14)
Time, $100,000 & over ................... 39 (7) (1) 31
Time other .............................. 441 (55) (14) 373
Convertible subordinated debentures ..... 46 -- -- 46
Long-term debt .......................... (1) (7) -- (8)
Other borrowings ........................ (56) (60) 19 (97)
---- ----- ---- -----
Total change in interest expense ......... 437 (239) 10 208
---- ----- ---- -----
Increase (decrease) in net interest income $216 $ 61 $(13) $ 263
==== ===== ==== =====
</TABLE>
Noninterest Income
Noninterest income for the year ended December 31, 1996 was $2.6 million,
compared to $1.2 million for the same period in 1995, an increase of $1.3
million or 116.7%. This increase was primarily due to increased revenues from
EPW and the Bank's trust operations whose combined revenues increased $1.2
million during this period. Noninterest income for 1996 included a full year of
trust operations and eleven months of EPW's operations, compared with three
months of trust operations during 1995. Service charge income on deposits
decreased slightly during this same period. Gain on sale of SBA loans increased
$0.1 million during this period.
The following table indicates the components of noninterest income for
the years ended December 31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------------------
Increase/
1996 1995 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Services charges on deposit accounts .. $ 556 $ 576 $ (20)
Trust and investment management income 1,229 58 1,171
Loan servicing fees ................... 153 136 17
Gain on sale of SBA loans ............. 425 284 141
Other service charges, fees, and income 209 183 26
------ ------ ------
Total noninterest income .............. $2,572 $1,237 $1,335
====== ====== ======
</TABLE>
36
<PAGE> 42
Noninterest Expense
Total noninterest expense for the year ended December 31, 1996 was $6.2
million, compared to $4.6 million for the same period in 1995, representing an
increase of $1.6 million or 34.7%. The increase is mainly due to the inclusion
of a full year of trust operations and eleven months of EPW operations in 1996,
compared to three months of trust operations included in the 1995 results.
The following table reflects the components of noninterest expense for the
years ended December 31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------------------
Increase/
1996 1995 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Salaries and employee benefits ........... $3,724 $2,594 $ 1,130
Occupancy expense ........................ 387 280 107
Furniture and equipment expense .......... 423 280 143
Data processing expense .................. 375 315 60
Legal and professional fees .............. 153 122 31
Amortization of intangible assets......... 111 120 (9)
Advertising .............................. 124 75 49
Stationery and supplies .................. 141 108 33
Directors fees ........................... 143 136 7
Other operating expenses ................. 645 590 55
------ ------ -------
Total noninterest expense ................ $6,226 $4,620 $ 1,606
====== ====== =======
</TABLE>
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Liquidity
The Investment and Asset/Liability Committee of the Board of Directors
reviews the Company's liquidity, which is its ability to generate sufficient
cash to meet the funding needs of current loan demand, deposit withdrawals, and
other cash demands. The primary sources of funds consist of deposits,
amortization and prepayments of loans, sales of investments, other funds from
operations and the Company's capital. The Bank is a member of the Federal Home
Loan Bank of Atlanta ("FHLB") and has the ability to borrow to supplement its
liquidity needs.
When the Company's primary sources of funds are not sufficient to meet
deposit outflows, loan originations and purchases and other cash requirements,
the Company may supplementally borrow funds from the FHLB and from other
sources. The FHLB acts as an additional source of funding for banks and thrift
institutions that make residential mortgage loans.
FHLB borrowings, known as "advances", are secured by the Bank's mortgage
loan portfolio, and the terms and rates charged for FHLB advances vary in
response to general economic conditions. As a shareholder of the FHLB, the Bank
is authorized to apply for advances from this bank. A wide variety of borrowing
plans are offered by the FHLB, each with its own maturity and interest rate. The
FHLB will consider various factors, including an institution's regulatory
capital position, net income, quality and composition of assets, lending
policies and practices, and level of current
37
<PAGE> 43
borrowings from all sources, in determining the amount of credit to extend to an
institution. As of September 30, 1998, the Company had no FHLB advances
outstanding. See "Business-Supervision and Regulation-Liquidity."
A Florida chartered commercial bank is required to maintain a liquidity
reserve of at least 15% of its total transaction accounts and 8% of its total
nontransaction accounts less deposits of certain public funds. The liquidity
reserve may consist of cash on hand, cash on demand with other correspondent
banks and other investments and short-term marketable securities as determined
by the rules of the Department, such as federal funds sold and United States
securities or securities guaranteed by the United States or agencies thereof.
The Company complies with applicable liquidity reserve requirements. As of
September 30, 1998, the Bank had liquidity of approximately $26.6 million or
approximately 18.7% of total deposits combined with borrowings. The Company's
primary sources of funds consist of principal payments on loans and investment
securities, proceeds from sales and maturities of securities available for sale
and net increases in deposits. The Company uses its funds principally to
purchase investment securities and fund existing and continuing loan
commitments. At September 30, 1998, the Company had commitments to originate
loans totaling $19.4 million. Scheduled maturities of certificates of deposit
during the 12 months following September 30, 1998 total $45.2 million as of
September 30, 1998. Management believes the Company has adequate resources to
fund all its commitments, and, if so desired, that it can adjust the rates on
certificates of deposit to retain deposits in a changing interest-rate
environment.
Asset/Liability Management
One of the primary objectives of the Company is to reduce fluctuations in
net interest income caused by changes in interest rates. To manage interest rate
risk, the Board of Directors has established interest-rate risk policies and
procedures which delegate to the Investment and Asset/Liability Committee the
responsibility to monitor and report on interest-rate risk, devise strategies to
manage interest-rate risk, monitor loan originations and deposit activity, and
approve all pricing strategies.
The management of interest-rate risk is one of the most significant factors
affecting the ability to achieve future earnings. The measure of the mismatch of
assets maturing or repricing within certain periods, and liabilities maturing or
repricing within the same period, is commonly referred to as the "gap" for such
period. Controlling the maturity or repricing of an institution's assets and
liabilities in order to minimize interest rate risk is commonly referred to as
gap management. "Negative gap" occurs when, during a specific time period, an
institution's liabilities are scheduled to reprice more rapidly than its assets,
so that, barring other factors affecting interest income and expense, in periods
of rising interest rates the institution's interest expense would increase more
rapidly than its interest income, and in periods of falling interest rates the
institution's interest expense would decrease more rapidly than its interest
income. "Positive gap" occurs when an institution's assets are scheduled to
reprice more rapidly than its liabilities, so that, barring other factors
affecting interest income and expense, in periods of falling interest rates, the
institution's interest income would decrease more rapidly than its interest
expense, and in periods of rising interest rates, the institution's interest
income would increase more rapidly than its interest expense. It is common to
focus on the one-year gap, which is the difference between the dollar amount of
assets and the dollar amount of liabilities maturing or repricing within the
next 12 months.
To the extent market conditions permit, the Bank follows a strategy
intended to protect its net interest income from adverse changes in interest
rates by maintaining spreads through the adjustability of its interest earning
assets and its interest bearing liabilities. The Bank employs a number of
strategies designed to protect its net interest income. The Bank calculates its
net interest margin on a monthly basis and compares it to a quarterly national
peer group ratio. Historically, the Bank has enjoyed a higher than peer group
average net interest margin as well as a higher margin than most of the
community banks operating in Pinellas County.
Additionally, the Investment and Asset/Liability Committee meets on a
quarterly basis to review the most recent margin analysis, the Bank's overall
pricing strategies, and a monthly gap report measuring its interest rate
sensitivity position.
38
<PAGE> 44
The Bank is also a member of the FHLB. Member banks have access to a
variety of fixed and variable rate borrowings, ranging from overnight to up to
20 years or longer. Access to these instruments can permit the Bank to match
maturities of either specific groups of loans or larger, single loans.
Currently, the Bank has no FHLB advances outstanding.
The cumulative one-year gap at September 30, 1998 was a negative $28.2
million or a negative 17.8% (expressed as a percentage of total assets). The
exclusion of approximately $3.1 million of non-accrual loans increased the
negative gap by nearly 2%. The Company performs an income simulation analysis to
measure net interest income volatility when the portfolio is subjected to a 200
basis point interest rate shock. Based on the results of this simulation and the
current interest rate environment (taking into account competitive pricing and
generally declining interest rates), the Company believes that its gap position
as of September 30, 1998 was appropriate, and currently anticipates that a
similar negative gap position will continue in the subsequent one year time
period.
The following table presents the maturities or repricing of
interest-earning assets and interest-bearing liabilities at September 30, 1998.
The balances shown have been derived based on the financial characteristics of
the various assets and liabilities. Adjustable and floating-rate assets are
included in the period in which interest rates are next scheduled to adjust
rather than their scheduled maturity dates. Fixed-rate loans are shown in the
periods in which they are scheduled to be repaid according to contractual
amortization and, where appropriate, prepayment assumptions based on the coupon
rates in the portfolio have been used to adjust the repayment amounts. Repricing
of time deposits is based on their scheduled maturities.
39
<PAGE> 45
INTEREST SENSITIVITY ANALYSIS
(dollars in thousands)
<TABLE>
<CAPTION>
Non-Rate
Sensitive
0 to 3 4 to 6 7 to 12 13 to 60 60+ Assets/
Months Months Months Months Months Liabilities Total
------ ------ ------ ------ ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold ........... $ 245 $ 0 $ 0 $ 0 $ 0 N/A $ 245
Securities ................... 2,594 4,662 2,724 9,035 10,573 N/A 29,588
Loans:(1)
Fixed ...................... 5,029 4,651 5,197 15,539 4,313 N/A 34,729
Variable ................... 36,247 2,214 3,159 29,705 1,593 N/A 72,918
-------- -------- -------- ------- ------- -------- --------
Total rate sensitive assets .... $ 44,115 $ 11,527 $ 11,080 $54,279 $16,479 N/A $137,480
======== ======== ======== ======= ======= ======== ========
LIABILITIES:
Interest demand .............. $ 38,096 $ 0 $ 0 $ 0 $ 0 $ 11,850 $ 49,946
Savings ...................... 4,417 0 0 0 0 0 4,417
Time deposits ................ 18,076 11,472 15,674 11,381 0 0 56,603
Other borrowings ............. 4,554 0 0 0 0 0 4,554
Long term debt ............... 2,639 4 8 26 630 0 3,307
-------- -------- -------- ------- ------- -------- --------
Total rate sensitive liabilities $ 67,782 $ 11,476 $ 15,682 $11,407 $ 630 $ 11,850 $118,827
======== ======== ======== ======= ======= ======== ========
Dollar gap ..................... $(23,667) $ 51 $ (4,602) $42,872 $15,849 $(11,850) $ 18,653
======== ======== ======== ======= ======= ======== ========
Cumulative Dollar gap .......... $(23,667) $(23,616) $(28,218) $14,654 $30,503 $ 18,653 $ 18,653
======== ======== ======== ======= ======= ======== ========
Cumulative gap/total assets(2) . (14.93)% (14.90)% (17.80)% 9.25% 19.25% 11.77% 11.77%
======== ======== ======== ======= ======= ======== ========
</TABLE>
- ----------
(1) Excludes nonaccrual loans of approximately $3.0 million.
(2) Calculated based on total assets of $158,496.
40
<PAGE> 46
YEAR 2000 CONSIDERATIONS
During the next two years, many businesses, including financial
institutions such as the Company, will face potentially serious issues
associated with the inability of certain existing data processing hardware and
software to appropriately recognize calendar dates beginning in the year 2000.
The "Year 2000" problem arose because many existing computer programs use only
the last two digits to refer to a year. Therefore, these computer programs may
not properly recognize a year that begins with "20" instead of "19."
Additionally, many computer programs that can only distinguish the final two
digits of the year may read entries for the year 2000 as the year 1900. For
example, computer systems may compute payment, interest, delinquency or other
figures important to the operations of financial institutions based on the wrong
date. If not corrected, many computer applications, including those owned by the
Company and third parties with whom the Company does business, could fail or
create erroneous results, thereby potentially impacting the operations and
financial performance of the Company. Although the Company is currently
addressing potential Year 2000 problems, there can be no assurance that its
efforts will prevent all potential adverse consequences to the Company resulting
from the Year 2000 problem.
In 1997, the Company began the process of evaluating its information
technology for Year 2000 readiness. In April 1998, the Company adopted a formal,
comprehensive Year 2000 Policy Statement designed to identify and address Year
2000 issues that might impact the Company (the "Year 2000 Plan"). The Company
has completed the "Awareness," "Inventory" and "Assessment" phases of its Year
2000 Plan, which are designed to appoint and train a group of employees to
oversee and implement the Year 2000 Plan, to provide for the inventory of the
software and hardware of the Company and others that should be assessed for Year
2000 problems, and to provide further assessment of the nature and size of the
Year 2000 issues that might effect the Company, respectively. The Company is
currently in the process of overseeing its internal efforts and the efforts of
third parties to timely and properly address the Year 2000 issues that have been
identified, as well as testing and validating the actions that have been taken
thus far to address those issues. It is expected that those testing and
validation efforts will be completed by June 30, 1999.
The Company outsources its principal data processing activities to a
third party and purchases most of its software applications from third party
vendors. Additionally, the Company outsources its trust business data processing
and custodial management activities to a third party. Each of the two foregoing
data processing servicers have orally advised the Company that it believes its
systems are Year 2000 compliant. The Company is in the process of testing and
validating those claims. Based on these efforts to date, the Company believes
that its vendors and significant customers are actively addressing the problems
associated with the Year 2000 issue and that the Company will be prepared to
respond to Year 2000 problems as they arise. The Company is in the process of
finalizing contingency plans to address the most reasonably likely worst case
scenario relating to the Year 2000 problem. The anticipated completion date for
those plans is by March 31, 1999. If the Company is unable for any reason to
timely complete such a contingency plan and problems associated with the Year
2000 issue arise and are not addressed as expected by the Company, as each of
the Company's business segments is very dependent upon computer systems to
effectively conduct most of their business operations and fulfill most of their
obligations to third parties, the Company's business operations could be
significantly disrupted and the Company's financial condition and results of
operations could be significantly adversely affected. The Company's Year 2000
efforts are ongoing and have not yet been completed. Accordingly, there can be
no assurance that the Company will be prepared to timely respond to all year
2000 issues that may arise.
The Company is also in the process of identifying Year 2000 problems
stemming from non-information technology systems, such as microcontrollers used
to operate security systems and elevators and embedded systems in its buildings
and equipment and other infrastructure, and establishing a program for testing
these systems for Year 2000 compliance. However, the Company does not currently
anticipate that it will encounter any substantial Year 2000 problems with
respect to such non-information technology systems, and believes the cost to
remedy any such problems will not be material.
The Company has not incurred material testing, compliance or replacement
costs relating to its Year 2000 investigation to date. The Company expects to
spend approximately $255,000 and $280,000 in 1998 and 1999, respectively,
towards technology related costs, including the updating of software and
hardware systems to ensure Year
41
<PAGE> 47
2000 compliance. The Company does not expect to incur additional material
related testing, compliance or replacement costs in the future and does not
believe that the potential non-compliance of its information and non-information
technology systems and programs present a material risk to the Company's
financial condition or results of operations. However, non-material costs may be
incurred due to short-term disruptions resulting from Year 2000 compliance
problems, testing and replacement costs.
Notwithstanding the foregoing, there can be no assurance that the Company
will be successful in implementing its Year 2000 Plan and that it will not be
adversely affected by the failure of third party vendors or significant
customers to become Year 2000 compliant. Although the Company is taking steps to
identify and address Year 2000 problems, if unexpected or unresolved Year 2000
problems develop, given the Company's reliance on data processing services to
maintain customer balances, service customer accounts and to perform other
record keeping and service oriented functions associated with the Company's
three primary business segments, the occurrence of any such events could have a
material impact on the Company's results of operations, liquidity and financial
condition.
42
<PAGE> 48
BUSINESS
THE COMPANY AND THE BANK
The Company is a registered bank holding company formed in 1982, the
principal subsidiary of which is the Bank, an FDIC-insured commercial bank
chartered under Florida law and headquartered in St. Petersburg, Florida. The
Company's other operating subsidiaries are EPW, an investment advisory firm
registered under the Investment Advisers Act of 1940 headquartered in Tampa,
Florida, with an office in Jacksonville, Florida, and United Trust, a
Florida-chartered trust company registered with the Department and located in
St. Petersburg, Florida. At September 30, 1998, the Company had consolidated
total assets of $158.5 million, net loans of $108.1 million, deposits of $136.6
million and stockholders' equity of $12.0 million.
The Bank is a community-oriented full service, commercial bank founded in
1979 and currently operating from four branch offices serving the southern
Pinellas County area of the State of Florida. It offers consumer and commercial
loans, ATM cards, credit cards, and a full range of deposit account types
including demand deposits, NOW accounts, money market accounts, savings
accounts, and certificates of deposit. The primary focus of the Bank's
commercial lending activities is on loans to small and medium sized businesses
and professional firms. The Bank's commercial loans include loans secured by
real estate or other assets, loans made under the SBA's lending program and
secured and unsecured loans to small businesses. The Company believes the Bank
is one of the largest originators, among similarly sized financial institutions,
of SBA loans in the State of Florida (measured by dollar volume of loans
originated).
EPW is an investment advisory firm formed in 1983 which offers
investment management services to corporate, municipal and high net worth
individual clients throughout the State of Florida. As of September 30, 1998,
EPW had $297.2 million in assets under management. United Trust is a wholesale
provider of data processing, administrative and accounting support and asset
custody services to professionals holding assets in trust (primarily legal and
accounting firms). United Trust also provides retail trust and investment
management services to individual and corporate clients. As of September 30,
1998, United Trust had $251.5 million in assets under trust.
The principal executive offices of the Company are located at 333 Third
Avenue North, St. Petersburg, Florida 33701, and its telephone number is (727)
898-2265.
BACKGROUND
In 1986 a group of investors, headed by Neil W. Savage, the Company's
President and Chief Executive Officer and the Bank's Chairman and Chief
Executive Officer, acquired control of the Company, then known as Pinellas
Bancshares Corporation. The Company's name was changed to its present name in
1995 and the Bank's name was changed from United Bank of Pinellas to its present
name that same year.
In September 1995 the Company purchased FSC, a trust data processing and
accounting service for professionals, and merged this entity into the Company.
In January 1996, the Company acquired EPW. The Company formed United Trust
during the fourth quarter of 1997 and effective December 31, 1997, transferred
all of the Bank's trust assets to United Trust.
BUSINESS STRATEGY
The principal elements of the Company's business strategy are to increase
its market share in its existing business segments and to seek out niche
business segments in which the Company can compete effectively in order to
create new sources of non-interest income and increase traditional interest
income from new lending opportunities. The Company has sought to implement its
strategy of increasing its market share in its existing business segments by
expanding the Bank's market coverage through de novo branching, increasing the
Bank's emphasis on originating loans secured by real estate and other assets for
its own portfolio, pursuing small business secured and unsecured lending for its
own portfolio, and
43
<PAGE> 49
continuing to originate a high volume of SBA loans, both for its own portfolio
and for sale in the secondary market. A primary element of the Company's
business strategy as a community banking organization is to seek to provide
customers with a level of personalized service exceeding that provide by its
competitors, including the local banking operations of large regional and
national banking companies.
The Company has sought to add new sources of non-interest income through
the creation of United Trust, which receives fees for the wholesale trust
services it offers to legal and accounting firms and the retail trust and
investment management services it offers to other clients, and the acquisition
of EPW, which generates fee income from the investment management services it
offers to corporate, municipal and high net worth individual clients. By
expanding the range of trust and investment management services it offers, the
Company seeks to differentiate itself from other similarly sized community
banking organizations operating in the Company's market. While pursuing these
strategies, management remains committed to improving asset quality, managing
interest rate risk, enhancing profitability and maintaining its status as a
well-capitalized institution for regulatory capital purposes.
The results of the Company's business strategy have been substantial
asset and revenue growth. The Company's total assets have increased from
approximately $106.6 million at December 31, 1995 to $147.3 million at December
31, 1997. The Company's consolidated revenues increased from $7.1 million for
the year ended December 31, 1995 to $9.9 million for the year ended December 31,
1997. During this period of asset and revenue growth, the Company's net income
decreased from $1.5 million for the year ended December 31, 1995 to $1.4 million
for the year ended December 31, 1997.
The Company intends to continue selectively adding branches in its market
area, and recently gave notice of its intent to exercise an option to purchase a
proposed branch site. It is anticipated that the Bank will spend approximately
$600,000 to open such branch. The Company has no current plans to add Bank
branches outside of the Pinellas County market. The Company's current goal is to
try and open one new branch each year. Accordingly, in the future, the Company
may consider strategic expansion though the acquisition of other banks or bank
branches or by de novo branching. Similar to the Company's previous efforts that
resulted in it establishing United Trust and acquiring EPW, the Company may
consider from time to time expansion opportunities into other business lines
that might add to the Company's non-interest income and the acquisition or
development of other businesses that the Company considers complementary to its
existing business. For example, the Company recently commenced efforts to
consider the feasibility of making a minority investment in an existing or new
property casualty insurance company. From time to time, the Company may commence
similar exploratory efforts to evaluate the possibility of acquiring or
establishing similar or additional lines of business. A substantial portion of
the net proceeds from the Offerings will be available to the Company to finance
any such efforts that the Company decides to pursue. The Company has not,
however, identified any acquisition candidates or made any commitments to create
any new business units, and there can be no assurance that the Company will
locate any suitable acquisition candidates, complete any new business
acquisitions, develop any new business lines or receive any needed regulatory
approvals to conduct such activities, or that any of such activities, if
conducted, will be profitable for the Company.
MARKET AREA
Currently, the Bank has four offices located in southern Pinellas
County, Florida, which is the Bank's primary market area. The population of
Pinellas County was estimated to be 888,000 on April 1, 1997 by the University
of Florida's Bureau of Economic and Business Research. This compares with a
population of 852,000 at the 1990 census and 729,000 at the 1980 census.
Pinellas County has been a retirement and tourism destination for many years,
and over 25% of its population is over 65 years of age, compared with a state
wide average of 18.6%.
According to information published by the Florida Bankers Association, as
of December 31, 1997, Pinellas County was the fourth largest county in Florida
in terms of bank and thrift deposits, with total deposits of $12.2 billion, or
6.49% of the state's total deposits. There is a significant seasonal population
increase during the months of November to April of each year; seasonal residents
are not included in the cited population statistics. The Company believes that
while the population of Pinellas County will continue to grow, the rate of
growth is likely to be lower than the population growth
44
<PAGE> 50
rate of the State of Florida as a whole, and is likely to slow due to the nature
of the market area. As a peninsula surrounded on the south, east and west by
water, Pinellas County has limited room for future development. The local
economy is dependent upon service industries, manufacturing, tourism, and
medical facilities as its major sources of employment and commerce.
United Trust's primary market for retail business is also Pinellas
County. Its wholesale services are marketed more widely to the Tampa Bay Area,
consisting of Pinellas, Hillsborough, Pasco and Manatee Counties. EPW markets
its services to high net worth individuals and to commercial and governmental
clients throughout the State of Florida and secondarily in the Southeastern
United States.
Pinellas County is a highly competitive market for financial, trust and
investment services. The Bank faces competition for deposits from other
commercial banks, thrift institutions, money market funds and credit unions.
Competition for loans of the types originated by the Bank is also strong.
Management believes that Pinellas County is considered an attractive market by
financial institutions seeking to obtain deposits, as evidenced by the 293
offices of commercial banks and thrift institutions existing in Pinellas County
at December 31, 1997.
OPERATING STRATEGY
Management of the Company believes that the consolidation of the banking
industry and the emergence of large regional and national bank holding companies
has created opportunities for locally-owned and operated financial institutions
to effectively compete for customers who desire a level of personalized banking
services that the large banking organizations may not be able to offer. The Bank
was organized as a community financial institution owned and managed by people
who are actively involved in the Bank's local market area and committed to the
area's economic growth and development. With local ownership and management, the
Company believes that the Bank can be more responsive to the banking needs of
the community it serves and can tailor its services to meet its customers' needs
rather than providing the standardized services that larger bank holding
companies tend to offer.
Local ownership and operation allows the Bank faster, more responsive and
flexible decision-making which may not be available at the branch offices of the
large bank holding companies which constitute the majority of the financial
institution offices located in the Bank's market area.
The principal business of the Bank is to attract deposits from the
general public and to invest those funds in various types of loans and other
interest-earning assets. The Bank's earnings depend primarily upon the
difference between (i) the interest and fees received by the Bank from loans,
the securities held in its investment portfolio, and other investments; and (ii)
expenses incurred by the Bank in connection with obtaining funds for lending
(including interest paid on deposits and other borrowings) and expenses relating
to day-to-day operations.
The Bank's customers are primarily individuals (including seasonal
residents), professionals and small and medium size businesses, located
predominantly in Pinellas County, Florida. The Bank seeks to develop new
business through an ongoing program of personal calls on both present and
potential customers. As a local independent bank, the Bank utilizes traditional
local advertising media as well as direct mailings, telephone contacts, and
brochures to promote the Bank and develop loans and deposits. In addition, the
Bank's directors all have worked or lived in or near the Bank's market area for
a number of years, contributing to the Bank's image as a locally-oriented
independent institution, which management believes is an important factor to its
targeted customer base.
SOURCES OF FUNDS
The primary source of funds for lending, investment and other general
business purposes is deposit accounts. Other sources of funds are loan
repayments, proceeds from the sale of loans and investment securities, and
borrowings. The Bank expects that loan repayments will be a relatively stable
source of funds, while levels of deposits maintained at the Bank will be
significantly influenced by general interest rate and money market conditions.
Generally, the Company may use short-term borrowings to compensate for
reductions in sources of funds normally available, while longer term
45
<PAGE> 51
borrowings may be used to support expanded lending activities. Management
believes that the Company's funding requirements can be met through retail
deposits in the Company's local market area without reliance on brokered
deposits. For additional discussion of asset and liability management policies
and strategies, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Liquidity and Asset/Liability Management."
As of September 30, 1998, the scheduled maturities of deposits of
$100,000 or more were as follows (dollars in thousands):
<TABLE>
<S> <C>
Three months or less.......................................................... $3,357
Over three through six months................................................. 1,927
Six through twelve months..................................................... 2,358
Over twelve months............................................................ 1,117
------
$8,759
======
</TABLE>
The Bank offers a full range of deposit services, including checking and
other transaction accounts, savings accounts and time deposits. The following
table sets forth the principal types of deposit accounts offered and the
aggregate amounts of such accounts at September 30, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
Weighted Percent
Average of Total
Interest Rate Amount Deposits
------------- -------- --------
<S> <C> <C> <C>
Non-interest bearing ..................... 0.00% $ 25,644 18.8%
NOW and Money Market accounts ............ 3.15 49,946 36.6
Savings .................................. 2.03 4,417 3.2
Time deposits with original maturities of:
One year or less 5.27 45,222 33.1
Over 1 year through 5 years ........... 5.84 11,382 8.3
---- -------- -----
Total time deposits ................. 5.38 56,604 41.4
---- -------- -----
Total deposits ...................... 3.45% $136,611 100.0%
==== ======== =====
</TABLE>
At September 30, 1998, scheduled maturities of time deposits were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Percent of
Time Time
Period Ended September 30, Deposits Deposits
-------- ----------
<S> <C> <C>
1999 ................ $45,222 79.9%
2000-2001 ........... 6,760 11.9
2002-2006 ........... 4,622 8.2
------- -----
Total time deposits $56,604 100.0 %
======= =====
</TABLE>
46
<PAGE> 52
LENDING ACTIVITIES
The primary source of income generated by the Bank is interest earned on
loans held in the Bank's loan portfolio. The Bank's lending activities include
commercial, real estate and consumer loans. During 1997, the Bank's net loans
increased $19.3 million.
Commercial Loans. The Bank offers commercial loans for working capital
purposes, business expansion, seasonal needs, acquisition of equipment, and
other business needs. Collateral pledged to secure these loans may include
equipment, accounts receivable, or other assets. The Bank often requires
personal guarantees of these loans.
SBA Loans. The SBA lending program was established by Congress in 1953 to
assist new and established small businesses in obtaining necessary capital.
Under this program, the SBA guarantees up to 90% of the principal balance of the
loan, subject to a maximum guarantee per loan of $750,000, thereby removing a
portion of the credit risk to the lending financial institution and generally
enabling lenders to offer loans under this program at more attractive interest
rates for borrowers than other available financing. The SBA loans originated by
the Company typically have SBA guarantees for 60% to 90% of the principal
balance of the loan. The existence of a secondary market for the guaranteed
portion of the SBA loans provides the Bank an opportunity to sell the guaranteed
portion of the loans and obtain additional liquidity and income. The Bank
typically services such loans and receives servicing fees with respect to such
loans.
The only loans sold by the Bank during 1996, 1997 and 1998 were SBA
loans. When the Bank sells an SBA loan and retains the servicing of the loan, a
servicing asset is recorded. The book value of such assets, which the Company
believes approximates the fair value of such assets, at September 30, 1997,
December 31, 1997, and September 30, 1998 was $33 thousand, $78 thousand, and
$125 thousand, respectively. Amortization expense relating to such servicing
assets of $2 thousand and $9 thousand was recorded for 1997 and 1998,
respectively. The Company periodically reviews these assets for impairment. No
valuation for impairment of these assets was deemed necessary for the periods
presented.
At December 31, 1996, the Bank had $7.0 million of SBA loans, of which
approximately 27.0% was guaranteed by the SBA. During 1996, the Bank sold
guaranteed portions of its SBA loans totaling $5.2 million. At December 31,
1997, the Bank had $5.7 million of SBA loans, of which approximately 19.0% was
guaranteed by the SBA. During 1997, the Bank sold guaranteed portions of its SBA
loans totaling $3.7 million. The Bank had gains on the sale of SBA loans during
1996 and 1997 of $425 thousand and $29 thousand, respectively, and had loan
servicing fees on SBA loans during 1996 and 1997 of $153 thousand and $164
thousand, respectively.
Real Estate Loans. The Bank offers commercial and, on a limited basis,
residential real estate loans. Commercial real estate loans are made for general
corporate purposes, construction and expansion of facilities. Residential loans
are made in the form of fixed and variable rate mortgages and home equity loans.
47
<PAGE> 53
The following tables set forth information concerning the loan portfolio,
based on total dollars and percent of portfolio, by collateral type as of the
dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
At
September 30, At December 31,
------------- ------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Commercial real estate ..................... $ 52,961 $44,547 $38,074 $38,439
One-to-four family residential ............. 7,255 7,482 6,716 7,371
Multifamily residential .................... 7,662 5,485 2,898 2,230
Construction and land development .......... 3,196 3,071 1,795 1,456
-------- ------- ------- -------
Total real estate mortgage loans ......... 71,074 60,585 49,483 49,496
Commercial loans ............................. 33,545 30,536 25,239 19,711
Consumer loans ............................... 4,094 3,998 3,831 3,199
Other Loans .................................. 1,861 1,871 2,661 3,409
-------- ------- ------- -------
Gross loans ................................ 110,574 96,990 81,214 75,815
Allowances for loan losses ................... (1,826) (1,648) (1,610) (1,527)
Unearned Fees ................................ (619) (521) (341) (281)
-------- ------- ------- -------
Total loans net of allowance and unearned fees $108,129 $94,821 $79,263 $74,007
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
At
September 30, At December 31,
------------- ------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Commercial real estate....................................... 47.9% 45.9% 46.9% 50.7%
One-to-four family residential............................... 6.6 7.7 8.2 9.7
Multifamily residential...................................... 6.9 5.7 3.6 3.0
Construction and land development............................ 2.9 3.2 2.2 1.9
----- ---- ---- ----
Total real estate mortgage loans........................... 64.3% 62.5 60.9 65.3
Commercial loans............................................... 30.3% 31.5 31.1 26.0
Consumer loans................................................. 3.7 4.1 4.7 4.2
Other Loans.................................................... 1.7 1.9 3.3 4.5
----- ---- ---- ----
Gross loans.................................................. 100.0% 100% 100% 100%
===== === === ===
</TABLE>
The following table sets forth the contractual amortization of real
estate and commercial loans at September 30, 1998 and December 31, 1997. Loans
having no stated schedule of repayments and no stated maturity are reported as
due in one year or less. The table also sets forth the dollar amount of loans
scheduled to mature after one year, according to their interest rate
characteristics (dollars in thousands):
<TABLE>
<CAPTION>
At
September 30, 1998 December 31, 1997
------------------ ---------------------
Real Real
Estate Commercial Estate Commercial
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Amounts due:
One year or less ............................... $29,155 $23,699 $29,645 $22,250
After one through five years ................... 36,079 8,952 30,409 7,518
More than five years ........................... 5,840 894 531 768
------- ------- ------- -------
Total ..................................... $71,074 $33,545 $60,585 $30,536
======= ======= ======= =======
Interest rate terms on amounts due after one year:
Adjustable ..................................... $26,970 $ 3,485 $20,774 $ 3,489
Fixed .......................................... 14,949 6,361 10,166 4,797
------- ------- ------- -------
Total ..................................... $41,919 $ 9,846 $30,940 $ 8,286
======= ======= ======= =======
</TABLE>
48
<PAGE> 54
INVESTMENT MANAGEMENT SERVICES
EPW offers investment management services to high net worth individuals,
corporate pension and profit sharing plans, charitable entities, and state and
local government pension plans. EPW receives fees for its services which vary
according to the amount of assets in the account under management. EPW markets
its services throughout the State of Florida.
TRUST SERVICES
United Trust offers wholesale trust services that include on-line trust
account information processing, asset custody and investment support services.
These services are offered to legal and accounting firms and to other
custodians. United Trust also offers retail trust services including investment
management, probate and custodian services which are marketed principally to
customers of the Bank and EPW and clients of local attorneys and accountants.
CREDIT ADMINISTRATION
The loan approval process consists of a combination of individual and
committee loan authority. Individual lending authority is based upon experience
and is broken down into secured and unsecured requests. The Officers' Loan
Committee (the "Officers' Loan Committee") is made up of commercial lenders and
credit administration personnel. The Officers' Loan Committee currently has
final approval on all unsecured credit for $50,000 to $500,000 and secured
credits for $150,000 to $500,000. The General Loan Committee (the "General Loan
Committee") is made up of four non-employee directors, the Chairman of the Board
of Directors of the Company ("Board of Directors") and the President of the
Bank. The General Loan Committee has final approval authority for all loans from
$500,000 to the legal lending limit of the Bank, except for loans involving
directors of the Bank which must be approved by a vote of the full Board of
Directors with the interested director not present during the loan discussion
and vote.
The Company has a policies and procedures manual which addresses the
specific underwriting guidelines for specific types of credits. Any deviation
from these guidelines is considered to be a policy exception which must be
outlined during the approval process and voted upon by the appropriate committee
or approved by a loan officer with sufficient lending authority. The guidelines
are reviewed and approved by the Board of Directors on an annual basis.
