<PAGE> 1
As filed with the Securities and Exchange Commission on July 31, 1998
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UNITED FINANCIAL HOLDINGS, INC.
UFH CAPITAL TRUST I
(Name of small business issuer in its charter)
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FLORIDA 6022 59-2156002
DELAWARE 0000 APPLIED FOR
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
333 THIRD AVENUE NORTH NEIL W. SAVAGE
ST. PETERSBURG, FLORIDA 33733 333 THIRD AVENUE NORTH
(813) 898-2265 (813) 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
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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. [ ]
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock of United Financial
Holdings, Inc......................... 840,000(1) $11.00 $9,240,000 $2,726.00
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Preferred Securities of UFH Capital
Trust I .............................. 1,380,000(2) $5.00 $6,900,000 $2,036.00
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Junior Subordinated Debentures of
United Financial Holdings, Inc.(3) ..... N/A
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Guarantee of United Financial
Holdings, Inc.(4) .................... N/A
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(1) Estimated solely for purposes of deferring the registration fee pursuant to
Rule 457(a) under the Securities Act of 1933. Includes up to 90,000
additional shares of Common Stock that may be acquired by the Underwriters
to cover over-allotments, if any.
(2) Including up to 180,000 additional Preferred Securities of UFH Capital
Trust I which may be acquired by the Underwriter to cover over-allotments,
if any.
(3) The Junior Subordinated Debentures will be purchased by UFH Capital Trust I
with the proceeds of the sale of the Preferred Securities. Such securities
may later be distributed for no additional consideration to the holders of
the Preferred Securities of UFH Capital Trust I upon its dissolution and
the distribution of its assets.
(4) This Registration Statement is deemed to cover the Guarantee. No separate
consideration will be received for the Guarantee, and pursuant to Rule
457(a) under the Securities Act, no separate registration fee is payable
for the Guarantee.
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.
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<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.
[LOGO] SUBJECT TO COMPLETION, DATED JULY 31, 1998
750,000 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.
Of the 750,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Common Stock Offering") 600,000 are being
issued and sold by United Financial Holdings, Inc. (the "Company") and 150,000
are being sold by certain shareholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders" and "Underwriting." The
Company will not receive any part of the proceeds from the sale of securities by
the Selling Stockholders.
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").
(continued on inside cover)
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SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE COMMON STOCK AND THE PREFERRED SECURITIES.
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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.
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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.
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====================================================================================================================
Proceeds to
Price to Underwriting Proceeds to Proceeds to Selling
Public Commission(1) UFH Capital(2) Company(2) Stockholders(2)
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Per share of Common Stock $ $ $ $
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Per Preferred Security $5.00 $(3) $5.00(3) $5.00(3) N/A
- --------------------------------------------------------------------------------------------------------------------
Total Common Stock (4) $ $ $ $
- --------------------------------------------------------------------------------------------------------------------
Total Preferred Securities (5) $6,000,000 (3) $6,000,000(3) N/A
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(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
180,000 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 Discounts and Commissions, 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 Common Stock will be made on or about _____,
1998 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.
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. It is estimated that the initial public offering
will be between $9 and $11 per share. 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. The Common Stock
has been approved for quotation on The NASDAQ Small-Cap Market under the symbol
"UFHI," subject to notice of issuance.
Application has been made to list the Preferred Securities for quotation on
The NASDAQ Small-Cap Market under the symbol "UFHIP." See "Risk Factors --
Absence of Market."
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 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 December 31,
1998 (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 of original issue discount) in their gross income
for United States federal income tax purposes in advance of receipt of the
ii
<PAGE> 4
cash distributions with respect to such deferred interest payments. See
"Description of the Junior Subordinated Debentures -- Option to Extend Interest
Payment Period," "Certain 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 "Certain 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 June 30, 1998, the Company had $2.4
million of Senior Debt, of which $2.3 million is to be repaid from the proceeds
of the Offerings, and $630 thousand of Subordinated Debt. See "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 -- Redemption Due to Tax Event, Investment Company
Event, or Capital Treatment Event" and "Certain Federal Income Tax
Considerations -- Classification of the Junior Subordinated Debentures."
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,
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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
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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, the information in this Prospectus
assumes that the Underwriter's over-allotment options will not be exercised.
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 issued July 31, 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
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 services with emphasis on
commercial loans and loans under the lending program of the U.S. Small Business
Administration (the "SBA"). At June 30, 1998, the Company had consolidated total
assets of $178.1 million, net loans of $97.1 million, deposits of $157.7 million
and stockholders' equity of $11.5 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 Reserve. The Bank's deposits are insured by the
Federal Deposit Insurance Corporation ("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 with an office in
Jacksonville, and United Trust Company, a Florida-chartered trust company
("United Trust") registered with the Department and located in St. Petersburg.
EPW offers investment management services to corporate, municipal and high net
worth individual clients throughout the State of Florida. As of June 30, 1998,
EPW had $312.3 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 June 30, 1998,
United Trust had $241.9 million in assets under trust.
In 1986 a group of investors, headed by Neil W. Savage, the Company's
President 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 this entity into the Company.
On January 31, 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 (813)
898-2265.
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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 lines of business 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 expansion
and new business development, 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
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<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 (813)
898-2265.
THE OFFERINGS
COMMON STOCK
Common Stock Offered ............. 750,000 shares of Common Stock by the
Company and the Selling Stockholders.
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 90,000
shares of Common Stock on the same terms
and conditions as the initial offering,
solely to cover over-allotments, if any.
Company .......................... 600,000 shares.
Selling Stockholders ............. 150,000 shares.
Common Stock to be outstanding
after the Common Stock Offering .. 4,113,858 shares.
Use of Proceeds .................. The Company intends to use the net proceeds
to it from the Offerings to repay its
indebtedness under an existing credit
facility, under which approximately $2.3
million was outstanding on June 30, 1998,
contribute to the capital of the Bank to
support growth and fund the cost of new
Bank branches, finance possible expansion
into related businesses and for general
corporate purposes, including working
capital. The Company will not receive any
proceeds from the sale of Common Stock by
the Selling Shareholders. See "Use of
Proceeds."
NASDAQ Small-Cap Market Symbol ... Application has been made to have the
Common Stock listed for quotation on The
NASDAQ Small-Cap Market under the symbol
"UFHI."
PREFERRED SECURITIES
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
3
<PAGE> 9
after the date of this Prospectus, to
purchase up to an additional 180,000
Preferred Securities on the same terms and
conditions as the initial 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 December 31, 1998.
See "Description of the Preferred
Securities -- Distributions -- Payment of
Distributions."
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 _______, 2028 (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 obligations
under the Junior Subordinated Debentures
will 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 Securities will be deferred,
though such Distributions would 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 may
commence a new Extended Interest Payment
Period, subject to the foregoing
restrictions. See "Description of the
Preferred Securities--Distributions--
Extended Interest
4
<PAGE> 10
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 of the cash
distributions with respect to such deferred
interest payments. See " Certain 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.
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 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 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
"Description of the Preferred Securities--
Liquidation Distribution Upon Termination."
Guarantee ........................ The Company has guaranteed 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. 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, a
full, irrevocable and unconditional
guarantee, on a subordinated basis, of all
of the obligations of UFH Capital relating
to the Preferred Securities. If the Company
does not make principal or interest
payments on the Junior Subordinated
Debentures, however, UFH Capital will not
have sufficient funds
5
<PAGE> 11
to make distributions on the Preferred
Securities; in which event, the 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."
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."
Use of Proceeds .................. The gross proceeds received from the sale
of the Preferred Securities offered hereby
will be used by UFH Capital to purchase the
Junior Subordinated Debentures from the
Company. The Company intends to use the net
proceeds to it from the Offerings to repay
its indebtedness under an existing credit
facility, under which approximately $2.3
million was outstanding on June 30, 1998,
contribute to the capital of the Bank to
support growth and fund the cost of new
Bank branches, finance possible expansion
into related businesses and for general
corporate purposes, including working
capital. See "Use of Proceeds."
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."
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 six months ended June
30, 1998 and June 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 cash 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." 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>
Six Months Ended
June 30, Years Ended December 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest Income ...................... $ 6,007 $ 5,147 $ 10,792 $ 9,595 $ 9,124 $ 6,941 $ 5,665
Interest Expense ..................... 2,523 1,914 4,101 3,420 3,212 2,113 2,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income .................. 3,484 3,233 6,691 6,175 5,912 4,828 3,665
Provision for Loan Loss .............. 250 90 90 150 180 140 365
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income after provision
for loan losses ..................... 3,234 3,143 6,601 6,025 5,732 4,688 3,300
Other Noninterest income ............. 1,909 1,475 3,240 2,572 1,237 1,359 1,196
General and Administrative
("G&A") expenses .................... 3,810 3,433 7,112 6,115 4,500 3,793 3,200
Other noninterest expense ............ -- 393 393 -- -- -- --
Amortization of goodwill ............. 35 31 66 111 121 116 116
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income before taxes .............. 1,298 761 2,270 2,371 2,348 2,138 1,180
Income Tax expense ................... 512 291 860 891 871 774 421
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income ........................... $ 786 $ 470 $ 1,410 $ 1,480 $ 1,477 $ 1,364 $ 759
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings per share, basic ............ $ 0.22 $ 0.13 $ 0.41 $ 0.47 $ 0.64 $ 0.78 $ 0.45
Weighted average shares
outstanding, basic ................. 3,481,947 3,430,818 3,432,768 3,026,619 2,163,117 1,578,471 1,419,393
Earnings per share, diluted .......... $ 0.21 $ 0.13 $ 0.38 $ 0.40 $ 0.43 $ 0.38 $ 0.23
Weighted average shares
outstanding, diluted ............... 3,864,879 3,795,738 3,785,712 3,761,406 3,442,245 3,603,549 3,477,555
</TABLE>
7
<PAGE> 13
<TABLE>
<CAPTION>
Six Months
Ended June 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 ........................ $ 178,148 $ 128,782 $ 147,319 $ 122,733 $ 106,594 $104,051 $ 81,178
Investment Securities ............... 29,888 22,753 21,569 18,706 17,957 18,508 19,982
Loans, net of unearned income ....... 98,872 83,192 96,469 80,872 75,534 65,097 52,326
Allowance for loan losses ........... 1,759 1,678 1,647 1,610 1,527 1,335 875
Intangible assets ................... 1,396 1,409 1,336 1,440 919 604 719
Deposits ............................ 157,686 112,940 130,219 108,145 93,252 94,103 72,659
Stockholders' Equity ................ 11,452 9,716 10,491 9,492 8,487 6,385 4,902
SELECTED FINANCIAL RATIOS (annualized)
Return on average assets ............ 1.01% 0.75% 1.08% 1.32% 1.45% 1.56% 1.00%
Return on average equity ............ 14.07% 9.77% 14.25% 16.55% 20.84% 23.71% 16.29%
Net interest spread ................. 4.74% 5.27% 5.27% 5.58% 5.60% 5.64% 5.01%
Net interest margin ................. 5.25% 5.97% 5.95% 6.27% 6.38% 6.10% 5.53%
G&A expense to average assets ....... 4.92% 5.47% 5.44% 5.44% 4.42% 4.34% 4.22%
G&A efficiency ratio ................ 70.65% 72.91% 71.61% 69.90% 62.95% 61.31% 65.82%
Non-accrual loans to total loans
(at period end) ..................... 3.97% 0.67% 0.41% 0.46% 0.02% -- .05%
Nonperforming assets to total assets 2.38% 0.44% 0.27% 0.30% 0.02% 0.02% 0.41%
Loan loss allowance to total loans .. 1.77% 2.01% 1.70% 1.98% 2.02% 2.04% 1.61%
Loan loss allowance to nonperforming
loans .............................. 44.76% 299.11% 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 .......................... 88 86 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 within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), 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 June 30, 1998, 7.6% of the Company's loans were
secured by one-to-four family residential real estate, 53.9% were secured by
commercial real estate and multifamily residential, 3.4% were construction loans
and the Company had 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 2.38% at
June 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 LOAN RESERVES
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
9
<PAGE> 15
by the Company may not be adequate. To the extent that the Company's loan losses
exceed its loan loss reserves, the Company's results of operations would be
adversely affected. There can be no assurance that the Company's allowance 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.
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 June 30, 1998, the Company had a one year cumulative negative
gap of 20.9%. 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 Results of Operations and Financial
Condition."
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 "Supervision and Regulation."
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 executives
naming the Company as 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."
10
<PAGE> 16
CONTROL BY EXISTING STOCKHOLDERS
After the Common Stock Offering, members of the Company's directors and
executive officers (and their respective affiliates and immediate family
members) will own in the aggregate ____ shares of the Company's Common Stock,
representing approximately ___% of the total voting rights of the Company. On
the basis of such ownership, these persons may be able to control the outcome of
matters requiring a stockholder vote, including the election of directors, and
to 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 "Business--
Supervision and Regulation."
YEAR 2000 CONSIDERATIONS
In 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 are expected to be unable to compute payment,
interest or delinquency. In 1997, the Company began the process of identifying
the many software applications and hardware devices expected to be impacted by
this issue. The data processing service firm engaged by the Company has advised
the Company that its systems are year 2000 compliant. The Company believes that
its vendors and its significant customers are actively addressing the problems
associated with the year 2000 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, the Savings
Association Insurance Fund, or the Federal Deposit Insurance Corporation 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. Although the Company has submitted an application to have the
Common Stock approved for quotation on The NASDAQ Small-Cap 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 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.
11
<PAGE> 17
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 U.S. 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 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 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.
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 the 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 $251,900 in annual interest on
indebtedness which will rank senior to, or pari passu with, the Junior
Subordinated Debentures ($201,500 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.
12
<PAGE> 18
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 June 30, 1998, the Bank was a well-capitalized
institution for purposes of the Federal Reserve's capital regulations and had
$2.8 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.
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 June 30, 1998, the Company had $2.4 million of Senior Debt
outstanding ($2.3 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 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 June 30, 1998, the Bank had liabilities of $164.0 million
(including $158.3 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 redemption 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
13
<PAGE> 19
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 " Certain Federal Income Tax Considerations--Interest
Income and Original Issue Discount." See also "--Absence of Prior Public Market
for the Preferred Securities; Trading Price and Tax Considerations."
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 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
14
<PAGE> 20
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 "Certain Federal Income Tax
Considerations - Possible Legislation and Other Actions Affecting Tax
Considerations." 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
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 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
15
<PAGE> 21
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
Preferred Securities," "Description of the Junior Subordinated Debentures--
Debenture Events of Default" and "Description of the Guarantee." The Trust
Agreement provides that each holder of 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 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
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 Preferred Securities for cash would be a taxable
event to such holders. See " Certain 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 Small-Cap Market or
such stock exchanges, if any, on which the Preferred Securities are then listed.
16
<PAGE> 22
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 Trustees."
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 Small-Cap 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 Small-Cap 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 of Preferred
Securities may experience difficulty reselling Preferred Securities or may be
unable to sell 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 Preferred Securities who disposes of
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 "Certain Federal Income Tax Considerations - Sales of
Preferred Securities."
17
<PAGE> 23
USE OF PROCEEDS
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 Common Stock and
the Junior Subordinated Debentures are estimated to be approximately $11.0
million ($12.7 million if the Underwriter's over-allotment option is exercised
in full) after deduction of underwriting discounts and estimated expenses. The
net proceeds from the sale of the Preferred Securities and the Common Stock
offered hereby will be used to repay the Company's indebtedness under its
existing credit facility, under which approximately $2.3 million was outstanding
on June 30, 1998, which bears interest at an annual rate of 8.5% and matures on
November 1, 2007, and to (i) contribute to the capital of the Bank to support
growth and fund the cost of new branches; (ii) finance possible expansion into
related businesses and (iii) for general corporate purposes, including working
capital. The specific use of any proceeds contributed to the capital of the
Bank, as well as the timing of such uses, will be a function of the funding
needs of the Bank and the availability of other funds to the Bank. Initially,
such proceeds will be invested by the Bank in short-term obligations.
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 Stock Market's Small-Cap 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 Stock Market's Small-Cap 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 offering. 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. Since 1997, such dividends
have been paid at the rate of $0.031/3 per share of Common Stock. 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 7% Cumulative 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."
18
<PAGE> 24
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," 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 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," (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.
19
<PAGE> 25
CAPITALIZATION
The following table sets forth the actual and as adjusted consolidated
capitalization of the Company at June 30, 1998 (dollars in thousands). The as
adjusted capitalization gives effect to the Offerings. The information set forth
below should be read in conjunction with the Consolidated Financial Statements
of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1998
------------------
As
Actual Adjusted
------- --------
<S> <C> <C>
Company-obligated mandatorily redeemable capital securities of subsidiary trust(1) $ - $ 6,000
Stockholder Equity:
7% convertible preferred stock $10 par value: 150,000 shares
authorized; 20,850 shares issued and outstanding at June 30, 1998; ......... 209 209
Common Stock, $.01 par value; 20,000,000 shares authorized;
3,513,858 shares and 4,113,858 shares issued and outstanding at June 30,
1998 Actual and As Adjusted, respectively .................................. 35 41
Paid-in Capital ................................................................ 6,214 11,214
Net unrealized gain on securities available for sale, net ...................... 74 74
Retained Earnings .............................................................. 4,920 4,920
------- -------
Total stockholders' equity ..................................................... 11,452 16,458
------- -------
Total Capitalization ............................................................. $11,452 $22,458
======= =======
</TABLE>
- ---------------------------
(1) Represents beneficial interests in an aggregate amount of $6.0 million of
Junior Subordinated Debentures of the Company.
20
<PAGE> 26
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.................................................
--------
Total.................................................... $
========
</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) 468,000 shares of Common Stock reserved
for issuance under the Company's existing stock option plans, (ii) up to 225,000
shares of Common Stock 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 (iii) 40,500 shares of Common Stock
reserved for issuance upon exercise of other outstanding options, and (iv)
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.