The Company's lending philosophy is to extend credit to businesses or
individuals in the Bank's market area who demonstrate sufficient cash flow to
repay the debt and whose track record indicate they are borrowers with whom the
Bank desires to establish an ongoing lending relationship.
The loan portfolio is under continued review in order to monitor
potential credit deterioration. Loans are graded at their inception by the loan
officers. Credit administration reviews existing credits on an on-going basis.
The Company also employs an independent third-party loan review company which
reviews specific larger size credits on a quarterly basis. This quarterly review
is presented to the General Loan Committee for its further review.
ASSET QUALITY
Allowance/Provision for Loan Losses. The allowance for loan losses
represents management's estimate of an amount adequate to provide for potential
losses within the existing loan portfolio. The determination of the adequacy of
the loan
49
<PAGE> 55
loss reserve is based upon various considerations, including an analysis of the
risk involved in the various loan grades, historical loan losses, review of
larger classified loans, a review of the underlying collateral on specific loans
and current economic conditions. The reserve is reviewed internally on a
quarterly basis and is also reviewed by the appropriate regulatory agencies upon
their examination visit.
The following table sets forth information concerning the activity in the
allowance for loan losses during the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
At September 30, At December 31,
----------------------------------------------
1998 1997 1996 1995
----------------------------------------------
<S> <C> <C> <C> <C>
Allowance at beginning of period ...................... $1,647 $1,610 $1,527 $ 1,335
Charge-offs:
Real estate loans ................................... -- -- -- --
Commercial loans .................................... 153 52 38 --
Consumer loans ...................................... 16 39 31 1
------ ------ ------ -------
Total charge-offs .............................. 169 91 69 1
Recoveries:
Real estate loans ................................... -- -- -- 3
Commercial loans .................................... 8 38 1 9
Consumer loans ...................................... -- -- 1 1
------ ------ ------ -------
Total recoveries ............................... 8 38 2 13
Net charge-offs ....................................... 161 53 67 (12)
Provision for loan losses ............................. 340 90 150 180
------ ------ ------ -------
Allowance at end of period ............................ $1,826 $1,647 $1,610 $ 1,527
====== ====== ====== =======
</TABLE>
The following table presents information regarding the Company's total
allowance for loan losses as well as its allocation of such amount to the
various loan categories based upon management's estimates (dollars in
thousands).
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997 December 31, 1996
---------------------- ----------------------- ---------------------
Percentage of Percentage of Percentage of
Loan Loan Loan
Allowance Allocation Amount Portfolio Amount Portfolio Amount Portfolio
- -------------------- ------ --------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Performing/not classified:
Commercial Loans ....................... $ 420 28% $ 368 31% $ 324 30%
Real Estate Loans ...................... 526 56 459 53 406 55
Consumer Loans ......................... 105 8 92 9 81 10
------ --- ------ --- ------ ---
Subtotal ............................... 1,051 92 919 93 811 95
Non-performing/ classified:
Marginal ............................... 115 2 2 5 -- 0
Substandard ............................ 628 6 483 2 221 5
Doubtful ............................... 32 0 -- 0 -- 0
Loss ................................... -- 0 -- 0 -- 0
------ --- ------ --- ------ ---
Subtotal ............................... 775 8 485 7 221 5
Unallocated ............................ -- 0 243 0 578 0
------ --- ------ --- ------ ---
Total .................................. $1,826 100% $1,647 100% $1,610 100%
====== === ====== === ====== ===
</TABLE>
Nonperforming Assets. Nonperforming assets include (i) loans which are 90
days or more past due and have been placed into non-accrual status, (ii)
accruing loans that are 90 days or more delinquent that are deemed by management
to be adequately secured and in the process of collection, and (iii) ORE (i.e.,
real estate acquired through foreclosure or deed
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<PAGE> 56
in lieu of foreclosure). All delinquent loans are reviewed on a regular basis
and are placed on non-accrual status when, in the opinion of management, the
possibility of collecting additional interest is deemed insufficient to warrant
further accrual. As a matter of policy, interest is not accrued on loans past
due 90 days or more unless the loan is both well secured and in process of
collection. When a loan is placed in non-accrual status, interest accruals cease
and uncollected accrued interest is reversed and charged against current income.
Additional interest income on such loans is recognized only when received.
The following table sets forth information regarding the components of
nonperforming assets at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
At At December 31,
September, 30 ---------------------------------
1998 1997 1996 1995
------------- ----- ---- ---
<S> <C> <C> <C> <C>
Real estate loans ...................... $1,974 $374 $330 $15
Commercial loans ....................... 1,024 26 42 --
Consumer loans ......................... -- -- -- --
------ ---- ---- ---
Total non-accrual loans(1) .......... 2,998 400 372 15
Other Real Estate ...................... 283 -- -- --
Accruing Loans 90 days past due ........ 133 251 -- 6
------ ---- ---- ---
Total nonperforming assets .......... $3,414 $651 $372 $21
====== ==== ==== ===
</TABLE>
- ------------------
(1) $1,261 of the non-accrual loans as of September 30, 1998 are being paid on
a monthly basis on a pre-judgment stipulation, and interest and principal
are being recorded as received on a cash basis.
COMPETITION
The banking industry in general, and the Bank's market area in
particular, are characterized by significant competition for both deposits and
lending opportunities. In its market area, the Bank competes with other
commercial banks, thrift institutions, credit unions, finance companies, mutual
funds, insurance companies, brokerage and investment banking firms, and various
other non-bank providers of financial services. Competition for deposits may
have the effect of increasing the rates of interest the Bank will pay on
deposits, which would increase the Bank's cost of funds and possibly reduce its
net earnings. Competition for loans may have the effect of lowering the rate of
interest the Bank will receive on its loans, which would lower the Bank's return
on invested assets and possibly reduce its net earnings. Many of the Bank's
competitors have been in existence for a significantly longer period of time
than the Bank, are larger and have greater financial and other resources and
lending limits than the Bank, and may offer certain services that the Bank does
not provide.
There are approximately 293 branch offices of commercial banks and thrift
institutions operating in Pinellas County. In order to compete effectively, the
Bank seeks to differentiate its services from those offered by larger
institutions, including the branch offices of large regional and national bank
holding companies. The Bank seeks to provide banking products and services which
are customized to its market area and target customers on a personalized basis,
which management believes cannot be matched by many of the larger institutions
that tend to offer many banking products and services on an impersonal basis.
Management believes that, as the banking industry has undergone further
consolidation, the opportunity to attract customers seeking personalized service
has been enhanced. The Bank seeks to tailor its products and services to its
specific geographic market and targeted customers, and to thereby attract the
business of professionals, entrepreneurs, and small to medium sized commercial
businesses while continuing to provide exceptional banking services to all of
its customers. The profitability of the Bank depends upon its ability to compete
effectively in its market area. While management believes that the Bank's local
ownership, community oriented operating philosophy and personalized service
enhances the Bank's ability to compete in its market area, there can be no
assurance that the Bank will be able to
51
<PAGE> 57
continue to compete effectively or that competitive factors will not have an
adverse effect on the Bank's operating results or financial condition.
EMPLOYEES
At September 30, 1998, the Company had 78 full-time and 7 part-time
employees, none of whom were represented by a union or subject to a collective
bargaining agreement. The Company believes its relations with its employees to
be good.
SUPERVISION AND REGULATION
The Company and the Bank are extensively regulated under both federal and
state law. The following is a brief summary of certain statutes, rules and
regulations affecting the Company and the Bank. This summary is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referenced below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the Company's business. Supervision,
regulation and examination of the Company and the Bank by the bank regulatory
agencies are intended primarily for the protection of depositors rather than
shareholders.
Regulation of the Company. The Company is a bank holding company registered with
the Federal Reserve under the Bank Holding Company Act of 1956, as amended ("BHC
Act"). As such, the Company is subject to the supervision, examination and
reporting requirements of the BHC Act and the regulations of the Federal
Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of the bank; or (iii) it may merge or consolidate wit any other bank
holding company. Similar federal statutes require bank holding companies and
other companies to obtain the prior approval of the Office of Thrift Supervision
("OTS") before acquiring ownership or control of a savings association.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the communities
to be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977, as amended
(the "CRA").
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), authorizes (i) the Company, and any other bank
holding company located in Florida to acquire a bank located in any other state,
and (ii) any bank holding company located outside Florida to acquire any
Florida-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that national
and state-chartered banks may branch interstate through acquisitions of banks in
other states, unless a state has "opted out" of the interstate branching
provisions of the Interstate Banking Act prior to June 1, 1997. Neither Florida
nor any other state in the southeastern United States has "opted out".
Accordingly, the Company would have the ability to acquire a bank in a state in
the Southeast and thereafter consolidate all of its bank subsidiaries into a
single bank with interstate branches.
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<PAGE> 58
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
In determining whether a particular activity is permissible, the Federal
Reserve must consider whether the performance of such an activity reasonably can
be expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. The investment
management, data processing, administrativ and accounting support and asset
custody services offered by EPW and United Trust have been determined by the
Federal Reserve to be permissible activities of bank holding companies. The BHC
Act does not place territorial limitations on permissible nonbanking activities
of bank holding companies. Despite prior approval, the Federal Reserve has the
power to order a bank holding company or its non-bank subsidiaries to terminate
any activity or to terminate its ownership or control of any subsidiary when it
has reasonable cause to believe that continuation of such activity or such
ownership or control constitutes a serious risk to the financial safety,
soundness, or stability of any bank subsidiary of the holding company.
Under Federal Reserve policy, bank holding companies are expected to act
as a source of financial strength and support to their subsidiary banks. This
support may be required at times when, absent such Federal Reserve policy, the
holding company may not be inclined to provide it. In addition, any capital
loans by a bank holding company to any bank subsidiary are subordinate in right
of payment to deposits and to certain other indebtedness of such subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to maintain the capital
of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority payment.
Regulation of the Bank. The Bank is organized as a Florida-chartered commercial
bank and is regulated and supervised by the Department. In addition, the Bank is
regulated and supervised by the Federal Reserve, which serves as its primary
federal regulator and, to a lesser extent, by the FDIC as the administrator of
the fund that insures the Bank's deposits. Accordingly, the Department and the
Federal Reserve conduct regular examinations of the Bank, reviewing the adequacy
of the loan loss reserves, quality of loans and investments, propriety of
management practices, compliance with laws and regulations, and other aspects of
the Bank's operations. In addition to these regular examinations, the Bank must
furnish to the Federal Reserve quarterly reports containing detailed financial
statements and schedules.
Federal and Florida banking laws and regulations govern all areas of the
operations of the Bank, including reserves, loans, mortgages, capital, issuances
of securities, payment of dividends, and establishment of branches. As its
primary federal regulator, the Federal Reserve has authority to impose
penalties, initiate civil and administrative actions and take other steps
intended to prevent the Bank from engaging in unsafe or unsound practices. The
Bank is a member of the BIF and, as such, deposits in the Bank are insured by
the FDIC to the maximum extent permissible by law.
The Bank is subject to the provisions of the CRA. Under the CRA, the Bank
has a continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire communities, including
low- and moderate-income neighborhoods. The CRA does not establish specific
lending requirements or programs for financial institutions nor does it limit
the Bank's discretion to develop the types of products and services that it
believes are best suited to their particular communities, consistent with the
CRA. The CRA requires the appropriate federal bank regulatory agency (in the
case of the Bank, the Federal Reserve), in connection with their regular
examinations, to assess a financial institution's record in meeting the credit
needs of the community serviced by it, including low- and moderate-income
neighborhoods. A federal banking agency's assessment of a financial
institution's CRA record is made available to the public. Further, such
assessment is required whenever the institution applies to, among other things,
establish a new branch that will accept deposits, relocate an existing office or
merge or consolidate with, or acquire the assets of or assume the liabilities
of, a federally-regulated financial institution. In the case where the Company
applies for
53
<PAGE> 59
approval to acquire a bank or other bank holding company, the federal regulator
approving the transaction will also assess the CRA records of the Bank. The Bank
received a "Satisfactory" CRA rating in its most recent examination.
In April 1995, the federal banking agencies adopted amendments revising
their CRA regulations, with a phase-in schedule applicable to various
provisions. Among other things, the amended CRA regulations, which became fully
effective on July 1, 1997, substitute for the prior process-based assessment
factors a new evaluation system that will rate an institution based on its
actual performance in meeting community needs. In particular, the system now
focuses on three tests: (i) a lending test, to evaluate the institution's record
of making loans in its service areas; (ii) an investment test, to evaluate the
institution's record of investing in community development projects; and (iii) a
service test, to evaluate the institution's delivery of services through its
branches and other offices. The amended CRA regulations also clarify how an
institution's CRA performance will be considered in the application process. The
Company does not anticipate that the revised CRA regulations will have any
material impact on the Bank's operations or its CRA rating.
Deposit Insurance. The Bank is subject to FDIC deposit insurance assessments.
The Bank is also subject to a risk-based assessment system for insured
depository institutions that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. The system
assigns an institution to one of three capital categories: (i) well capitalized,
(ii) adequately capitalized, and (iii) undercapitalized. An institution is also
assigned, by the FDIC, to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the risk-based assessment system, there are nine
assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
Assessment rates on deposits for an institution in the highest category (i.e.,
"well capitalized" and "healthy") are less than assessment rates on deposits for
an institution in the lowest category (i.e., "undercapitalized" and "substantial
supervisory concern").
In addition to FDIC insurance assessments, the Bank is also subject to
assessments used to pay interest on bonds issued by the Financing Corporation
(the "FICO") under the Deposit Insurance Funds Act (the "Funds Act"). Prior to
enactment of the Funds Act, only insurance payments by SAIF-member institutions
were available to satisfy FICO's interest payment obligations. Through the end
of 1999, the FICO assessment rate on BIF-assessable deposits is required by the
statute to be one-fifth of the SAI rate. Thereafter, FICO assessment rates for
members of both insurance funds will presumably be equalized.
Currently, the FICO assessment rate for BIF-assessable deposits is 0.013
percent (or 1.3 basis points) and the FICO assessment rate for SAIF assessable
deposits is 0.0648 percent (or 6.48 basis points). In 1997, the Bank's total
FICO payment obligation was $12,500, all of which was attributable to the
BIF-assessable deposits. The Bank has no SAIF assessable deposits.
Capital Requirements. The Company and the Bank are required to comply with the
capital adequacy standards established by the Federal Reserve. There are three
basic measures of capital adequacy for banks that have been promulgated by the
Federal Reserve; two risk-based measures and a leverage measure. All applicable
capital standards must be satisfied for a bank holding company and a bank to be
considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
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<PAGE> 60
The minimum guidelines for the ratio of total capital ("Total Capital")
to risk-weighted assets (including certain off-balance-sheet items, such as
standby letters of credit) is 8.0%. At least half of Total Capital (i.e., 4% of
risk-weighted assets) must comprise common stock, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder
may consist of subordinated debt, other preferred stock, and a limited amount of
loan loss reserves ("Tier 2 Capital"). In addition, the Federal Reserve has
established minimum leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less
goodwill and certain other intangible assets, of 3% for banks that meet certain
specified criteria, including having the highest regulatory rating. All other
bank holding companies generally are required to maintain a leverage ratio of at
least 3%, plus an additional cushion of 100 to 200 basis points. The guidelines
also provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital leverage ratio" (deducting all intangibles) and other
indicators of capital strength in evaluating proposals for expansion or new
activities.
The FDIC Improvement Act of 1991 ("FDICIA") contains "prompt corrective
action" provisions pursuant to which banks are to be classified into one of the
five categories based upon capital adequacy, ranging from "well capitalized" to
"critically undercapitalized", and which require (subject to certain exceptions)
the appropriate federal banking agency to take prompt corrective action with
respect to an institution which becomes "significantly undercapitalized" or
"critically undercapitalized".
The Federal Reserve has issued final regulations to implement the "prompt
corrective action" provisions of FDICIA. In general, the regulations define the
five capital categories as follows: (i) an institution is "well capitalized" if
it has a total risk-based capital ratio of 10% or greater, has a Tier 1
risk-based capital ratio of 6% or greater, has a leverage ratio of 5% or greater
and is not subject to any written capital order or directive to meet and
maintain a specific capital level for any capital measures; (ii) an institution
is "adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a
leverage ratio of 4% or greater; (iii) an institution is "undercapitalized" if
it has a total risk-based capital ratio of less than 8%, has a Tier 1 risk-based
capital ratio that is less than 4% or has a leverage ratio that is less than 4%;
(iv) an institution is "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio
that is less than 3% or a leverage ratio that is less than 3%; and (v) an
institution is "critically undercapitalized" if its "tangible equity" is equal
to or less than 2% of its total assets. The Federal Reserve also, after an
opportunity for a hearing, has authority to downgrade an institution from "well
capitalized" to "adequately capitalized" or to subject an "adequately
capitalized" or "undercapitalized" institution to the supervisory actions
applicable to the next lower category, for supervisory concerns. The degree of
regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (i) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, deposit
interest rates, and other activities; (iv) improve their management; (iv)
eliminate management fees; or (vi) divest themselves of all or part of their
operations. Bank holding companies controlling financial institutions can be
called upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans. While the
Company's capital levels have been in excess of those required to be maintained
by a "well capitalized" financial institution, rapid growth, poor loan portfolio
performance, or poor earnings performance, or a combination of these factors,
could change the Company's capital position in a relative short period of time,
making an additional capital infusion necessary.
As a condition of receiving approval from the Department to exceed
certain regulatory investment limitations in order to invest in its new
headquarters building, the Bank agreed to maintain a minimum Tier 1 Leverage
ratio of 7% during the period of time that such investment limitations are
exceeded. If the Bank's Tier 1 Leverage ratio falls below 7%, the Bank is
required to increase its capital by an amount sufficient to reach the 7% minimum
ratio within 90 days. As of September 30, 1998, the Bank's Tier 1 Leverage ratio
was 7.03%.
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<PAGE> 61
Dividends. As a Florida-chartered commercial bank, the Bank is subject to
the laws of Florida as to the payment of dividends. Under the Florida Financial
Institutions Code, the prior approval of the Department is required if the total
of all dividends declared by a bank in any calendar year will exceed the sum of
the bank's net profits for that year and its retained net profits for the
preceding two years.
Under Federal law, if, in the opinion of the federal banking regulator, a
bank or thrift under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such regulation
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depositor institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Prompt
Corrective Action regulations adopted by the federal banking agencies, a
depository institution may not pay any dividend to its holding company if
payment would cause it to become undercapitalized or if it already is
undercapitalized.
Federal Reserve System. The Federal Reserve regulations require banks to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The new Federal Reserve
regulations, effective December 16, 1997, generally require that reserves be
maintained against aggregate transaction accounts as follows: (i) for accounts
aggregating $47.8 million or less (subject to adjustment by the Federal Reserve)
the reserve requirement is 3%; and (ii) for accounts greater than $47.8 million,
the reserve requirement is $1.434 million plus 10.0% (subject to adjustment by
the Federal Reserve between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustments by the Federal Reserve)
are exempted from the reserve requirements. As of September 30, 1998, the Bank
was in compliance with the foregoing requirements. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve may be used to
satisfy liquidity requirements imposed by the Department. Because required
reserves must be maintained in the form of either vault cash, a
noninterest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve, the effect of this reserve requirement is to
reduce the Bank's interest-earning assets.
Liquidity. Under Florida banking regulations, the Bank is required to
maintain a daily liquidity position equal to at least 15% of its total
transaction accounts and 8% of its total nontransaction accounts, less those
deposits of public funds for which security has been pledged as provided by law.
The Bank may satisfy its liquidity requirements with cash on hand (including
cash items in process of collection), deposits held with the Federal Reserve,
demand deposits due from correspondent banks, Federal funds sold,
interest-bearing deposits maturing in 31 days or less and the market value of
certain unencumbered, rated, investment-grade securities and securities issued
by Florida or any county, municipality or other political subdivision within the
State. The Federal Reserve also reviews the Bank's liquidity position as part of
its examination and imposes similar requirements on the Bank. Any
Florida-chartered commercial bank that fails to comply with its liquidity
requirements generally may no further diminish liquidity either by making any
new loans (other than by discounting or purchasing bills of exchange payable at
sight) or by paying dividends. At September 30, 1998, the Bank's net liquid
assets exceeded the minimum amount required under the applicable Florida
regulations.
Monetary Policy and Economic Controls. The banking business is affected
not only by general economic conditions, but also by the monetary policies of
the Federal Reserve. Changes in the discount rate on member bank borrowing,
availability of borrowing at the "discount window", open market operations, the
imposition of changes in reserve requirements against bank deposits and the
imposition of and changes in reserve requirements against certain borrowings by
banks and their affiliates are some of the instruments of monetary policy
available to the Federal Reserve. The monetary policies have had a significant
effect on the operating results of commercial banks and are expected to continue
to do so in the future. The monetary policies of the Federal Reserve are
influenced by various factors, including inflation, unemployment and short- and
long-term changes in the international trade balance and in the fiscal policies
of the United States Government. Future monetary policies and the effect of suc
policies on the future business and earnings of the Bank cannot be predicted.
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<PAGE> 62
Future Legislation. Various legislation, including proposals to overhaul
the bank regulatory system and expand the powers of bank holding companies, is
from time to time introduced in Congress. Such legislation may change banking
statutes and the operating environment of the Company and its bank and non-bank
subsidiaries in substantial and unpredictable ways. There is no assurance that
any legislation will be enacted and, if enacted, the ultimate effect that any
such potential legislation or implementing regulations would have upon the
financial condition or results of operations of the Company.
CHANGES IN ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") recently adopted or
issued proposals and guidelines that may have a significant impact on the
accounting practices of commercial enterprises in general and financial
institutions in particular.
During 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," which was
effective for the Company's fiscal year beginning January 1, 1997. SFAS 125
provides standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. In addition to providing
further guidance related to the recording of mortgage servicing rights, SFAS No.
125 requires an entity to classify loans securitized which are retained in its
portfolio and excess spread related to mortgage servicing rights as trading
assets. SFAS No. 125 has not had a material impact on the Company's results of
operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which was effective for the Company's current fiscal year beginning
January 1, 1998. SFAS 130 establishes standards for reporting and display of
comprehensive income, its components and accumulated balances in the financial
statements. Comprehensive income is defined to include those revenues, expenses,
gains, and losses of a normal, recurring nature, as well as items which are
non-recurring, unusual and infrequent. Th adoption of SFAS No. 130 did not have
a material effect on the Company's financial statements.
Also, in June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which is effective for the
Company's current fiscal year beginning July 1, 1998. SFAS No. 131 establishes
standards for the way the Company reports information about operating segments
in annual financial statements and requires reporting of selected information
about operating segments in interim financial statements. Management has
implemented SFAS No. 131 in the year ended December 31, 1997 and believes its
trust operations and investment advisory activities are immaterial to the
consolidated financial statements in terms of their respective assets, revenues,
profit or loss and other operating data.
PROPERTIES
The principal executive offices of the Company, the Bank and United Trust
are located in an office building at 333 Third Avenue North, St. Petersburg,
Florida 33701. This facility was completed in late 1997, is owned by the Company
and has a total of five floors and approximately 47,400 square feet of usable
space. The Company and its subsidiaries occupy a total of approximately 25,000
square feet on the first two floors and a portion of the third floor of the
building. As of September 30, 1998, the balance of the building was leased to
tenants. Adequate parking, lobby, safe deposit boxes, and drive-thru facilities
are provided to customers of the Bank at this location.
The Bank has additional branch locations at 5801 North 49th Street (North
Office), 5601 North Park Street (Five Towns Office), and 6500 Gulf Boulevard
(St. Pete Beach Office), all in St. Petersburg, Florida. Except for the Five
Towns Office, these facilities are owned by the Company and offer both lobby and
drive-thru banking facilities to the Bank?s customers. The Five Towns Office is
leased for a term expiring October 31, 2001, with four renewal options.
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Additionally, the Bank has given notice of its intent to exercise an
option to purchase a bank branch site at 7490 Bryan Dairy Road in Pinellas Park
by January 1999 with an anticipated opening during the first quarter of 1999. It
will be the Bank's fifth banking branch office and will offer lobby, drive-thru
and safe deposit facilities to the Bank's customers.
EPW's main office is located in an office building in Tampa, Florida in
which EPW leases approximately 3,190 square feet of space pursuant to a lease
expiring February 28, 2003, with no renewal option. EPW's Jacksonville, Florida
office operates out of a private home owned by an officer of EPW.
LEGAL PROCEEDINGS
The Company is a party to various legal proceedings in the ordinary
course of its business. Based on information presently available, management
does not believe that the ultimate outcome of such proceedings, in the
aggregate, would have a material adverse effect on the Company's financial
position, results of operations or liquidity.
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MANAGEMENT
Set forth below is certain information concerning the Company's directors
and executive officers. The Company's directors are elected for one year terms.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Position with Position with the Bank,
Name Age the Company United Trust or EPW
- ---- --- ------------- ------------------------
<S> <C> <C> <C>
Ronald E. Clampitt.............................. 53 Director
David K. Davis, M.D............................. 74 Director Vice Chairman of the Bank
Edward D. Foreman............................... 54 Director
Charles O. Lowe................................. 60 Director Executive Vice President of United
Trust
John B. Norrie.................................. 55 Director, Chairman
Neil W. Savage.................................. 57 Director, President and CEO Chairman and CEO of the Bank
Harold J. Winner................................ 49 Director President of the Bank
Ward J. Curtis, Jr.............................. 52 Director, Executive Vice President Chairman, CEO and President of
United Trust
Henry Esteva.................................... 79 Director, Chairman Emeritus
Ian F. Irwin.................................... 48 Director
Jack A. MaCris, M.D............................. 73 Director
Ronald Petrini.................................. 53 Director
John B. Wier, Jr................................ 59 Director
William A. Eickhoff............................. 51 Director, Executive Vice President Chairman and Chief Executive Officer
of EPW
OTHER EXECUTIVE OFFICERS
Cynthia A. Stokes............................... 49 Senior Vice President Executive Vice President of the Bank
C. Peter Bardin................................. 40 Senior Vice President and Chief Senior Vice President and Chief
Financial Officer Financial Officer of the Bank
Susan L. Blackburn.............................. 40 Senior Vice President of the Bank
P. Dennis Barletta.............................. 46 Vice President Vice President of the Bank
John Pieper..................................... 54 President of EPW
</TABLE>
59
<PAGE> 65
Ronald E. Clampitt, Director of the Company since 1985. Mr. Clampitt has
been a self-employed licensed mortgage broker, appraiser and contractor at
various times since 1975.
David K. Davis, M.D., Director of the Company and Vice Chairman of the
Bank since 1986. Dr. Davis is a retired pathologist.
Edward D. Foreman, Director of the Company since 1986. Mr. Foreman has
been a practicing attorney since 1972 in the St. Petersburg area.
Charles O. Lowe, Director since June 1995 and Executive Vice President of
United Trust since September 1995. Prior to joining the Company, Mr. Lowe served
as Senior Vice President at NationsBank (and predecessor companies) from 1973 to
1995.
John B. Norrie, Director of the Company since 1986 and Chairman since
1995. Mr. Norrie is co-founder and director of Precision Panel Products, Inc., a
producer of custom cabinetry, since 1992 and was Chief Executive Officer of New
Horizon Auto Body and Paint Supply Corp. until 1993.
Neil W. Savage, Director, President and Chief Executive Officer of the
Company since May 1986 and Chairman and Chief Executive Officer of the Bank
since May 1986. Prior to joining the Company and the Bank, Mr. Savage was
president and co-founder of the Bank of Florida Corporation, a St. Petersburg
bank holding company and has been a general partner of Hamilton Partners, Ltd.,
a private investment partnership since 1969.
Harold J. Winner, Director of the Company and President of the Bank since
1992. Prior to joining the Company and the Bank, Mr. Winner served as Senior
Vice President of Commercial Lending for Pioneer Savings Bank since 1987.
Ward J. Curtis, Jr., Director and Executive Vice President of the Company
since June 1995 and Chairman, Chief Executive Officer and President of United
Trust since December 1997. From 1992 to 1995, Mr. Curtis was Managing Director
of Trust and Investment Services for SEI Corporation. Mr. Curtis served as an
officer of NationsBank (and predecessor companies) from 1977 until 1992.
Henry Esteva, Director since 1982 and Chairman Emeritus of the Company
since 1995. Mr. Esteva was the founder of the Bank in 1980 and has served on the
Board of Directors in several capacities since that time. Mr. Esteva is a
retired municipal judge of Pinellas County and is a partner of the law firm of
Piper, Esteva, Karvonen & Lewis.
Ian F. Irwin, Director of the Company since 1986. Mr. Irwin is the Chief
Executive Officer of the Southeast Companies of Tampa Bay, Inc., a real estate
development company.
Jack A. MaCris, M.D., Director of the Company since 1986. Dr. MaCris is a
retired surgeon from the St. Petersburg area.
Ronald Petrini, Director of the Company since December 1995. Mr. Petrini
is President of Great Bay Distributors Inc., an Anheuser-Busch distributor in
Pinellas County.
John B. Wier, Jr., Director of the Company since 1986. Mr. Wier has been
the President of Jack Wier, Jr. & Associates since 1974, a textile manufacturer
representative firm.
William A. Eickhoff, Director and Executive Vice President of the Company
since 1996 and Chairman and Chief Executive Officer of EPW since 1984.
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<PAGE> 66
Cynthia A. Stokes, Senior Vice President of the Bank since April 1989 and
Executive Vice President of the Bank since 1992. Prior to joining the Bank, Ms.
Stokes was Senior Vice President of Product Development and Central Operations
with Florida Federal Savings & Loan in St. Petersburg.
C. Peter Bardin, Senior Vice President and Chief Financial Officer of the
Company and the Bank since 1996 and Assistant Vice President and Controller of
the Bank since 1989. Prior to joining the Company, Mr. Bardin was Vice President
in the Accounting Division with Florida Federal Savings & Loan in St.
Petersburg.
Susan L. Blackburn, Senior Vice President of the Bank since 1995. Prior
to joining the Bank, Ms. Blackburn was Vice President of NationsBank from
October 1976 to November 1995.
P. Dennis Barletta, Vice President of the Company and the Bank since
September 1997. Prior to joining the Bank, Mr. Barletta was Director of Human
Resources for Bisk Publishing Company from May 1997 to September 1997 and Human
Resources Manager at Inest Financial Corp. from November 1996 to January 1997.
From March 1994 to September 1996, Mr. Barletta was Human Resources Director at
John Harland (formerly OKRA Marketing) and from May 1993 to March 1994 was the
Compensation and Benefits Manager at Fortune Bank.
John Pieper, President and Senior Portfolio Manager of EPW since 1983.
Mr. Pieper was also a Senior Vice President with First Florida Banks, Inc. until
1983.
DIRECTOR COMPENSATION
All directors are paid $250 for each Board of Directors meeting attended.
Non-employee directors are paid $200 for each committee meeting attended. Mr.
Norrie receives an additional $24,000 per year for services rendered as Chairman
of the Company and Mr. Davis receives an additional $10,000 per year for
services rendered as Vice Chairman of the Bank. Additionally, non-employee
directors are eligible for a bonus based on the profitability of the Company. No
other directors receive separate compensation for services rendered as a
director.
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<PAGE> 67
EXECUTIVE COMPENSATION
The following table summarizes the compensation during the fiscal years
ended December 31, 1997, 1996 and 1995, the Company's Chief Executive Officer
and the four highest paid executive officers of the Company (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- -----------------------
Awards Payouts
---------------------- -------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Compensation Award(s) Options/SARs Payouts Compensation
Principal Position Year Salary($) Bonus($) ($)(1) ($) (#) ($) ($)(2)
- ------------------ ---- --------- -------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Neil W. Savage 1997 $136,000 $ 73,600 $ 6,445 0 102,000 0 $26,077
Chief Executive Officer and 1996 130,000 123,841 7,487 0 0 0 68,024
President 1995 110,321 102,600 4,496 0 0 0 22,861
Ward J. Curtis, Jr. 1997 129,395 0 4,736 0 0 0 8,983
Chairman, Chief Executive 1996 128,466 0 6,477 0 0 0 6,439
Officer and President of 1995 72,917 0 3,327 0 0 0 0
United Trust(3)
William A. Eickhoff 1997 115,000 9,000 3,301 0 0 0 14,522
Chairman and Chief 1996 106,767 0 2,627 0 0 0 11,369
Executive Officer of EPW(4) 1995 n/a n/a n/a 0 0 0 n/a
Harold J. Winner 1997 94,100 66,030 27,583 0 57,000 0 35,998
President of the Bank 1996 90,000 86,313 4,547 0 24,000 0 11,670
1995 82,441 81,225 259 0 0 0 12,354
Cynthia A. Stokes 1997 65,823 51,120 0 0 37,500 0 7,294
Executive Vice President 1996 64,218 67,550 0 0 0 0 7,390
of the Bank 1995 61,748 64,125 0 0 0 0 10,323
</TABLE>
(1) Includes board fees and the difference between the price paid by the Named
Executive Officer upon the exercise of certain of his options to purchase
Common Stock and the fair market value of the underlying Common Stock on
the date of exercise (each, if applicable). Also perquisites and other
personal benefits, including personal usage of Company leased auto and
personal usage of club membership.
(2) Represents the Bank's match of officer's 401(k) contribution, Company
contribution to the ESOP and accrual for a prior salary continuation plan.
The amount of such contribution and accruals during fiscal 1997 were as
follows: Mr. Savage-$4,100 (401(k)), $5,967 (ESOP) and $16,010 (ESOP); Mr.
Curtis-$4,100 (401(k)) and $4,883 (ESOP); Mr. Eickhoff-$4,100 (401(k)) and
$4,625 (ESOP); Mr. Winner-$4,091 (401(k)), $5,967 (ESOP) and $25,939 (prior
salary continuation plan); and Ms. Stokes-$2,933 (401(k)) and $4,361
(ESOP). Additionally, the Company paid premiums on certain life insurance
policies for the benefit of Mr. Eickhoff totaling $5,797 during fiscal
1997.
(3) Mr. Curtis' employment began on June 1, 1995. Compensation figures for Mr.
Curtis exclude 2,082 shares of Common Stock issued to Mr. Curtis in 1998
under a certain stock incentive plan for the acquisition of his interest in
FSC that were based on certain earnings of the Company in 1997 and which
had an estimated fair market value of $8.25 per share on December 31, 1997.
(4) Mr. Eickhoff's employment began on February 1, 1996. Compensation figures
for Mr. Eickhoff exclude 585 shares of Common Stock issued to Mr. Eickhoff
in 1998 under a certain stock incentive programs entered into in connection
with the acquisition of his interest in EPW that were based on certain
earnings of the Company in 1997 and which had an estimated fair market
value of $8.25 per share on December 31, 1997.