Options to acquire an aggregate of 508,500 shares of Common Stock at a weighted
average exercise price of $7.88 per share, shares of 7% convertible preferred
stock convertible into an aggregate of 175,210 shares of Common Stock at an
average conversion price of $1.19 per share and 8% debentures convertible into
an aggregate of 152,913 shares of Common Stock at a conversion price of $4.12
per share, were outstanding as of June 30, 1998, and held by persons that were
directors, officers or affiliates at the time such securities were issued.
21
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 herein.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
COMPARISON OF BALANCE SHEET AT JUNE 30, 1998 AND DECEMBER 31, 1997
Overview
At June 30, 1998, total assets of the Company were $178.1 million as
compared to $147.3 million at December 31, 1997, an increase of $30.8 million or
20.9%. This growth was primarily the result of an unusually high level of
interest bearing transaction account (NOW and money market accounts) deposits
from a single customer at June 30. The largest increase in earning assets was in
Federal funds sold, a type of short term, overnight investment, which was
attributable to increase in deposits occurring near the end of the quarter. The
unusual activity had little effect on average balances for the quarter ended
June 30, 1998 and therefore did not result in a significant impact upon earnings
for that period.
Investment Securities
Investment securities, consisting of U.S. Treasury, federal agency,
obligations of state and political subdivisions, mortgage-backed, and corporate
debt securities, were $29.9 million at June 30, 1998, compared to $21.6 million
at December 31, 1997 an increase of $8.3 million or 38.4%. Included in
investment securities at June 30, 1998 were $12.2 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 $99.4 million at June 30, 1998, compared to $97.0 million
at December 31, 1997, an increase of $2.5 million or 2.5%. Real estate mortgage
loans increased $3.9 million or 6.2%, commercial loans decreased by $1.5 million
or 4.8%, and all other loans including consumer loans were virtually unchanged.
Loans net of allowance for loan losses were $97.1 million at June 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 June 30, 1998 or
1.78% of loans, compared to $1.6 million at December 31, 1997 or 1.71% of loans.
During the six months ended June 30, 1998, $146 thousand in loans were charged
off, $250 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 $4.3 million at June 30, 1998, compared to $0.7
million at December 31, 1997. Nonperforming assets at June 30, 1998 consisted of
nonperforming loans of $3.9 million and other real estate owned of $0.3 million.
Nonperforming loans included $1.0 million of the portion of defaulted loans that
is fully guaranteed by the SBA and the Bank expects to be fully reimbursed by
the SBA. A nonperforming loan of $1.1 million is in foreclosure and management
believes that the underlying collateral will be sufficient to repay
substantially all 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. Other
real estate owned consisted of one property
22
<PAGE> 28
which has been listed for sale. Management believes that this property is
carried at a value which is equal to its current market value.
Bank Premises and Equipment
Bank premises and equipment totaled $9.3 million at June 30, 1998,
compared to $9.5 million at December 31, 1997, a decrease of $0.2 million. This
decrease was primarily due to depreciation of buildings and equipment and
amortization of leasehold improvements.
Deposits
Total deposits were $ 157.7 million at June 30 1998, compared to $130.2
million at December 31, 1997, an increase of $27.5 million or 21.1%. From
December 31, 1997 to June 30, 1998 demand deposits decreased $2.8 million, NOW
and money market deposits increased $32.6 million, savings deposits decreased
$0.8 million, time deposits of $100 thousand or greater increased $0.2 million,
and other time deposits decreased $1.7 million.
Long-term Debt and Convertible Subordinated Debentures
Long-term debt outstanding was $2.4 million at June 30, 1998, compared to
$2.7 million at December 31, 1997, a decrease of $0.3 million. This decrease was
primarily due to a repayment on a line of credit secured by the Bank's Common
Stock.
Stockholders' Equity
Stockholders' equity was $11.5 million at June 30, 1998, or 6.43% 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 $786 thousand and the issuance of $400 thousand of Common Stock,
partially offset by $241 thousand of dividend payments on Preferred and Common
Stock. At June 30, 1998 the Bank's Tier I (core) Capital ratio was 6.15%, its
Tier I Risk-based Capital ratio was 8.94%, and its Total Risk-based Capital
ratio was 10.19%. 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 SIX MONTHS ENDED JUNE 30, 1998
AND 1997
Overview
Net income for the six months ended June 30, 1998 was $786 thousand or
$0.21 per share, diluted, compared to $470 thousand or $0.13 per share, diluted,
for the same period in 1997. The increase of $316 thousand 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.
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 six months ended June 30, 1998 and 1997.
23
<PAGE> 29
<TABLE>
<CAPTION>
Six Months Ended June 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...................... $ 5,958 $ 79 $ 0 $ 6,037 $ 5,146 $ 0 $ 0 $ 5,146
Interest Expense..................... 2,425 0 2 2,427 1,856 0 3 1,859
--------- ------- -------- --------- --------- -------- --------- ---------
Net Interest Income.................. 3,533 79 (2) 3,610 3,290 0 (3) 3,287
Loan Loss Provision.................. 250 0 0 250 90 0 0 90
--------- ------- -------- --------- --------- -------- --------- ---------
Net Interest Income after loan
loss provision.................... 3,283 79 (2) 3,360 3,200 0 (3) 3,197
Noninterest Income................... 771 442 720 1,933 599 310 590 1,499
General and Administrative
("G&A") expenses.................. 2,710 467 646 3,823 2,461 430 523 3,414
Other noninterest expense............ 0 0 0 0 393 0 0 393
Amortization of goodwill............. 7 11 0 19 7 8 0 15
--------- ------- -------- --------- --------- -------- --------- ---------
Total Noninterest expense............ 2,717 478 646 3,842 2,861 438 523 3,822
--------- ------- -------- --------- --------- -------- --------- ---------
Net income before taxes.............. $ 1,337 $ 42 $ 72 1,451 $ 937 $ (128)$ 65 874
========= ======= ======== ========= ======== =========
Net corporate overhead expense....... 153 113
Income tax expense................... 512 290
--------- ---------
Net income........................... $ 786 $ 470
========= =========
</TABLE>
Commercial Banking Activities. Net interest income from commercial banking
was $3.5 million for the six months ended June 30, 1998, compared to $3.3
million for the same period in 1997, a $0.2 million or 7.4% increase. The loan
loss provision was $250 thousand for the six months ended June 30, 1998,
compared to $90 thousand for the same period of 1997, a $160 thousand or 177.8%
increase. Non-interest income for the six months ended June 30, 1998 was $0.8
million, compared to $0.6 million for the same period of 1997, a $0.2 million or
28.7% increase. Total non-interest expense was $2.7 million for the six months
ended June 30, 1998, compared to $2.9 million for the same period 1997 a
decrease of $0.2 million or 5.0%. Net income before taxes was $1.3 million for
the six months ended June 30, 1998, compared to $0.9 million for the same period
of 1997, a $0.4 million or 42.7% increase.
Trust Activities. United Trust reported net income before taxes of $42
thousand for the six months ended June 30, 1998, compared to a loss of $128
thousand for the same period in 1997, an improvement of $170 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 $72
thousand for the six months ended June 30, 1998, compared to $65 thousand for
the same period of 1997, this was a $7 thousand or 10.8% increase. This increase
was due to an increase in the volume of assets under management by EPW, due
primarily to an increase in the market values of the portfolios under
management.
Analysis of Net Interest Income
Net interest income for the six months ended June 30, 1998 was $3.6
million as compared to $3.2 million for the same period of 1997, a $0.4 million
or 9.8% increase. Interest income was $6.0 million for the six months ended June
30, 1998, compared to $5.1 million for the same period of 1997, a $0.9 million
or 16.7% increase. Interest expense was $2.4 million for the six months ended
June 30, 1998, compared to $1.9 million for the same period of 1997, a $0.5
million or 30.6% increase.