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<PAGE> 68
The following table contains information about stock option grants to
Named Executive Officers during the fiscal year ended December 31, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of
Securities % of Total Options
Underlying Granted to Exercise or
Options Employees Base Price Expiration
Name Granted in Fiscal Year ($/share) Date
- ---- ----------- ------------------ ----------- -------------
<S> <C> <C> <C> <C>
Neil Savage.................................... 102,000 32.7% $7.94 12/18/07
Ward J. Curtis(1).............................. -0- 0% -- --
William A. Eickhoff(2)......................... -0- 0% -- --
Harold Winner.................................. 57,000 18.7% $7.94 12/18/07
Cynthia A. Stokes.............................. 37,500 12.0% $7.94 12/18/07
</TABLE>
- -------------------
(1) Excludes 2,082 shares of Common Stock issued to Mr. Curtis in 1998 under a
certain stock incentive plan as additional consideration for the
acquisition of his interest in FSC that were based on certain earnings of
the Company in 1997.
(2) Excludes 585 shares of Common Stock issued to Mr. Eickhoff in 1998 under a
certain stock incentive program entered into in connection with the
acquisition of his interest in EPW that were based on certain earnings of
the Company in 1997.
The following table provides information about the number and value of
options held by the Named Executive Officers during the fiscal year ended
December 31, 1997 regarding Option/SAR Exercises and Fiscal Year-End Option/SAR
Value:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-Ended FY-End(1)
------------- --------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ---- ----------------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Neil Savage.................................... -0- -0- 102,000/0 $ 31,620/0
Ward J. Curtis(2).............................. -0- -0- -- --
William A. Eickhoff(3)......................... -0- -0- -- --
Harold Winner.................................. 6,000 $26,160 69,000/6,000 $ 36,750/0
Cynthia A. Stokes.............................. -0- -0- 37,500/0 $ 11,625/0
</TABLE>
(1) For purposes of determining the values of the options held by the Named
Executive Officers, the Company has used $8.25 per share as the estimated
fair market value for the Common Stock on December 31, 1997. The option
value is based on the difference between the fair market value of the
shares on December 31, 1997 and the option exercise price per share,
multiplied by the number of shares of Common Stock subject to the option.
(2) Excludes 2,082 shares of Common Stock issued to Mr. Curtis in 1998 under a
certain stock incentive plan as additional consideration for the
acquisition of his interest in FSC that were based on certain earnings of
the Company in 1997.
(3) Excludes 585 shares of Common Stock issued to Mr. Eickhoff in 1998 under a
certain stock incentive program entered into in connection with the
acquisition of his interest in EPW that were based on certain earnings of
the Company in 1997.
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<PAGE> 69
EMPLOYMENT CONTRACTS WITH OFFICERS
Neil W. Savage. Mr. Savage is employed as President and Chief Executive
Officer of the Company pursuant to an employment agreement for a term that began
on October 17, 1997 and terminates as provided therein. Mr. Savage receives an
annual salary of $136,000 with annual salary increases, is eligible to receive
certain bonuses and certain other compensation as provided in the senior
management committee incentive schedule approved and adopted by the Company from
time to time, and is provided the us of an automobile for company duties.
Additionally, Mr. Savage is entitled to participate in any employee benefit plan
maintained by the Company and receive health and dental insurance. Mr. Savage's
employment may be terminated upon disability or attaining age 65, at the
election of Mr. Savage with 90 days notice, upon the dissolution and liquidation
of the Company (other than as part of a reorganization, merger, consolidation or
sale of all or substantially all of the assets of the Company whereby the
business is continued), by the Company for "just cause" and by the Company upon
six months notice with or without cause. If Mr. Savage's employment is
terminated by the Company (other than for "just cause"), he is entitled to
continue to receive compensation provided in his employment agreement for a
period of 12 months.
Harold J. Winner. Mr. Winner is employed as President of the Bank
pursuant to an employment agreement for a term that began on December 4, 1997
and terminates as provided therein. Mr. Winner receives an annual salary of
$94,100 with annual salary increases, is eligible to receive certain bonuses and
certain other compensation as provided in the senior management committee
incentive schedule approved and adopted by the Company from time to time, and is
provided the use of an automobile for company duties. Additionally, Mr. Winner
is entitled to participate in any employee benefit plan maintained by the
Company and receive health and dental insurance. Mr. Winner's employment may be
terminated upon disability or attaining age 65, at the election of Mr. Winner
with 90 days notice, upon the dissolution and liquidation of the Company (other
than as part of a reorganization, merger, consolidation or sale of all or
substantially all of the assets of the Company whereby the business is
continued), by the Company for "just cause" and by the Company upon six months
notice with or without cause. If Mr. Winner's employment is terminated by the
Company (other than for "just cause"), he is entitled to continue to receive
compensation provided in his employment agreement for a period of 12 months.
Cynthia A. Stokes. Ms. Stokes is employed as Director of Operations of
the Company pursuant to an employment agreement for a term that began on
December 5, 1997 and terminates as provided therein. Ms. Stokes receives an
annual Salary of $65,823 with annual increases, and is eligible to receive
certain bonuses and certain other compensation as provided in the senior
management committee incentive schedule approved and adopted by the Company from
time to time. Additionally, Ms. Stokes is entitled to participate in any
employee benefit plan maintained by the Company and receive health and dental
insurance. The agreement may be terminated upon disability or attaining age 65,
at the election of Ms. Stokes with 90 days notice, upon the dissolution and
liquidation of the Company (other than as part of a reorganization, merger,
consolidation or sale of all or substantially all of the assets of the Company
whereby the business is continued), by the Company for "just cause" and by the
Company upon six months notice with or without cause. If Ms. Stokes's employment
is terminated by the Company (other than for "just cause"), she is entitled to
continue to receive compensation provided in her employment agreement for a
period of 12 months.
Ward J. Curtis, Jr. Mr. Curtis is employed as Chairman, Chief Executive
Officer and President of United Trust pursuant to an employment agreement, as
amended, for a term that began September 29, 1995 and terminates as provided
therein. Mr. Curtis receives an annual salary of $129,395 with annual salary
increases, is eligible to receive certain bonuses and is provided the use of an
automobile for Company duties. Additionally, Mr. Curtis is entitled to
participate in employee benefit plan maintaine by the Bank and is entitled to
receive benefits under the Trust Department Stock Option Plan, as amended (the
"Trust Plan"). Mr Curtis' employment agreement contains a non-competition clause
pursuant to which Mr. Curtis may not compete with or solicit customers from the
Bank in Pinellas County during his employment and for a period of two years
thereafter; provided, however, that such non-competition clause shall terminate
after 2001 and may under certain circumstances terminate after 2000.
Additionally, Mr. Curtis' employment agreement was amended
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<PAGE> 70
on July 22, 1997, to provide that if a Change of Control (as defined in the FSC
Right of First Refusal Agreement dated September 25, 1995) occurs, the acquiror
shall have certain rights with respect to Mr. Curtis' continued employment or
termination thereof. Furthermore, pursuant to such amendment, except in the
event of a Change of Control, Mr. Curtis shall have the right to buy out the
last year of his non-compete agreement in exchange for a cash payment of
$125,000. Mr. Curtis' employment agreement may be terminated upon disability, at
the election of Mr. Curtis with six months notice, by the Bank for "just cause"
or on or after December 31, 2000 by either party under certain circumstances.
William A. Eickhoff. Mr. Eickhoff is employed as Chairman and Chief
Executive Officer of EPW pursuant to an employment agreement, as amended, with
EPW for a term that began on December 28, 1995 and terminates as provided
therein. Mr. Eickhoff's salary is a portion of a salary pool that is the lesser
of (i) $115,000 times three, or if less, times the number of original
shareholders of EPW at the time of the Company's acquisition who remain employed
by EPW for the particular year or (ii) 15.5% of EPW revenues times three, or if
less, times the number of original shareholders of EPW at the time of the
Company's acquisition who remain employed by EPW for the particular year; plus a
bonus that shall be not less than $5,000 times the number of original
shareholders of EPW at the time of the Company's acquisition who remain employed
on the last day of the calendar year. In addition, the agreement contains a
non-competition clause pursuant to which Mr. Eickhoff may not (i) compete with
EPW in EPW's Trade Area (as defined therein) during Mr. Eickhoff's employment
and for a period of two years thereafter or until January 1, 2000 or (ii)
solicit any customer of EPW during Mr. Eickhoff's employment and for a period of
three years thereafter or until January 1, 2000. Mr. Eickhoff's employment may
be terminated upon disability, at the election of Mr. Eickhoff with six months
notice, by EPW for "just cause", on December 31, 1999 if not renewed by July 1,
1999 and on or after December 31, 2002 by either party with three months notice.
In addition, Mr. Eickhoff is eligible to participate in an employee benefit plan
maintained by EPW and the Company and is eligible to receive benefits under the
EPW Stock Option Plan, as amended (the "EPW Plan"). EPW is required to provide a
minimum of $900,000 in life insurance to Mr. Eickhoff with a current death
benefit of $265,061. Furthermore, Mr. Eickhoff's employment agreement was
amended on July 22, 1997, to provide that if a Change of Control (as defined in
the EPW Right of First Refusal Agreement dated December 28, 1995) occurs prior
to December 31, 2000, Mr. Eickhoff shall be paid his unearned employment bonus
in an amount set forth in the amendment and such unearned bonus shall be paid in
cash. The amendment also provides that in the event of a Change of Control, the
acquiror shall have certain rights with respect to Mr. Eickhoff's continued
employment or termination thereof. Finally, the amendment to Mr. Eickhoff's
employment agreement provides that in the event he earns any bonus for the year
2000, such bonus shall be paid in cash or in the Company's stock (at the most
recent ESOP price) at the option of Mr. Eickhoff.
OTHER COMPENSATORY BENEFIT PLANS WITH OFFICERS
Neil W. Savage. The Bank has entered into a salary continuation agreement
with Mr. Savage dated December 8, 1997 pursuant to which certain benefits will
be paid to Mr. Savage, under certain situations following his termination, out
of the Bank's general assets. Mr. Savage is entitled to receive a benefit in the
amount of 60% of his final salary upon termination of his employment either (i)
on or after the Normal Retirement Age (as defined therein), (ii) for Disability
(as defined therein), or (iii for Change of Control (as defined therein),
payable monthly for 239 additional months. Alternatively, if Mr. Savage is
terminated for reasons other than death, disability, "for cause" or following a
change of control, Mr. Savage shall be paid 60% of his final salary multiplied
by a vesting percentage set forth in Mr. Savage's agreement payable monthly for
a term of 239 additional months.
Harold J. Winner. The Bank has entered into a salary continuation
agreement with Mr. Winner dated December 5, 1997 pursuant to which certain
benefits will be paid to Mr. Winner, under certain situations following his
termination, out of the Bank's general assets. Mr. Winner shall be entitled to
receive benefits in the amount of 50% of his final salary upon termination of
his employment either (i) on or after the Normal Retirement Age (as defined
therein), (ii) for Disability (as defined therein), or (iii) for Change of
Control (as defined therein), payable monthly for 239 additional months.
Alternatively, if Mr. Winner is terminated for reasons other than death,
disability, "for cause" or following a change of control, Mr. Winner shall be
paid 50% of his final salary multiplied by a vesting percentage set forth in Mr.
Winner's agreement payable monthly for a term of 239 additional months.
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<PAGE> 71
Cynthia A. Stokes. The Bank has entered into a salary continuation
agreement with Ms. Stokes dated December 5, 1997 pursuant to which certain
benefits will be paid to Ms. Stokes, under certain situations following her
termination, out of the Bank's general assets. Ms. Stokes is entitled to receive
benefits in the amount of 40% of her final salary upon termination of her
employment either (i) on or after the Normal Retirement Age (as defined
therein), (ii) for Disability (as defined therein), or (iii) for Change of
Control (as defined therein), payable monthly for 239 additional months.
Alternatively, if Ms. Stokes is terminated for reasons other than death,
disability, "for cause" or following a change of control, Ms. Stokes shall be
paid 40% of her final salary multiplied by a vesting percentage set forth in Ms.
Stokes' agreement payable monthly for a term of 239 additional months.
EMPLOYEE BENEFIT PLANS
Profit Sharing Plan. The Company has a defined contribution
profit-sharing plan (the "Profit Sharing Plan") covering substantially all
employees. Contributions are determined annually by the Board of Directors. The
Company contributed $99,996, $75,000 and $75,000 for the years ended December
31, 1997, 1996 and 1995, respectively. The Profit Sharing Plan was amended in
1993 to include an Employee Stock Ownership Plan ("ESOP") provision. As of
December 31, 1997, the ESOP owned 85,863 shares of the Company's Common Stock.
During 1998, the ESOP purchased an additional 34,443 newly issued shares from
the Company and 15,300 shares from an existing shareholder. The purchase price
of the newly issued stock was $8.25 as determined by an outside independent
appraisal.
401K Plan. The Company sponsors a deferred compensation 401(k) plan (the
"401(k) Plan") for the benefit of eligible full-time employees. The 401(k) Plan,
which is voluntary, allows employees to contribute up to 10 percent of their
total compensation (or a maximum of $10,000 as limited by federal regulations)
on a pre-tax basis. The Company makes a matching contribution of 100 percent of
the first $500 and 40 percent thereafter, up to the maximum amount allowed by
the 401(k) Plan.
STOCK OPTION PLAN
The Company adopted the United Financial Holdings, Inc. Stock Option and
Incentive Compensation Plan (the "Plan") on November 18, 1997. Under the Plan,
nonqualified stock options are granted to certain officers and directors
identified in the Plan (the "Nonqualified Options") and incentive stock options
are granted to certain officers named in the Plan (the "Incentive Options", and
with the Nonqualified Options, the "Options"). The Plan is administered by a
committee composed of members of the Strategic Review Committee of the Company
(the "Committee") which does not have the authority to designate Eligible
Persons (as defined in the Plan), Recipients (as defined in the Plan), or award
any Options. All Eligible Persons, Recipients and all Options are designated in
the Plan and its exhibits. The Committee has certain authority only to
interpret, adopt, amend and rescind the Plan. Nonqualified Options are granted
at a price equal to 100% of the Fair Market Value (as defined in the Plan) of
the Company's Common Stock on the date of grant. Incentive Options are granted
at a price equal to 100% of the Fair Market Value of the Company's Common Stock,
except that any individual who possesses more than 10% of the combined voting
power of all classes of stock of either the Company or its subsidiaries shall be
granted an exercise price of 110% of the Fair Market Value on the date of the
grant. All Options granted are subject to dilution adjustment for any increase
or decrease in number based on the payment of a stock dividend, a subdivision or
combination of shares or the reclassification of the Company's Common Stock.
Options to purchase a total of 468,000 shares of Common Stock may be granted
under the Plan. Upon adoption of the Plan, all of such Options were awarded,
with directors receiving 156,000 Options and officers receiving 312,000 Options,
all of which are still outstanding. The Options are exercisable for ten years
from the date of grant, in accordance with a vesting schedule. Options granted
to officers fully vest upon death, total disability or retirement. Otherwise,
such Options vest over a seven year period. Options granted to directors fully
vest upon grant. Options are forfeited upon termination as defined in the Plan.
In addition to Options, cash awards may be granted to officers and
directors identified in the Plan upon a Change of Control (as defined in the
Plan). The cash awards are allocated two-thirds to officers and one-third to
directors. The Plan establishes the maximum cash awards as 15% of the amount by
which the net sales proceeds payable to the
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<PAGE> 72
shareholders upon a Change of Control exceed the Return Amount (as defined in
the Plan), which is an investment return on the Company's capital of 16.5%
compounded since the formation of the Company in 1982. The pool available for
cash awards, after the calculation, is allocated two-thirds to officers and
one-third to directors and is further reduced by the value of Options and
certain Salary Continuation Agreements (as defined in the Plan) in effect. The
Plan further provides that if, on any Change of Control, payments to
"disqualified persons" as defined in Sections 280G and 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), constitut "excess golden
parachute payments" within the meaning of such Code sections, no such payments
will be made until the matter is submitted to the shareholders for vote and,
before the Change of Control occurs, a sufficient percentage of the shareholders
vote to approve the excess payments.
STOCK INCENTIVE PLAN
General. The United Financial Holdings, Inc. 1998 Stock Option Plan (the
"1998 Plan") was adopted by the Company's Board of Directors on September 15,
1998. The 1998 Plan provides for incentives in the form of grants of options to
purchase shares of the Company's Common Stock to key employees who contribute
materially to the success and profitability of the Company.
Administration. The 1998 Plan is to be administered by a committee
appointed by the Board (or, if the Board does not appoint a committee, the Board
shall constitute the committee) consisting solely of two or more directors of
the Company who are "non-employee directors" within the meaning of Rule 16b-3
promulgated under Section 16(b) of the Exchange Act and who are "outside
directors" within the meaning of Section 162(m) of the Code and the regulations
promulgated under Section 162(m) of the Code (the "Committee"). The Committee
has full and exclusive authority to select the individuals to whom options will
be granted, determine the type, size and terms and conditions of the options,
construe and interpret, and make all other determinations necessary or advisable
under the 1998 Plan. The Company's Board of Directors may appoint a different
committee for the purpose of approving the grant of stock options to persons who
are not subject to the requirements of Section 16(b) of the Exchange Act and
Section 16(m) of the Code.
Shares. The maximum number of shares of Common Stock that may be subject
to options granted under the 1998 Plan is 250,000. In the event of any change in
capitalization of the Company, however, the Committee shall equitably adjust the
number and class of shares with respect to which options may be granted, the
number and class of shares which are subject to outstanding options previously
granted and the price per share payable upon exercise of each option under the
1998 Plan. In addition, if any options expire or terminate without having been
exercised, the unpurchased shares of Common Stock subject to such options shall
again become available for grant under the 1998 Plan. Finally, to the extent
deemed equitable and appropriate by the Board of Directors and subject to any
required action by shareholders, any options will pertain to the securities and
other property to which a holder of the number of shares of Common Stock covered
by the options would have been entitled to receive in connection with any
merger, consolidation, reorganization, liquidation or dissolution.
Eligibility. The Committee may grant stock options to any employee,
director, officer, consultant, or independent contractor, and any person who
performs services relating to the Company as an employee or independent
contractor of a corporation or other entity that provides services for the
Company. Only "employees" (persons employed on an hourly or salaried basis by
the Company), however, are eligible to receive stock options that satisfy the
requirements of Section 422 of the Code.
Stock Options
The Committee, at its sole discretion, is authorized to grant to eligible
persons options to purchase a specified number of shares of Common Stock at a
stated price per share. During any calendar year, the Committee shall not grant
to any eligible person options to purchase more than 25,000 shares of Common
Stock. An option may be intended to qualify as an "incentive stock option"
("ISO") pursuant to the Code, or may be intended to be a nonqualified option
("NSO"). The term of an ISO cannot exceed 10 years, and the exercise price of
any ISO must be equal to or greater than the fair market value of the shares of
Common Stock on the date of the grant. Any ISO granted to a holder of 10% or
more of the
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<PAGE> 73
combined voting power of the capital stock of the Company must have an exercise
price equal to or greater than 110% of the fair market value of the Common Stock
on the date of grant and may not have a term exceeding five years from the grant
date. The aggregate fair market value, determined on the date of grant, of
Common Stock with respect to which any ISO under the 1998 Plan and all other
plans of the Company become exercisable by any individual for the first time in
any calendar year may not exceed $100,000. The exercise price of a NSO shall be
determined by the Committee on the date that the NSO is granted.
Each option granted to a recipient is required to be evidenced by a
written option agreement containing such terms and conditions consistent with
the 1998 Plan as shall be established by the Committee. The Committee shall
specify, in the option agreement, the vesting schedule applicable to each
option. The Committee, in its sole discretion, may accelerate the vesting of any
option at any time. An option is exercisable only to the extent it is vested
according to the terms of the option agreement Furthermore, an option is
exercisable only if the issuance of Common Stock upon exercise would comply with
applicable securities laws and would satisfy any additional conditions specified
by the Committee in the option agreement.
Each ISO shall expire on the earlier of 10 years from the date of grant
or the date set by the Committee on the date of grant (the "ISO Expiration
Date"), while each NSO shall expire on a date set by the Committee on the "date
of grant" (as defined in the 1998 Plan), or, if no such date is set, 10 years
from the date of grant (the "NSO Expiration Date" and with the "ISO Expiration
Date", collectively the "Expiration Date"). Upon termination of a recipient's
employment with the Company or service a a member of the Board of Directors for
any reason other than death, "disability" (as defined in the 1998 Plan),
retirement, involuntary termination, or for "cause" (as defined in the 1998
Plan), an option granted to the recipient will expire 30 days following the last
day of the recipient's employment with the Company or service as a member of the
Board of Directors, or, if earlier, the Expiration Date, unless the Committee
sets an earlier or later expiration date on the date of grant or a later
expiratio date subsequent to the date of grant but prior to the 30th day
following the recipient's last day of employment or service as a member of the
Board of Directors.
If a recipient dies or terminates his employment with the Company because
of his disability, an ISO granted to the recipient shall expire on the one-year
anniversary of the recipient's death or last day employment, respectively, or if
earlier, the ISO Expiration Date, unless the Committee sets an earlier
expiration date on the date of grant. If a recipient dies or terminates his
employment with the Company or ceases to serve as a member of the Board of
Directors because of his disability, a NSO granted to the recipient will expire
on the one-year anniversary of the recipient's last day of employment or service
as a member of the Board of Directors, or, if earlier, the NSO Expiration Date,
unless the Committee sets an earlier expiration date or a later expiration date
subsequent to the date of grant, but prior to the one-year anniversary of the
recipient's last day of employment or service as a member of the Board of
Directors.
If a recipient retires, or if the Company terminates the recipient's
employment other than for cause, an ISO granted to the recipient shall expire 90
days following the last day of the recipient's employment, or, if earlier, the
ISO Expiration Date, unless the Committee sets an earlier expiration date on the
date of grant. If a recipient terminates his employment or ceases to serve as a
member of the Board of Directors as a result of his retirement, or if the
Company terminates the recipient's employment or service as a member of the
Board of Directors other than for Cause, a NSO granted to the recipient will
expire 90 days following the last day of the recipient's employment or service
as a member of the Board of Directors, or, if earlier, the NSO Expiration Date,
unless the Committee sets an earlier or later expiration date on the date of
grant, or a later expiration date subsequent to the date of grant, but prior to
90 days following the recipient's last day of employment or service as a member
of the Board of Directors. If the Company terminates the recipient's employment
or removes the recipient from the Board of Directors for cause, any unexercised
portion(s) of the recipient's options shall terminate upon the earlier of the
occurrence of the event that constitutes cause or the last day the recipient is
employed by the Company or serves as a member of the Board of Directors.
Payment for shares of Common Stock purchased upon exercise of an option
must be made in full at the time of purchase. Payment may be made in cash, by
certified check, in the form of Common Stock having a fair market value equal to
the exercise price (if permitted by the Committee), or by delivery of a notice
instructing the Company to deliver the shares of Common Stock to a broker
subject to the broker's delivery of cash to the Company equal to the exercise
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<PAGE> 74
price. Additionally, the Committee may, in its discretion and subject to the
requirements of applicable law, recommend to the Company that it lend the
recipient the funds needed by the recipient to exercise an option.
The Board of Directors may alter, amend, or terminate the 1998 Plan
without approval of the shareholders of the Company. Options may be granted
under the 1998 Plan during the 10 year period beginning September 16, 1998. The
Company will bear the expenses of administering the 1998 Plan.
OTHER STOCK INCENTIVE PLANS
In connection with the acquisitions of FSC and EPW, the Company agreed to
certain additional stock issuance programs. Pursuant to such programs, the
Company has reserved 225,000 shares of Common Stock for issuance based on
certain earnings-based criteria of United Trust and EPW. If such earnings
criteria are met, such shares of common stock are issuable for no additional
consideration. If all 225,000 of such shares of Common Stock are earned, then
additional options to purchase Common Stock with an exercise price equal to $.01
per option share may be earned through 2000 by participants under the plans
based on achieving certain earnings. As of September 30, 1998, a total of 5,013
shares of Common Stock have been issued and no options have been granted
pursuant to such incentive stock plans. Generally, if a "change of control" of
the Company occurs as defined in such programs, 92,778 of the 225,000 shares,
less the number of such shares previously issued, that could be issued under
such programs will be deemed earned and vest over a period of time ending in
2000. In addition, up to 90,000 shares of Common Stock have been reserved for
issuance under such incentive stock plans based on consolidated revenues
generated by United Trust and EPW. If such revenue criteria are met, such shares
are issued by the Company to the participants for no additional consideration.
As of September 30, 1998, 9,000 of such 90,000 shares of Common Stock have been
issued. Generally, if a "change of control" of the Company occurs as defined in
the 90,000 share program, the remaining shares under such program will be deemed
earned and vest immediately.
On June 25, 1996, the Bank's Board of Directors adopted resolutions
authorizing the grant of options to purchase shares of the Company's Common
Stock to the following three employees: Harold J. Winner, Susan L. Blackburn and
Larry Fasan. Pursuant to such grants, Mr. Winner, Ms. Blackburn and Mr. Fasan
received options to purchase 24,000, 15,000 and 15,000 shares of the Company's
Common Stock, respectively. One-quarter of such options shall become available
for exercise on January 1 of each year, beginning January 1, 1996 and ending
January 1, 1999. Such options expire two years after the date on which they
become available for exercise. For example, on January 1, 1999, the final 6,000
of the original 24,000 options granted to Mr. Winner will be available for
exercise and such options must be exercised by Mr. Winner on or before December
31, 2000. The option prices vary by the year in which such options become
available for exercise. For example, the exercise price of those options which
became available on January 1, 1997 totaled $5.08 per share, while the exercise
price for those options that became available on January 1, 1998 totaled $8.25
per share. The exercise price for options becoming available on January 1, 1999
is to be equal to the ESOP appraisal on January 1, of such year. Mr. Winner, Ms.
Blackburn and Mr. Fasan each exercised their options to purchase 6,000, 3,750
and 3,750 shares, respectively, for an exercise price of $3.89 per share, which
were made available on January 1, 1996. Therefore, options to purchase 40,500
shares remained unexercised or unexerciseable as of September 30, 1998. In
addition to the foregoing, the Board of Directors approved the grant of options
to purchase 9,000 shares of Common Stock to Mr. Winner on September 25, 1989,
which were exercised by Mr. Winner at a price of $1.88 per share in December
1996.
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<PAGE> 75
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Southeast Realty Interests, Inc. On November 24, 1997, Southeast Realty
Interests, Inc. ("SERI"), an affiliate of Mr. Irwin, entered into an exclusive
right to lease agreement (the "Lease Agreement") with a subsidiary of the
Company that owns the building in which the Company's principal executive office
is located. Pursuant to the Lease Agreement, SERI was granted the exclusive
right to lease 17,918 square feet in the building located at 333 Third Avenue
North, St. Petersburg, Florida at stated terms. The Lease Agreement expired on
July 14, 1998. As of September 30, 1998, the space was 100% leased. Commissions
of $39,490 were paid to SERI during the term of the Lease Agreement.
The Southeast Companies of Tampa Bay, Inc. On March 18, 1997, The
Southeast Companies of Tampa Bay, Inc. (the "Manager"), also an affiliate of Mr.
Irwin, entered into a Property Management Agreement with a subsidiary of the
Company pursuant to which it was employed to act as the sole and exclusive
manager in the leasing, operation and management of the building in which the
Company's principal executive offices are located at 333 Third Avenue North, St.
Petersburg, Florida for total annual consideration of approximately $17,000. The
agreement automatically renews each year unless either party terminates it by
providing notice of cancellation at least 60 days prior to March 31 of the year
that the agreement is in effect.
Certain Extensions of Credit. As of September 30, 1998, the following
loans in excess of $60,000 to the Company's directors, executive officers and
principal shareholders were outstanding: Mr. Clampitt, $302,553; Mr. Eickhoff,
$76,308; Mr. Irwin and affiliated entities, $1,537,170; Dr. MaCris, $115,149;
Mr. Norrie and affiliated entities, $799,622; and Mr. Wier and affiliated
entities, $828,141. Certain additional amounts are available to be borrowed by
these individuals and other officers and directors under existing lines of
credit and other arrangements. All of the foregoing extensions of credit were
made in the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time made
for comparable transactions with others and did not involve more than the normal
risk of collectability or present other unfavorable features.
The Company may engage in additional transactions with affiliates of
the Company from time to time when it's board of directors determines it is in
the best interest of the Company to do so. The Company currently intends to
continue to make available the extensions of credit referenced above. The
Company believes that the transactions previously entered into by the Company
with its affiliates, as well as those that may be undertaken with its affiliates
in the future, have been and will continue to be on terms at least as favorable
as those that could have been negotiated with unaffiliated third parties.
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<PAGE> 76
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of September 30, 1998, and as adjusted
to reflect the sale of 450,000 shares of Common Stock offered hereby, by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each Named Executive Officer and (iv) all directors and officers as a group.
Each of the holders listed below has sole voting power and investment power over
the shares beneficially owned.
<TABLE>
<CAPTION>
PERCENT OF VOTING SHARES
SHARES --------------------------
BENEFICIALLY PRIOR TO THE AFTER THE
NAME OF DIRECTORS AND EXECUTIVE OFFICERS OWNED OFFERINGS OFFERINGS
- ---------------------------------------- ------------ ------------ ---------
<S> <C> <C> <C>
Ronald E. Clampitt(1).................................................... 174,503 4.8% 4.3%
David K. Davis, M.D.(2).................................................. 107,073 3.0% 2.7%
Henry Esteva(3).......................................................... 46,218 1.3% 1.2%
Edward D. Foreman(4)..................................................... 58,377 1.7% 1.5%
Charles O. Lowe(5)....................................................... 63,462 1.8% 1.6%
Jack A. MaCris, M.D.(6).................................................. 100,167 2.8% 2.5%
John B. Norrie(7)........................................................ 129,390 3.7% 3.2%
William Eickhoff(8)...................................................... 93,793 2.6% 2.3%
Ronald R. Petrini(9)..................................................... 10,776 * *
John B. Wier, Jr.(10).................................................... 299,367 8.5% 7.5%
Ward J. Curtis, Jr.(11).................................................. 137,667 3.9% 3.5%
Neil W. Savage(12)....................................................... 220,047 6.1% 5.4%
Harold J. Winner(13)..................................................... 92,295 2.6% 2.3%
Claude C. Focardi(14).................................................... 421,826 12.0% 10.6%
Ian F. Irwin(15)......................................................... 271,758 7.7% 6.8%
Cynthia A. Stokes(16).................................................... 53,274 1.5% 1.3%
All directors and principal officers as a group (19 persons)(17)......... 2,337,215 57.1% 51.4%
</TABLE>
- --------------------
* Less than 1.0% of the shares of Common Stock outstanding.
(1) Includes 23,214 shares that may be acquired by exercise of options
exercisable within 60 days, 91,514 shares that may be acquired upon
conversion of the Company's 7% Preferred Stock and 51,015 shares held
in a trust for which trust Mr. Clampitt serves as trustee.
(2) Includes 21,435 shares that may be acquired by exercise of options
exercisable within 60 days and 85,638 shares held in Dr. Davis'
individual retirement account.
(3) Includes 5,631 shares that may be acquired by exercise of options
exercisable within 60 days.
(4) Includes 11,418 shares that may be acquired by exercise of options
exercisable within 60 days.
(5) Includes 49,998 shares held in Mr. Lowe's individual retirement
account.
(6) Consists of shares owned by Dr. MaCris' wife, as to which Dr. MaCris
disclaims beneficial ownership and includes 12,963 shares that may be
acquired by exercise of options exercisable within 60 days.
(7) Includes 19,371 shares that may be acquired by exercise of options
exercisable within 60 days.
(8) Includes 92,158 shares that may be acquired upon conversion of the
Company's 8% convertible subordinated debentures issued in conjunction
with the acquisition of EPW, which are held by a partnership for which
Mr. Eickhoff is a general partner.
(9) Includes 1,365 shares that may be acquired by exercise of options
exercisable within 60 days.
(10) Includes 24,165 shares that may be acquired by exercise of options
exercisable within 60 days and 195,165 shares held in a trust for which
trust Mr. Wier serves as trustee.
(11) Includes 70,011 shares held in Mr. Curtis' individual retirement
account.
(12) Includes 102,000 shares that may be acquired by exercise of options
exercisable within 60 days, 51 shares held in Mr. Savage's individual
retirement account and 117,996 shares held in a trust for which trust
Mr. Savage serves as trustee.
(13) Includes 69,000 shares that may be acquired by exercise of options
exercisable within 60 days and 8,115 shares held in Mr. Winner's
individual retirement account.
(14) Includes 3,456 shares that may be acquired by exercise of options
exercisable within 60 days and 411,528 shares held in a trust for which
trust Mr. Focardi serves as trustee.
(15) Includes 22,818 shares that may be acquired by exercise of options
exercisable within 60 days, 630 shares held by a partnership for which
Mr. Irwin serves as general partner and 109,566 shares held by a
company for which Mr. Irwin is an officer and director and all of the
stock of which is owned by a son of Mr. Irwin. Does not include 62,706
shares held by a corporation for which Mr. Irwin is a director, officer
and a twenty-five percent shareholder, the remaining equity interests
of which are owned by his adult siblings and parents; 16,017 shares
held in his wife's trust for which Mr. Irwin does not serve as trustee;
and 19,464 shares held in trusts for the benefit of his children for
which Mr. Irwin does not serve as trustee.
(16) Includes 37,500 shares that may be acquired by exercise of options
exercisable within 60 days and 3,600 shares held in a trust for which
trust Ms. Stokes serves as trustee.
(17) Includes an aggregate of 130,605 shares held in the director or
principal officer's individual retirement account, an aggregate of
779,304 shares held in a trust for which trust the director, principal
officer or principal shareholder serves as trustee, an aggregate of
393,036 shares that may be acquired by exercise of options exercisable
within 60 days, an aggregate of 98,221 shares that may be acquired upon
conversion of the Company's 8% convertible subordinated debentures
issued in conjunction with the acquisition of EPW, 92,158 of which are
held by a partnership for which Mr. Eickhoff and Mr. Pieper serve as
partners, and shares owned by Ms. Blackburn as Custodian under the
Florida Gift to Minors Act for Andrea Michele Vest (2,322 shares) and
Roger Wayne Vest, Jr. (2,322 shares).
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue up to 20,000,000 shares of Common
Stock, par value $.01 per share, up to 150,000 shares of preferred stock, par
value $10.00 per share, bearing a dividend commitment of 7% per annum (the "7%
Preferred Stock"), up to 70,000 shares of preferred stock, par value $10.00 per
share, bearing a dividend commitment of 6% per annum (the "6% Preferred Stock").
As of September 30, 1998, 3,513,858 shares of Common Stock and 20,850 shares of
7% Preferred Stock were issued and outstanding. The 7% Preferred Stock is
noncallable and is convertible into Common Stock at the election of the holder
at a price of $1.19 per share of Common Stock. All of the 6% Preferred Stock was
converted in 1995 and 1996.