24
<PAGE> 30
The following tables summarize the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the six months ended June 30, 1998 and 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
Six Months Ended June 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 ......................... $ 95,801 $ 4,871 10.17% $ 80,033 $ 4,251 10.62%
Securities:
Investment securities - taxable .... 24,666 798 6.47 22,601 746 6.60
Investment securities - non-taxable 420 12 9.22 519 15 8.92
Federal Funds Sold ................. 11,926 326 5.46 5,152 135 5.27
-------- -------- -------- --------
Total Earning Assets ............... 132,813 6,007 9.05% 108,305 5,147 9.51%
Non-Earning Assets ................. 22,190 17,338
-------- --------
Total Average Assets ............... $155,004 $125,643
======== ========
Interest Bearing Liabilities:
NOW & Money Market ................. $ 44,242 651 2.94% $ 28,958 369 2.55%
Savings ............................ 4,958 50 2.02 4,693 47 2.02
Time, $100,000 & over .............. 10,203 277 5.37 6,477 179 5.53
Time other ......................... 50,919 1,376 5.42 45,346 1,210 5.34
Convertible subordinated debentures 630 25 8.00 630 25 8.00
Long-term debt ..................... 2,424 104 8.61 728 34 8.96
Other Borrowings ................... 3,467 40 2.30 3,249 50 3.10
-------- -------- -------- --------
Total Interest Bearing Liabilities . 116,843 2,523 4.32% 90,081 1,914 4.25%
Non-Interest bearing liabilities:
Deposits ........................... 25,522 24,530
Other .............................. 1,466 1,408
Stockholders Equity ................ 11,173 9,624
-------- --------
Total Liabilities and Equity ......... $155,004 $125,643
======== ========
Net interest income & net interest
spread ............................. $ 3,484 4.73% $ 3,233 5.26%
======== ==== ======== ====
Net interest margin .................. 5.25% 5.97%
==== ====
</TABLE>
Changes in Net Interest Income
<TABLE>
<CAPTION>
Increase
(Decrease)
----------
Combination
Volume Rate Rate/Volume Total
------ ---- ----------- -----
<S> <C> <C> <C> <C>
Interest earning assets:
Loans, net ........................ $ 837 $ (180) $ (37) $ 620
Securities:
Investment securities - taxable ... 68 (14) (2) 52
Investment securities - non-taxable (4) 1 1 (2)
Federal funds sold ................ 178 5 7 190
------- ------- ------- -------
Total change in interest income ... 1,079 (188) 31 860
</TABLE>
25
<PAGE> 31
<TABLE>
<CAPTION>
Increase
(Decrease)
----------
Combination
Volume Rate Rate/Volume Total
------ ---- ----------- -----
<S> <C> <C> <C> <C>
Interest Bearing Liabilities:
NOW & Money Market ..................... 195 57 30 282
Savings ................................ 3 -- -- 3
Time, $100,000 & over .................. 103 (5) (3) 95
Time other ............................. 148 18 3 168
Convertible subordinated debentures .... -- -- -- --
Long-term debt ......................... 76 (1) (3) 72
Other Borrowings ....................... 3 (13) (1) (11)
------- ------- ------- -------
Total change in interest expense ......... 528 56 26 609
------- ------- ------- -------
Increase (decrease) in net interest income $ 551 $ (244) $ (57) $ 251
======= ======= ======= =======
</TABLE>
Noninterest Income
Noninterest income for the six months ended June 30, 1998 was $1.9 million
compared to $1.5 million for the same period in 1997, an increase of $0.4
million or 29.4%. The increase was primarily due to increased income from EPW
and United Trust whose combined income increased $294 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
six months ended June 30, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997 Increase/(Decrease)
---- ---- -------------------
<S> <C> <C> <C>
Service charges on deposit Accounts ... $ 347 $ 327 $ 20
Trust and investment management income 1,138 844 294
Loan servicing fees ................... 72 97 (25)
Gain on sale of SBA loans ............. 129 88 41
Other service charges, fees, and income 223 119 104
------ ------ ------
Total noninterest income ............ $1,909 $1,475 $ 434
====== ====== ======
</TABLE>
Noninterest Expense
Total noninterest expense for the six months ended June 30, 1998 were $3.9
million, compared to $3.9 million for the same period of 1997, an increase of
less than $0.1 million.
The following table reflects the components of noninterest expense for the
six months ended June 30, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997 Increase/(Decrease)
---- ---- -------------------
<S> <C> <C> <C>
Salaries and employee benefits......... $2,263 $1,941 $ 322
Occupancy expense...................... 291 204 87
Furniture and equipment expense........ 256 217 39
Data processing expense................ 221 211 10
Legal and professional fees............ 85 63 22
Amortization of intangible assets...... 35 32 3
</TABLE>
26
<PAGE> 32
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997 Increase/(Decrease)
---- ---- -------------------
<S> <C> <C> <C>
Advertising............................ 45 90 (45)
Relocation expense..................... -- 138 (138)
Stationery and Supplies................ 79 79 --
Directors fees......................... 82 111 (29)
Securities write-down.................. -- 255 (255)
Other operating expenses............... 488 517 (29)
------ ------ -----
Total noninterest expense............ $3,845 $3,858 $ (13)
====== ====== =====
</TABLE>
YEARS ENDED DECEMBER 31, 1997 AND 1996
COMPARISON OF BALANCE SHEET AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
Overview
Total assets of the Company were $147.3 million at December 31, 1997, as
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 17.0%,
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.
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 through a
provision, which was accounted for as an expense and reduced 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.
27
<PAGE> 33
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 in
NOW and money market deposits, $0.6 million in savings deposits, $4.9 million in
time deposits of $100,000 or greater, and $6.4 million 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.
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 1997 and 1996 (dollars in
thousands).
28
<PAGE> 34
<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. The loan loss provision was $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, a 1.4% decrease. 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, an 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.
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.
29
<PAGE> 35
Analysis of Net Interest Income
Net interest income for the year ended December 31, 1997, was $6.7 million
as compared to $6.2 million for the same period of 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 of 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 of 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.......................... $ 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 $ 112,334
========== ==========
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 8.00
Long-term debt...................... 1,037 80 7.73 886 78 8.84
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 1,236
Stockholders Equity................. 9,892 8,945
---------- ----------
Total Liabilities and Equity........ $ 130,780 $ 112,334
========== ==========
Net interest & net interest spread.. $ 6,691 5.27% $ 6,175 5.58%
========= ====== ======== ======
Net interest margin................. 5.96% 6.27%
====== ======
</TABLE>
Changes in Net Interest Income
<TABLE>
<CAPTION>
Increase (Decrease)
---------------------------------------
Combination
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)
</TABLE>
30
<PAGE> 36
<TABLE>
<CAPTION>
Increase (Decrease)
----------------------------------------
Combination
Volume Rate Rate/Volume Total
------- ------- ----------- -------
<S> <C> <C> <C> <C>
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 26.0%. 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>
Noninterest Expense
Total noninterest expenses for the year ended December 31, 1997, were $7.6
million, compared to $6.2 million for the same period in 1996, an increase of
$1.3 million or 21.6%. The increases are mainly due to the inclusion of a full
year of operations of EPW and the St. Petersburg Beach branch in the 1997
results, versus only eleven and four months of operations, respectively, in
1996, expansion of the Bank's facilities, expansion of United Trust and EPW
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):
31
<PAGE> 37
<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 SHEET AT DECEMBER 31, 1996 AND DECEMBER 31, 1995
Overview
Total assets of the Company were $122.7 million at December 31, 1996, and
$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 6.0%. At
December 31, 1996, the Company held certain securities totaling $9.8 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%. Real estate
mortgage loans increased $10.5 million or 22.8% commercial loans decreased $5.2
million or by 18.4%, 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.
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, $150.0 thousand were added
to the allowance through a provision which was accounted for as an expense and
reduced net income, and $1.6 thousand was recovered from loans previously
charged off.
32
<PAGE> 38
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 and whole 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."
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 1995. Results for fiscal 1996 include 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 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 Bank's net income for 1996 by approximately $319 thousand as a result of the
losses these activities generated during their initial periods of operation.
Analysis of Net Interest Income
Net interest income for the year ended December 31, 1996, was $6.2 million
as compared to $5.9 million for the same period of 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 of 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 of the same period of 1996, a $0.2 million or
6.5% increase.
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<PAGE> 39
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 ......................... $ 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 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>
34
<PAGE> 40
Changes in Net Interest Income (In thousands)
<TABLE>
<CAPTION>
Increase (Decrease)
------------------------------------------
Combination
Volume Rate Rate/Volume Total
------- ------ ----------- -----
<S> <C> <C> <C> <C>
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) (13) 373
Convertible subordinated debentures ..... 46 -- -- 46
Long-term debt .......................... (1) (7) -- (8)
Other Borrowings ........................ (56) (60) 18 (98)
------ ----- ---- -----
Total change in interest expense ......... 437 (239) 9 207
------ ----- ---- -----
Increase (decrease) in net interest income $ 216 $ 61 $(13) $ 264
====== ===== ==== =====
</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 107.9%. 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>
35
<PAGE> 41
Noninterest Expense
Total noninterest expense for the year ended December 31, 1996, were $6.2
million, compared to $4.6 million, an increase of $1.6 million or 34.7% for the
same period of 1995. 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 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 borrowings from all sources, in
determining the amount of credit to extend to an institution. As of June 30,
1998, the Company had no FHLB advances outstanding. See "Business-Supervision
and Regulation-Liquidity."
36
<PAGE> 42
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 June
30, 1998, the Bank had liquidity of approximately $51.0 million or approximately
31.3% of total deposits combined with borrowings. The Company's primary sources
of funds consists 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 June
30, 1998, the Company had commitments to originate loans totaling $18.1 million.
Scheduled maturities of certificates of deposit during the 12 months following
June 30, 1998 total $46.7 million as of June 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 ration. Historically, the Bank has enjoyed a higher than peer group
average net interest margin as well as 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.
The Bank is also a member of the Federal Home Loan Bank of Atlanta
("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.
37
<PAGE> 43
The cumulative one-year gap at June 30, 1998 was a negative $31.8 million
or a negative 20.9% (expressed as a percentage of total assets). The following
table presents the maturities or repricing of interest-earning assets and
interest-bearing liabilities at June 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.
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
Non-Rate
0 to 3 4 to 6 7 to 12 13 to 60 60+ Sensitive
Months Months Months Months Months Liabilities Total
------ ------ ------- -------- ------ ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold ........... $ 26,767 $ 0 $ 0 $ 0 $ 0 N/A $ 26,767
Securities ................... 1,864 215 2,720 15,029 10,060 N/A 29,888
Loans:(1)
Fixed ...................... 4,368 2,457 6,284 12,955 1,968 N/A 28,032
Variable ................... 34,897 1,490 3,639 26,096 1,429 N/A 67,551
-------- -------- -------- -------- -------- -------- --------
Total Rate Sensitive Assets .... $ 67,896 $ 4,162 $ 12,643 $ 54,080 $ 13,457 N/A $152,238
======== ======== ======== ======== ======== ======== ========
LIABILITIES:
Interest Demand .............. $ 57,312 $ 0 $ 0 $ 0 $ 0 $ 11,293 $ 68,605
Savings ...................... 4,449 0 0 0 0 0 4,449
Time Deposits ................ 15,460 16,391 16,094 11,125 0 0 59,070
Other Borrowings ............. 4,424 0 0 0 0 0 4,424
Long Term Debt ............... 2,333 4 8 26 630 0 3,001
-------- -------- -------- -------- -------- -------- --------
Total Rate Sensitive Liabilities $ 83,978 $ 16,395 $ 16,102 $ 11,151 $ 630 $ 11,293 $139,549
======== ======== ======== ======== ======== ======== ========
Dollar GAP ..................... $(16,082) $(12,233) $ (3,459) $ 42,929 $ 12,827 $(11,293) $ 12,689
Cumulative Dollar GAP .......... $(16,082) $(28,315) $(31,774) $ 11,155 $ 23,982 $ 12,689 $ 12,689
Cumulative Gap/Total Assets .... (10.56)% (18.60)% (20.87)% 7.33% 15.75% 8.33% 8.33%
</TABLE>
- -------------------
(1) Excludes nonaccrual loans of approximately $3.9 million.
YEAR 2000 CONSIDERATIONS
In 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 are expected to be unable to compute payment,
interest or delinquency. In 1997, the Company began the process of identifying
the many software applications and hardware devices expected to be impacted by
this issue. The data processing service firm engaged by the Company has advised
the Company that its systems are Year 2000 compliant. The Company believes that
its vendors and its significant customers are actively addressing the problems
associated with the year 2000 issue. While the Company does not expect the cost
of addressing year 2000 issues to be a material uncertainty which could
materially adversely affect its future operating result or financial condition,
there can be no assurance that the Company will successfully implement year 2000
compliant systems or will not be adversely affected by the failure of third
party vendors or significant customers of the Bank to become year 2000
compliant.
38
<PAGE> 44
BUSINESS
THE COMPANY
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 with
an office in Jacksonville, and United Trust, chartered as a Florida trust
company registered with the Florida Department of Banking and Finance located in
St. Petersburg. At June 30, 1998, the Company had consolidated total assets of
$178.1 million, net loans of $97.1 million, deposits of $157.7 million and
stockholders' equity of $11.5 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 June 30, 1998, EPW had $312.3
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 June 30, 1998, United Trust had $241.9
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 (813)
898-2265.
BACKGROUND
In 1986 a group of investors, headed by Neil W. Savage, the Company's
President 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.
On January 31, 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 lines of business 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
39
<PAGE> 45
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. 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 expansion and new business development, 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. The Company has no current plans to add Bank branches
outside of the Pinellas County market. In the future, the Company may consider
strategic expansion though the acquisition of other banks or bank branches or by
de novo branching. The Company may consider from time to time, expansion
opportunities into other business lines which can add to the Company's
non-interest income and the acquisition or development of other businesses which
management considers complementary to the Company's existing business. 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 or develop any new business lines 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 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
40
<PAGE> 46
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 (1) the interest and fees received by the Bank from loans,
the securities held in its investment portfolio, and other investments, and (2)
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 though 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 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."
41
<PAGE> 47
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 deposit structure of the types of deposit accounts offered
by the Bank at June 30, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
Weighted Percent
Average of Total
Interest Rate Amount Deposits
------------- ------ --------
<S> <C> <C> <C>
Non-interest bearing ..................... 00.0% $ 25,562 16.2%
NOW accounts ............................. 3.38% 68,605 43.5%
Savings .................................. 2.02% 4,449 2.8%
Time deposits with original maturities of:
One year or less ...................... 5.21% 33,922 21.5%
Over 1 year through 5 years ........... 5.68% 25,148 15.9%
-------- -------
Total time deposits ................. 5.41% 59,070 37.5%
-------- -------
Total deposits ...................... 3.55% $157,686 100.0%
======== =======
</TABLE>
At June 30, 1998, scheduled maturities of time deposits were as follows (dollars
in thousands):
<TABLE>
<CAPTION>
Percent of
Time Time
Period Ended June 30, Deposits Deposits
---------------- -------------
<S> <C> <C>
1999................................................. $ 46,743 79.1%
2000-2001............................................ 6,642 11.2%
2002-2006............................................ 5,685 9.6%
--------------- -----
Total time deposits................................ $ 59,070 100.0%
=============== =====
</TABLE>
As of June 30, 1998, the Bank had deposits from a single customer of $36.4
million, or 23.1% of the Bank's total deposits. As of December 31, 1997,
deposits from this customer amounted to $9.2 million, or 7.1% of the Bank's
total deposits. The Company expects deposit balances maintained at the Bank by
this customer to continue to fluctuate and to generally be lower than the amount
of such deposits at June 30, 1998. The funds from this customer's unusual
deposit activity were invested primarily in Federal funds sold, which are short
term, liquid investments. Because of the Company's liquidity position,
management does not expect that a material decline in the deposit balances
maintained at the Bank by this customer would have a materially negative effect
on the financial condition, including liquidity, or results of operations of the
Company or the Bank.
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
42
<PAGE> 48
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. 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 $5.1 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 $3.5 million.
The Bank had gains on the sale of SBA loans during 1996 and 1997 of $425
thousand and $290 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.
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
June 30, At December 31,
-------- --------------------------------------
1998 1997 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Commercial real estate ........... $ 47,476 $ 44,547 $ 38,074 $ 38,439
One-to-four family residential ... 7,575 7,482 6,716 7,371
Multifamily residential .......... 6,108 5,485 2,898 2,230
Construction and land development 3,352 3,071 1,795 1,456
-------- -------- -------- --------
Total real estate mortgage loans 64,511 60,585 49,483 49,496
Commercial loans ................... 29,310 30,536 25,239 19,711
Consumer loans ..................... 3,896 3,998 3,831 3,199
Other Loans ........................ 1,731 1,871 2,661 3,409
-------- -------- -------- --------
Gross loans ...................... 99,448 96,990 81,214 75,815
Allowances for loan losses ......... (1,759) (1,648) (1,610) (1,527)
Unearned Fees ...................... (577) (521) (341) (281)
-------- -------- -------- --------
Total loans net of allowance ....... $ 97,112 $ 94,821 $ 79,263 $ 74,007
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At
June 30, At December 31,
-------- ------------------------------
1998 1997 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Commercial real estate ........... 47.7% 45.9% 46.9% 50.7%
One-to-four family residential ... 7.6 7.7 8.3 9.7
Multifamily residential .......... 6.1 5.7 3.6 2.9
Construction and land development 3.4 3.2 2.2 1.9
----- ----- ----- -----
Total real estate mortgage loans 64.9 62.5 60.9 65.3
Commercial loans ................... 29.5 31.5 31.1 26.0
Consumer loans ..................... 3.9 4.1 4.7 4.2
Other Loans ........................ 1.7 1.9 3.3 4.5
----- ----- ----- -----
Gross loans ...................... 100% 100% 100% 100%
===== ===== ===== =====
</TABLE>
43
<PAGE> 49
The following table sets forth the contractual amortization of real estate
and commercial loans at June 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>
June 30, 1998 December 31, 1997
--------------------------- ------------------------------
Real Real
Estate Commercial Estate Commercial
---------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Amounts due:
One year or less................................ $ 29,621 $ 20,803 $ 29,645 $ 22,250
After one through five years.................... 32,220 7,751 30,409 7,518
More than five years............................ 2,670 756 531 768
---------- -------------- ------------- --------------
Total....................................... $ 64,511 $ 29,310 $ 60,585 $ 30,536
========== ============== ============= ==============
Interest rate terms on amounts due after one year:
Adjustable...................................... $ 24,183 $ 3,620 $ 20,774 $ 3,489
Fixed........................................... 10,707 4,887 10,166 4,797
---------- -------------- ------------- --------------
Total....................................... $ 34,890 $ 8,507 $ 30,940 $ 8,286
========== ============== ============= ==============
</TABLE>
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 $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 that 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.
44
<PAGE> 50
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 for any indication of 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 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
visitation.