Additionally, pursuant to the Company's Articles as they are expected
to be in effect prior to consummation of the Offerings (the "Articles"), which
will be effective upon completion of the Offerings, the Company is authorized to
issue up to 10,000,000 shares of preferred stock having a par value of $.01 per
share (the "Undesignated Preferred Stock" and with the 6% Preferred Stock and
the 7% Preferred Stock, collectively, the "Preferred Stock"), of which no shares
will be issued and outstanding.
The Company's Board of Directors may authorize the issuance of
additional authorized but unissued shares of the Company's Common and Preferred
Stock without further action by the Company's shareholders, unless such action
is required in a particular case by applicable laws or regulations or by any
stock exchange upon which the Company's capital stock may be listed. The
authority to issue additional shares of the Company's Common and Preferred Stock
provides the Company with the flexibility necessary to meet its future needs
without the delay resulting from seeking shareholder approval. The authorized
but unissued shares of Common and Preferred Stock will be issuable from time to
time for any corporate purpose, including without limitation, stock splits,
stock dividends, employee benefit and compensation plans, acquisitions, and
public or private sales for cash as a means of raising capital.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share
owned of record on all matters presented to the shareholders. Unless otherwise
required by law or the Company's Articles, holders of Common Stock vote together
as a single class on all matters presented to the Company's shareholders.
Shareholders do not have the right to cumulate their votes in elections of
directors. Accordingly, holders of a majority of the issued and outstanding
Common Stock will have the right to elect all the Company's directors and
otherwise control the affairs of the company, subject to any voting rights of
the then outstanding Preferred Stock. In addition, the Articles do not provide
any preemptive rights. Furthermore, with respect to the holders of the 8%
convertible debentures (or any other holders of outstanding debentures), at any
time an arrearage in interest payments shall have existed for at least 30 days
and be continuing, the number of directors constituting the Board of Directors
shall be increased by two and the holders of the 8% convertible debentures (or
any other holders of outstanding debentures) shall have the exclusive right,
voting as a class, to elect two directors of the Company to fill such newly
created directorships for the term and subject to the conditions specified in
the Articles.
Holders of Common Stock are entitled to dividends on a pro rata basis
if, as and when declared by the Board of Directors, at its discretion, out of
funds legally available therefore, subject to the dividend and liquidation
rights of any Preferred Stock that may be issued and outstanding and subject to
any applicable contractual or legal restrictions. No dividends or other
distributions (including redemptions or repurchases of shares of capital stock)
may be made if after giving effect to any such dividends or distributions, the
Company would not be able to pay its debts as they become due in the usual
course of business or the Company's total assets would be less than the sum of
its total liabilities plus the amount that would be needed at the time of a
liquidation to satisfy the preferential rights of any holders of Preferred
Stock. Upon the liquidation, dissolution, or winding-up of the Company, the
holders of Common Stock are entitled to share pro rata in all assets available
for distribution after payment in full to creditors and the holders of any
Preferred Stock.
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<PAGE> 78
UNDESIGNATED PREFERRED STOCK
The Board of Directors of the Company is authorized, pursuant to the
Articles which will become effective upon completion of the Offerings, without
further shareholder action, to designate and issue from time to time one or more
series of Undesignated Preferred Stock. The board of directors is authorized to
designate the series and fix the number of shares in each series, as well as the
relative rights, preferences, and limitations of each series. Among such rights,
preferences and limitations are (i) the dividend rate; (ii) redeemable features,
if any; (iii) rights upon liquidation; (iv) whether or not the shares of such
series shall be subject to purchase, retirement, or sinking fund provisions; (v)
whether or not the shares of such series shall be convertible into or
exchangeable for shares of any other class and, if so, the rate of conversion or
exchange; (vi) restrictions, if any, upon the payment of dividends on common
stock; (vii) restrictions, if any, upon the creation of indebtedness; (viii)
voting powers, if any, of the shares of each series; and (ix) such other rights,
preferences, and limitations as shall no be inconsistent with applicable laws.
Because the Board of Directors has the power to establish the preferences and
rights of each series of Undesignated Preferred Stock, it may afford the holders
of any series of Undesignated Preferred Stock preferences and rights, voting or
otherwise, senior to the rights of holders of Common Stock.
The issuance of Preferred Stock, for example, in connection with a
shareholder rights plan, could have the effect of making it more difficult for a
third party to acquire, or discouraging a third party from acquiring, a majority
of the outstanding existing stock of the Company. See "Risk Factors-Risk Factors
Relating to the Company-Control by Existing Shareholders," and "-Anti-Takeover
Considerations." The Board of Directors currently has no plans to issue any
shares of Undesignated Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION
The Company's Articles provide that special meetings of shareholders
may be called only by: (i) the Board of Directors; (ii) the Chairman of the
Board of Directors (if one is appointed); (iii) the President; or (iv) by
holders of not less than 50% of all the votes entitled to be cast at the
meeting. Additionally, the Articles provide that any action required or
permitted to be taken at any annual or special meeting of the shareholders of
the Company may be taken only upon the vote of shareholders at a duly convened
meeting of shareholders in accordance with the Articles and the Bylaws and may
not be taken by written consent of the shareholders.
The Articles provide for a classified Board of Directors. The directors
are divided into three classes, as nearly equal in number as possible. The
directors are elected for three-year terms, which are staggered so that the
terms of one-third of the directors expire each year. The Articles permit
removal of directors, with or without cause, by the shareholders of the Company
at a meeting by the affirmative vote of at least two-thirds of the outstanding
shares of Common Stock.
The Articles establish an advance notice procedure for the nomination
of candidates for election as directors, as well as proposals to be considered
at annual shareholders' meetings. Nominations may be made at shareholders'
meetings by or at the direction of the Board of Directors, by any nominating
committee or person appointed by the Board or by any shareholder entitled to
vote for the election of directors. Notice of shareholder proposals to be acted
upon at annual meetings and nominations of directors by shareholders must be
given timely in writing to the Secretary of the Company. Such notice, to be
timely, must be received at the principal executive offices of the Company not
less than 60 days before the date of the meeting at which the director(s) are to
be elected or the date on which the annual meeting is scheduled, regardless of
any postponements, deferrals, or adjournments of that meeting to a later date;
however, if less than 70 days' notice or prior public disclosure of the date of
the scheduled meeting is given or made, notice by the shareholder, to be timely,
must be so delivered or received not later than the close of business on the
tenth day following the earlier of the day on which notice was given or such
public disclosure was made.
Notice to the Company from a shareholder who intends to present a
proposal at an annual meeting or to nominate a person for election as a director
at a meeting must contain certain information about the shareholder giving such
notice, and, in the case of director nominations, all information that would be
required to be included in a proxy statement soliciting proxies for the election
of the proposed nominee. Additionally, in the case of shareholder proposals, the
shareholder must provide, in the notice, a brief description of the proposal
desired to be brought before the annual meeting
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<PAGE> 79
and the reasons for conducting such business at the annual meeting. If the
presiding officer of the meeting determines that a shareholder's proposal or
nomination is not made in accordance with the procedures set forth in the
Articles, such proposal or nomination, at the direction of such presiding
officer, may be disregarded.
Under the Articles, a two-thirds vote of the shareholders is required
to approve any amendment to the Articles, a plan of merger (unless the Company
will be the surviving corporation and the shareholders of the Company would not
otherwise be entitled to vote on the merger under the Florida Business
Corporation Act (the "FBCA")) or share exchange, or sale of substantially all of
the assets of the Company; provided, however, that if a majority of the
"continuing directors" (as defined in the Articles) of the Company approves such
item, only a majority vote of shareholders is required.
In addition, the Articles provide that the number of directors of the
Company can be increased only by either (i) the affirmative vote of the holders
of at least two-thirds of the outstanding shares of capital stock of the Company
entitled to vote, or (ii) by the approval of a majority of the "continuing
directors." Finally, pursuant to the Bylaws, the chairperson of the
shareholders' meeting can adjourn any annual or special shareholders' meeting,
whether or not a quorum is present, and notice need not be given of any such
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At the adjourned meeting, the Company may
transact any business which might have been transacted at the original meeting.
The provisions of the Articles summarized in the preceding six
paragraphs and the provisions of the FBCA described under "Certain Provisions of
Florida Law" may have certain anti-takeover effects. Such provisions,
individually or in combination and in addition to the possible issuance of
Undesignated Preferred Stock discussed above, may discourage, or make it more
difficult, without the approval of the Company's Board of Directors, for other
persons to make a tender offer or acquisitions of substantial amounts of the
Common Stock or from launching other takeover attempts that a shareholder might
consider to be in such shareholder's best interests, including attempts that
might result in the payment of a premium over the market price for the Common
Stock held by such shareholder. See "Risk Factors-Risk Factors Relating to the
Company-Anti-Takeover Considerations."
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several anti-takeover provisions under
florida law that apply to a public corporation organized under Florida law,
unless the corporation has elected to opt out of those provisions in its
articles of incorporation or Bylaws. The Company has not elected to opt out of
those provisions. The FBCA prohibits the voting of shares in a publicly-held
Florida corporation that are acquired in a "control share acquisition" unless
the holders of a majority of the corporation's voting shares (exclusive of
shares held by officers of the corporation, inside directors, or the acquiring
party) approve the granting of voting rights as to the share acquired in the
control share acquisition. A "control share acquisition" is defined as an
acquisition that immediately thereafter entitles the acquiring party to vote in
the election of directors within each of the following ranges of voting power:
(i) one-fifth or more but less than one-third of such voting power; (ii)
one-third or more but less than a majority of such voting power; and (iii) a
majority or more of such voting power.
The FBCA also contains an "affiliated transaction" provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
"interested shareholder" unless (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder;
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years; (iii) the corporation has not
had more than 300 shareholders of record at any time during the 3 years
preceding the announcement date; (iv) the interested shareholder is the
beneficial owner of at least 90 percent of the outstanding voting shares of the
corporation, exclusive of shares acquired directly from the corporation in a
transaction not approved by a majority of the disinterested directors; or (v)
the transaction is approved by the holders of two-thirds of the corporation's
voting shares other than those beneficially owned by the interested shareholder.
An interested shareholder is defined as a person who together with affiliates
and associates beneficially owns more than 10% of the corporation's outstanding
voting shares.
TRANSFER AGENT AND REGISTRAR
The Company has selected Reliance Trust Company, Atlanta, Georgia, as
the transfer agent and registrar for the Common Stock.
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DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Trust Agreement. The Trust Agreement will be qualified as an indenture under the
Trust Indenture Act. The Property Trustee, Wilmington Trust Company, will act as
indenture trustee for the Preferred Securities under the Trust Agreement for
purposes of complying with the provisions of the Trust Indenture Act. The terms
of the Preferred Securities will include those stated in the Trust Agreement and
those made part of the Trust Agreement by the Trust Indenture Act. The following
summary of the material terms and provisions of the Preferred Securities and the
Trust Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Trust Agreement, the Delaware
Business Trust Act (the "Trust Act"), and the Trust Indenture Act. Wherever
particular defined terms of the Trust Agreement are referred to, but not defined
herein, such defined terms are incorporated herein by reference. The form of the
Trust Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Trustees, on behalf
of UFH Capital, will issue the Trust Securities. All of the Common Securities
will be owned by the Company. The Preferred Securities will represent preferred
undivided beneficial interests in the assets of UFH Capital and the holders
thereof will be entitled to a preference in certain circumstances with respect
to Distributions and amounts payable on redemption or liquidation over the
Common Securities, as well as other benefits as described in the Trust
Agreement. The Trust Agreement does not permit the issuance by UFH Capital of
any securities other than the Trust Securities or the incurrence of any
indebtedness by UFH Capital.
The Preferred Securities will rank pari passu, and payments will be
made thereon pro rata, with the Common Securities, except as described under
"-Subordination of Common Securities." Legal title to the Junior Subordinated
Debentures will be held by the Property Trustee in trust for the benefit of the
holders of the Trust Securities. The Guarantee executed by the Company for the
benefit of the holders of the Preferred Securities will be a guarantee on a
subordinated basis with respect to the Preferred Securities, but will not
guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Preferred Securities when UFH Capital does not have funds on
hand available to make such payments. Wilmington Trust Company, as Guarantee
Trustee, will hold the Guarantee for the benefit of the holders of the Preferred
Securities. See "Description of the Guarantee."
DISTRIBUTIONS
Payment of Distributions. Distributions on each Preferred Security will
be payable at the annual rate of ____% of the stated Liquidation Amount of $5,
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, to the holders of the Preferred Securities on the relevant record
dates (each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date"). The record date will be the 15th day of the
month in which the relevant Distribution Date occurs. Distributions will
accumulate from the date of original issuance. The first Distribution Date for
the Preferred Securities will be March 31, 1999. The amount of Distributions
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which Distributions are payable on
the Preferred Securities is not a Business Day, then payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (and without any additional Distributions, interest or other
payment in respect of any such delay) with the same force and effect as if made
on the date such payment was originally due and payable. "Business Day" means
any day other than a Saturday or a Sunday, a day on which banking institutions
in the City of New York are authorized or required by law or executive order to
remain closed or a day on which the corporate trust office of the Property
Trustee or the Debenture Trustee is closed for business. In the event UFH
Capital does not have sufficient funds to pay Distributions, the remedy of a
holder of Preferred Securities is to institute a legal proceeding directly
against the Company for enforcement of payment of such Distributions to such
holder. See "Relationship Among the Preferred Securities, the Junior
Subordinated Debentures and the Guarantee."
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Extended Interest Payment Period. The Company has the right under the
Indenture, so long as no Debenture Event of Default has occurred and is
continuing, to defer the payment of interest on the Junior Subordinated
Debentures at any time, or from time to time (each, an "Extended Interest
Payment Period"), which, if exercised, would result in quarterly Distributions
on the Preferred Securities also being deferred during any such Extended
Interest Payment Period. Distributions to which holders of the Preferred
Securities are entitled will accumulate additional Distributions thereon at the
rate per annum of ____% thereof, compounded quarterly from the relevant
Distribution Date. The term "Distributions," as used herein, includes any such
additional Distributions. The right to defer the payment of interest on the
Junior Subordinated Debentures is limited, however, to a period, in each
instance, not exceeding 20 consecutive quarters and no Extended Interest Payment
Period may extend beyond the Stated Maturity of the Junior Subordinated
Debentures. During any such Extended Interest Payment Period, the Company may
not (i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock (other than (a) the reclassification of any class of the Company's
capital stock into another class of capital stock, (b) dividends or
distributions payable in any class of the Company's Common Stock, (c) any
declaration of a dividend in connection with the implementation of a shareholder
rights plan, or the issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto and (d) purchases
of the Company's Common Stock related to the rights under any of the Company's
benefit plans for its or its subsidiaries' directors, officers or employees),
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Junior Subordinated Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
with or junior in interest to the Junior Subordinated Debentures (other than
payments under the Guarantee), or (iii) redeem, purchase or acquire less than
all of the Junior Subordinated Debentures or any of the Preferred Securities.
Prior to the termination of any such Extended Interest Payment Period, the
Company may further defer the payment of interest; provided that such Extended
Interest Payment Period may not exceed 20 consecutive quarters or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any such Extended Interest Payment Period and the payment of all amounts then
due, the Company may elect to begin a new Extended Interest Payment Period,
subject to the above requirements. Subject to the foregoing, there is no
limitation on the number of times that the Company may elect to begin an
Extended Interest Payment Period.
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
Source of Distribution. The funds of UFH Capital available for
distribution to holders of its Preferred Securities will be limited to payments
received from the Junior Subordinated Debentures in which UFH Capital will
invest the proceeds from the issuance and sale of its Trust Securities. See
"Description of the Junior Subordinated Debentures." Distributions will be paid
through the Property Trustee who will hold amounts received in respect of the
Junior Subordinated Debentures in the Property Account for the benefit of the
holders of the Trust Securities. If the Company does not make interest payments
on the Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Preferred Securities. The payment of
Distributions (but only if and to the extent UFH Capital has funds legally
available for the payment of such Distributions and cash sufficient to make such
payments) is guaranteed by the Company. See "Description of the Guarantee."
Distributions on the Preferred Securities will be payable to the holders thereof
as they appear on the register of holders of the Preferred Securities on the
relevant record dates, which will be the 15th day of the month in which the
relevant Distribution Date occurs.
REDEMPTION OR EXCHANGE
General. The Junior Subordinated Debentures will mature on the Stated
Maturity. The Company will have the right to redeem the Junior Subordinated
Debentures (i) on or after _______, 2003, in whole at any time or in part from
time to time, or (ii) at any time, in whole (but not in part), within 180 days
following the occurrence of a Tax Event, an Investment Company Event or a
Capital Treatment Event, in each case subject to prior Federal Reserve approval,
if then required under applicable Federal Reserve capital guidelines or
policies. Subject to the foregoing events, the Company will
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not have the right to purchase the Junior Subordinated Debentures, in whole or
in part, from UFH Capital until after _______, 2003. See "Description of the
Junior Subordinated Debentures-General."
Mandatory Redemption. Upon the repayment or redemption, in whole or in
part, of any Junior Subordinated Debentures, whether at the Stated Maturity or
upon earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption will be applied by the Property Trustee to redeem a Like
Amount (as defined herein) of the Trust Securities, upon not less than 30 nor
more than 60 days notice, at a redemption price (the "Redemption Price") equal
to the aggregate Liquidation Amount of such Trust Securities plus accumulated
but unpaid Distributions thereon to the date of redemption (the "Redemption
Date"). See "Description of the Junior Subordinated Debentures-Redemption or
Exchange." If less than all of the Junior Subordinated Debentures are to be
repaid or redeemed on a Redemption Date, then the proceeds from such repayment
or redemption will be allocated to the redemption of the Trust Securities pro
rata.
Distribution of Junior Subordinated Debentures. Subject to the Company
having received prior Federal Reserve approval, if then required under
applicable Federal Reserve capital guidelines or policies, the Company, as
holder of the Common Securities, will have the right at any time to dissolve,
wind-up or terminate UFH Capital and, after satisfaction of the liabilities of
creditors of UFH Capital as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of Trust Securities in
liquidation of UFH Capital. See "-Liquidation Distribution Upon Termination."
Tax Event Redemption, Investment Company Event Redemption or Capital
Treatment Event Redemption. If a Tax Event, an Investment Company Event or a
Capital Treatment Event occurs and is continuing, the Company has the right to
redeem the Junior Subordinated Debentures in whole (but not in part) and thereby
cause a mandatory redemption of the Trust Securities in whole (but not in part)
at the Redemption Price within 180 days following the occurrence of such Tax
Event, Investment Company Event or Capital Treatment Event. In the event a Tax
Event, an Investment Company Event or a Capital Treatment Event in respect of
the Trust Securities has occurred and the Company does not elect to redeem the
Junior Subordinated Debentures and thereby cause a mandatory redemption of the
Trust Securities or to liquidate UFH Capital and cause the Junior Subordinated
Debentures to be distributed to holders of such Trust Securities in liquidation
of UFH Capital as described below under "-Liquidation Distribution Upon
Termination," such Preferred Securities will remain outstanding and Additional
Interest (as defined herein) may be payable on the Junior Subordinated
Debentures.
"Additional Interest" means the additional amounts as may be necessary
in order that the amount of Distributions then due and payable by UFH Capital on
the outstanding Trust Securities will not be reduced as a result of any
additional taxes, duties and other governmental charges to which UFH Capital has
become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust
Securities, Trust Securities having a Liquidation Amount equal to that portion
of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, which will be used
to pay the Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of UFH Capital, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Junior Subordinated Debentures are
distributed. Each Junior Subordinated Debenture distributed pursuant to clause
(ii) above will carry with it accumulated interest in an amount equal to the
accumulated and unpaid interest then due on such Junior Subordinated Debentures.
"Liquidation Amount" means the stated amount of $5 per Trust Security.
There can be no assurance as to the market prices of the Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution and liquidation of UFH
Capital were to occur. The Preferred Securities that an investor may purchase,
or the Junior Subordinated Debentures that an investor may receive on
dissolution and liquidation of UFH Capital, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby.
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REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date will be redeemed
at the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Preferred
Securities will be made and the Redemption Price will be payable on each
Redemption Date only to the extent that UFH Capital has funds on hand available
for the payment of such Redemption Price. See "-Subordination of Common
Securities."
If UFH Capital gives a notice of redemption in respect of its Preferred
Securities, then, by 12:00 noon, eastern standard time, on the Redemption Date,
to the extent funds are available, the Property Trustee will irrevocably deposit
with the paying agent for the Preferred Securities funds sufficient to pay the
aggregate Redemption Price and will give the paying agent for the Preferred
Securities irrevocable instructions and authority to pay the Redemption Price to
the holders thereof upon surrender of their certificates evidencing such
Preferred Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for any Preferred Securities called for redemption
will be payable to the holders of such Preferred Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption shall
have been given and funds deposited as required, then upon the date of such
deposit, all rights of the holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price, but without interest on such
Redemption Price, and such Preferred Securities will cease to be outstanding. In
the event that any date fixed for redemption of Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day which is a Business Day (and without any
additional Distribution, interest or other payment in respect of any such delay)
with the same force and effect as if made on such date. In the event that
payment of the Redemption Price in respect of Preferred Securities called for
redemption is improperly withheld or refused and not paid either by UFH Capital
or by the Company pursuant to the Guarantee, Distributions on such Preferred
Securities will continue to accrue at the then applicable rate, from the
Redemption Date originally established by UFH Capital for such Preferred
Securities to the date such Redemption Price is actually paid, in which case the
actual payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price. See "Description of the
Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law) and, further provided, that the Company has not and is
not continuing to exercise its right to defer interest payments, the Company or
its subsidiaries may at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Junior Subordinated Debentures to holders of Preferred
Securities will be made to the applicable recordholders thereof as they appear
on the register for the Preferred Securities on the relevant record date, which
date will be the date 15 days prior to the Redemption Date or liquidation date,
as applicable.
If less than all of the Trust Securities are to be redeemed on a
Redemption Date, then the aggregate Liquidation Amount of such Trust Securities
to be redeemed will be allocated pro rata to the Trust Securities based upon the
relative Liquidation Amounts of such classes. The particular Preferred
Securities to be redeemed will be selected by the Property Trustee from the
outstanding Preferred Securities not previously called for redemption, by such
method as the Property Trustee deems fair and appropriate and which may provide
for the selection for redemption of portions (equal to $5 or an integral
multiple of $5 in excess thereof) of the Liquidation Amount of Preferred
Securities of a denomination larger than $5. The Property Trustee will promptly
notify the registrar for the Preferred Securities in writing of the Preferred
Securities selected for redemption and, in the case of any Preferred Securities
selected for partial redemption, the Liquidation Amount thereof to be redeemed.
For all purposes of the Trust Agreement, unless the context otherwise requires,
all provisions relating to the redemption of Preferred Securities will relate to
the portion of the aggregate Liquidation Amount of Preferred Securities which
has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each holder of Trust Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the
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Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on such Junior Subordinated
Debentures or portions thereof (and Distributions will cease to accrue on the
related Preferred Securities or portions thereof) called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Preferred
Securities and Common Securities, as applicable, will be made pro rata based on
the Liquidation Amount of the Preferred Securities and Common Securities;
provided, however, that if on any Distribution Date or Redemption Date a
Debenture Event of Default has occurred and is continuing, no payment of any
Distribution on, or Redemption Price of, any of the Common Securities, and no
other payment on account of the redemption, liquidation or other acquisition of
such Common Securities, will be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the outstanding Preferred
Securities for all Distribution periods terminating on or prior thereto, or in
the case of payment of the Redemption Price the full amount of such Redemption
Price on all of the outstanding Preferred Securities then called for redemption,
will have been made or provided for, and all funds available to the Property
Trustee will first be applied to the payment in full in cash of all
Distributions on, or Redemption Price of, the Preferred Securities then due and
payable.
In the case of any Event of Default resulting from a Debenture Event of
Default, the Company as holder of the Common Securities will be deemed to have
waived any right to act with respect to any such Event of Default under the
Trust Agreement until the effect of all such Events of Default with respect to
the Preferred Securities have been cured, waived or otherwise eliminated. Until
any such Events of Default under the Trust Agreement with respect to the
Preferred Securities have been so cured, waived or otherwise eliminated, the
Property Trustee will act solely on behalf of the holders of the Preferred
Securities and not on behalf of the Company, as holder of the Common Securities,
and only the holders of the Preferred Securities will have the right to direct
the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
The Company will have the right at any time to dissolve, wind-up or
terminate UFH Capital and cause the Junior Subordinated Debentures to be
distributed to the holders of the Preferred Securities. Such right is subject,
however, to the Company having received prior Federal Reserve approval, if then
required under applicable Federal Reserve capital guidelines or policies.
Pursuant to the Trust Agreement, UFH Capital will automatically
terminate upon expiration of its term and will terminate earlier on the first to
occur of (i) certain events of bankruptcy, dissolution or liquidation of the
Company, (ii) the distribution of a Like Amount of the Junior Subordinated
Debentures to the holders of its Trust Securities, if the Company, as depositor,
has given written direction to the Property Trustee to terminate UFH Capital
(which direction is optional and wholly within the discretion of the Company, as
depositor), (iii) redemption of all of the Preferred Securities as described
under "Description of the Preferred Securities-Redemption or Exchange-Mandatory
Redemption," or (iv) the entry of an order for the dissolution of UFH Capital by
a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv)
of the preceding paragraph, UFH Capital will be liquidated by the Trustees as
expeditiously as the Trustees determine to be possible by distributing, after
satisfaction of liabilities to creditors of UFH Capital as provided by
applicable law, to the holders of such Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is determined by the
Property Trustee not to be practical, in which event such holders will be
entitled to receive out of the assets of UFH Capital available for distribution
to holders, after satisfaction of liabilities to creditors of UFH Capital as
provided by applicable law, an amount equal to, in the case of holders of
Preferred Securities, the aggregate of the Liquidation Amount plus accrued and
unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because UFH Capital has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by UFH
Capital on the Preferred Securities will be paid on a pro rata basis. The
Company, as the holder of the Common Securities, will be entitled to receive
distributions upon any such liquidation pro rata with
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the holders of the Preferred Securities, except that, if a Debenture Event of
Default has occurred and is continuing, the Preferred Securities will have a
priority over the Common Securities. See "-Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Preferred Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Preferred
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Preferred Securities held by DTC or its nominee and
(iii) any certificates representing the Preferred Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the
Preferred Securities and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on the Preferred Securities until
such certificates are presented to the security registrar for the Trust
Securities for transfer or reissuance.
Under current United States federal income tax law and interpretations
and assuming, as expected, that UFH Capital is treated as a grantor trust, a
distribution of the Junior Subordinated Debentures should not be a taxable event
to holders of the Preferred Securities. Should there be a change in law, a
change in legal interpretation, a Tax Event or other circumstances, however, the
distribution could be a taxable event to holders of the Preferred Securities.
See "Material Federal Income Tax Considerations-Receipt of Junior Subordinated
Debentures or Cash Upon Liquidation of UFH Capital."
If the Company elects neither to redeem the Junior Subordinated
Debentures prior to maturity nor to liquidate UFH Capital and distribute the
Junior Subordinated Debentures to holders of the Preferred Securities, the
Preferred Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures. If the Company elects to liquidate UFH Capital and
thereby causes the Junior Subordinated Debentures to be distributed to holders
of the Preferred Securities in liquidation of UFH Capital, the Company will
continue to have the right to shorten the maturity of such Junior Subordinated
Debentures, subject to certain conditions. See "Description of the Junior
Subordinated Debentures-General."
LIQUIDATION VALUE
The amount of the Liquidation Distribution payable on the Preferred
Securities in the event of any liquidation of UFH Capital is $5 per Preferred
Security plus accrued and unpaid Distributions thereon to the date of payment,
which may be in the form of a distribution of such amount in Junior Subordinated
Debentures with a like amount of accrued interest, subject to certain
exceptions. See "-Liquidation Distribution Upon Termination."
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an event of default under
the Trust Agreement (an "Event of Default") with respect to the Preferred
Securities (whatever the reason for such Event of Default and whether voluntary
or involuntary or effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
the Junior Subordinated Debentures-Debenture Events of Default"); or
(ii) default by UFH Capital in the payment of any Distribution when it
becomes due and payable, and continuation of such default for a period
of 30 days; or
(iii) default by UFH Capital in the payment of any Redemption Price of
any Trust Security when it becomes due and payable: or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Trustee(s) in the Trust Agreement
(other than a covenant or warranty, a default in the performance of
which or the breach of which is dealt with in clauses (ii) or (iii)
above), and continuation of such default or breach for a period of 60
days
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after there has been given, by registered or certified mail, to the
Trustee(s) by the holders of at least 25% in aggregate Liquidation
Amount of the outstanding Preferred Securities, a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" under the Trust
Agreement: or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to
appoint a successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of the Preferred Securities, the
Administrative Trustees and the Company, as depositor, unless such Event of
Default has been cured or waived. The Company, as depositor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities will have a preference over the Common Securities upon
termination of UFH Capital. See "-Liquidation Distribution Upon Termination."
The existence of an Event of Default does not entitle the holders of Preferred
Securities to accelerate the maturity thereof.
REMOVAL OF UFH CAPITAL TRUSTEE
Unless a Debenture Event of Default has occurred and is continuing, any
Trustee may be removed at any time by the holder of the Common Securities. If a
Debenture Event of Default has occurred and is continuing, the Property Trustee
and the Delaware Trustee may be removed by the holders of a majority in
Liquidation Amount of the outstanding Preferred Securities. In no event,
however, will the holders of the Preferred Securities have the right to vote to
appoint, remove or replace the Administrative Trustees, which voting rights are
vested exclusively in the Company as the holder of the Common Securities. No
resignation or removal of a Trustee and no appointment of a successor trustee
will be effective until the acceptance of appointment by the successor trustee
in accordance with the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default has occurred and is continuing, at any time
or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property (as
defined in the Trust Agreement) may at the time be located, the Company, as the
holder of the Common Securities, will have the power to appoint one or more
Persons (as defined in the Trust Agreement) either to act as a co-trustee,
jointly with the Property Trustee, of all or any part of such Trust Property, or
to act as separate trustee of any such Trust Property, in either case with such
powers as may be provided in the instrument of appointment, and to vest in such
Person or Persons in such capacity any property, title, right or power deemed
necessary or desirable, subject to the provisions of the Trust Agreement. In
case a Debenture Event of Default has occurred and is continuing, the Property
Trustee alone will have power to make such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Trustee is a party, or any Person
succeeding to all or substantially all the corporate trust business of such
Trustee, will be the successor of such Trustee under the Trust Agreement,
provided such Person is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF UFH CAPITAL
UFH Capital may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, except as described below. UFH
Capital may, at the
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request of the Company, with the consent of the Administrative Trustees, which
consent may not be unreasonably withheld and without the consent of the holders
of the Preferred Securities, the Property Trustee or the Delaware Trustee, merge
with or into, consolidate, amalgamate, or be replaced by or convey, transfer or
lease its properties and assets substantially as an entirety to a trust
organized as such under the laws of any State; provided, that (i) such successor
entity either (a) expressly assumes all of the obligations of UFH Capital with
respect to the Preferred Securities, or (b) substitutes for the Preferred
Securities other securities having substantially the same terms as the Preferred
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Preferred Securities rank in priority with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Company expressly appoints a trustee of such successor entity possessing the
same powers and duties as the Property Trustee in its capacity as the holder of
the Junior Subordinated Debentures, (iii) the Successor Securities are listed,
or any Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Preferred
Securities are then listed (including, if applicable, The Nasdaq SmallCap
Market), if any, (iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Preferred Securities (including any
Successor Securities) in any material respect, (v) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Company has received an opinion from independent counsel to the effect that (a)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Preferred Securities (including any Successor Securities) in any
material respect, and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither UFH Capital nor such
successor entity will be required to register as an "investment company" under
the Investment Company Act, and (vi) the Company owns all of the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, UFH Capital will not, except
with the consent of holders of 100% in Liquidation Amount of the Preferred
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to any other Person or permit any other Person to consolidate, amalgamate, merge
with or into, or replace it if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause UFH Capital or the
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of the
Guarantee-Amendments and Assignment" and as otherwise required by the Trust Act
and the Trust Agreement, the holders of the Preferred Securities will have no
voting rights.
The Trust Agreement may be amended from time to time by the Company,
the Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities (i) with respect to acceptance of
appointment by a successor trustee, (ii) to cure any ambiguity, correct or
supplement any provisions in such Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement (provided such amendment is not
inconsistent with the other provisions of the Trust Agreement), or (iii) to
modify, eliminate or add to any provisions of the Trust Agreement to such extent
as is necessary to ensure that UFH Capital will be classified for United States
federal income tax purposes as a grantor trust at all times that any Trust
Securities are outstanding or to ensure that UFH Capital will not be required to
register as an "investment company" under the Investment Company Act; provided,
however, that in the case of clause (ii), such action may not adversely affect
in any material respect the interests of any holder of Trust Securities, and any
amendments of such Trust Agreement will become effective when notice thereof is
given to the holders of Trust Securities. The Trust Agreement may otherwise be
amended by the Trustees and the Company with (i) the consent of holders
representing not less than a majority in the aggregate Liquidation Amount of the
outstanding Trust Securities, and (ii) receipt by the Trustees of an opinion of
counsel to the effect that such amendment or the exercise of any power granted
to the Trustees in accordance with such amendment will not affect UFH Capital's
status as a grantor trust for United States federal income tax purposes or UFH
Capital's exemption from status as an "investment company" under the Investment
Company Act. Notwithstanding anything in this paragraph to the contrary, without
the consent of each holder of Trust Securities, the Trust Agreement may not be
amended to (a) change the amount or timing of any Distribution on the Trust
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Trust Securities as of a specified date,
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or (b) restrict the right of a holder of Trust Securities to institute suit for
the enforcement of any such payment on or after such date.
The Trustees will not, so long as any Junior Subordinated Debentures
are held by the Property Trustee, (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
executing any trust or power conferred on the Property Trustee with respect to
the Junior Subordinated Debentures, (ii) waive any past default that is waivable
under the Indenture, (iii) exercise any right to rescind or annul a declaration
that the principal of all the Junior Subordinated Debentures will be due and
payable, or (iv) consent to any amendment, modification or termination of the
Indenture or the Junior Subordinated Debentures, where such consent is required,
without, in each case, obtaining the prior approval of the holders of a majority
in aggregate Liquidation Amount of all outstanding Preferred Securities;
provided, however, that where a consent under the Indenture requires the consent
of each holder of Junior Subordinated Debentures affected thereby, no such
consent will be given by the Property Trustee without the prior consent of each
holder of the Preferred Securities. The Trustees may not revoke any action
previously authorized or approved by a vote of the holders of the Preferred
Securities except by subsequent vote of the holders of the Preferred Securities.