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 June 30, At December 31,
-------------- ---------------------------------------------
1998 1997 1996 1995
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Allowance at beginning of period......................... $ 1,648 $ 1,610 $ 1,527 $ 1,335
Charge-offs:
Real estate loans...................................... - - - -
Commercial loans....................................... 131 52 38 -
Consumer loans......................................... 16 39 31 1
------------- -------------- ------------- --------------
Total charge-offs.................................. 147 91 69 1
Recoveries:
Real estate loans...................................... - - - 3
Commercial loans....................................... 8 39 1 9
Consumer loans......................................... - - 1 1
------------- -------------- ------------- --------------
Total recoveries................................... 8 38 2 13
Net charge-offs.......................................... 138 53 67 (12)
Provision for loan losses................................ 250 90 150 180
------------- -------------- ------------- --------------
Allowance at end of period............................... $ 1,759 $ 1,648 $ 1,610 $ 1,527
============= ============== ============= ==============
</TABLE>
45
<PAGE> 51
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>
June 30, 1998 December 31, 1997 December 31, 1996
-------------------------------- ---------------------------- -----------------------------
Percentage of Percentage of
Percentage of Loan Loan
Allowance Allocation Amount Loan Portfolio Amount Portfolio Amount Portfolio
------------- ------------------ ------------ --------------- ------------- ---------------
Performing/not classified:
<S> <C> <C> <C> <C> <C> <C>
Commercial Loans.............. $ 388 26% $ 368 31% $ 324 30%
Real Estate Loans............. 485 57% 459 53% 406 55%
Consumer Loans................ 97 9% 92 9% 81 10%
------------ -- ----------- -- ------------ --
Subtotal...................... 970 92% 919 93% 811 95%
Non-performing/ classified:
Marginal...................... 46 3% 2 5% - 0%
Substandard................... 643 5% 483 2% 221 5%
Doubtful...................... - 0% - 0% - 0%
Loss.......................... - 0% - 0% - 0%
------------ --- ----------- --- ------------ ---
Subtotal...................... 689 8% 485 7% 221 5%
Unallocated................... 100 0% 244 0% 578 0%
------------ --- ----------- --- ------------ ---
Total......................... $ 1,759 100% $ 1,648 100% $ 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 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
June 30, At December 31,
---------- ---------------------------------------------
1998 1997 1996 1995
---------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Real estate loans................... $ 3,054 $ 374 $ 330 $ 15
Commercial loans.................... 876 26 42 -
Consumer loans...................... - - - -
---------- ------------ ------------ -------------
Total non-accrual loans(1)....... 3,930 400 372 15
Other Real Estate................... 283 - - -
Accruing Loans 90 days past due..... 42 251 - 6
---------- ------------ ------------ -------------
Total nonperforming assets....... $ 4,255 $ 651 $ 372 $ 21
========== ============ ============ =============
</TABLE>
- --------------------
(1) $1,006 of the non-accrual loans as of June 30, 1998 consist of the portion
of defaulted loans that is fully guaranteed by the SBA, for which the Bank
expects to be reimbursed by the SBA. $1,275 of the non-accrual loans as of
June
46
<PAGE> 52
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,
which 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 are
enhance the Bank's ability to compete in its market area, there can be no
assurance that the Bank will be able to 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 June 30, 1998 the Company had 84 full-time and 10 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
stockholders.
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.
47
<PAGE> 53
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 5.0% 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 with any other bank
holding company. Similar federal statutes require bank holding companies and
other companies to obtain the prior approval of the 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.
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, administrative 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.
48
<PAGE> 54
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 Bank Insurance Fund ("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 their safe and sound
operation to help meet the credit needs of their 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 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
49
<PAGE> 55
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 FDC 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 ("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 SAIF 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.
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 3.0%, 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."
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<PAGE> 56
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 maybe 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 Capital ratio of 7.0%
during the period of time that such investment limitations are exceeded. If the
Bank's Tier 1 Capital ratio falls below 7.0%, the Bank is required to increase
its capital by an amount sufficient to reach the 7.0% minimum ratio within 90
days. As of June 30, 1998, the Bank's Tier 1 Capital ratio was 6.87%. Upon
completion of the Offerings, the Bank's Tier 1 Capital ratio will exceed 7.0%.
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 depository 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 3.0%; and
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<PAGE> 57
(ii) for accounts greater than $47.8 million, the reserve requirement is
$1,434,000 plus 10.0% (subject to adjustment by the Federal Reserve between 8.0%
and 14.0%) 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 June 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 eight percent 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 not 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 June 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 such policies on the
future business and earnings of the Bank cannot be predicted.
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. One such proposal, H.R. 10, passed the U.S.
House of Representatives on May 14, 1998. That bill would amend the BHC Act to
make insurance and securities underwriting and other non-banking activities
permissible for bank holding companies. However, there is no assurance that such
legislation as currently drafted, or any other legislation, will ultimately 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.
52
<PAGE> 58
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. The 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 June 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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<PAGE> 59
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 1998 year-end 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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<PAGE> 60
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 Chairman and CEO
and CEO of the Bank
Harold J. Winner 49 Director President of the Bank
Ward J. Curtis, Jr. 52 Director, Executive Chairman, CEO and President
Vice 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 Chairman and Chief Executive
Vice President Officer of EPW
</TABLE>
55
<PAGE> 61
OTHER EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Position with Position with the Bank,
Name Age the Company United Trust or EPW
- ---- --- ----------- ---------------------------
<S> <C> <C> <C>
Cynthia A. Stokes 49 Senior Vice President Executive Vice President of
the Bank
C. Peter Bardin 40 Senior Vice President Senior Vice President and
and Chief Financial Chief Financial Officer of
Officer the Bank
Susan L. Blackburn 39 Senior Vice President of
the Bank
P. Dennis Barletta 46 Vice President Vice President of the Bank
John Pieper 54 President of EPW
</TABLE>
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.
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<PAGE> 62
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.
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 $10,000 per year for
services rendered as Vice Chairman of the Bank. Additionally, non-employee
directors are eligible for a bonus based on the profitability of the Company. No
other directors receive separate compensation for services rendered as a
director.
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<PAGE> 63
EXECUTIVE COMPENSATION
The following table summarizes the compensation during the fiscal years
ended December 31, 1997, 1996 and 1995, the Company's Chief Executive Officer
and the four highest paid executive officers of the Company (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- --------------------------- --------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
NAME AND Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
PRINCIPAL POSITION Year ($) ($) ($)(1) ($) (#) ($) ($)(2)
- ------------------ ---- ------- -------- ------------ ---------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Neil W. Savage, Chief 1997 136,000 73,600 3,595 0 102,000 0 26,077
Executive Officer and 1996 130,000 123,841 7,487 0 0 0 68,024
President 1995 110,321 102,600 4,496 0 0 0 22,861
Ward J. Curtis, Jr., 1997 129,395 0 1,536 0 0 0 8,983
Chairman, Chief 1996 128,466 0 6,477 0 0 0 6,439
Executive Officer and 1995 72,917 0 3,327 0 0 0 0
President of United
Trust(3)
William A. Eickhoff, 1997 115,000 9,000 451 0 0 0 8,725
Chairman and Chief 1996 106,767 0 2,627 0 0 0 8,088
Executive Officer of EPW 1995 n/a n/a n/a 0 0 0 n/a
(4)
Harold J. Winner, 1997 94,100 66,030 683 0 57,000 0 35,998
President of the Bank 1996 90,000 86,313 4,547 0 0 0 11,670
1995 82,441 81,225 259 0 0 0 12,354
Cynthia A. Stokes, 1997 65,823 51,120 1,095 0 37,500 0 7,294
Executive Vice President 1996 64,218 67,550 0 0 0 0 7,390
of the Bank 1995 61,748 64,125 0 0 0 0 10,323
</TABLE>
- ---------------
(1) Includes fringe benefits such as personal usage of company-leased auto,
personal usage of club membership or, board fees (each, if applicable).
(2) Represents the Bank's match of officer's 401(k) contribution, company
contribution to the ESOP and accrual for Salary Continuation Plan (if
applicable).
(3) Mr. Curtis' employment began on June 1, 1995.
(4) Mr. Eickhoff's employment began on February 1, 1996.
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<PAGE> 64
The following table contains information about stock option grants to
Named Executive Officers during the fiscal year ended December 31, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of
Securities % of Total Options
Underlying Granted to Exercise or
Options Employees Base Price Expiration
Name Granted in Fiscal Year ($/share) Date
- ---- ----------- ------------------ ---------- -----------
<S> <C> <C> <C> <C>
Neil Savage............................. 102,000 32.7% $ 7.94 12/18/07
Ward J. Curtis.......................... -0- 0% - -
William A. Eickhoff..................... -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>
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
Shares Acquired Value Options at Options at
Name on Exercise Realized FY-Ended(#) FY-End(1)
- ---- --------------- ----------- --------------- --------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
--------------- --------------
<S> <C> <C> <C> <C>
Neil Savage............................. -0- -0- 102,000/0 $0/0
Ward J. Curtis.......................... -0- -0- - -
William A. Eickhoff..................... -0- -0- - -
Harold Winner........................... 6,000 $23,333 69,000/6,000 $0/0
Cynthia A. Stokes....................... -0- -0- 37,500/0 $0/0
</TABLE>
(1) For purposes of determining the values of the options held by the Named
Executive Officers, the Company has assumed that the Common Stock had a
value of $7.94 per share on December 31, 1997, which is the estimated fair
market value the Board of Directors determined for the Common Stock on
December 18, 1997, in connection with certain grants of options under the
Company's stock option plan. 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.