The Trustee will notify each holder of Preferred Securities of any notice of
default with respect to the Junior Subordinated Debentures. In addition to
obtaining the foregoing approvals of the holders of the Preferred Securities,
prior to taking any of the foregoing actions, the Trustees must obtain an
opinion of counsel experienced in such matters to the effect that UFH Capital
will not be classified as an association taxable as a corporation for United
States federal income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given
at a meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such holders is to be taken, to
be given to each holder of record of Preferred Securities in the manner set
forth in the Trust Agreement.
No vote or consent of the holders of Preferred Securities will be
required for UFH Capital to redeem and cancel its Preferred Securities in
accordance with the Trust Agreement.
Notwithstanding the fact that holders of Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Preferred Securities that are owned by the Company, the Trustees or any
affiliate of the Company or any Trustee, will, for purposes of such vote or
consent, be treated as if they were not outstanding.
BOOK ENTRY, DELIVERY AND FORM
The Preferred Securities will be issued in the form of one or more
fully registered global securities which will be deposited with, or on behalf
of, DTC and registered in the name of DTC's nominee. Unless and until it is
exchangeable in whole or in part for the Preferred Securities in definitive
form, a global security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC
or any such nominee to a successor of such Depository or a nominee of such
successor.
Ownership of beneficial interests in a global security will be limited
to persons that have accounts with DTC or its nominee ("Participants") or
persons that may hold interests through Participants. The Company expects that,
upon the issuance of a global security, DTC will credit, on its book-entry
registration and transfer system, the Participants' accounts with their
respective principal amounts of the Preferred Securities represented by such
global security. Ownership of beneficial interests in such global security will
be shown on, and the transfer of such ownership interest will be effected only
through, records maintained by DTC (with respect to interests of Participants).
Beneficial owners will not receive written confirmation from DTC of their
purchase, but are expected to receive written confirmations from the
Participants through which the beneficial owner entered into the transaction.
Transfers of ownership interests will be accomplished by entries on the books of
Participants acting on behalf of the beneficial owners.
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So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Preferred Securities represented by such global security
for all purposes under the Indenture governing such Preferred Securities. Except
as provided below, owners of beneficial interests in a global security will not
be entitled to receive physical delivery of the Preferred Securities in
definitive form and will not be considered the owners or holders thereof under
the Indenture. Accordingly, each person owning a beneficial interest in such a
global security must rely on the procedures of DTC and, if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest, to exercise any rights of a holder of Preferred Securities under
the Junior Subordinated Indenture. The Company understands that, under DTC's
existing practices, in the event that the Company requests any action of
holders, or an owner of a beneficial interest in such a global security desires
to take any action which a holder is entitled to take under the Indenture, DTC
would authorize the Participants holding the relevant beneficial interest to
take such action, and such Participants would authorize beneficial owners owning
through such Participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them. Redemption notices will
also be sent to DTC. If less than all of the Preferred Securities are being
redeemed, the Company understands that it is DTC's existing practice to
determine by lot the amount of the interest of each Participant to be redeemed.
Distributions on the Preferred Securities registered in the name of DTC
or its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Preferred Securities.
None of the Company, the Trustees, the Administrators, any Paying Agent or any
other agent of the Company or the Trustees will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interest in the global security for such Preferred
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. Disbursements of Distributions to
Participants shall be the responsibility of DTC. DTC's practice is to credit
Participants' accounts on a payable date in accordance with their respective
holdings shown on DTC's records unless DTC has reason to believe that it will
not receive payment on the payable date. Payments by Participants to beneficial
owners will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such Participant
and not of DTC, the Company, the Trustees, the Paying Agent or any other agent
of the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time.
DTC may discontinue providing its services as securities depository
with respect to the Preferred Securities at any time by giving reasonable notice
to the Company or the Trustees. If DTC notifies the Company that it is unwilling
to continue as such, or if it is unable to continue or ceases to be a clearing
agency registered under the Exchange Act and a successor depository is not
appointed by the Company within ninety days after receiving such notice or
becoming aware that DTC is no longer so registered, the Company will issue the
Preferred Securities in definitive form upon registration of transfer, or in
exchange for, such global security. In addition, the Company may at any time and
in its sole discretion determine not to have the Preferred Securities
represented by one or more global securities and, in such event, will issue
Preferred Securities in definitive form in exchange for all of the global
securities representing such Preferred Securities.
The Company understands that DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its Participants
and to facilitate the clearance and settlement of securities transactions
between Participants through electronic book entry changes to accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations.
Certain of such Participants (or their representatives), together with other
entities, own DTC. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with a Participant, either directly or indirectly.
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SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Preferred Securities will be made by the Underwriter
in immediately available funds.
Secondary trading in preferred securities of corporate issuers is
generally settled in clearinghouse or next-day funds. In contrast, the Preferred
Securities will trade in DTC's Same-Day Funds Settlement System, and secondary
market trading activity in the Preferred Securities will therefore be required
by DTC to settle in immediately available funds. No assurance can be given as to
the effect, if any, of settlement in immediately available funds on trading
activity in the Preferred Securities.
PAYMENT AND PAYING AGENT
Payments in respect of the Preferred Securities will be made to DTC,
which will credit the relevant accounts at DTC on the applicable Distribution
Dates or, if the Preferred Securities are not held by DTC, such payments will be
made by check mailed to the address of the holder entitled thereto as such
address appears on the securities register for the Trust Securities. The paying
agent (the "Paying Agent") will initially be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees. The Paying Agent will be permitted to resign as Paying
Agent upon 30 days' written notice to the Property Trustee and the
Administrative Trustees. If the Property Trustee is no longer the Paying Agent,
the Property Trustee will appoint a successor (which must be a bank or trust
company reasonably acceptable to the Administrative Trustees) to act as Paying
Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as the registrar and the transfer agent
for the Preferred Securities. Registration of transfers of Preferred Securities
will be effected without charge by or on behalf of UFH Capital, except for the
payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. In the event of any redemption, UFH
Capital will not be required to (i) issue, register the transfer of, or exchange
any Preferred Securities during a period beginning at the opening of business 15
days before the date of mailing of a notice of redemption of any Preferred
Securities called for redemption and ending at the close of business on the day
of such mailing; or (ii) register the transfer of or exchange any Preferred
Securities so selected for redemption, in whole or in part, except the
unredeemed portion of any such Preferred Securities being redeemed in part.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the Trust Agreement or is unsure of the application of any provision of the
Trust Agreement, and the matter is not one on which holders of Preferred
Securities are entitled under the Trust Agreement to vote, then the Property
Trustee will take such action as is directed by the Company and if not so
directed, will take such action as it deems advisable and in the best interests
of the holders of the Trust Securities and will have no liability except for its
own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate UFH Capital in such a way that UFH Capital will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and
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so that the Junior Subordinated Debentures will be treated as indebtedness of
the Company for United States federal income tax purposes. In this connection,
the Company and the Administrative Trustees are authorized to take any action,
not inconsistent with applicable law, the certificate of trust of UFH Capital or
the Trust Agreement, that the Company and the Administrative Trustees determine
in their discretion to be necessary or desirable for such purposes.
Holders of the Preferred Securities have no preemptive or similar
rights.
The Trust Agreement and the Preferred Securities will be governed by,
and construed in accordance with, the internal laws of the State of Delaware.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Concurrently with the issuance of the Preferred Securities, UFH Capital
will invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Junior Subordinated Debentures issued
by the Company. The Junior Subordinated Debentures will be issued as unsecured
debt under the Indenture, to be dated as of _______, 1998 (the "Indenture"),
between the Company and Wilmington Trust Company, as trustee (the "Debenture
Trustee"). The Indenture will be qualified as an indenture under the Trust
Indenture Act. The following summary of the material terms and provisions of the
Junior Subordinated Debentures and the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
Indenture and to the Trust Indenture Act. Wherever particular defined terms of
the Indenture are referred to, but not defined herein, such defined terms are
incorporated herein by reference. The form of the Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
GENERAL
The Junior Subordinated Debentures will be limited in aggregate
principal amount to approximately $6,000,000 (or $6,900,000 if the Underwriter's
over-allotment option is exercised in full by the Underwriter), such amount
being the sum of the aggregate stated Liquidation Amount of the Trust
Securities. The Junior Subordinated Debentures will bear interest at the annual
rate of ____% of the principal amount thereof, payable quarterly in arrears on
March 31, June 30, September 30, and December 31 of each year (each, an
"Interest Payment Date") beginning March 31, 1999, to the Person (as defined in
the Indenture) in whose name each Junior Subordinated Debenture is registered,
subject to certain exceptions, at the close of business on the Business Day next
preceding such Interest Payment Date. It is anticipated that, until the
liquidation, if any, of UFH Capital, the Junior Subordinated Debentures will be
held in the name of the Property Trustee in trust for the benefit of the holders
of the Preferred Securities. The amount of interest payable for any period will
be computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which interest is payable on the Junior Subordinated Debentures
is not a Business Day, then payment of the interest payable on such date will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) with the same force and effect as
if made on the date such payment was originally due and payable. Accrued
interest that is not paid on the applicable Interest Payment Date will bear
additional interest on the amount thereof (to the extent permitted by law) at
the rate per annum of ____% thereof, compounded quarterly. The term "interest",
as used herein, includes quarterly interest payments, interest on quarterly
interest payments not paid on the applicable Interest Payment Date and
Additional Interest, as applicable.
The Junior Subordinated Debentures will mature on _______, 2028, the
Stated Maturity. Such date may be shortened at any time by the Company to any
date not earlier than _______, 2003, subject to the Company having received
prior regulatory approval if then required under applicable capital guidelines
or regulatory policies. In the event that the Company elects to shorten the
Stated Maturity of the Junior Subordinated Debentures, it will give notice
thereof to the Debenture Trustee, UFH Capital and to the holders of the Junior
Subordinated Debentures no more than 180 days and no less than 90 days prior to
the effectiveness thereof.
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The Junior Subordinated Debentures will be unsecured and will rank
junior and be subordinate in right of payment to all Senior Debt and
Subordinated Debt of the Company. Because the Company is a holding company, the
right of the Company to participate in any distribution of assets of a
subsidiary, including the Bank, upon any liquidation or reorganization or
otherwise of such subsidiary (and thus the ability of holders of the Junior
Subordinated Debentures to benefit indirectly from such distribution), is
subject to the prior claim of creditors of the subsidiary (including depositors
in the Bank), except to the extent that the Company may itself be recognized as
a creditor of the subsidiary. The Junior Subordinated Debentures will,
therefore, be effectively subordinated to all existing and future liabilities of
the Company's subsidiaries, including the Bank, and holders of Junior
Subordinated Debentures should look only to the assets of the Company for
payments on the Junior Subordinated Debentures. The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Debt and Subordinated Debt, whether under the Indenture or any
existing indenture or other indenture that the Company or any of its
subsidiaries may enter into in the future or otherwise. See "-Subordination."
The Indenture does not contain provisions that afford holders of the
Junior Subordinated Debentures protection in the event of a highly leveraged
transaction or other similar transaction involving the Company that may
adversely affect such holders.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right under the Indenture at any time during the
term of the Junior Subordinated Debentures, so long as no Debenture Event of
Default has occurred and is continuing, to defer the payment of interest at any
time, or from time to time. The right to defer the payment of interest on the
Junior Subordinated Debentures is limited, however, to a period, in each
instance, not exceeding 20 consecutive quarters and no Extended Interest Payment
Period may extend beyond the Stated Maturity of the Junior Subordinated
Debentures. At the end of each Extended Interest Payment Period, the Company
must pay all interest then accrued and unpaid (together with interest thereon at
the annual rate of ____%, compounded quarterly, to the extent permitted by
applicable law). During an Extended Interest Payment Period, interest will
continue to accrue and holders of Junior Subordinated Debentures (or the holders
of Preferred Securities if such securities are then outstanding) will be
required to accrue and recognize income for United States federal income tax
purposes. See "Material Federal Income Tax Considerations-Interest Income and
Original Issue Discount."
During any such Extended Interest Payment Period, the Company may not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock (other than (a) the reclassification of any class of the Company's
capital stock into another class of capital stock, (b) dividends or
distributions payable in any class of the Company's Common Stock, (c) any
declaration of a dividend in connection with the implementation of a shareholder
rights plan, or the issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto and (d) purchases
of the Company's common stock related to the rights under any of the Company's
benefit plans for its or its subsidiaries' directors, officers or employees),
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Junior Subordinated Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
or junior in interest to the Junior Subordinated Debentures (other than payments
under the Guarantee), or (iii) redeem, purchase or acquire less than all of the
Junior Subordinated Debentures or any of the Preferred Securities. Prior to the
termination of any such Extended Interest Payment Period, the Company may
further defer the payment of interest; provided that no Extended Interest
Payment Period may exceed 20 consecutive quarters or extend beyond the Stated
Maturity of the Junior Subordinated Debentures. Upon the termination of any such
Extended Interest Payment Period and the payment of all amounts then due on any
Interest Payment Date, the Company may elect to begin a new Extended Interest
Payment Period subject to the above requirements. No interest will be due and
payable during an Extended Interest Payment Period, except at the end thereof.
The Company must give the Property Trustee, the Administrative Trustees and the
Debenture Trustee notice of its election of such Extended Interest Payment
Period at least two Business Days prior to the earlier of (i) the next
succeeding date on which Distributions on the Trust Securities would have been
payable except for the election to begin such Extended Interest Payment Period,
or (ii) the date the Trust is
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required to give notice of the record date, or the date such Distributions are
payable, to The Nasdaq SmallCap Market (or other applicable self-regulatory
organization) or to holders of the Preferred Securities, but in any event at
least one Business Day before such record date. Subject to the foregoing, there
is no limitation on the number of times that the Company may elect to begin an
Extended Interest Payment Period.
ADDITIONAL SUMS
If UFH Capital or the Property Trustee is required to pay any
additional taxes, duties or other governmental charges as a result of the
occurrence of a Tax Event, the Company will pay as additional amounts (referred
to herein as "Additional Interest") on the Junior Subordinated Debentures such
additional amounts as may be required so that the net amounts received and
retained by UFH Capital after paying any such additional taxes, duties or other
governmental charges will not be less than the amounts UFH Capital would have
received had such additional taxes, duties or other governmental charges not
been imposed.
REDEMPTION OR EXCHANGE
The Company will have the right to redeem the Junior Subordinated
Debentures prior to maturity (i) on or after ________________, 2003, in whole at
any time or in part from time to time, or (ii) at any time in whole (but not in
part), within 180 days following the occurrence of a Tax Event, an Investment
Company Event or a Capital Treatment Event, in each case at a Redemption Price
equal to the accrued and unpaid interest on the Junior Subordinated Debentures
so redeemed to the date fixed for redemption, plus 100% of the principal amount
thereof. Any such redemption prior to the Stated Maturity will be subject to
prior regulatory approval if then required under applicable capital guidelines
or regulatory policies.
"Tax Event" means the receipt by UFH Capital of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) interest payable by the Company on the Junior
Subordinated Debentures is not, or within 90 days of the date of such opinion
will not be, deductible by the Company, in whole or in part, for United States
federal income tax purposes, (ii) UFH Capital is, or will be within 90 days
after the date of such opinion of counsel, subject to United States federal
income tax with respect to income received or accrued on the Junior Subordinated
Debentures, or (iii) UFH Capital is, or will be within 90 days after the date of
such opinion of counsel, subject to more than a de minimis amount of other
taxes, duties, assessments or other governmental charges. The Company must
request and receive an opinion with regard to such matters within a reasonable
period of time after it becomes aware of the possible occurrence of any of the
events described in clauses (i) through (iii) above.
"Investment Company Event" means the receipt by UFH Capital of an
opinion of counsel experienced in such matters to the effect that, as a result
of the occurrence of a change in law or regulation or a change in interpretation
or application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, UFH Capital is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act, which change becomes effective on or after the date of original
issuance of the Preferred Securities.
"Capital Treatment Event" means the reasonable determination by the
Company that, as a result of any amendment to, or change (including any proposed
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement or action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such proposed change pronouncement, action or decision is announced on or after
the date of original issuance of the Preferred Securities, there is more than an
insubstantial risk that the Company will not be entitled to treat an amount
equal to the Liquidation
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Amount of the Preferred Securities as "Tier 1 Capital" (or the then equivalent
thereof) for purposes of the capital adequacy guidelines of the Federal Reserve
(or any successor regulatory authority with jurisdiction over bank holding
companies), or any capital adequacy guidelines as then in effect and applicable
to the Company.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each holder of Junior Subordinated
Debentures to be redeemed at its registered address. Unless the Company defaults
in payment of the Redemption Price for the Junior Subordinated Debentures, on
and after the redemption date interest ceases to accrue on such Junior
Subordinated Debentures or portions thereof called for redemption.
The Junior Subordinated Debentures will not be subject to any sinking
fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities-Liquidation
Distribution Upon Termination," under certain circumstances involving the
termination of UFH Capital, the Junior Subordinated Debentures may be
distributed to the holders of the Preferred Securities in liquidation of UFH
Capital after satisfaction of liabilities to creditors of UFH Capital as
provided by applicable law. Any such distribution will be subject to receipt of
prior regulatory approval if then required under applicable regulatory policies
or guidelines. If the Junior Subordinated Debentures are distributed to the
holders of Preferred Securities upon the liquidation of UFH Capital, the Company
will use its best efforts to list the Junior Subordinated Debentures on The
Nasdaq SmallCap Market or such stock exchanges, if any, on which the Preferred
Securities are then listed. There can be no assurance as to the market price of
any Junior Subordinated Debentures that may be distributed to the holders of
Preferred Securities.
RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there has occurred a Debenture Event of Default,
(ii) the Company is in default with respect to its obligations under the
Guarantee, or (iii) the Company has given notice of its election of an Extended
Interest Payment Period as provided in the Indenture with respect to the Junior
Subordinated Debentures and has not rescinded such notice, or such Extended
Interest Payment Period, or any extension thereof, is continuing, the Company
will not (1) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of the
Company's capital stock (other than (a) the reclassification of any class of the
Company's capital stock into another class of capital stock, (b) dividends or
distributions payable in any class of the Company's Common Stock, (c) any
declaration of a dividend in connection with the implementation of a shareholder
rights plan, or the issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant thereto and (d) purchases
of the Company's Common Stock related to the rights under any of the Company's
benefit plans for its or its subsidiaries' directors, officers or employees),
(2) make any payment of principal, interest or premium, if any, on or repay or
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Junior Subordinated Debentures or make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
or junior in interest to the Junior Subordinated Debentures (other than payments
under the Guarantee), or (3) redeem, purchase or acquire less than all of the
Junior Subordinated Debentures or any of the Preferred Securities.
SUBORDINATION
The Indenture provides that the Junior Subordinated Debentures are
subordinated and junior in right of payment to all Senior Debt and Subordinated
Debt of the Company. Upon any payment or distribution of assets to creditors
upon any liquidation, dissolution, winding up, reorganization, assignment for
the benefit of creditors, marshaling of assets or any bankruptcy, insolvency,
debt restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceedings of the Company, the holders of Senior Debt and
Subordinated Debt of the Company will first be entitled to receive payment in
full of principal of (and premium, if any) and interest, if any, on such Senior
Debt and Subordinated
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Debt of the Company before the holders of Junior Subordinated Debentures will be
entitled to receive or retain any payment in respect of the principal of or
interest on the Junior Subordinated Debentures.
In the event of the acceleration of the maturity of any Junior
Subordinated Debentures, the holders of all Senior Debt and Subordinated Debt of
the Company outstanding at the time of such acceleration will first be entitled
to receive payment in full of all amounts due thereon (including any amounts due
upon acceleration) before the holders of the Junior Subordinated Debentures will
be entitled to receive or retain any payment in respect of the principal of or
interest on the Junior Subordinated Debentures.
No payments on account of principal or interest in respect of the
Junior Subordinated Debentures may be made if there has occurred and is
continuing a default in any payment with respect to Senior Debt and Subordinated
Debt of the Company or an event of default with respect to any Senior Debt and
Subordinated Debt of the Company resulting in the acceleration of the maturity
thereof, or if any judicial proceeding is pending with respect to any such
default.
"Debt" means, with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent, (i) every
obligation of such person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every capital lease obligation of such Person, and (vi) every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
"Senior Debt" means, with respect to the Company, the principal of (and
premium, if any) and interest, if any (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt, whether incurred on or prior to the date of the Indenture
or thereafter incurred, unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Junior Subordinated
Debentures or to other Debt which is pari passu with, or subordinated to, the
Junior Subordinated Debentures; provided, however, that Senior Debt will not be
deemed to include (i) any Debt of the Company which when incurred and without
respect to any election under Section 1111(b) of the United States Bankruptcy
Code of 1978, as amended, was without recourse to the Company, (ii) any Debt of
the Company to any of its subsidiaries, (iii) any Debt to any employee of the
Company, (iv) any Debt which by its terms is subordinated to trade accounts
payable or accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of such Debt by the holders of the
Junior Subordinated Debentures as a result of the subordination provisions of
the Indenture would be greater than they otherwise would have been as a result
of any obligation of such holders to pay amounts over to the obligees on such
trade accounts payable or accrued liabilities arising in the ordinary course of
business as a result of subordination provisions to which such Debt is subject,
and (v) Debt which constitutes Subordinated Debt.
"Subordinated Debt" means, with respect to the Company, the principal
of (and premium, if any) and interest, if any (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization relating to
the Company whether or not such claim for post-petition interest is allowed in
such proceeding), on Debt, whether incurred on or prior to the date of the
Indenture or thereafter incurred, which is by its terms expressly provided to be
junior and subordinate to other Debt of the Company (other than the Junior
Subordinated Debentures).
The Indenture places no limitation on the amount of additional Senior
Debt and Subordinated Debt that may be issued or incurred by the Company. The
Company may from time to time issue or incur additional indebtedness
constituting Senior Debt and Subordinated Debt. As of September 30, 1998, the
Company had aggregate Senior Debt and Subordinated Debt of $3.3 million. Because
the Company is a holding company, the Junior Subordinated Debentures
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are effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, including obligations to depositors of the Bank.
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the
name of UFH Capital. If the Junior Subordinated Debentures are distributed to
holders of Preferred Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Preferred Securities. See "Description of
Preferred Securities-Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company within 90 days of receipt of notice from DTC to such effect, the
Company will cause the Junior Subordinated Debentures to be issued in definitive
form.
Payments on Junior Subordinated Debentures represented by a global
security will be made to Cede & Co., the nominee for DTC, as the registered
holder of the Junior Subordinated Debentures, as described under "Description of
Preferred Securities-Book Entry, Delivery and Form." If Junior Subordinated
Debentures are issued in certificated form, principal and interest will be
payable, the transfer of the Junior Subordinated Debentures will be registrable,
and Junior Subordinated Debentures will be exchangeable for Junior Subordinated
Debentures of other authorized denominations of a like aggregate principal
amount, at the corporate trust office of the Debenture Trustee in Wilmington,
Delaware or at the offices of any Paying Agent or transfer agent appointed by
the Company, provided that payments of interest may be made at the option of the
Company by check mailed to the address of the persons entitled thereto. However,
a holder of $1 million or more in aggregate principal amount of Junior
Subordinated Debentures may receive payments of interest (other than interest
payable at the Stated Maturity) by wire transfer of immediately available funds
upon written request to the Debenture Trustee not later than 15 calendar days
prior to the date on which the interest is payable. Any monies deposited with
the Debenture Trustee or any paying agent, or then held by the Company in trust,
for the payment of the principal of (and premium, if any) or interest on any
Junior Subordinated Debenture and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall, at
the request of the Company, be repaid to the Company and the holder of such
Junior Subordinated Debenture shall thereafter look, as a general unsecured
creditor, only to the Company for payment thereof.
REGISTRAR AND TRANSFER AGENT
The Debenture Trustee will act as the registrar and the transfer agent
for the Junior Subordinated Debentures. Junior Subordinated Debentures may be
presented for registration of transfer (with the form of transfer endorsed
thereon, or a satisfactory written instrument of transfer, duly executed) at the
office of the registrar. The Company may at any time rescind the designation of
any such transfer agent or approve a change in the location through which any
such transfer agent acts; provided, that the Company maintains a transfer agent
in the place of payment. The Company may at any time designate additional
transfer agents with respect to the Junior Subordinated Debentures. In the event
of any redemption, neither the Company nor the Debenture Trustee will be
required to (i) issue, register the transfer of or exchange Junior Subordinated
Debentures during a period beginning at the opening of business 15 days before
the day of selection for redemption of Junior Subordinated Debentures and ending
at the close of business on the day of mailing of the relevant notice of
redemption, or (ii) transfer or exchange any Junior Subordinated Debentures so
selected for redemption, except, in the case of any Junior Subordinated
Debentures being redeemed in part, any portion thereof not to be redeemed.
MODIFICATION OF INDENTURE
The Company and the Debenture Trustee may, from time to time without
the consent of the holders of the Junior Subordinated Debentures, amend, waive
or supplement the Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies and qualifying, or
maintaining the qualification of, the Indenture under the Trust Indenture Act.
The Indenture also contains provisions permitting the Company and the Debenture
Trustee, with the
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consent of the holders of not less than a majority in principal amount of the
outstanding Junior Subordinated Debentures, to modify the Indenture; provided,
that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture affected by such proposed
modification, (i) extend the fixed maturity of the Junior Subordinated
Debentures, or reduce the principal amount thereof, or reduce the rate or extend
the time of payment of interest thereon, or (ii) reduce the percentage of
principal amount of Junior Subordinated Debentures, the holders of which are
required to consent to any such modification of the Indenture; provided that so
long as any of the Preferred Securities remain outstanding, no such modification
may be made that requires the consent of the holders of the Junior Subordinated
Debentures, and no termination of the Indenture may occur, and no waiver of any
Debenture Event of Default may be effective, without the prior consent of the
holders of at least a majority of the aggregate Liquidation Amount of the
Preferred Securities and that if the consent of the holder of each Junior
Subordinated Debenture is required, such modification will not be effective
until each holder of Trust Securities has consented thereto.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes an event of default (each, a "Debenture Event of
Default") with respect to the Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures, when due (subject to the deferral of any due date in the
case of an Extended Interest Payment Period); or
(ii) failure to pay any principal on the Junior Subordinated Debentures
when due whether at the Stated Maturity, upon redemption by declaration
or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Indenture for 90 days after written
notice to the Company from the Debenture Trustee or the holders of at
least 25% in aggregate outstanding principal amount of the Junior
Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee, or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures, may declare
the principal due and payable immediately upon a Debenture Event of Default. The
holders of a majority in aggregate outstanding principal amount of the Junior
Subordinated Debentures may annul such declaration and waive the default if the
default (other than the non-payment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
Should the holders of the Junior Subordinated Debentures fail to annul such
declaration and waive such default, the holders of a majority in aggregate
Liquidation Amount of the Preferred Securities will have such right.
The Company is required to file annually with the Debenture Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Indenture.
If a Debenture Event of Default has occurred and is continuing, the
Property Trustee will have the right to declare the principal of and the
interest on such Junior Subordinated Debentures, and any other amounts payable
under the Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to such Junior Subordinated Debentures.
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ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest on or the
principal of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of the principal of or interest on such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities of such holder (a "Direct
Action"). In connection with such Direct Action, the Company will have a right
of set-off under the Indenture to the extent of any payment made by the Company
to such holder of Preferred Securities in the Direct Action. The Company may not
amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Preferred
Securities. If the right to bring a Direct Action is removed, UFH Capital may
become subject to the reporting obligations under the Exchange Act.
The holders of the Preferred Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the Junior Subordinated Debentures unless there has
been an Event of Default under the Trust Agreement. See "Description of the
Preferred Securities-Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Company may not consolidate with or merge into any other Person or
convey or transfer its properties and assets substantially as an entirety to any
Person, and any Person may not consolidate with or merge into the Company or
sell, convey, transfer or otherwise dispose of its properties and assets
substantially as an entirety to the Company, unless (i) in the event the Company
consolidates with or merges into another Person or conveys or transfers its
properties and assets substantially as an entirety to any Person, the successor
Person is organized under the laws of the United States or any State or the
District of Columbia, and such successor Person expressly assumes by
supplemental indenture the Company's obligations on the Junior Subordinated
Debentures issued under the Indenture, (ii) immediately after giving effect
thereto, no Debenture Event of Default, and no event which, after notice or
lapse of time or both, would become a Debenture Event of Default, has occurred
and is continuing, and (iii) certain other conditions as prescribed in the
Indenture are met.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to the
Company's obligations to pay certain sums due pursuant to the Indenture and to
provide certain officers' certificates and opinions of counsel described
therein) and the Company will be deemed to have satisfied and discharged the
Indenture when, among other things, all Junior Subordinated Debentures not
previously delivered to the Debenture Trustee for cancellation (i) have become
due and payable, or (ii) will become due and payable at their Stated Maturity
within one year or are to be called for redemption within one year, and the
Company deposits or causes to be deposited with the Debenture Trustee funds, in
trust, for the purpose and in an amount sufficient to pay and discharge the
entire indebtedness on the Junior Subordinated Debentures not previously
delivered to the Debenture Trustee for cancellation, for the principal and
interest to the date of the deposit or to the Stated Maturity or redemption
date, as the case may be.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed
by and construed in accordance with the laws of the State of Florida.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee has and is subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Debenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby.
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The Debenture Trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties if
the Debenture Trustee reasonably believes that repayment or adequate indemnity
is not reasonably assured to it.
MISCELLANEOUS
The Company has agreed, pursuant to the Indenture, for so long as the
Trust Securities remain outstanding, (i) to maintain directly or indirectly 100%
ownership of the Common Securities of UFH Capital (provided that certain
successors which are permitted pursuant to the Indenture may succeed to the
Company's ownership of the Common Securities), (ii) not to voluntarily
terminate, wind up or liquidate UFH Capital without prior regulatory approval if
then so required under applicable Federal Reserve capital guidelines or policies
and use its reasonable efforts to cause UFH Capital to remain a business trust,
except in connection with a distribution of Junior Subordinated Debentures to
the holders of the Preferred Securities, the redemption of all of the Preferred
Securities, or certain mergers, consolidations or amalgamations permitted by the
Trust Agreement, and (iii) to use its reasonable efforts, consistent with the
terms and provisions of the Trust Agreement, to cause UFH Capital to remain
classified as a grantor trust and not as an association taxable as a corporation
for United States federal income tax purposes.
DESCRIPTION OF THE GUARANTEE
The Preferred Securities Guarantee Agreement (the "Guarantee") will be
executed and delivered by the Company concurrently with the issuance of the
Preferred Securities for the benefit of the holders of the Preferred Securities.
The Guarantee will be qualified as an indenture under the Trust Indenture Act.
The Guarantee Trustee will act as indenture trustee under the Guarantee for
purposes of complying with the provisions of the Trust Indenture Act. The
Guarantee Trustee, Wilmington Trust Company, will hold the Guarantee for the
benefit of the holders of the Preferred Securities. The following summary of the
material terms and provisions of the Guarantee does not purport to be complete
and is subject to, and qualified in its entirety by reference to, all of the
provisions of the Guarantee and the Trust Indenture Act. Wherever particular
defined terms of the Guarantee are referred to, but not defined herein, such
defined terms are incorporated herein by reference. The form of the Guarantee
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
GENERAL
The Guarantee will be an irrevocable guarantee on a subordinated basis
of UFH Capital's obligations under the Preferred Securities, but will apply only
to the extent that UFH Capital has funds sufficient to make such payments. The
Company will, pursuant to the Guarantee, irrevocably agree to pay in full on a
subordinated basis, to the extent set forth therein, the Guarantee Payments (as
defined below) to the holders of the Preferred Securities, as and when due,
regardless of any defense, right of set-off or counterclaim that UFH Capital may
have or assert other than the defense of payment. The following payments with
respect to the Preferred Securities, to the extent not paid by or on behalf of
UFH Capital (the "Guarantee Payments"), will be subject to the Guarantee: (i)
any accrued and unpaid Distributions required to be paid on the Preferred
Securities, to the extent that UFH Capital has funds available therefor at such
time, (ii) the Redemption Price with respect to any Preferred Securities called
for redemption to the extent that UFH Capital has funds available therefor at
such time, and (iii) upon a voluntary or involuntary dissolution, winding up or
liquidation of UFH Capital (other than in connection with the distribution of
Junior Subordinated Debentures to the holders of Preferred Securities or a
redemption of all of the Preferred Securities), the lesser of (a) the amount of
the Liquidation Distribution, to the extent UFH Capital has funds available
therefor at such time, and (b) the amount of assets of UFH Capital remaining
available for distribution to holders of Preferred Securities in liquidation of
UFH Capital. The obligation of the Company to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of the Preferred Securities or by causing UFH Capital to pay such
amounts to such holders.
The Guarantee will not apply to any payment of Distributions except to
the extent UFH Capital has funds available therefor. If the Company does not
make interest payments on the Junior Subordinated Debentures held by UFH
Capital, UFH Capital will not pay Distributions on the Preferred Securities and
will not have funds legally available therefor.
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STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of payment to all Senior Debt and
Subordinated Debt of the Company in the same manner as the Junior Subordinated
Debentures. The Guarantee does not place a limitation on the amount of
additional Senior Debt and Subordinated Debt that may be incurred by the
Company. The Company expects from time to time to incur additional indebtedness
constituting Senior Debt and Subordinated Debt. The Guarantee will constitute a
guarantee of payment and not of collection (that is, the guaranteed party may
institute a legal proceeding directly against the Company to enforce its rights
under the Guarantee without first instituting a legal proceeding against any
other Person). The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by UFH Capital or upon
distribution of the Junior Subordinated Debentures to the holders of the
Preferred Securities. Because the Company is a holding company, the right of the
Company to participate in any distribution of assets of a subsidiary, including
the Bank, upon a liquidation or reorganization or otherwise is subject to the
prior claims of creditors of the subsidiary, except to the extent the Company
may itself be recognized as a creditor of the subsidiary. The Company's
obligations under the Guarantee, therefore, will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, including the
Bank, and claimants should look only to the assets of the Company for payments
thereunder.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely
affect the rights of holders of the Preferred Securities (in which case no vote
will be required), the Guarantee may not be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of the outstanding Preferred Securities. See "Description of the Preferred
Securities-Voting Rights; Amendment of Trust Agreement." All guarantees and
agreements contained in the Guarantee will bind the successors, assigns,
receivers, trustees and representatives of the Company and will inure to the
benefit of the holders of the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against UFH Capital, the Guarantee Trustee
or any other Person.
The Company, as guarantor, is required to file annually with the
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance
of a default by the Company in performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after default with respect to the Guarantee, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to such provisions, the Guarantee Trustee is under
no obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of any Preferred Securities, unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
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TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
(i) full payment of the Redemption Price of the Preferred Securities, (ii) full
payment of the amounts payable upon liquidation of UFH Capital, or (iii)
distribution of the Junior Subordinated Debentures to the holders of the
Preferred Securities. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of the Preferred
Securities must restore payment of any sums paid under such Preferred Securities
or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the
laws of the State of Florida.
EXPENSE AGREEMENT
The Company will, pursuant to the Agreement as to Expenses and
Liabilities entered into by it under the Trust Agreement (the "Expense
Agreement"), irrevocably and unconditionally guarantee to each person or entity
to whom UFH Capital becomes indebted or liable, the full payment of any costs,
expenses or liabilities of UFH Capital, other than obligations of UFH Capital to
pay to the holders of the Preferred Securities or other similar interests in UFH
Capital of the amounts due such holders pursuant to the terms of the Preferred
Securities or such other similar interests, as the case may be. Third party
creditors of UFH Capital may proceed directly against the Company under the
Expense Agreement, regardless of whether such creditors had notice of the
Expense Agreement.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred
Securities (to the extent UFH Capital has funds available for the payment of
such Distributions) are irrevocably guaranteed by the Company as and to the
extent set forth under "Description of the Guarantee." The Company and UFH
Capital believe that, taken together, the obligations of the Company under the
Junior Subordinated Debentures, the Indenture, the Trust Agreement, the Expense
Agreement, and the Guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee, on a subordinated basis, of payment of Distributions
and other amounts due on the Preferred Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the obligations of UFH Capital under the Preferred Securities. However, if
and to the extent that the Company does not make payments on the Junior
Subordinated Debentures, UFH Capital will not pay Distributions or other amounts
due on the Preferred Securities and the Guarantee does not cover payment of
Distributions when UFH Capital does not have sufficient funds to pay such
Distributions. In such event, the remedy of a holder of Preferred Securities is
to institute a legal proceeding directly against the Company for enforcement of
payment of such Distributions to such holder. The obligations of the Company
under the Guarantee are subordinate and junior in right of payment to all Senior
Debt and Subordinated Debt of the Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on
the Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Preferred Securities, primarily
because (i) the aggregate principal amount of the Junior Subordinated Debentures
will be equal to the sum of the aggregate stated Liquidation Amount of the Trust
Securities, (ii) the interest rate and interest and other payment dates on the
Junior Subordinated Debentures will match the Distribution rate and Distribution
and other payment dates for the Preferred
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Securities, (iii) the Company will pay for all and any costs, expenses and
liabilities of UFH Capital (except the obligations of UFH Capital to the holders
of the Preferred Securities), and (iv) the Trust Agreement further provides that
UFH Capital will not engage in any activity that is not consistent with the
limited purposes of UFH Capital.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, UFH Capital
or any other Person. A default or event of default under any Senior Debt and
Subordinated Debt of the Company would not constitute a default or Event of
Default. In the event, however, of payment defaults under, or acceleration of,
Senior Debt and Subordinated Debt of the Company, the subordination provisions
of the Indenture provide that no payments may be made in respect of the Junior
Subordinated Debentures until such Senior Debt and Subordinated Debt has been
paid in full or any payment default thereunder has been cured or waived. Failure
to make required payments on the Junior Subordinated Debentures would constitute
an Event of Default.
LIMITED PURPOSE OF UFH CAPITAL
The Preferred Securities evidence preferred undivided beneficial
interests in the assets of UFH Capital. UFH Capital exists for the sole purpose
of issuing the Trust Securities and investing the proceeds thereof in Junior
Subordinated Debentures. A principal difference between the rights of a holder
of a Preferred Security and the rights of a holder of a Junior Subordinated
Debenture is that a holder of a Junior Subordinated Debenture is entitled to
receive from the Company the principal amount of and interest accrued on Junior
Subordinated Debentures held, while a holder of Preferred Securities is entitled
to receive Distributions from UFH Capital (or from the Company under the
Guarantee) if and to the extent UFH Capital has funds available for the payment
of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or
liquidation of UFH Capital involving the liquidation of the Junior Subordinated
Debentures, the holders of the Preferred Securities will be entitled to receive,
out of assets held by UFH Capital, the Liquidation Distribution in cash. See
"Description of the Preferred Securities-Liquidation Distribution Upon
Termination." Upon any voluntary or involuntary liquidation or bankruptcy of the
Company, the Property Trustee, as holder of the Junior Subordinated Debentures,
would be a subordinated creditor of the Company, subordinated in right of
payment to all Senior Debt and Subordinated Debt of the Company (as set forth in
the Indenture), but entitled to receive payment in full of principal and
interest before any shareholders of the Company receive payments or
distributions. Since the Company is the guarantor under the Guarantee and has
agreed to pay for all costs, expenses and liabilities of UFH Capital (other than
the obligations of UFH Capital to the holders of its Preferred Securities), the
positions of a holder of the Preferred Securities and a holder of the Junior
Subordinated Debentures relative to other creditors and to shareholders of the
Company in the event of liquidation or bankruptcy of the Company are expected to
be substantially the same.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
In the opinion of Holland & Knight LLP ("Holland & Knight"), counsel to
the Company and UFH Capital, the following summary accurately describes the
material United States federal income tax considerations relevant to the
purchase, ownership and disposition of Preferred Securities by a person that
purchases Preferred Securities on their original issue at their original
offering price. The conclusions expressed herein are based upon current
provisions of the Code, regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change at any time,
with possible retroactive effect. Subsequent changes to these authorities may
cause tax consequences to vary substantially from the consequences described
below. Furthermore, the authorities on which the following summary is based are
subject
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<PAGE> 103
to various interpretations, and it is therefore possible that the United States
federal income tax treatment of the purchase, ownership, and disposition of
Preferred Securities may differ from the treatment described below.
No attempt has been made in the following discussion to comment on all
United States federal income tax matters affecting purchasers of Preferred
Securities. Moreover, the discussion generally focuses on holders of Preferred
Securities who are individual citizens or residents of the United States and who
acquire Preferred Securities on their original issue at their offering price and
hold Preferred Securities as capital assets within the meaning of Section 1221
of the Code. The discussion has only limited application to dealers in
securities, corporations, estates, trusts or nonresident aliens and does not
address all the tax consequences that may be relevant to holders who may be
subject to special tax treatment, such as, for example, banks, thrifts, real
estate investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, or persons that will
hold the Preferred Securities as a position in a "straddle," as part of a
"synthetic security" or "hedge," as part of a "conversion transaction" or other
integrated investment, or as other than a capital asset. The following summary
also does not address the tax consequences to persons that have a functional
currency other than the U.S. dollar or the tax consequences to shareholders,
partners or beneficiaries of a holder of Preferred Securities. Further, it does
not include any description of any alternative minimum tax consequences or the
tax laws of any state or local government or of any foreign government that may
be applicable to the Preferred Securities. Accordingly, each prospective
investor should consult, and should rely exclusively on, such investor's own tax
advisors in analyzing the federal, state, local and foreign tax consequences of
the purchase, ownership or disposition of Preferred Securities.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Company intends to take the position that the Junior Subordinated
Debentures will be classified for United States federal income tax purposes as
indebtedness of the Company under current law, and, by acceptance of a Preferred
Security, each holder covenants to treat the Junior Subordinated Debentures as
indebtedness and the Preferred Securities as evidence of an indirect beneficial
ownership interest in the Junior Subordinated Debentures. There can be no
assurance that a contrary position will not be taken by the Internal Revenue
Service, or that any court considering the issues would not hold contrary to
such position. This summary assumes that the Junior Subordinated Debentures will
be classified for United States federal income tax purposes as indebtedness of
the Company.
CLASSIFICATION OF UFH CAPITAL
Under current law and assuming full compliance with the terms of the
Trust Agreement and Indenture (and certain other documents described herein),
UFH Capital will be classified for United States federal income tax purposes as
a grantor trust and not as an association taxable as a corporation. As a result,
each beneficial owner of Preferred Securities will be treated for federal income
tax purposes as a holder of its pro rata share of Junior Subordinated Debentures
held by UFH Capital. Accordingly, for United States federal income tax purposes,
each holder of Preferred Securities generally will be treated as owning an
undivided beneficial interest in the Junior Subordinated Debentures, and each
holder will be required to include in its gross income its pro rata share of
interest income, including any original issue discount ("OID"), paid or accrued
with respect to its allocable share of the Junior Subordinated Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under applicable Treasury regulations (the "Regulations"), a "remote"
contingency that stated interest will not be timely paid will be ignored in
determining whether a debt instrument is issued with OID. The Company believes
that the likelihood of its exercising its option to defer payments of interest
is remote. Based on the foregoing, the Company intends to take the position that
the Junior Subordinated Debentures are not considered to be issued with OID at
the time of their original issuance and, accordingly, except as set forth below,
a holder should include in gross income such holder's allocable share of
interest on the Junior Subordinated Debentures at the time it is paid or accrued
in accordance with such holder's method of tax accounting.
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<PAGE> 104
Under the Regulations, however, if the Company exercised its option to
defer any payment of interest, the Junior Subordinated Debentures would at that
time and at all times thereafter be treated as OID instruments, and all stated
interest (and de minimis OID, if any) on the Junior Subordinated Debentures
would thereafter be treated as OID as long as the Junior Subordinated Debentures
remained outstanding. In such event, the taxable interest income of all holders
with respect to the Junior Subordinated Debentures would be determined on a
daily economic accrual basis regardless of such holder's method of tax
accounting, and actual distributions of stated interest would not be reported as
taxable income. Consequently, a holder would be required to include OID in gross
income even though the Company would not make any actual cash payments during an
Extended Interest Payment Period and even through some holders may use the cash
method of tax accounting.
The Regulations have not been addressed in any published rulings or
other published interpretations by the Internal Revenue Service, and it is
possible, however, that the Internal Revenue Service could take a position
contrary to the interpretation herein.
Because income on the Preferred Securities will constitute interest or
OID, corporate holders will not be entitled to a dividends-received deduction
with respect to any income recognized with respect to the Preferred Securities.
Subsequent uses of the term "interest" in this summary include income
in the form of OID.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF UFH
CAPITAL
Under certain circumstances, as described under "Description of the
Preferred Securities-Redemption or Exchange" and "-Liquidation Distribution Upon
Termination," the Junior Subordinated Debentures may be distributed to holders
of Preferred Securities upon a liquidation of UFH Capital. Under current United
States federal income tax law, such a distribution would be treated as a
nontaxable event to each such holder in which each holder is deemed to receive
directly its pro rata share of Junior Subordinated Debentures previously held
indirectly through this Trust. A holder's aggregate tax basis in the Junior
Subordinated Debentures received in the liquidation will be equal to such
holder's aggregate tax basis in the Preferred Securities immediately before the
distribution. A holder's holding period in the Junior Subordinated Debentures so
received in liquidation of UFH Capital would include the period for which such
holder held the Preferred Securities.
If, however, a Tax Event occurs which results in UFH Capital being
treated as an association taxable as a corporation, the distribution would
constitute a taxable event to UFH Capital and the holders of the Preferred
Securities, and each holder of Preferred Securities would recognize gain or loss
as if the holder had exchanged its Preferred Securities for Junior Subordinated
Debentures, and the holder's holding period in the Junior Subordinated
Debentures would not include the period for which such holder held the Preferred
Securities. Under certain circumstances described herein, the Junior
Subordinated Debentures may be redeemed for cash and the proceeds of such
redemption distributed to holders in redemption of their Preferred Securities.
Under current law, such a redemption would, for United States federal income tax
purposes, constitute a taxable disposition of the redeemed Preferred Securities,
and a holder would recognize gain or loss as if the holder sold such Preferred
Securities for cash. See "Description of the Preferred Securities-Redemption or
Exchange" and "-Liquidation Distribution Upon Termination."
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss
equal to the difference between its adjusted tax basis in the Preferred
Securities and the amount realized on the sale of such Preferred Securities.
Assuming that the Company does not exercise its option to defer payment of
interest on the Junior Subordinated Debentures, and the Preferred Securities are
not considered issued with OID, a holder's adjusted tax basis in the Preferred
Securities generally will be its initial purchase price. If the Junior
Subordinated Debentures are deemed to be issued with OID as a result of the
Company's deferral of any interest payment, or otherwise, a holder's tax basis
in the Preferred Securities generally will be its initial purchase price,
increased by OID previously includible in such holder's gross income to the date
of disposition
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<PAGE> 105
and decreased by distributions or other payments received on the Preferred
Securities since and including the date of commencement of the first Extended
Interest Payment Period. Such gain or loss generally will be a capital gain or
loss (except to the extent of any accrued interest with respect to such holder's
pro rata share of the Junior Subordinated Debentures required to be included in
income) and generally will be a long-term capital gain or loss if the Preferred
Securities have been held for more than one year.
Should the Company exercise its option to defer any payment of interest
on the Junior Subordinated Debentures, the Preferred Securities may trade at a
price that does not accurately reflect the value of accrued but unpaid interest
with respect to the underlying Junior Subordinated Debentures. In the event of
such a deferral, a holder that disposes of its Preferred Securities between
record dates for payments of distributions thereon will be required to include
accrued but unpaid interest on the Junior Subordinated Debentures to the date of
disposition as OID, but may not receive the cash related thereto. However, such
Security holder will add such amount to its adjusted tax basis in the Preferred
Securities. To the extent the selling price is less than the holder's adjusted
tax basis in the Preferred Securities, such holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES
Prospective purchasers of Preferred Securities should recognize that
the present federal income tax treatment of the Company and UFH Capital and an
investment in the Preferred Securities may be modified by legislative, judicial
or administrative action at any time, and that any such action may affect the
Company and investments and commitments previously made. The rules dealing with
federal income taxation are constantly under review by persons involved in the
legislative process and by the Internal Revenue Service and Treasury Department,
resulting in revisions of regulations and revised interpretations of established
concepts as well as statutory changes. Revisions in federal tax laws and the
interpretations thereof could adversely affect the tax consequences to the
Company, UFH Capital or of an investment in the Preferred Securities. There can
be no assurance that future legislative proposals or final legislation will not
affect the ability of the Company to deduct interest on the Junior Subordinated
Debentures. Such a change would give rise to a Tax Event. A Tax Event would
permit the Company, upon prior regulatory approval if then required under
applicable capital guidelines or regulatory policies, to cause a redemption of
the Preferred Securities before, as well as after, _______, 2003. See
"Description of the Junior Subordinated Debentures-Redemption or Exchange" and
"Description of the Preferred Securities-Redemption or Exchange-Tax Event
Redemption, Investment Company Event Redemptions or Capital Treatment Event
Redemptions."
BACKUP WITHHOLDING AND INFORMATION REPORTING
The amount of OID accrued on the Preferred Securities held of record by
individual citizens or residents of the United States, or certain trusts,
estates, and partnerships, will be reported to the Internal Revenue Service on
Forms 1099, which forms should be mailed to such holders of Preferred Securities
by January 31 following each calendar year. Payments made on, and proceeds from
the sale of, the Preferred Securities may be subject to a "backup" withholding
tax (currently at 31%) unless the holder complies with certain identification
and other requirements. Any amounts withheld under the backup withholding rules
will be allowed as a credit against the holder's United States federal income
tax liability, provided the required information is provided to the Internal
Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE PARTICULAR
SITUATION OF A HOLDER OF PREFERRED SECURITIES. HOLDERS OF PREFERRED SECURITIES
SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
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<PAGE> 106
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code
("ERISA Plans"), generally may purchase Preferred Securities, subject to the
investing fiduciary's determination that the investment in Preferred Securities
satisfies ERISA's fiduciary standards and other requirements applicable to
investments by the ERISA Plan.
In any case, the Company and/or any of its affiliates may be considered
a "party in interest" (within the meaning of ERISA) or a "disqualified person"
(within the meaning of Section 4975 of the Code) with respect to certain plans
(generally, ERISA Plans maintained or sponsored by, or contributed to by, any
such persons with respect to which the Company or an affiliate is a fiduciary or
ERISA Plans for which the Company or an affiliate provides services). The
acquisition and ownership of Preferred Securities by an ERISA Plan (or by an
individual retirement arrangement or other ERISA Plans described in Section
4975(e)(1) of the Code) with respect to which the Company or any of its
affiliates is considered a party in interest or a disqualified person may
constitute or result in a prohibited transaction under ERISA or Section 4975 of
the Code, unless such Preferred Securities are acquired pursuant to and in
accordance with an applicable exemption.
As a result, ERISA Plans with respect to which the Company or any of
its affiliates is a party in interest or a disqualified person should not
acquire Preferred Securities unless such Preferred Securities are acquired
pursuant to and in accordance with an applicable exemption. Any other ERISA
Plans or other entities whose assets include ERISA Plan assets subject to ERISA
or Section 4975 of the Code proposing to acquire Preferred Securities should
consult with their own counsel.
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<PAGE> 107
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Underwriter, William R. Hough & Co., has agreed to purchase from
the Company the number of shares of Common Stock and from UFH Capital the number
of Preferred Securities set forth below. The Underwriter is committed to
purchase and pay for all Preferred Securities if any Preferred Securities are
purchased and has agreed to purchase the shares of Common Stock at the initial
offering price less the underwriting discounts and commission set forth on the
cover page of this Prospectus.
<TABLE>
<CAPTION>
Number of
Shares of Number of
Preferred Shares of
Underwriter Securities Common Stock
----------- ---------- ------------
<S> <C> <C>
William R. Hough & Co...............................
</TABLE>
The Underwriter proposes to offer the shares of Common Stock directly
to the public at the initial offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $___ per share. The Underwriter may allow and such dealers may re-allow a
concession not in excess of $___ per share to certain other dealers. The
Underwriter has informed the Company that it does not intend to confirm sales to
any accounts over which they exercise discretionary authority. After the initial
public offering of the shares, the offering price and other selling terms may
from time to time be varied by the Underwriter. Without the prior consent of the
Company, no investor may purchase more than 100,000 shares of Common Stock in
the Common Stock Offering.
The Company has been advised by the Underwriter that the Underwriter
proposes initially to offer the Preferred Securities to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $___ per Preferred
Security. The Underwriter may allow and such dealers may re-allow a concession
not in excess of $___ per Preferred Security to certain other dealers. After the
Offerings, the price to the public and other selling terms may be changed by the
Underwriter.
In view of the fact that the proceeds from the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures issued by
the Company, the Underwriting Agreement provides that the Company will pay as
compensation an amount of $___ per Preferred Security for the Underwriter's
arranging the investment therein of such proceeds.
The Company has granted to the Underwriter an option, exercisable no
later than 30 days after the date of this Prospectus, to purchase up to 67,500
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus, to cover
over-allotments, if any. If the Underwriter exercises its over-allotment option,
the Underwriter has agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the foregoing table bears to the total
number of shares of Common Stock offered hereby. The Underwriter may exercise
such option only to cover over-allotments made in connection with the sale of
share of Common Stock offered hereby.
The Company and UFH Capital have granted to the Underwriter an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
additional $900,000 aggregate liquidation amount of the Preferred Securities on
the terms set forth on the cover page hereof less underwriting discounts. The
Underwriter may exercise such option to purchase additional Preferred Securities
solely for the purpose of covering over-allotments, if any, incurred in the sale
of the Preferred Securities. To the extent that the Underwriter exercises its
option to purchase additional Preferred Securities, UFH Capital will issue and
sell to the Company additional Common Securities and the Company will issue and
sell to UFH
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<PAGE> 108
Capital Junior Subordinated Debentures in an aggregate principal amount equal to
the total aggregate Liquidation Amount of the additional Preferred Securities
being purchased pursuant to the option and the additional Common Securities.
In connection with the Common Stock Offering, the Underwriter may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Common Stock. Specifically, the Underwriter may overallot. In addition, the
Underwriter may bid for, and purchase, shares of Common Stock in the open market
to cover syndicate short positions created in connection with the Common Stock
Offering or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the Common Stock in the Common Stock Offering if the syndicate repurchases
previously distributed Common Stock in syndicate covering transactions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriter is not required to engage in these activities, and may
end any of these activities at anytime.
Prior to the Common Stock Offering, there has been no public market for
the Common Stock. The initial public offering price for the Common Stock will be
determined by negotiation among the Company and the Representatives. The factors
to be considered in determining the initial public offering price will be
prevailing market and economic conditions, the revenues and earnings of the
Company, market valuations of other companies engaged in activities similar to
the Company, estimates of the business potential and prospects of the Company,
the present state of the Company's business operations and the Company's
management.
Because the NASD is expected to view the Preferred Securities as
interests in a direct participation program, the offering of the Preferred
Securities is being made in compliance with the applicable provisions of Rule
2810 of the NASD's Conduct Rules.
The Preferred Securities are a new issue of securities having no
trading market. Application has been made to have the Preferred Securities
listed for quotation on The Nasdaq SmallCap Market. The Underwriter has advised
UFH Capital that it presently intends to make a market in the Preferred
Securities after the commencement of trading, but no assurances can be made as
to the liquidity of such Preferred Securities or that an active and liquid
trading market will develop or, if developed, that it will be sustained. The
Underwriter will have no obligation to make a market in the Preferred
Securities, however, and may cease market-making activities, if commenced, at
any time.
The Company and UFH Capital have agreed to indemnify the Underwriter
against and contribute toward certain liabilities, including liabilities under
the Securities Act. The Company has agreed to reimburse the Underwriter for
certain expenses and legal fees related to the sale of the Securities.
As of September 30, 1998, William R. Hough, a controlling stockholder
of William R. Hough & Co., owned 169,374 shares or 4.8% of the Company's issued
and outstanding Common Stock (4.3% after giving effect to the Common Stock
Offering).
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LEGAL MATTERS
Certain legal matters for the Company and UFH Capital, including the
validity of the shares of Common Stock, the Guarantee and the Junior
Subordinated Debentures will be passed upon for the Company and UFH Capital by
Holland & Knight, counsel to the Company and UFH Capital. Certain legal matters
will be passed upon for the Underwriter by Smith Mackinnon Greeley Bowdoin &
Edwards, P.A. ("Smith Mackinnon"). Certain matters of Delaware law relating to
the validity of the Preferred Securities, the enforceability of the Trust
Agreement and the formation of UFH Capital will be passed upon by Richards,
Layton & Finger ("RL&F"), special Delaware counsel to the Company and UFH
Capital. Holland & Knight and Smith Mackinnon will rely on the opinion of RL&F
as to matters of Delaware law. Certain matters relating to United States federal
income tax considerations will be passed upon for the Company by Holland &
Knight.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1997
and 1996 and the consolidated statements of earnings, comprehensive income,
stockholders' equity, and cash flows of the Company for each of the three years
in the period ended December 31, 1997 included in this Prospectus have been
audited by Grant Thornton LLP, independent certified public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance and upon the authority of said firm as experts in accounting and
auditing.
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AVAILABLE INFORMATION
The Company and UFH Capital have filed with the Commission a
Registration Statement on Form SB-2 under the Securities Act with respect to the
Common Stock offered hereby and the Preferred Securities, the Junior
Subordinated Debentures and the Guarantee (together with all amendments thereto,
the "Registration Statement"). This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Securities offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules thereto. While descriptions in this Prospectus of contracts,
agreements or other documents referred to herein are not necessarily complete,
such contracts, agreements and other documents are described herein in all
material respects. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the public reference facilities maintained by the Commission
at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at 7 World Trade Center,
Suite 1300, New York, New York 10048 and the Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also be
obtained at prescribed rates by writing to the Public Reference Section of the
Commission located at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission with a Web site address
of http://www.sec.gov.
Following the Offerings, the Company will be subject to the information
reporting requirements of the Exchange Act. The Company intends to furnish its
shareholders with annual reports containing financial statements audited by the
Company's independent accountants and to make available to its shareholders
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
No separate financial statements of UFH Capital have been included
herein. The Company does not consider that such financial statements would be
material to holders of Preferred Securities because (i) all of the voting
securities of UFH Capital will be owned by the Company, which after completion
of the Common Stock Offering will become subject to the informational and
reporting requirements of the Exchange Act (ii) UFH Capital has no independent
operations but exists for the sole purpose of issuing securities representing
undivided beneficial interests in the assets of UFH Capital and investing the
proceeds thereof in Junior Subordinated Debentures issued by the Company, and
(iii) the obligations of the Company described herein to provide certain
indemnities in respect of and be responsible for certain costs, expenses, debts
and liabilities of UFH Capital under the Indenture and pursuant to the Trust
Agreement, the Guarantee issued by the Company with respect to the Preferred
Securities, the Junior Subordinated Debentures purchased by UFH Capital, the
related Indenture and the Expense Agreement, taken together, constitute, in the
belief of the Company and UFH Capital, a full and unconditional guarantee of
payments due on the Preferred Securities. See "Description of the Junior
Subordinated Debentures" and "Description of the Guarantee."
UFH Capital is not currently subject to the information reporting
requirements of the Exchange Act and the Company does not expect that UFH
Capital will file reports, proxy statements and other information under the
Exchange Act with the Commission.
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<PAGE> 111
UNITED FINANCIAL HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets at September 30, 1998 (unaudited),
December 31, 1997 and 1996 F-3
Consolidated Statements of Earnings for the nine months ended September 30, 1998
and 1997 (unaudited) and for the years ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Comprehensive Income for the nine months ended
September 30, 1998 and 1997 (unaudited) and the years ended December 31, 1997,
1996 and 1995 F-6
Consolidated Statement of Stockholders' Equity for the nine months ended
September 30, 1998 (unaudited) and for the years ended December 31, 1997,
1996 and 1995 F-7
Consolidated Statements of Cash Flows for the nine months ended September 30, 1998
and 1997 (unaudited) and for the years ended December 31, 1997, 1996 and 1995 F-8
Notes to Consolidated Financial Statements F-11
</TABLE>
F-1
<PAGE> 112
Report of Independent Certified Public Accountants
Board of Directors
United Financial Holdings, Inc.
St. Petersburg, Florida
We have audited the consolidated balance sheets of United Financial Holdings,
Inc. and Subsidiaries (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of United
Financial Holdings, Inc. and Subsidiaries as of December 31, 1997 and 1996, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Tampa, Florida
January 29, 1998 (except for Note S
as to which the date is July 23, 1998)
F-2
<PAGE> 113
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
------------- --------------------------------
ASSETS 1998 1997 1996
------------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 4,684,056 $ 7,336,809 $ 7,902,388
Federal funds sold 245,000 7,441,000 7,061,000
Trading securities 148,834
Securities held to maturity, market value of $13,104,635,
$10,212,426 and $9,007,905, respectively 12,795,890 10,097,258 9,195,963
Securities available for sale, at market 16,052,927 11,472,052 9,510,205
Loans, net 108,129,130 94,821,324 79,262,508
Premises and equipment, net 9,209,266 9,541,801 5,987,428
Federal Home Loan Bank stock 433,500 364,900 318,800
Federal Reserve Bank stock 158,800 153,750 153,750
Accrued interest receivable 924,066 950,042 778,555
Intangible assets, less accumulated amortization of $1,668,459,
$1,570,288 and $1,506,977, respectively 1,377,559 1,336,494 1,440,141
Other assets 4,336,560 3,803,254 1,122,554
------------ ------------ ------------
Total assets $158,495,588 $147,318,684 $122,733,292
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand $ 25,643,974 $ 28,384,616 $ 26,646,609
NOW and money market 49,946,392 36,031,184 27,571,149
Savings 4,417,211 5,245,222 4,688,430
Time, $100,000 and over 8,759,017 9,692,130 4,734,628
Other time 47,844,481 50,865,952 44,504,101
------------ ------------ ------------
Total deposits 136,611,075 130,219,104 108,144,917
Securities sold under agreements to repurchase 4,553,651 1,080,745 1,768,859
Accrued interest payable 380,149 396,184 336,785
Convertible subordinated debentures 630,000 630,000 630,000
Long-term debt 2,676,902 2,678,152 813,950
Other liabilities 1,632,075 1,823,337 1,547,126
------------ ------------ ------------
Total liabilities 146,483,852 136,827,522 113,241,637
COMMITMENTS AND CONTINGENCIES -- -- --
STOCKHOLDERS' EQUITY
7% convertible preferred stock, $10 par value; 150,000 shares
authorized; 20,850 shares issued and outstanding at
September 30, 1998 and 23,350 shares issued and outstanding at
December 31, 1997 and 1996 208,500 233,500 233,500
Common stock, $.01 par value; 20,000,000 shares authorized;
3,513,858 shares issued and outstanding at September 30, 1998;
3,444,318 and 3,431,004 shares issued and outstanding at
December 31, 1997 and 1996, respectively 35,139 34,443 34,308
Paid-in Capital 6,213,978 5,789,932 5,737,567
Accumulated other comprehensive income 192,685 57,499 45,872
Retained earnings 5,361,434 4,375,788 3,440,408
------------ ------------ ------------
Total stockholders' equity 12,011,736 10,491,162 9,491,655
------------ ------------ ------------
Total liabilities and stockholders' equity $158,495,588 $147,318,684 $122,733,292
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 114
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended
September 30, For the Years Ended December 31,
----------------------------- -----------------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest income
Loans and loan fees $ 7,552,770 $ 6,524,052 $ 8,960,703 $ 8,121,249 $ 7,590,367
Securities
U.S. Treasury 427,051 440,025 598,549 316,369 288,782
Obligations of other U.S. Government
agencies and corporations 669,900 569,536 746,786 702,235 662,531
Obligations of states and political
subdivisions 68,645 30,060 39,570 54,670 86,868
Other 136,241 114,051 151,612 180,517 219,489
Federal funds sold and securities
purchased under reverse repurchase
agreements 470,579 226,268 295,297 220,028 276,165
----------- ----------- ----------- ----------- -----------
Total interest income 9,325,186 7,903,992 10,792,517 9,595,068 9,124,202
Interest expense
NOW and money market 1,145,671 570,040 794,997 541,882 665,270
Savings 73,404 71,512 96,656 107,523 121,262
Time deposits, $100,000 and over 401,090 293,364 419,007 241,685 210,474
Other time 2,044,533 1,882,352 2,603,631 2,314,600 1,941,403
Long-term debt 193,521 85,448 130,547 124,544 86,331
Federal funds purchased and securities
sold under agreements to repurchase 75,852 68,071 56,248 89,338 187,509
----------- ----------- ----------- ----------- -----------
Total interest expense 3,934,071 2,970,787 4,101,086 3,419,572 3,212,249
----------- ----------- ----------- ----------- -----------
Net interest income 5,391,115 4,933,205 6,691,431 6,175,496 5,911,953
Provision for loan losses 340,000 90,000 90,000 150,000 180,000
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 5,051,115 4,843,205 6,601,431 6,025,496 5,731,953
Other income
Service charges on deposit accounts 528,808 489,877 674,637 555,747 576,656
Trust and investment management
income 1,754,975 1,323,007 1,886,534 1,229,136 57,869
Net trading account profit 78,834 -- -- -- --
Other service charges, fees and income 726,746 440,902 679,081 787,210 602,695
----------- ----------- ----------- ----------- -----------
Total other income 3,089,363 2,253,786 3,240,252 2,572,093 1,237,220
</TABLE>
(continued)
F-4
<PAGE> 115
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS - CONTINUED
<TABLE>
<CAPTION>
Nine Months Ended
September 30, For the Years Ended December 31,
----------------------------- -----------------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Other expense
Salaries and employee benefits $ 3,430,414 $ 2,959,841 $ 4,047,859 $ 3,723,903 $ 2,593,728
Occupancy expense 418,522 371,661 514,374 387,256 280,286
Furniture and equipment expense 382,388 338,879 494,360 423,224 279,596
Data processing expense 331,281 313,062 417,522 375,339 315,553
Legal and professional fees 123,932 94,601 176,778 152,766 122,426
Amortization of intangible assets 52,275 47,866 66,802 111,208 121,048
Other operating expenses 1,240,114 1,531,223 1,854,300 1,052,426 908,754
----------- ----------- ----------- ----------- -----------
5,978,926 5,657,133 7,571,995 6,226,122 4,621,391
----------- ----------- ----------- ----------- -----------
Earnings before income taxes 2,161,552 1,439,858 2,269,688 2,371,467 2,347,782
Income tax expense (benefit)
Current 891,187 628,907 957,932 952,448 981,272
Deferred (104,559) (73,490) (97,986) (61,000) (110,000)
----------- ----------- ----------- ----------- -----------
786,628 555,417 859,946 891,448 871,272
----------- ----------- ----------- ----------- -----------
NET EARNINGS $ 1,374,924 $ 884,441 $ 1,409,742 $ 1,480,019 $ 1,476,510
=========== =========== =========== =========== ===========
Earnings Per Share:
Basic $ .39 $ .25 $ .41 $ .47 $ .64
Diluted $ .36 $ .24 $ .38 $ .40 $ .43
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 116
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------------------- -----------------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net earnings $ 1,374,924 $ 884,441 $ 1,409,742 $ 1,480,019 $ 1,476,510
Other comprehensive
income
Unrealized holding gains
(losses) 204,827 21,618 18,642 (103,639) 277,398
Income tax (expense)
benefit related to items of
other comprehensive
income (69,641) (7,350) (7,015) 38,999 (104,385)
----------- ----------- ----------- ----------- -----------
Comprehensive
income $ 1,510,110 $ 898,709 $ 1,421,369 $ 1,415,379 $ 1,649,523
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 117
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
7% 6%
Convertible Convertible
Common Preferred Preferred Paid-In
Stock Stock Stock Capital
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance December 31, 1994 $ 16,242 $ 982,500 $ 1,000,000 $ 2,736,923
Net Earnings -- -- -- --
2% Common Stock dividend 516 -- -- 154,113
Conversion of 6% Preferred to Common Stock 6,828 -- (874,860) 867,908
Dividends on Common Stock -- -- -- --
Dividends on Preferred Stock -- -- -- --
Accumulated other comprehensive income -- -- -- --
Issuance of Common Stock for cash 1,275 -- -- 381,225
Contribution by Parent to Fiduciary Services Corporation 1,500 -- -- 448,500
------------ ------------ ------------ ------------
Balance at December 31, 1995 26,361 982,500 125,140 4,588,669
Net Earnings -- -- -- --
2% Common Stock dividend 669 -- -- 265,230
Conversion of 6% Preferred to Common Stock 996 -- (125,140) 124,098
Conversion of 7% Preferred to Common Stock 6,192 (749,000) -- 742,698
Dividends on Common Stock -- -- -- --
Dividends on Preferred Stock -- -- -- --
Accumulated other comprehensive income -- -- -- --
Issuance of Common Stock for cash 90 -- -- 16,872
------------ ------------ ------------ ------------
Balance at December 31, 1996 34,308 233,500 -- 5,737,567
Net Earnings -- -- -- --
Dividends on Common Stock -- -- -- --
Dividends on Preferred Stock -- -- -- --
Accumulated other comprehensive income -- -- -- --
Issuance of Common Stock for cash 135 -- -- 52,365
------------ ------------ ------------ ------------
Balance at December 31, 1997 34,443 233,500 -- 5,789,932
Net Earnings (unaudited) -- -- -- --
Dividends on Common Stock (unaudited) -- -- -- --
Dividends on Preferred Stock (unaudited) -- -- -- --
Accumulated other comprehensive income (unaudited) -- -- -- --
Issuance of Common Stock (unaudited) 485 -- -- 399,276
Conversion of 7% Preferred to Common Stock (unaudited) 210 (25,000) -- 24,770
------------ ------------ ------------ ------------
Balance at September 30, 1998 $ 35,138 $ 208,500 $ -- $ 6,213,978
============ ============ ============ ============
<CAPTION>
Accumulated
Other
Comprehensive Retained
Income Earnings Total
------------- ------------ ------------
<S> <C> <C> <C>
Balance December 31, 1994 $ (62,501) $ 1,711,722 $ 6,384,886
Net Earnings -- 1,476,510 1,476,510
2% Common Stock dividend -- (155,194) (565)
Conversion of 6% Preferred to Common Stock -- -- (124)
Dividends on Common Stock -- (276,809) (276,809)
Dividends on Preferred Stock -- (102,529) (102,529)
Accumulated other comprehensive income 173,013 -- 173,013
Issuance of Common Stock for cash -- -- 382,500
Contribution by Parent to Fiduciary Services Corporation -- -- 450,000
------------ ------------ ------------
Balance at December 31, 1995 110,512 2,653,700 8,486,882
Net Earnings -- 1,480,019 1,480,019
2% Common Stock dividend -- (266,858) (959)
Conversion of 6% Preferred to Common Stock -- -- (46)
Conversion of 7% Preferred to Common Stock -- -- (110)
Dividends on Common Stock -- (383,018) (383,018)
Dividends on Preferred Stock -- (43,435) (43,435)
Accumulated other comprehensive income (64,640) -- (64,640)
Issuance of Common Stock for cash -- -- 16,962
------------ ------------ ------------
Balance at December 31, 1996 45,872 3,440,408 9,491,655
Net Earnings -- 1,409,742 1,409,742
Dividends on Common Stock -- (458,017) (458,017)
Dividends on Preferred Stock -- (16,345) (16,345)
Accumulated other comprehensive income 11,627 -- 11,627
Issuance of Common Stock for cash -- -- 52,500
------------ ------------ ------------
Balance at December 31, 1997 57,499 4,375,788 10,491,162
Net Earnings (unaudited) -- 1,374,924 1,374,924
Dividends on Common Stock (unaudited) -- (373,808) (373,808)
Dividends on Preferred Stock (unaudited) -- (15,470) (15,470)
Accumulated other comprehensive income (unaudited) 135,186 -- 135,186
Issuance of Common Stock (unaudited) -- -- 399,761
Conversion of 7% Preferred to Common Stock (unaudited) -- -- (20)
------------ ------------ ------------
Balance at September 30, 1998 $ 192,685 $ 5,361,434 $ 12,011,735
============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 118
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30, For the Years Ended December 31,
--------------------------- ------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,374,924 $ 884,441 $ 1,409,742 $ 1,480,019 $ 1,476,510
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
Provision for loan losses 340,000 90,000 90,000 150,000 180,000
Provision for depreciation and amortization 492,253 403,044 566,344 500,994 370,421
Gain on sale of equipment -- -- -- -- (2,703)
Unrealized gain on trading securities (78,834) --
Gain on sale of held to maturity security (78,498) -- -- -- --
Writedown of investment security -- 255,000 255,000 -- --
Write-off of leasehold improvements -- 130,065 130,065 -- --
Accretion of securities discount (50,671) (33,626) (44,317) (35,062) (46,438)
Accretion of unearned loan fees (45,661) (48,706) (64,941) (104,663) (193,969)
Amortization of securities premiums 18,912 30,012 38,874 58,804 57,168
Gain on sales of loans (290,689) (196,267) (289,720) (424,611) (339,153)
Decrease (increase) in interest receivable 25,976 (26,902) (171,487) (25,317) (35,428)
(Decrease) increase in interest payable (16,036) 16,822 59,399 37,793 66,784
Increase in other assets (628,149) (277,240) (2,641,922) (118,290) (445,845)
(Decrease) increase in other liabilities (191,261) (596,047) 276,211 211,633 98,494
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities 872,266 630,596 (386,752) 1,731,300 1,185,841
Cash flows from investing activities:
Purchase of Federal Reserve Bank stock and
FHLB stock (73,650) (46,100) (46,100) (13,500) --
Net (increase) decrease in Federal funds sold 7,196,000 (464,000) (380,000) (4,665,000) 10,234,000
Principal repayments of held to maturity
securities 224,504 395,157 388,715 678,419 1,395,107
Proceeds from sale of held to maturity security 110,906 -- -- -- --
Principal repayments of available for sale
securities 790,914 299,614 494,729 1,106,893 1,775,590
Proceeds from maturities of available for sale
sale securities 2,001,185 2,500,000 4,491,876 1,199,781 --
Proceeds from maturities of held to maturity
securities 3,026,223 2,988,594 4,987,969 2,840,219 975,000
Purchases of available for sale securities (6,103,888) (6,526,491) (6,937,869) (3,518,560) (1,902,396)
Purchases of held to maturity securities (7,153,908) (5,480,390) (6,526,492) (3,588,175) (1,369,698)
Proceeds from sales of loans 2,426,849 1,883,782 3,969,174 5,598,856 4,426,770
Net increase in loans (15,738,305) (10,056,573) (19,263,329) (10,384,509) (14,319,006)
Capital expenditures (105,940) (3,761,813) (4,185,913) (2,836,673) (2,168,104)
Proceeds from sales of fixed assets -- -- -- -- 5,406
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (13,399,110) (18,268,220) (23,007,240) (13,582,249) (947,331)
</TABLE>
(continued)
F-8
<PAGE> 119
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
Nine Month Ended
September 30, For the Years Ended December 31,
--------------------------- ------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Acquisition of Fiduciary Services
Corporation $ -- $ -- $ -- $ -- $ (38,782)
Acquisition of Eickhoff, Pieper &
Willoughby -- -- -- (62,819) --
Cash paid in lieu of fractional share -
2% stock dividend -- -- -- (565) (222)
Cash paid in lieu of fractional shares -
6% preferred stock conversion -- -- -- (46) (124)
Net increase (decrease) in demand
deposits, NOW accounts, money
market accounts and savings accounts 10,346,555 8,671,815 10,754,834 12,994,380 (13,631,078)
Net decrease (increase) in certificates
of deposit (3,954,583) 8,147,546 11,319,353 2,316,607 12,780,217
Net increase (decrease) in securities sold
under agreements to repurchase 3,472,906 (544,865) (688,114) (995,537) 1,178,218
Increase in borrowings -- -- 2,004,202 75,000 --
Repayment of long-term debt (1,250) (136,250) (140,000) (136,250) (52,000)
Issuance of common stock 399,742 14,585 52,500 16,962 382,500
Dividend paid on preferred stock (15,470) (16,345) (16,345) (43,435) (102,529)
Dividend paid on common stock (373,809) (343,180) (458,017) (383,018) (276,809)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities 9,874,091 15,793,306 22,828,413 13,781,279 239,391
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents (2,652,753) (1,844,318) (565,579) 1,930,330 477,901
Cash and cash equivalents at beginning of
year 7,336,809 7,902,388 7,902,388 5,972,058 5,494,157
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of year $ 4,684,056 $ 6,058,070 $ 7,336,809 $ 7,902,388 $ 5,972,058
============ ============ ============ ============ ============
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash paid during the year for:
Interest $ 3,950,106 $ 2,953,965 $ 4,041,687 $ 3,381,780 $ 3,174,457
Income taxes $ 736,051 $ 629,400 $ 927,817 $ 961,579 $ 1,102,764
</TABLE>
(continued)
F-9
<PAGE> 120
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Nine Month Ended
September 30, For the Years Ended December 31,
---------------------- ----------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental Disclosure of Non-Cash Activity
- --------------------------------------------
Reclassification of loans to
foreclosed real estate $ 283,015 $ 284,428 $ 408,113 $ 541,085 $ --
========== ========== ========== ========== ==========
Non-cash portion of the acquisition
price of Eickhoff, Pieper &
Willoughby was the issuance of
convertible subordinated
debentures $ -- $ -- $ -- $ 630,000 $ --
========== ========== ========== ========== ==========
Non-cash common stock issued $ 115,607 $ -- $ -- $ -- $ --
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-10
<PAGE> 121
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of the significant accounting policies that have been
consistently applied in the preparation of the consolidated financial statements
of United Financial Holdings, Inc. and Subsidiaries.