59
<PAGE> 65
EMPLOYMENT CONTRACTS WITH OFFICERS
Neil W. Savage. Mr. Savage is employed as President 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,
certain other compensation as provided in the Senior Management Committee
Incentive Schedule and use 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,
certain other compensation as provided in the Senior Management Committee
Incentive Schedule and 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 shall receive an
annual compensation of $65,823 with annual salary increases, is eligible to
receive certain bonuses, and certain other compensation as provided in the
Senior Management Committee Incentive Schedule. 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 was employed as President in the Trust
Department of the Bank and subsequently as Chairman, Chief Executive Officer and
President of United Trust, pursuant to an employment agreement for a term that
began September 29, 1995. 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. Mr. Curtis may participate in
employee benefit plans maintained by the Bank and the Trust Department Stock
Option Plan. The 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. 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 CEO of EPW
pursuant to an employment agreement with EPW for a term that began on December
28, 1995 and terminates as provided therein. Mr. Eickhoff's
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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 in the
agreement) 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 all employee benefit plans maintained by EPW and the
Company and is eligible to receive benefits under the EPW Stock Option 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.
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.
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's 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 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 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
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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 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
which does not have the authority to designate Eligible Persons, Recipients 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 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 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. The Options
are exercisable for ten years from the date of grant, in accordance with a
vesting schedule. Shortened periods of exercise follow death, total disability
and retirement. Options granted to officers fully vest upon death, total
disability or retirement. Otherwise, such Options vest over a seven year period.
Director Options 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 in Control as defined in the
Plan. The cash awards are allocated 2/3s to officers and 1/3 to directors. The
Plan establishes the maximum cash awards as 15% of the amount by which the net
sales proceeds payable to the shareholders upon a Change of Control exceed the
"Return Amount," 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 2/3 to officers and 1/3 to
directors and is further reduced by the value of Options and certain Salary
Continuation Plans in effect. The Plan further provides that if, on any change
of control, payments to "disqualified persons" as defined for purposes of
Internal Revenue Code Sections 280G and 4999 constitute "excess golden parachute
payments" within the meaning of those Code sections, no such payments will be
made until the matter is submitted to the shareholders for vote and, before the
change in control occurs, a sufficient percentage of the shareholders vote to
approve the excess payments.
The Trust Department Stock Option Plan (the "Trust Plan") was adopted in
connection with the acquisition of FSC to provide performance based stock awards
to Mr. Curtis, Mr. Lowe and Susan Mittermayr, the former shareholders of FSC who
became employees of the Bank's trust department following the acquisition. In
connection with the acquisition, 225,000 shares of Common Stock were reserved
for issuance to these persons as awards of performance shares. The Trust Plan
provides for the grant of nominally priced options to purchase shares of Common
Stock upon the achievement of certain earnings performance criteria of the
Bank's Trust Department, which may be awarded only if all of such performance
shares have been earned. Options may only be exercised after December 31, 1999
and shall terminate and expire to the extent not exercised, or otherwise
terminated under the Trust Plan, upon the earlier of midnight December 31, 2005,
or six months following the participant's death. The aggregate number of options
that may be granted during
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calendar years 1997-2000 shall be determined in accordance with the following
formula: the Bank's Trust Department Net Earnings (as defined therein) for the
calendar year for which a determination is being made shall be divided by the
value of each outstanding share of the Company's Common Stock as of the end of
the calendar year to determine the number of performance shares. If all
available performance shares have been issued, options may be granted and the
number of options for the corresponding year shall be equal to 120% of the
number of performance shares determined by the same formula. In addition to
options, the participants may be entitled to an option exercise bonus based on
the tax deduction received by the Company upon exercise. The Trust Plan shall
terminate on March 31, 2002 or earlier as set forth therein. As of June 30,
1998, 9,108 performance shares and no option shares have been granted under the
Trust Plan.
The EPW Stock Option Plan (the "EPW Plan") was adopted in January 1996
in connection with the acquisition of EPW by the Company, and provides for the
grant of nominally priced options to purchase shares of Common Stock upon the
achievement of certain earnings performance criteria. The allocation ratio of
options granted under the EPW Plan is determined by EPW's board of directors
after receiving recommendations from the Compensation Committee. Each Option may
only be exercised after December 31, 1999 and shall terminate and expire to the
extent not exercised, or otherwise terminated under the EPW Plan, upon the
earlier of midnight December 31, 2005, or six months following the participant's
death. The aggregate number of options that may be granted to participants for
calendar years 1997-2000 shall be determined in accordance with the following
formula: the Trust Department Net Earnings (as defined therein) for the calendar
for which a determination is being made shall be divided by the value of each
outstanding share of the Company's Common Stock as of the end of the calendar
year to determine the "Total Shares"; Total Shares are then multiplied by 35% to
determine the total number of options which are to be granted to participants
under the EPW Plan. In addition to options, the participants may be entitled to
an option exercise bonus based on the tax deduction received by the Company upon
exercise. The EPW Plan shall terminate on March 31, 2002. As of June 30, 1998,
4,905 shares have been granted under the EPW Plan.
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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 June 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 consideration of approximately $17,000 annually.
Certain Extensions of Credit. As of June 30, 1998, the following loans
in excess of $60,000 to the Company's directors, executive officers and
principal shareholders were outstanding: Mr. Clampitt, $303,052; Mr. Eickhoff,
$76,924; Mr. Irwin and affiliated entities, $1,507,944; Dr. MaCris, $65,874; Mr.
Norrie and affiliated entities, $633,850; and Mr. Wier and affiliated entities,
$971,327. 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.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of July 1, 1998, and as adjusted to
reflect the sale of 750,000 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, (iv) all directors and officers as a group and (v) each
Selling Stockholder. Each of the holders listed below has sole voting power and
investment power over the shares beneficially owned.
<TABLE>
<CAPTION>
PERCENT OF VOTING SHARES
NAME OF SELLING STOCKHOLDERS, SHARES NUMBER OF --------------------------------
- ----------------------------- BENEFICIALLY SHARES PRIOR TO THE AFTER THE
DIRECTORS AND EXECUTIVE OFFICERS OWNED OFFERED OFFERINGS OFFERINGS
- -------------------------------- -------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
Ronald E. Clampitt........................................... 59,775
David K. Davis, M.D.......................................... 85,638
Henry Esteva................................................. 40,587
Edward D. Foreman............................................ 46,959
Charles O. Lowe.............................................. 63,462
Jack A. MaCris, M.D.(1)...................................... 87,204
John B. Norrie............................................... 110,019
William Eickhoff............................................. 1,635 *
Ronald R. Petrini............................................ 9,411 *
John B. Wier, Jr............................................. 275,202
Ward J. Curtis, Jr........................................... 137,667
Neil W. Savage............................................... 118,047
Harold J. Winner............................................. 23,295 *
Claude C. Focardi............................................ 442,659
Ian F. Irwin & Related Entities.............................. 264,957
Cynthia A. Stokes............................................ 15,774 *
C. Peter Bardin.............................................. 2,430 *
Susan A. Blackburn (2)....................................... 8,394 *
P. Dennis Barletta........................................... 0 *
John Pieper.................................................. 1,635 *
All directors and principal officers as a group (19 persons)
OTHER SELLING STOCKHOLDERS...................................
.............................................................
.............................................................
Other Selling Stockholders as a group........................
</TABLE>
- --------------------
* Less than 1.0% of the shares of Common Stock outstanding.
(1) Consists of shares owned by Dr. MaCris' wife, as to which Dr. MaCris
disclaims beneficial ownership.
(2) Includes shares owned by Ms. Blackburn as Custodian under 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
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 100,000 shares of preferred stock, par value $10.00 per
share, bearing a dividend commitment of 6% per annum (the "6% Preferred Stock").
As of June 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 $1.1856013 per share of Common Stock. All of the 6% Preferred
Stock was converted in 1995 and 1996.
Unless otherwise required by law or the Company's Articles of
Incorporation (the "Articles"), holders of Common Stock vote together as a
single class on all matters presented to the Company's stockholders. In addition
to other voting rights as may be provided to the holders of the 7% Preferred
Stock, at any time an arrearage in interest payments shall have existed for at
least 30 days and be continuing, the number of directors shall be increased by
two and the holders of the 7% Preferred Stock shall have the exclusive right,
voting as a class, to elect two directors of the Company to fill the newly
created directorships. No cash dividend may be declared or paid on shares of
Common Stock unless, simultaneously therewith or prior thereto, there is or has
been declared or paid the semi-annual dividend payable on the Preferred Stock.
In any 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. After the above preference amount has been paid to the holders
of Preferred Stock, such holders will not be entitled to any further
distributions.
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 stockholders, 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
Company's Articles do not provide any preemptive rights or cumulative voting for
the election of directors.
The authority to issue additional shares of the Company's Common Stock
provides the Company with the flexibility necessary to meet its future needs
without the delay resulting from seeking stockholder 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.
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DESCRIPTION OF THE PREFERRED SECURITIES AND JUNIOR SUBORDINATED DEBENTURES
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 December 31, 1998. 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.