1. Principles of Consolidation
The consolidated financial statements include the accounts of United Financial
Holdings, Inc. (the "Company") and its Subsidiaries, United Bank and Trust
Company (the "Bank"), Eickhoff, Pieper & Willoughby ("EPW"), and United Trust
Company ("Trust"), after all significant intercompany accounts and transactions
have been eliminated. United Trust was formed on November 30, 1997. On December
31, 1997, the Bank transferred all assets of the trust division to the newly
formed United Trust Company.
2. Unaudited Financial Statements
The interim financial statements and related notes thereto for September 30,
1998 and 1997, include all normal and recurring adjustments which, in the
opinion of management, are necessary for a fair presentation and are prepared on
the same basis as the annual statements. The interim results are not necessarily
indicative of the results that may be expected for the full year.
3. Cash and Cash Equivalents
For the purpose of presentation in the Consolidated Statements of Cash Flows,
cash and cash equivalents includes cash on hand and non-interest bearing amounts
due from correspondent banks.
4. Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
5. Securities
The Company's investment securities are classified in the following categories
and accounted for as follows:
- - Trading Securities. Government and corporate bonds and corporate securities
held principally for resale in the near term are classified as trading
securities and recorded at their fair values. The Company had one trading
security for the nine months ended September 30, 1998 with an unrealized
gain of $78,834 and no trading securities for the nine months ended
September 30, 1997 and the years ended December 31, 1997, 1996 and 1995.
F-11
<PAGE> 122
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
- - Securities Held to Maturity. Bonds, notes and debentures for which the
Company has the positive intent and ability to hold to maturity are reported
at cost, adjusted for amortization of premiums and accretion of discounts
which are recognized in interest income using the interest method over the
period to maturity. Such securities may be sold or transferred to the
available for sale or trading securities classification only as a result of
isolated, non-recurring, or unusual changes in circumstances which the
Company could not have reasonably anticipated, such as a change in statutory
or regulatory requirements regarding investment limitations or a significant
deterioration in a security issuer's credit-worthiness.
- - Securities Available for Sale. Securities available for sale consist of
bonds, notes, debentures, and certain equity securities not classified as
trading securities nor as securities held to maturity, which may be sold
prior to maturity as part of asset/liability management or in response to
other factors, are carried at fair value with any valuation adjustment
reported in a separate component of stockholders' equity, net of the tax
effect.
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary are recognized as
writedowns of the individual securities to their fair value. Such writedowns are
included in earnings as realized losses. The Company had a writedown of one
investment security totaling $255,000 for the year ended December 31, 1997.
There were no such writedowns during 1998, 1996 and 1995.
Gains and losses on the sale of securities available for sale are determined
using the specific-identification method.
6. Loans and Allowance for Loan Losses
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal balance. These receivables are adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or costs on
originated loans and un-amortized premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment to the related loan's yield, generally over the
contractual life of the loan.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received.
F-12
<PAGE> 123
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
7. Accounting for Impairment of Loans
The Company's measurement of impaired loans includes those loans which are
nonperforming and have been placed on non-accrual status and those loans which
are performing according to all contractual terms of the loan agreement but may
have substantive indication of potential credit weakness.
Residential mortgages and consumer loans and leases outside the scope of SFAS
No. 114 are collectively evaluated for impairment.
8. Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives. Leasehold improvements are amortized over the lives of
the respective leases or the service lives of the improvements, whichever is
shorter. The straight-line method of depreciation is followed for substantially
all assets for financial reporting purposes, but accelerated methods are used
for tax purposes.
9. Other Real Estate Owned (ORE)
Other real estate owned is initially recorded at fair value at the date of
foreclosure, less estimated selling costs. Costs relating to development and
improvement of property are capitalized, whereas costs relating to the holding
of property are expensed.
Valuations are periodically performed by management, or obtained from
independent appraisers, and an allowance for loss is established by a charge to
operations if the value of the property declines below its original estimated
fair value.
F-13
<PAGE> 124
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
If a sale of real estate owned results in a gain, the gain is accounted for in
accordance with FASB Statement No. 66, Accounting for Sales of Real Estate.
Accordingly, gains may be deferred or recognized currently depending on the
terms of the sale. Losses are charged to operations as incurred.
10. Intangible Assets
Intangible assets include core deposit premiums paid to acquire certain customer
deposit bases and the remaining excess of cost over net tangible assets
acquired. These assets are being amortized on a straight-line basis over their
estimated lives of 10-40 years.
11. Income Taxes
Deferred income tax assets and liabilities are computed annually for differences
between the consolidated financial statements and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in net deferred assets and
liabilities.
12. Stock Based Compensation
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
Effective in 1996, the Company adopted the disclosure option of SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), which requires that
companies not electing to account for stock-based compensation as prescribed by
the statement, disclose the pro forma effects on earnings, and earnings per
share as if SFAS No. 123 had been adopted. Additionally, certain other
disclosures are required with respect to stock compensation and the assumptions
used are to determine the pro forma effects of SFAS No. 123.
13. Loan Fees
Net loan fees and processing costs are deferred and amortized over the lives of
the loans using the interest method of amortization.
F-14
<PAGE> 125
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
14. Accounting for Impairment of Long-Lived Assets
The Company periodically reviews its long-lived assets for impairment.
Impairment losses on long-lived assets are recognized when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. The Company did not
record any impairment losses during the nine-months ended September 30, 1998 and
1997, and the years ended December 31, 1997 and 1996.
15. Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities
The FASB has issued SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, which was effective for the
Company's fiscal year beginning January 1, 1997. SFAS No. 125 provides standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings.
16. Reporting Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes standards for reporting and display of comprehensive income.
A specific reporting format is not required, provided the financial statements
show the amount of total comprehensive income for the period. Those items which
are not included in net income are required to be shown in the financial
statements with appropriate footnote disclosure and the aggregate balance of
such items must be shown separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods is required. The Company adopted
SFAS No. 130 effective January 1, 1998.
F-15
<PAGE> 126
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
17. Disclosures About Business Segments
In June 1997, the FASB adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
way the Company reports information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial reports. SFAS No. 131 is effective for periods
beginning after December 15, 1997. Management has implemented SFAS No. 131 in
the year ended December 31, 1997 and believes its trust operations and
investment advisory activities are immaterial to the consolidated financial
statements in terms of their respective assets, revenues, profit or loss and
other operating data.
18. Earnings per Share
In February 1997, the FASB issued SFAs No. 128, Earnings Per Share. SFAS No. 128
simplified the method for computing and presenting earnings per share ("EPS")
previously required by APB Opinion No. 15, Earnings Per Share, and makes them
comparable to international EPS standards. SFAS No. 128 is effective for periods
ending after December 15, 1997, and requires restatement of all prior period EPS
data and has been implemented by the Company. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.
19. Reclassifications
Certain reclassifications have been made to the September 30, 1998 balances to
conform to the December 31, 1997, 1996 and 1995 presentation.
NOTE B - ACQUISITIONS
On September 30, 1995, the Company purchased 100% of the stock of Fiduciary
Services Corp. ("FSC") for $450,000, issuing 150,000 shares at $3.00 per share
of common stock of the Company plus a contingent payment of up to 225,000
performance shares based upon net earnings of the trust department through 2001.
The acquisition of FSC was accounted for as a purchase. The purchase price was
allocated to net tangible assets acquired based upon their estimated fair market
values. The performance shares will be recorded as additional purchase price.
Included in intangible assets is $395,706 of excess of cost over net tangible
assets acquired. Pro forma information is not presented, as the effect of the
acquisition is immaterial to the financial statements.
The Company has reserved from its authorized but unissued Common Stock, 225,000
shares as performance shares and 14,013 shares have been paid out as of
September 30, 1998.
F-16
<PAGE> 127
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - ACQUISITIONS - Continued
On January 31, 1996, the Company completed the acquisition of EPW, an
independent investment management firm. The acquisition was facilitated by the
issuance of $630,000, 8% convertible subordinated debentures.
NOTE C - UNITED FINANCIAL HOLDINGS, INC. (Parent Only) CONDENSED FINANCIAL
INFORMATION
The Bank, EPW and Trust are wholly owned subsidiaries of United Financial
Holdings, Inc. The majority of the Company's assets are represented by its
investment in the Bank and its primary source of income is dividends from the
Bank.
During 1989, the Company authorized the issuance of 150,000 shares of $10 par
value cumulative, convertible, 7% preferred stock. The shares are convertible
into common shares at $1.19 per share.
Following is condensed financial information of the Company.
<TABLE>
<CAPTION>
December 31,
September 30, -----------------------------------------------------
1998 1997 1996 1995
----------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Balance Sheets
Cash and cash equivalents $ 22,025 $ 203,278 $ 245,940 $ 356,494
Trading securities 148,834 - - -
Due from subsidiaries 86,349 197,014 144,886 151,409
Investment in Bank 11,887,506 10,428,370 9,881,984 8,911,085
Investment in EPW 173,221 102,723 70,360 -
Investment in United Trust 2,501,544 2,360,985 - -
Goodwill 537,794 561,063 631,886 -
Other assets 227,815 125,291 83,676 87,474
----------- ----------- ----------- ----------
$15,585,088 $13,978,724 $11,058,732 $9,506,462
=========== =========== =========== ==========
Note payable $ 2,639,402 $ 2,629,402 $ 750,200 $ 875,200
Convertible subordinated
debentures 630,000 630,000 630,000 -
Other liabilities 303,950 228,160 186,877 144,380
Stockholders' equity 12,011,736 10,491,162 9,491,655 8,486,882
----------- ----------- ----------- ----------
$15,585,088 $13,978,724 $11,058,732 $9,506,462
=========== =========== =========== ==========
</TABLE>
F-17
<PAGE> 128
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - UNITED FINANCIAL HOLDINGS, INC. (Parent Only) CONDENSED FINANCIAL
INFORMATION - Continued
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------------- -------------------------------------------
1998 1997 1997 1996 1995
----------- --------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statements of Earnings
Equity in earnings of Bank $ 1,343,593 $ 923,133 $ 1,492,207 $ 1,535,539 $ 1,528,574
Equity in earnings of EPW 85,497 61,941 107,363 65,553 -
Equity in earnings of
United Trust 48,472 - - - -
Unrealized gain on trading 78,837 - - - -
Other income 73,687 17,634 26,611 1,470 4,837
Interest expense (190,689) (81,540) (125,699) (119,407) (86,331)
Other expense (130,056) (103,960) (156,235) (34,991) (1,613)
----------- --------- ----------- ----------- -----------
Earnings before income
taxes 1,309,341 817,208 1,344,247 1,448,164 1,445,467
Income tax benefit 65,583 67,233 65,495 31,855 31,043
----------- --------- ----------- ----------- -----------
Net earnings $ 1,374,924 $ 884,441 $ 1,409,742 $ 1,480,019 $ 1,476,510
=========== ========= =========== =========== ===========
</TABLE>
F-18
<PAGE> 129
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - SECURITIES
At September 30, 1998, the carrying value and estimated market value of
investments in debt and equity securities were as follows:
<TABLE>
<CAPTION>
Carrying
Value Gross Gross
(Amortized Unrealized Unrealized Estimated
Cost) Gains Losses Market Value
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1998 (unaudited)
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 7,475,646 $ 272,950 $ (7,969) $ 7,740,627
Obligations of State and political
subdivisions 1,080,366 14,380 (10,823) 1,083,923
Mortgage-backed securities 2,637,714 34,667 (316) 2,672,065
Corporate obligations 1,502,164 5,856 - 1,508,020
Other 100,000 - - 100,000
----------- ---------- ---------- ------------
Total $12,795,890 $ 327,853 $ (19,108) $ 13,104,635
=========== ========== ========== ============
<CAPTION>
Historical Gross Gross Carrying
Amortized Unrealized Unrealized Value
Cost Gains Losses (Market Value)
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Securities available for sale: (unaudited)
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 9,941,996 $ 199,586 $ - $ 10,141,582
Obligations of State and political
subdivisions 1,444,839 71,736 - 1,516,575
Mortgage-backed securities 3,288,004 34,219 (1,093) 3,321,130
Equity securities 1,086,140 - (12,500) 1,073,640
----------- ---------- ---------- ------------
Total $15,760,979 $ 305,541 $ (13,593) $ 16,052,927
=========== ========== ========== ============
</TABLE>
F-19
<PAGE> 130
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - SECURITIES - Continued
At December 31, 1997 and 1996, the carrying value and estimated market value of
investments in debt and equity securities were as follows:
<TABLE>
<CAPTION>
Carrying
Value Gross Gross
(Amortized Unrealized Unrealized Estimated
Cost) Gains Losses Market Value
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 6,903,071 $ 57,023 $ 39,655 $ 6,920,439
Obligations of State and political
subdivisions 628,967 17,987 464 646,490
Mortgage-backed securities 1,428,889 9,016 1,588 1,436,317
Corporate obligations 1,036,331 72,849 - 1,109,180
Other 100,000 - - 100,000
----------- ---------- ---------- ------------
Total $10,097,258 $ 156,875 $ 41,707 $ 10,212,426
=========== ========== ========== ============
<CAPTION>
Historical Gross Gross
Amortized Unrealized Unrealized Carrying Value
Cost Gains Losses (Market Value)
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 9,436,599 $ 76,140 $ 1,714 $ 9,511,025
Mortgage-backed securities 1,792,192 13,899 1,204 1,804,887
Equity securities 156,140 - - 156,140
----------- ---------- ---------- ------------
Total $11,384,931 $ 90,039 $ 2,918 $ 11,472,052
=========== ========== ========== ============
</TABLE>
F-20
<PAGE> 131
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - SECURITIES - Continued
<TABLE>
<CAPTION>
Carrying
Value Gross Gross
(Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 5,166,949 $ 21,811 $ 59,995 $ 5,128,765
Obligations of state and political
subdivisions 833,526 20,006 851 852,681
Mortgage-backed securities 1,781,848 4,698 4,482 1,782,064
Corporate obligations 1,313,640 3,224 172,469 1,144,395
Other 100,000 - - 100,000
----------- ---------- ---------- ------------
Total $ 9,195,963 $ 49,739 $ 237,797 $ 9,007,905
=========== ========== ========== ============
<CAPTION>
Historical Gross Gross
Amortized Unrealized Unrealized Carrying Value
Cost Gains Losses (Market Value)
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 6,422,592 $ 64,977 $ 4,056 $ 6,483,513
Mortgage-backed securities 2,861,970 26,612 18,030 2,870,552
Equity securities 156,140 - - 156,140
----------- ---------- ---------- ------------
Total $ 9,440,702 $ 91,589 $ 22,086 $ 9,510,205
=========== ========== ========== ============
</TABLE>
Proceeds from the sale of investments in debt securities totaled $110,906 for
the nine months ended September 30, 1998 with a resulting gain of $78,498,
which is included in other service charges, fees and income. The sale of this
held to maturity debt security during the nine months ended September 30, 1998
was due to a significant deterioration in the issuer's credit-worthiness. There
were no proceeds from sales of investments in debt securities for the nine
months ended September 30, 1997, and the years ended December 31, 1997, 1996,
and 1995.
The amortized cost and estimated market value of debt securities at September
30, 1998, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities due to borrowers having the right to call or prepay
obligations with or without call or prepayment penalties.
F-21
<PAGE> 132
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - SECURITIES - Continued
<TABLE>
<CAPTION>
Securities held to maturity Securities available for sale
--------------------------------------- -----------------------------------
Carrying Carrying
Value Estimated Historical Value
(Amortized Market Average Amortized (Market Average
Cost) Value Yield Cost Value) Yield
----------- ----------- ------- ----------- ----------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Due in one year
or less $ 829,558 $ 832,527 5.78% $ 2,490,693 $ 2,518,595 6.61%
Due after one
year through
five years 3,834,632 3,943,663 6.40% 5,454,437 5,594,550 6.74%
Due after five
years through
ten years 3,968,032 4,141,252 6.32% 3,441,704 3,545,012 6.45%
Due after ten
years 2,176,969 2,175,357 6.92% 2,022,607 2,043,912 6.55%
Mortgage-
backed
securities 1,986,699 2,011,836 6.82% 1,265,398 1,277,218 7.18%
Equity securities - - - 1,086,140 1,073,640 -
----------- ----------- ----------- -----------
Total $12,795,890 $13,104,635 $15,760,979 $16,052,927
=========== =========== =========== ===========
</TABLE>
Investment securities with a carrying value (which approximates market value) of
approximately $6,224,000, $2,809,000 and $4,226,000 at September 30, 1998,
December 31, 1997 and 1996, respectively, were pledged to secure public funds
and securities sold under agreements to repurchase.
F-22
<PAGE> 133
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - LOANS
Major classifications of loans were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- -------------------------------------
1998 1997 1996
------------ ----------- -----------
(unaudited)
<S> <C> <C> <C>
Real estate mortgage $ 71,074,000 $60,583,746 $49,483,289
Commercial 33,544,990 30,536,261 25,239,534
Installment and other 5,954,986 5,869,534 6,490,909
------------ ----------- -----------
110,573,976 96,989,541 81,213,732
Less: Allowance for loan losses 1,826,342 1,647,355 1,609,785
Unearned fees 618,504 520,862 341,439
------------ ----------- -----------
Loans, net $108,129,130 $94,821,324 $79,262,508
============ =========== ===========
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, For the Years Ended December 31,
--------------------------- -------------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,647,355 $ 1,609,785 $ 1,609,785 $ 1,526,695 $ 1,335,154
Provision charged to operating
expenses 340,000 90,000 90,000 150,000 180,000
Recoveries on loans previously
charged off 8,456 21,598 38,510 1,600 13,001
Loans charged off (169,469) (88,639) (90,940) (68,510) (1,460)
----------- ----------- ----------- ----------- -----------
Balance at end of year $ 1,826,342 $ 1,632,744 $ 1,647,355 $ 1,609,785 $ 1,526,695
=========== =========== =========== =========== ===========
Changes in unearned fees were as follows:
Balance at beginning of year $ 520,862 $ 341,439 $ 341,439 $ 279,206 $ 304,972
Points deferred on loans 143,303 195,794 244,364 166,896 168,202
Points recognized in income (45,661) (119,608) (64,941) (104,663) (193,968)
----------- ----------- ----------- ----------- -----------
Balance at end of year $ 618,504 $ 417,625 $ 520,862 $ 341,439 $ 279,206
=========== =========== =========== =========== ===========
</TABLE>
F-23
<PAGE> 134
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - LOANS - Continued
Impaired loans were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------- -----------------------
1998 1997 1996
----------- -------- --------
(unaudited)
<S> <C> <C> <C>
Balance at end of period $2,998,605 $400,049 $372,352
Average balance during period 2,745,154 440,927 224,119
Total related allowance for losses 374,000 13,000 -
Interest income recognized on impaired loans 53,054 - -
</TABLE>
Loans converted to ORE through foreclosure proceedings totaled approximately
$283,000, $408,000 and $541,000 for the nine months ended September 30, 1998 and
the years ended December 31, 1997 and 1996, respectively. Sales of ORE that were
financed by the Company totaled $-0-, $124,000 and $369,000 for the nine months
ended September 30, 1998 and the years ended December 31, 1997 and 1996,
respectively.
The only loans sold by the Bank during 1996, 1997 and 1998 were SBA loans. In
accordance with SFAS No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities, a servicing asset is
recorded when the Bank sells the SBA loans. The book value of such assets, which
the Bank believes approximates the fair value of such assets at September 30,
1998, December 31, 1997 and 1996 was $125,000, $78,000 and $83,000,
respectively. Amortization expense relating to such servicing assets of $9,000
and $2,000 was recorded for 1998 and 1997, respectively. The Company
periodically reviews these assets for impairment. No valuation for impairment of
these assets was deemed necessary for the periods presented.
F-24
<PAGE> 135
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - PREMISES AND EQUIPMENT
Major classifications of premises and equipment are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
------------ -------------------------------
1998 1997 1996
----------- ----------- ----------
(unaudited)
<S> <C> <C> <C>
Land $ 1,396,779 $ 1,396,779 $1,380,272
Land improvements 59,673 59,673 59,673
Leasehold improvements 113,998 113,998 359,839
Building and building improvements 7,404,878 7,392,139 1,573,206
Furniture, fixtures and equipment 2,470,605 2,460,523 1,942,550
Construction in progress - 1,294 2,351,755
----------- ----------- ----------
11,445,933 11,424,406 7,667,295
Less accumulated depreciation and amortization 2,236,667 1,882,605 1,679,867
----------- ----------- ----------
$ 9,209,266 $ 9,541,801 $5,987,428
=========== =========== ==========
</TABLE>
Depreciation of premises and equipment and amortization of leaseholds was
$438,476 and $355,250 for the nine-months ended September 30, 1998 and 1997, and
$501,475, $390,680 and $249,373 for the years ended December 31, 1997, 1996 and
1995, respectively.
NOTE G - INCOME TAXES
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities, consist of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
------------ -------------------------------
1998 1997 1996
----------- ----------- ----------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets
Allowance for loan losses $ 620,000 $ 543,000 $ 527,000
Deferred loan fees 158,000 120,000 85,000
Deferred compensation 107,000 75,000 59,000
Net operating loss carryforward (1) 42,000 59,000 36,000
----------- ----------- ----------
927,000 797,000 707,000
Deferred tax liabilities
Fixed assets 155,000 36,000 79,000
Securities available for sale 98,000 30,000 24,000
----------- ----------- ----------
253,000 66,000 103,000
----------- ----------- ----------
Net deferred tax asset, included with other assets $ 674,000 $ 731,000 $ 604,000
=========== =========== ==========
</TABLE>
F-25
<PAGE> 136
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - INCOME TAXES - Continued
(1) Relates to net operating losses of two acquired subsidiaries. The
acquisitions resulted in ownership changes for purposes of Section 382
of the Internal Revenue Code of 1986, as amended. Consequently, the net
operating loss carryforwards are subject to a yearly limitation on their
utilization and can only be applied against future income of the
acquired subsidiaries. Such operating loss carryforwards at September
30, 1998 are approximately $110,000 and begin to expire in 2010. The
Company believes that it will obtain the future income to fully utilize
the net operating loss carryforwards, thus no valuation allowance has
been recorded.
Management believes that it is more likely than not that the net deferred tax
asset will be realized and, therefore, a valuation allowance has not been
recorded against the deferred asset at September 30, 1998, December 31, 1997 and
1996.
The Company's effective tax rate varies from the statutory rate of 34%. The
reasons for this difference are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, For the Years Ended December 31,
------------------------ ----------------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Computed "expected" tax
provision $734,900 $489,600 $771,700 $806,300 $798,200
Tax exempt interest income (9,900) (7,300) (7,500) (9,300) (9,100)
Goodwill amortization 17,600 16,300 22,100 23,100 6,900
State taxes net of federal
benefit 63,000 52,000 58,600 60,100 68,100
Other, net (18,972) 4,817 15,046 11,248 7,172
-------- -------- -------- -------- --------
Total $786,628 $555,417 $859,946 $891,448 $871,272
======== ======== ======== ======== ========
</TABLE>
NOTE H - DEPOSITS
At December 31, 1997, the scheduled maturities of time deposits are as follows:
<TABLE>
<S> <C>
1998 $47,298,764
1999 9,027,361
2000 1,269,587
2001 423,196
2002 2,539,174
-----------
$60,558,082
===========
</TABLE>
F-26
<PAGE> 137
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company enters into retail repurchase agreements with certain of its
customers. These agreements mature daily. All securities collateralizing these
agreements were under the Company's control for each respective time period.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
-------------------------- -----------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Average balance $3,429,539 $2,223,764 $2,029,453 $3,291,662 $6,451,536
Average interest rate 3.59% 2.47% 2.49% 2.62% 2.80%
Maximum month-end balance $6,629,464 $2,775,819 $2,860,141 $6,977,300 $6,977,300
</TABLE>
The average rate was determined by dividing the total interest paid by the
average outstanding borrowings.
Securities underlying the agreements are as follows:
<TABLE>
<CAPTION>
At December 31,
At September 30, --------------------------
1998 1997 1996
---------------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
Carrying value $4,579,000 $2,809,000 $4,226,000
Estimated fair value $4,579,000 2,809,000 4,226,000
</TABLE>
NOTE J - LONG-TERM DEBT
Long-term debt of the Company consists of the following:
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------
1998 1997 1996
------------- -------- --------
(unaudited)
<S> <C> <C> <C>
Note payable to an unrelated bank providing for quarterly principal
payments of $3,750 and quarterly interest payments at 8.5% fixed, due in
2001. The note is collateralized by certain pieces of data processing
equipment. $ 37,500 $ 48,750 $ 63,750
</TABLE>
F-27
<PAGE> 138
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - LONG-TERM DEBT - Continued
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------------------
1998 1997 1996
------------ ---------- ----------
(unaudited)
<S> <C> <C> <C>
Note payable to an unrelated bank providing for monthly interest
payments at prime (8.25% at September 30, 1998 and December 31, 1997)
and ninety-five (95) consecutive monthly principal payments are due
beginning on December 1, 1999. The loan agreement requires a security
interest in the Bank's common stock and contains certain restrictive
covenants. The Company may borrow a maximum of $3 million under this
note payable. 2,639,402 2,629,402 750,200
8% Convertible Subordinated Debentures issued in conjunction with the
acquisition of EPW. The holder can convert to common stock at $4.12
per share at any time. Interest is payable semi-annually and the
debentures mature January 31, 2006. The debentures are callable by the
Company, in whole or part, as follows:
</TABLE>
<TABLE>
<CAPTION>
Year Price
---- -----
<S> <C>
2001 103%
2002 102%
2003 101%
2004 and thereafter 100% 630,000 630,000 630,000
---------- ---------- ----------
$3,306,902 $3,308,152 $1,443,950
========== ========== ==========
</TABLE>
The annual principal reductions of the long-term debt during each of the next
five years ended December 31 are as follows:
<TABLE>
<S> <C>
1998 $ 15,000
1999 46,250
2000 390,000
2001 378,750
2002 375,000
Thereafter 2,103,152
----------
$3,308,152
==========
</TABLE>
F-28
<PAGE> 139
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and a regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weighting, and
other factors.
In addition to the minimum capital requirement detailed above, the Bank has
committed to maintain a minimum Tier One Leverage Ratio (as defined) of 7% in
exchange for permission to exceed the Office of Comptroller's (the "Department")
maximum investment in land and buildings as expressed as a percentage of
capital. As of September 30, 1998, the Bank's Tier One Leverage Ratio was 7.03%,
above the minimum agreed to by the Department.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) to total and Tier I capital (as defined in the regulations) to risk
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of September 30, 1998, that the
Bank meets all capital adequacy requirements to which it is subject.
As of September 30, 1998 and December 31, 1997, the most recent notification
from the Federal Reserve categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
F-29
<PAGE> 140
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - REGULATORY MATTERS - Continued
The Bank's actual capital amounts and ratios as of September 30, 1998 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- -------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------ ------- ----- ------- -----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity and
ratio to total assets $ 11,888 7.65%
Intangible assets (407)
---------
Tangible capital and ratio
to adjusted total assets $ 11,481 7.25% $ 2,375 1.5%
========= ========
Tier I (core) capital and
ratio to adjusted total
assets $ 11,296 7.14% $ 4,750 3.0% $ 7,915 5.0%
========= ======== ========
Tier I capital and ratio to
risk-weighted assets $ 11,296 9.00% $ 3,767 3.0% $ 7,533 6.0%
======= ========
Tier II capital - allowance
for loan and lease losses 1,573
---------
Total risk-based capital and
ratio to risk-weighted
assets $ 12,869 10.25% $10,045 8.0% $12,556 10.0%
========= ======= =======
Total assets $ 155,412
=========
Adjusted total assets $ 158,301
=========
Risk-weighted assets $ 125,564
=========
</TABLE>
F-30
<PAGE> 141
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - REGULATORY MATTERS - Continued
The Bank's actual capital amounts and ratios as of December 31, 1997 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- --------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity and
ratio to total assets $ 10,428 7.22%
Intangible assets (418)
--------
Tangible capital and ratio
to adjusted total assets $ 10,010 6.80% $2,206 1.5%
======== ======
Tier I (core) capital and
ratio to adjusted total
assets $ 9,953 6.77% $4,412 3.0% $ 7,354 5.0%
======== ====== =======
Tier I capital and ratio to
risk-weighted assets $ 9,953 8.90% $3,356 3.0% $ 6,713 6.0%
====== =======
Tier II capital - allowance
for loan and lease losses 1,402
--------
Total risk-based capital and
ratio to risk-weighted
assets $ 11,355 10.15% $8,950 8.0% $11,187 10.0%
======== ====== =======
Total assets $144,482
========
Adjusted total assets $147,074
========
Risk-weighted assets $111,878
========
</TABLE>
F-31
<PAGE> 142
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - REGULATORY MATTERS - Continued
The Bank's actual capital amounts and ratios as of December 31, 1996 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------- -------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity and
ratio to total assets $ 9,882 8.11%
Intangible assets (808)
-----------
Tangible capital and ratio
to adjusted total assets $ 9,074 $1,886 1.5%
========== ======
Tier I (core) capital and
ratio to adjusted total
assets $ 9,028 7.18% $3,772 3.0% $6,286 5.0%
========== ====== ======
Tier I capital and ratio to
risk-weighted assets $ 9,028 10.07% $2,689 3.0% $5,379 6.0%
====== ======
Tier II capital - allowance
for loan and lease losses 1,126
---------
Total risk-based capital and
ratio to risk-weighted
assets $ 10,154 11.33% $7,172 8.0% $8,965 10.0%
========= ====== ======
Total assets $ 121,887
=========
Adjusted total assets $ 125,736
=========
Risk-weighted assets $ 89,645
=========
</TABLE>
F-32
<PAGE> 143
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE L - CONCENTRATIONS OF RISK
All of the Company's loans, commitments, and commercial and standby letters of
credit have been granted to customers who are substantially all located in the
Company's market area. The majority of customers are depositors of the Company.
The concentrations of credit by type of loan are set forth in Note D. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding. Commercial and standby letters of credit were granted
primarily to commercial borrowers. The Company, as a matter of policy, does not
extend credit to any single borrower or group of related borrowers in excess of
its legal lending limit. At September 30, 1998 and December 31, 1997, less than
3% of the Company's loans are unsecured.
At September 30, 1998, the Company held deposits for a customer equal to
approximately 13.4% of total deposits. Such deposits were invested in short-term
investments. At December 31, 1997 and 1996, no single customer represented more
than 10% of total deposits.
NOTE M - COMMITMENTS AND CONTINGENT LIABILITIES
Off balance-sheet risk
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Such financial instruments are recorded in the financial
statements when they become payable. Those instruments involve, to varying
degrees, elements of credit and interest rate risks in excess of the amount
recognized in the balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual or notional amount
of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Unless noted otherwise, the Company does not require collateral or other
security to support financial instruments with off-balance-sheet credit risk.
The contract or notional amounts are as follows:
<TABLE>
<CAPTION>
December 31,
September 30, ----------------------------
1998 1997 1996
------------ ----------- -----------
(unaudited)
<S> <C> <C> <C>
Commitments to extend credit $19,434,997 $16,644,892 $14,939,490
Standby letters of credit and financial guarantees
written $1,207,732 $1,663,578 $2,334,992
</TABLE>
F-33
<PAGE> 144
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - COMMITMENTS AND CONTINGENT LIABILITIES - Continued
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
credit-worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Company generally holds
residential or commercial real estate, accounts receivable, inventory and
equipment as collateral supporting those commitments for which collateral is
deemed necessary.
Litigation
The Company is party to certain litigation encountered in the course of its
normal operations, a portion of which involves actions brought against
borrowers, generally involving foreclosure proceedings. In some instances,
borrowers or interested parties have filed or threatened suit in retaliation.
Management, after consulting with legal counsel, believes that it has valid
defenses and intends to vigorously defend these matters. Management is of the
opinion that an unfavorable outcome, if any, would not have a material effect
upon the consolidated financial statements.
Operating Leases
The Company also has operating leases covering certain office equipment and
office facilities expiring at various times through 2002.
The minimum annual rentals under these leases as of December 31, 1997, are as
follows:
<TABLE>
Year Amount
---- --------
<S> <C>
1998 $ 70,686
1999 71,592
2000 64,499
2001 65,478
2002 66,500
Thereafter 29,568
--------
Total minimum lease payments $368,323
========
</TABLE>
F-34
<PAGE> 145
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - COMMITMENTS AND CONTINGENT LIABILITIES - Continued
The Company's rent expense was $119,396, $151,515, $189,096, $232,325 and
$143,891 for the nine months ended September 30, 1998 and 1997 and the years
ended December 31, 1997, 1996 and 1995, respectively.
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS
The assumptions used in the estimation of the fair value of the Company's
financial instruments are detailed below. Where quoted prices are not available,
fair values are based on estimates using discounted cash flows and other
valuation techniques. The use of discounted cash flows can be significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. The following disclosures should not be considered a
surrogate of the liquidation value of the Company, but rather represent a
good-faith estimate of the increase or decrease in value of financial
instruments held by the Company since purchase, origination or issuance.
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:
Cash and due from banks and interest bearing deposits with other banks: Fair
value equals the carrying value of such assets.
Investment securities and investment securities available for sale: Fair
values for investment securities are based on quoted market prices.
Federal funds sold: Due to the short-term nature of these assets, the
carrying values of these assets approximate their fair value.
Loans: For variable rate loans, those repricing within six months or less,
fair values are based on carrying values. Fixed rate commercial loans, other
installment loans, and certain real estate mortgage loans were valued using
discounted cash flows. The discount rate used to determine the present value
of these loans was based on interest rates currently being charged by the
Company on comparable loans as to credit risk and term.
Off-balance-sheet instruments: The Company's loan commitments, which
approximate $20,600,000, $18,300,000, and $17,300,000 at September 30, 1998,
December 31, 1997 and 1996, respectively, are negotiated at current market
rates and are relatively short-term in nature and, as a matter of policy,
the Company generally makes commitments for fixed rate loans for relatively
short periods of time. Therefore, the estimated value of the Company's loan
commitments approximates the fees charged for entering into the commitments.
F-35
<PAGE> 146
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
Deposit liabilities: The fair values of demand deposits are, as required by
SFAS 107, equal to the carrying value of such deposits. Demand deposits
include non-interest-bearing demand deposits, savings accounts, NOW accounts
and money market demand accounts. Discounted cash flows have been used to
value fixed rate term deposits. The discount rate used is based on interest
rates currently being offered by the Company on comparable deposits as to
amount and term.
Short-term borrowings: The carrying value of Federal funds purchased,
securities sold under agreements to repurchase and other short-term
borrowings approximate their carrying values.
Long-term debt: The carrying value of the Company's long-term debt
approximates its fair value since the interest rates on these instruments
approximate market interest rates.
<TABLE>
<CAPTION>
For the Years Ended
Nine Months Ended ---------------------------------------------------
Financial Instruments September 30, 1998 December 31, 1997 December 31, 1996
------------------------ ---------------------- -----------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Assets: Amount Fair Value Amount Fair Value Amount Fair Value
(in thousands) (in thousands) (in thousands)
------------------------ ----------------------- -----------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 4,684 $ 4,684 $7,337 $7,337 $7,902 $7,902
Federal funds sold 245 245 7,441 7,441 7,061 7,061
Trading securities 149 149 - - - -
Securities held to maturity 12,796 13,105 10,097 10,212 9,196 9,196
Securities available for sale 16,053 16,053 11,472 11,472 9,759 9,759
Loans 108,129 108,188 96,989 97,042 81,214 81,300
Federal Home Loan Bank stock 434 434 365 365 - -
Federal Reserve Bank stock 159 159 154 154 154 154
Liabilities:
Demand deposits 25,644 25,644 28,385 28,385 26,647 26,647
NOW and money market 49,946 49,946 36,031 36,031 27,990 27,990
Savings 4,417 4,417 5,245 5,245 4,688 4,688
Time, $100,000 and over 8,759 8,813 9,692 9,752 4,735 4,771
Other time 47,844 48,039 50,866 51,074 44,504 44,731
Securities sold under
agreements to repurchase 4,554 4,554 1,081 1,081 1,769 1,769
Long-term debt 3,307 3,307 3,308 3,308 1,444 1,444
Off balance sheet items - 206 - 183 - 173
</TABLE>
F-36
<PAGE> 147
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE O - RELATED PARTIES
The Bank has entered into transactions with its directors, significant
stockholders and their affiliates ("related parties"). Such transactions were
made in the ordinary course of business on substantially the same terms and
conditions, including interest rates and collateral, as those prevailing at the
same time for comparable transactions with other customers and did not, in the
opinion of management, involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such related parties
approximated $5,253,000 at September 30, 1998 and $4,462,400 and $4,952,000 at
December 31, 1997 and 1996, respectively.
During November 1997, an affiliate of one of the Company's directors entered
into an exclusive right to a lease agreement (the "Lease Agreement") with
Imaginative Investments, Inc., a subsidiary of the Company and the owner of the
real property covering the Company's principal executive office (the "Owner").
Pursuant to the Lease Agreement, the Owner granted to such entity the exclusive
right to lease 17,918 square feet of the Company's principal executive office
for a total of $246,373 or $13.75 per rental square foot with annual escalations
of 3%, and three to five year lease terms in return for a commission of 3% if no
outside broker is used and 6% in the event an outside broker is used. The Lease
Agreement commenced July 14, 1997 and terminated at midnight on July 14, 1998.
As of September 30, 1998, the space was 100% leased.
During March 1997, an affiliate of one of the Company's directors (the "Manager)
entered into a property Management Agreement with Imaginative Investments, Inc.,
a subsidiary of the Company, pursuant to which the Manager is employed to act as
the sole and exclusive manager in the leasing, operation and management of the
Company's principal executive offices for total consideration of approximately
$17,000. The Owner is required to maintain comprehensive general public
liability insurance in the amount of $2,000,000 naming as insured parties the
Owner, Manager and such other parties as the Owner may direct. The Manager must
maintain its own insurance to protect itself from any and all claims under any
workers' compensation laws or other employer's liability laws.
NOTE P - PROFIT-SHARING PLAN
The Company has a defined contribution profit-sharing plan covering
substantially all employees. Contributions are determined annually by the Board
of Directors. The Company contributed $82,500 and $75,000 during the nine months
ended September 30, 1998 and 1997, respectively, and $99,996, $75,000 and
$75,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The
plan was amended in 1993 to include an Employee Stock Ownership Plan (ESOP)
provision. As of December 31, 1997, the ESOP owned 85,863 shares of the
Company's common stock. During 1998, the ESOP purchased an additional 34,443
newly issued shares from the Company and 15,300 shares from existing
shareholders. The purchase price of the newly issued stock was $8.25 as
determined by an outside independent appraisal.
F-37
<PAGE> 148
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE P - PROFIT-SHARING PLAN - Continued
The Company sponsors a deferred compensation 401(k) Plan for the benefit of
eligible full-time employees. The 401(k) Plan, which is voluntary, allows
employees to contribute up to 10 percent of their total compensation (or a
maximum of $10,000 as limited by federal regulations) on a pre-tax basis. The
Company makes a matching contribution of 100 percent of the first $500 and 40
percent thereafter, up to the maximum amount allowed by the 401(k) Plan.
Employee contributions to the 401(k) Plan were $139,045 and $131,295 for the
nine months ended September 30, 1998 and 1997, respectively, and $173,262,
$135,472 and $79,503 for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company's matching contribution was $73,616 and $69,249 for
the nine months ended September 30, 1998 and 1997, respectively, and $86,927,
$74,207 and $42,514 for the years ended December 31, 1997, 1996 and 1995,
respectively.
NOTE Q - STOCKHOLDERS' EQUITY
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations. Options to purchase
13,500 shares of common stock at $8.25 a share at September 30, 1998 and 495,000
shares at $7.96 and 27,000 shares at $4.49 at December 31, 1997 and 1996,
respectively, were not included in the computation of diluted EPS because the
options exercise price was not less than the value of the common shares based on
an independent appraisal. These options expire during 1999, 2007 and 2000,
respectively.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
-----------------------------------------------------------------------------------
1998 1997
----------------------------------------- ----------------------------------------
Weighted Per Weighted Per
Average Share Average Share
Earnings Shares Amount Earnings Shares Amount
---------- --------- ------ -------- --------- ------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net earnings available to
common stockholders $1,359,454 3,492,702 $.39 $868,096 3,430,942 $.25
Effective of dilutive securities
Incremental shares from
assumed exercise or
conversion of:
Convertible debt 23,576 152,789 23,576 152,789
Preferred Stock 15,470 188,759 16,345 196,947
Stock options -- 11,694 -- 15,183
---------- --------- -------- ---------
Diluted EPS
Net earnings available to
common stockholders and
assumed conversions $1,398,500 3,845,944 $.36 $908,017 3,795,861 $.24
========== ========= ==== ======== ========= ====
</TABLE>
F-38
<PAGE> 149
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE Q - STOCKHOLDERS' EQUITY - Continued
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- --------------------------------- ---------------------------------
Weighted Per Weighted Per Weighted Per
Average Share Average Share Average Share
Earnings Shares Amount Earnings Shares Amount Earnings Shares Amount
---------- --------- ------ ---------- --------- ------ ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Net earnings
available to
common
stockholders $1,393,397 3,432,768 $.41 $1,436,584 3,026,619 $.47 $1,373,981 2,163,117 $.64
==== ==== ====
Effect of dilutive
securities
Incremental
shares from
assumed
exercise or
conversion
of:
Convertible
debt 31,434 152,790 28,815 140,652 -- --
Preferred
stock 16,345 196,947 43,435 592,236 102,529 1,275,192
Stock
options -- 3,207 -- 1,899 -- 3,936
---------- --------- ---------- --------- ----------- ---------
Diluted EPS
Net earnings
available to
common
stockholders
and assumed
conversions $1,441,176 3,785,712 $.38 $1,508,834 3,761,406 $.40 $1,476,510 3,442,245 $.43
========== ========= ==== ========== ========= ==== ========== ========= ====
</TABLE>
During the year ended December 31, 1997, the company adopted the United
Financial Holdings, Inc. Stock Option and Incentive Compensation Plan ("Plan")
under which 468,000 shares of common stock were reserved. Under the Plan, the
Company may grant its Board of Directors and certain officers incentive stock
options or non-qualified stock options to purchase a specified number of shares
of common stock at a price not less than fair market value on the date of grant
and for a term not to exceed 10 years. The options granted to the Board of
Directors are 100% vested and the remaining options vest and become exercisable
at 20% increments after each anniversary date beginning after the second
anniversary date. During 1997, 156,000 and 312,000 options were granted to the
Company's Board of Directors and eligible executive officers, respectively, at
$7.94 per share, the estimated fair value of the Company's common stock at the
grant date. As such, no compensation expense was recorded in connection with the
grant of such options. No options under this plan were granted during the nine
months ended September 30, 1998.
F-39
<PAGE> 150
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE Q - STOCKHOLDERS' EQUITY - Continued
<TABLE>
<CAPTION>
Range
of Per Weighted
Share Average Aggregate
Number of Option Per Share Option
Shares Price Price Price
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995
and 1994 9,000 $ 1.96 $ 1.96 $ 17,640
Options granted 54,000 3.89-8.25 6.37 343,980
Options exercised (9,000) -- (1.96) (17,640)
------- ---------- ------ ----------
Outstanding at December 31, 1996 54,000 3.89-8.25 6.37 343,980
Options granted 468,000 7.94 7.94 3,715,920
Options exercised (13,500) -- (3.89) (52,515)
Options forfeited -- -- -- --
------- ---------- ------ ----------
Outstanding at December 31, 1997 508,500 3.89-8.25 7.88 4,007,385
Options granted -- -- -- --
Options exercised -- -- -- --
Options forfeited -- -- -- --
------- ---------- ------ ----------
Outstanding at September 30, 1998 508,500 $3.89-8.25 $ 7.88 $4,007,385
======= ========== ====== ==========
</TABLE>
The weighted-average remaining contractual life of the outstanding stock options
at September 30, 1998, December 31, 1997, 1996 and 1995 was 168 months, 177
months, 30 months and 13 months, respectively.
These options are exercisable as follows:
<TABLE>
<CAPTION>
Weighted
Average
Year Ending Number of Exercise
December 31, Shares Price
------------ --------- --------
<S> <C> <C>
1998 466,200 $7.86
1999 18,600 8.16
2000 18,600 8.16
2001 4,200 7.94
2002 900 7.94
------- ----
508,500 $7.88
======= =====
</TABLE>
F-40
<PAGE> 151
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE Q - STOCKHOLDERS' EQUITY - Continued
In order to calculate the fair value of the options, it was assumed that the
risk-free interest rate was 6.0%, the dividend yield would be 1.68% over the
exercise period, the expected life of the options would be the entire exercise
period and stock volatility would be zero due to the lack of an active market
for the stock. The following information pertains to the fair value of the
options at September 30, 1998 and 1997, and December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, For the Years Ended December 31,
------------------------ ------------------------------------------
1998 1997 1997 1996 1995
---------- -------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average-grant-date
Fair value of options
issued during the year $ -- $ -- $ 705,120 $ NIL $ --
========== ======== ========== ========== ==========
Pro forma net earnings $1,308,210 $884,441 $1,402,329 $1,480,019 $1,476,510
========== ======== ========== ========== ==========
Pro forma basic earnings per
share $ .37 $ .25 $ .41 $ .47 $ .64
========== ======== ========== ========== ==========
</TABLE>
NOTE R - EXECUTIVE COMPENSATION
The Company has employment contracts with certain executive officers of the
Company, providing for a total annual payment equal to their annual base salary
plus bonuses. These contracts are in effect until termination (as defined) of
the related employee. If the Company, for other than just cause (as defined)
terminates the employee, the affected employee shall receive, for a period of
twelve months, continuing compensation equal to his compensation for the twelve
month period immediately prior to termination.
The Company has established a non-qualified defined benefit plan covering
certain executive employees. The Plan specifies that upon reaching age 65, the
employee will receive an annual benefit (paid monthly) ranging from 40 percent
to 60 percent of their annual salary, for 240 months. The Company will accrue
the present value of the estimated future retirement payments over the period
from the date of each agreement to the retirement date of the respective
executive officer. To fund these benefit plans, the Company purchased single
premium cash value life insurance policies with cash surrender values of $2.32
million, which have been capitalized and included in other assets.
NOTE S - SUBSEQUENT EVENT
The Board of Directors declared a three-for-one common stock split effective
July 1, 1998, issued on July 31, 1998. All amounts have been restated to reflect
this stock split.
F-41
<PAGE> 152
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, UFH CAPITAL OR THE UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE COMMON STOCK AND THE PREFERRED SECURITIES OFFERED BY
THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK OR THE PREFERRED SECURITIES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 9
Use of Proceeds....................... 19
Market for the Securities and Related
Matters............................. 20
Accounting Treatment.................. 20
Capitalization........................ 21
Dilution.............................. 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 43
Management............................ 59
Certain Relationships and Related
Transactions........................ 70
Principal Stockholders................ 71
Description of Capital Stock.......... 72
Description of the Preferred
Securities.......................... 75
Description of the Junior Subordinated
Debentures.......................... 86
Description of the Guarantee.......... 94
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee........ 96
Material Federal Income Tax
Considerations...................... 97
ERISA Considerations.................. 101
Underwriting.......................... 102
Legal Matters......................... 104
Experts............................... 104
Available Information................. 105
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
Until , 1998, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
(UNITED FINANCIAL LOGO)
---------------------
450,000 SHARES
UNITED FINANCIAL
HOLDINGS, INC.
COMMON STOCK
---------------------
$6,000,000
UFH CAPITAL TRUST I
1,200,000 SHARES OF %
CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $5 PER PREFERRED SECURITY)
GUARANTEED, AS DESCRIBED HEREIN, BY
UNITED FINANCIAL HOLDINGS, INC.
--------------------
PROSPECTUS
--------------------
(WILLIAM R. HOUGH & CO. LOGO)
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 153
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850 of the Florida Business Corporation Act and the Articles
of Incorporation and Bylaws of United Financial Holdings, Inc. (the "Company")
provide for indemnification of the Company's directors and officers against
claims, liabilities, amounts paid in settlement and expenses in a variety of
circumstances, which may include liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). In addition, the Company carries insurance
permitted by the laws of the State of Florida on behalf of Directors, officers,
employees or agents which may cover liabilities under the Securities Act.
Under the Trust Agreement of UFH Capital Trust I ("UFH Capital"), the
Company will agree to indemnify each of the Trustees of UFH Capital or any
predecessor Trustee for UFH Capital, and to hold each Trustee harmless against,
any loss, damage, claim, liability or expense incurred without negligence or bad
faith on its part, arising out of or in connection with he acceptance or
administration of the Trust Agreement, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties under the Trust Agreement.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration Fee...................................................................... $ 4,762.00
NASD Filing Fee........................................................................... 2,030.00
NASDAQ Small-Cap Market Listing Fee....................................................... 10,000.00
Legal Fees and Expenses................................................................... 200,000.00
Trustee Fees and Expenses................................................................. 17,500.00
Accounting Fees and Expenses.............................................................. 100,000.00
Printing and Mailing Expenses............................................................. 40,000.00
Blue Sky Fees and Expenses................................................................ 20,000.00
Miscellaneous Expenses.................................................................... 5,708.00
------------------------
Total Fees and Expenses................................................................ $ 400,000.00
========================
</TABLE>
The Company is paying all of the foregoing expenses.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The securities issued or sold by the Company from September 1995 through
September 1998, which were not registered under the Securities Act, are listed
below:
(i) The issuance of 150,000 shares to the shareholders of FSC, which
include Mr. Curtis, Mr. Lowe, and Susan S. Mittermayr, pursuant to the
acquisition of FSC on September 30, 1995;
(ii) The distribution of 51,483 shares of Common Stock representing a
2% stock dividend to shareholders on December 31, 1995;
(iii) The issuance of 8% convertible subordinated debentures with an
aggregate principal amount of $630,000, convertible into shares of Common
Stock at a conversion price of $4.12 per share, to the former shareholders
of EPW on January 30, 1996, pursuant to the acquisition of such entity;
(iv) The conversion of previously issued 6% Preferred Stock for
99,588 shares of Common Stock on March 31, 1996;
II-1
<PAGE> 154
(v) The conversion of previously issued 7% Preferred Stock for
598,662 shares of Common Stock on July 31, 1996;
(vi) The conversion of previously issued 7% Preferred Stock for
20,670 shares of Common Stock on October 31, 1996;
(vii) The distribution of 67,086 shares of Common Stock representing
a 2% stock dividend to shareholders on December 31, 1996;
(viii) The issuance of 9,000 shares of Common Stock pursuant to the
exercise of stock options for total cash consideration of $16,961.80 on
December 31, 1996;
(ix) The issuance of 3,750 shares of Common Stock pursuant to the
exercise of stock options for total cash consideration of $14,583.75 on
July 3, 1997;
(x) The issuance of 6,000 shares of Common Stock pursuant to the
exercise of stock options for total cash consideration of $23,333.33 on
December 29, 1997;
(xi) The issuance of 3,750 shares of Common Stock pursuant to the
exercise of stock options for total cash consideration of $14,583.75 on
December 29, 1997;
(xii) The issuance of 34,443 shares of Common Stock to the ESOP trust
for total cash consideration of $264,154.75 on January 31, 1998;
(xiii) The issuance of 5,013 shares of Common Stock to participants
under the Trust Plan and the EPW Plan on January 31, 1998;
(xiv) The issuance of 9,000 shares of Common Stock to participants
under the Trust Plan and the EPW Plan on April 30, 1998; and
(xv) The conversion of previously issued 7% Preferred Stock for
21,084 shares of Common Stock on June 17, 1998.
The shares of capital stock issued in the above transactions were offered
and sold in reliance upon the exemption from registration under Section 4(2) as
transactions by an issuer not involving any public offering or were otherwise
exempt from a requirement to be registered under the Securities Act. The
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the share certificates issued in such transaction.
II-2
<PAGE> 155
ITEM 27. EXHIBITS
The following exhibits either are filed herewith or incorporated by
reference to documents previously filed or will be filed by amendment, as
indicated below:
<TABLE>
<CAPTION>
Exhibits Description
<S> <C>
1 Form of Underwriting Agreement*
3.1 Amended and Restated Articles of Incorporation of the Company*
3.2 Bylaws of the Company*
4.1 Form of Indenture with respect to the Company's __% Junior Subordinated Debentures*
4.2 Form of Specimen Junior Subordinated Debenture (included in Exhibit 4.1)*
4.3 Certificate of Trust of UFH Capital Trust I*
4.4 Trust Agreement of UFH Capital Trust I*
4.5 Form of Amended and Restated Trust Agreement of UFH Capital Trust I*
4.6 Form of Certificate for Cumulative Trust Preferred Security of UFH Capital Trust I*
4.7 Form of Guarantee Agreement for UFH Capital Trust I*
4.8 Form of Agreement as to Expenses and Liabilities*
4.9 Specimen of Common Stock to be registered hereunder*
5.1 Opinion of Holland & Knight LLP regarding the Junior Subordinated Debentures*
5.2 Opinion of Richards, Layton & Finger, special Delaware counsel, regarding the Cumulative
Trust Preferred Securities to be issued by UFH Capital Trust I*
10.1 UFH Stock Option and Incentive Compensation Plan*
10.2 Trust Department Stock Option Plan*
10.3 Eickhoff, Pieper & Willoughby Stock Option Plan*
10.4 Modification Agreement*
10.5 Property Management Agreement between Imaginative Investments, Inc. and the Southeast
Companies of Tampa Bay, Inc.*
10.6 Employment Agreement of Charles O. Lowe*
10.7 Employment Agreement of Ward J. Curtis, Jr.*
10.8 Employment Agreement of Harold J. Winner*
10.9 Employment Agreement of Cynthia A. Stokes*
10.10 Employment Agreement of Neil W. Savage*
10.11 Employment Agreement of William A. Eickhoff*
10.12 Salary Continuation Agreement of Harold J. Winner*
10.13 Salary Continuation Agreement of Neil W. Savage*
10.14 Salary Continuation Agreement of Cynthia A. Stokes*
10.15 Pinellas Bancshares Corporation 8% Convertible Debentures held by Eickhoff & Pieper, a
Florida General Partnership*
10.16 Loan Agreement between AmSouth f/k/a AmSouth Bank of Florida and UFH f/k/a Pinellas
Bancshares Corporation*
21 List of Subsidiaries*
23.1 Consent of Holland & Knight LLP (included in Exhibit 5.1)*
23.2 Consent of Richards, Layton & Finger (included in Exhibit 5.2)*
23.3 Consent of Grant Thornton LLP
23.4 Consent of Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A.*
24 Power of Attorney*
25.1 Form T-1: Statement of Eligibility of Wilmington Trust Company to act as Trustee for the
_____% Junior Subordinated Debentures of the Company*
25.2 Form T-1: Statement of Eligibility of Wilmington Trust Company to act as Trustee for the
____% Cumulative Trust Preferred Securities of UFH Capital Trust I*
25.3 Form T-1: Statement of Eligibility of Wilmington Trust Company to act as Trustee for the
Company's Guarantee with respect to the ____% Cumulative Trust Preferred Securities*
27.1 Financial Data Schedule (FDS use only)*
27.2 Financial Data Schedule (FDS use only)*
</TABLE>
- -----------------------
* Previously filed.
II-3
<PAGE> 156
ITEM 28. UNDERTAKINGS
Each of the undersigned Registrants hereby undertake:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that: (1) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of a Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be a part of this Registration Statement as of the time it was
declared effective.
(2) for the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-4
<PAGE> 157
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment No. 4
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of St. Petersburg, State of Florida on December 8, 1998.
UNITED FINANCIAL HOLDINGS, INC.
By: /s/ Neil W. Savage
-----------------------------------------
Neil W. Savage, Chief Executive Officer
and President
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has authorized this Amendment No.
4 to the Registration Statement to be signed on its behalf by the undersigned,
in the City of St. Petersburg, State of Florida on December 8, 1998.
UFH CAPITAL TRUST, INC.
By: /s/ Neil W. Savage
-----------------------------------------
Neil W. Savage, Trustee
By: /s/ C. Peter Bardin
-----------------------------------------
C. Peter Bardin, Trustee
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 4 to the Registration Statement was signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE DATE TITLE
- --------- ---- -----
<S> <C> <C>
/s/ Neil W. Savage December 8, 1998 Chief Executive Officer, President and
- -------------------------------------------- Director (principal executive officer)
Neil W. Savage
/s/ C. Peter Bardin December 8, 1998 Chief Financial Officer (principal financial
- -------------------------------------------- and accounting officer)
C. Peter Bardin
* December 8, 1998 Director
- --------------------------------------------
Ronald E. Clampitt
* December 8, 1998 Director
- --------------------------------------------
David K. Davis, M.D.
* December 8, 1998 Director
- --------------------------------------------
Edward D. Foreman
Director
- --------------------------------------------
Charles O. Lowe
* December 8, 1998 Director
- --------------------------------------------
John B. Norrie
</TABLE>
<PAGE> 158
<TABLE>
<S> <C> <C>
Director
- --------------------------------------------
Harold J. Winner
* December 8, 1998 Director
- --------------------------------------------
Ward J. Curtis, Jr.
Director
- --------------------------------------------
Jack A. MaCris, M.D.
* December 8, 1998 Director
- --------------------------------------------
Ronald R. Petrini
* December 8, 1998 Director
- --------------------------------------------
John B. Wier, Jr.
Director
- --------------------------------------------
Henry Esteva
* December 8, 1998 Director
- --------------------------------------------
Ian F. Irwin
Director
- --------------------------------------------
William A. Eickhoff
*By: /s/ Neil W. Savage
--------------------------------------
Neil W. Savage
Attorney-in-Fact
</TABLE>
<PAGE> 159
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits Description
<S> <C>
1 Form of Underwriting Agreement*
3.1 Amended and Restated Articles of Incorporation of the Company*
3.2 Bylaws of the Company*
4.1 Form of Indenture with respect to the Company's __% Junior Subordinated Debentures*
4.2 Form of Specimen Junior Subordinated Debenture (included in Exhibit 4.1)*
4.3 Certificate of Trust of UFH Capital Trust I*
4.4 Trust Agreement of UFH Capital Trust I*
4.5 Form of Amended and Restated Trust Agreement of UFH Capital Trust I*
4.6 Form of Certificate for Cumulative Trust Preferred Security of UFH Capital Trust I*
4.7 Form of Guarantee Agreement for UFH Capital Trust I*
4.8 Form of Agreement as to Expenses and Liabilities*
4.9 Specimen of Common Stock to be registered hereunder*
5.1 Opinion of Holland & Knight LLP regarding the Junior Subordinated Debentures*
5.2 Opinion of Richards, Layton & Finger, special Delaware counsel, regarding the Cumulative
Trust Preferred Securities to be issued by UFH Capital Trust I*
10.1 UFH Stock Option and Incentive Compensation Plan*
10.2 Trust Department Stock Option Plan*
10.3 Eickhoff, Pieper & Willoughby Stock Option Plan*
10.4 Modification Agreement*
10.5 Property Management Agreement between Imaginative Investments, Inc. and the Southeast
Companies of Tampa Bay, Inc.*
10.6 Employment Agreement of Charles O. Lowe*
10.7 Employment Agreement of Ward J. Curtis, Jr.*
10.8 Employment Agreement of Harold J. Winner*
10.9 Employment Agreement of Cynthia A. Stokes*
10.10 Employment Agreement of Neil W. Savage*
10.11 Employment Agreement of William A. Eickhoff*
10.12 Salary Continuation Agreement of Harold J. Winner*
10.13 Salary Continuation Agreement of Neil W. Savage*
10.14 Salary Continuation Agreement of Cynthia A. Stokes*
10.15 Pinellas Bancshares Corporation 8% Convertible Debentures held by Eickhoff & Pieper, a
Florida General Partnership*
10.16 Loan Agreement between AmSouth f/k/a AmSouth Bank of Florida and UFH f/k/a Pinellas
Bancshares Corporation*
21 List of Subsidiaries*
23.1 Consent of Holland & Knight LLP (included in Exhibit 5.1)*
23.2 Consent of Richards, Layton & Finger (included in Exhibit 5.2)*
23.3 Consent of Grant Thornton LLP
23.4 Consent of Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A.*
24 Power of Attorney*
25.1 Form T-1: Statement of Eligibility of Wilmington Trust Company to act as Trustee for the
_____% Junior Subordinated Debentures of the Company*
25.2 Form T-1: Statement of Eligibility of Wilmington Trust Company to act as Trustee for the
____% Cumulative Trust Preferred Securities of UFH Capital Trust I*
25.3 Form T-1: Statement of Eligibility of Wilmington Trust Company to act as Trustee for the
Company's Guarantee with respect to the
____% Cumulative Trust Preferred Securities*
27.1 Financial Data Schedule (FDS use only)*
27.2 Financial Data Schedule (FDS use only)*
</TABLE>
- -----------------------
* Previously filed.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 29, 1998 (except for Note S as to which
the date is July 23, 1998), accompanying the consolidated financial statements
of United Financial Holdings, Inc. contained in the Registration Statement on
Form SB-2 and Prospectus. We consent to the use of the aforementioned report in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts".
/s/ Grant Thornton, LLP
- -----------------------
Grant Thornton, LLP
Tampa, Florida
December 8, 1998