Extension 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
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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 _______,
2028. 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 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."
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Mandatory Redemption. Upon the repayment or redemption, in whole or in
part, of any Junior Subordinated Debentures, whether at 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.
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
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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 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.
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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 has 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 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
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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 "Certain 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 $10
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 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
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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 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
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 Small-Cap
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
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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, 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 Property
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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.
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 Junior Subordinated Indenture. Except as provided
below, owners of beneficial interests in a global security will not be entitled
to receive physical deliver of the Preferred Securities in definitive form and
will not be considered the owners or holders thereof under the Junior
Subordinated 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
Junior Subordinated 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.
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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, 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.
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.
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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 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.
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
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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 December 31, 1998, 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.
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 " Certain Federal Income Tax
Considerations-Interest Income and Original Issue Discount."
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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 required to give notice of the record date, or the
date such Distributions are payable, to The NASDAQ Small-Cap 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 June 30, 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
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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 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 Small-Cap 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
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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 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.
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"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 June 30, 1998, the Company
had aggregate Senior Debt and Subordinated Debt of $3.0 million. Because the
Company is a holding company, the Junior Subordinated Debentures 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
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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 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 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
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Indenture, to be forthwith due and payable and to enforce its other rights as a
creditor with respect to such Junior Subordinated Debentures.
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. 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.
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Miscellaneous. The Company has agreed, pursuant to the Indenture, for so
long as 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 capital guidelines or regulatory 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.
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
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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.
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
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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 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
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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.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
General. The following is a summary of certain material United States
federal income tax considerations that may be relevant to a person that
purchases Preferred Securities on their original issue at their original
offering price. The statements of law or legal conclusions set forth in this
summary constitute the opinion of Holland & Knight LLP, counsel to the Company
and UFH Capital. The conclusions expressed herein are based upon current
provisions of the Internal Revenue Code of 1986, as amended (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 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
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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.
The remainder of this discussion 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.
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.
Market Discount and Acquisition Premium. Holders of Preferred Securities
other than a holder who purchased the Preferred Securities upon original
issuance may be considered to have acquired their undivided interests in the
Junior Subordinated Debentures with "market discount" or "acquisition premium"
as such phrases are defined for United States federal income tax purposes. Such
holders are advised to consult their tax advisors as to the income tax
consequences of the acquisition, ownership and disposition of the Preferred
Securities.
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
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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 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
90
<PAGE> 96
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.
91
<PAGE> 97
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
("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 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, 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
Plans for which the Company or an affiliate provides services). The acquisition
and ownership of Preferred Securities by a Plan (or by an individual retirement
arrangement or other 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, 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 Plans or other
entities whose assets include Plan assets subject to ERISA or Section 4975 of
the Code proposing to acquire Preferred Securities should consult with their own
counsel.
92
<PAGE> 98
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>
Underwriter
- -----------
Number of Shares
----------------
<S> <C>
William R. Hough & Co......................................................... -----------
Preferred Securities
-----------
Common Stock
</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 90,000
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 exercise 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 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.
93
<PAGE> 99
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 Small-Cap 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 July 1, 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 (____% after giving effect to the Common Stock
Offering).
94
<PAGE> 100
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 LLP ("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 ________________, special Delaware counsel to the Company and UFH
Capital. Holland & Knight and Smith Mackinnon will rely on the opinion of
_______________ 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.
95
<PAGE> 101
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. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
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 from the
Public Reference Section of the Commission located at Judiciary Plaza, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed
fees. 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.
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 Securities Exchange Act of 1934, as amended (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.
96
<PAGE> 102
UNITED FINANCIAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Six Months Ended June 30, 1998 and 1997
Years Ended December 31, 1997, 1996 and 1995
<PAGE> 103
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 June 30, 1998 (unaudited),
December 31, 1997 and 1996 F-3
Consolidated Statements of Earnings for the six months ended June 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 six months ended
June 30, 1998 and 1997 (unaudited) and the years ended December 31, 1997,
1996 and 1995 F-6
Consolidated Statement of Stockholders' Equity for the six months ended
June 30, 1998 (unaudited) and for the years ended December 31, 1997,
1996 and 1995 F-7
Consolidated Statements of Cash Flows for the six months ended June 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> 104
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
F-2
<PAGE> 105
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997 1996
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 7,820,439 $ 7,336,809 $ 7,902,388
Federal funds sold 26,767,000 7,441,000 7,061,000
Securities held to maturity, market value of
$12,805,968, $10,212,426 and $9,007,905, respectively 12,707,218 10,097,258 9,195,963
Securities available for sale, at market 17,180,997 11,472,052 9,510,205
Loans, net 97,111,855 94,821,324 79,262,508
Premises and equipment, net 9,290,916 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 993,878 950,042 778,555
Intangible assets, less accumulated amortization of $1,615,688,
$1,570,288 and $1,506,977, respectively 1,396,235 1,336,494 1,440,141
Other assets 4,286,734 3,803,254 1,122,554
------------ ------------ ------------
Total assets $178,147,572 $147,318,684 $122,733,292
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand $ 25,562,276 28,384,616 $ 26,646,609
NOW and money market 68,604,527 36,031,184 27,571,149
Savings 4,448,969 5,245,222 4,688,430
Time, $100,000 and over 9,924,786 9,692,130 4,734,628
Other time 49,145,244 50,865,952 44,504,101
------------ ------------ ------------
Total deposits 157,685,802 130,219,104 108,144,917
Securities sold under agreements to repurchase 4,168,418 1,080,745 1,768,859
Accrued interest payable 399,160 396,184 336,785
Convertible subordinated debentures 630,000 630,000 630,000
Long-term debt 2,370,652 2,678,152 813,950
Other liabilities 1,441,943 1,823,337 1,547,126
------------ ------------ ------------
Total liabilities 166,695,975 136,827,522 113,241,637
COMMITMENTS AND CONTINGENCIES -- -- --
STOCKHOLDERS' EQUITY
7% convertible preferred stock, $10 par value; 150,000 shares
authorized; 20,850 shares issued and outstanding at June 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 June 30, 1998;
3,444,318 and 3,431,004 shares issued and outstanding at
December 31, 1997 and 1996, respectively 35,138 34,443 34,308
Paid-in Capital 6,213,977 5,789,932 5,737,567
Accumulated other comprehensive income 73,507 57,499 45,872
Retained earnings 4,920,475 4,375,788 3,440,408
------------ ------------ ------------
Total stockholders' equity 11,451,597 10,491,162 9,491,655
------------ ------------ ------------
Total liabilities and stockholders' equity $178,147,572 $147,318,684 $122,733,292
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 106
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Six Months Ended June 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 $ 4,870,947 $ 4,251,306 $ 8,960,703 $ 8,121,249 $ 7,590,367
Securities
U.S. Treasury 293,562 277,513 598,549 316,369 288,782
Obligations of other U.S.
Government agencies and corporations 411,110 385,392 746,786 702,235 662,531
Obligations of states and political 39,570 54,670 86,868
subdivisions 36,578 20,551
Other 69,393 76,904 151,612 180,517 219,489
Federal funds sold and securities
purchased under reverse
repurchase agreements 325,620 135,691 295,297 220,028 276,165
----------- ----------- ----------- ----------- -----------
Total interest income 6,007,210 5,147,357 10,792,517 9,595,068 9,124,202
Interest expense
NOW and money market 650,990 368,818 794,997 541,882 665,270
Savings 50,174 47,448 96,656 107,523 121,262
Time deposits, $100,000 and over 277,247 179,210 419,007 241,685 210,474
Other time 1,375,734 1,210,339 2,603,631 2,314,600 1,941,403
Long-term debt 129,586 57,797 130,547 124,544 86,331
Federal funds purchased and
securities sold under agreements
to repurchase 39,835 50,391 56,248 89,338 187,509
----------- ----------- ----------- ----------- -----------
Total interest expense 2,523,566 1,914,003 4,101,086 3,419,572 3,212,249
----------- ----------- ----------- ----------- -----------
Net interest income 3,483,644 3,233,354 6,691,431 6,175,496 5,911,953
Provision for loan losses 250,000 90,000 90,000 150,000 180,000
----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 3,233,644 3,143,354 6,601,431 6,025,496 5,731,953
Other income
Service charges on deposit accounts 347,093 327,187 674,637 555,747 576,656
Trust and investment management
income 1,137,978 843,965 1,886,534 1,229,136 57,869
Other service charges, fees and income 424,405 304,237 679,081 787,210 602,695
----------- ----------- ----------- ----------- -----------
Total other income 1,909,476 1,475,389 3,240,252 2,572,093 1,237,220
</TABLE>
(continued)
F-4
<PAGE> 107
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS - CONTINUED
<TABLE>
<CAPTION>
Six Months Ended June 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 $ 2,262,606 $ 1,941,665 $ 4,047,859 $ 3,723,903 $ 2,593,728
Occupancy expense 290,858 203,828 514,374 387,256 280,286
Furniture and equipment expense 255,755 216,958 494,360 423,224 279,596
Data processing expense 221,308 211,453 417,522 375,339 315,553
Legal and professional fees 85,035 62,743 176,778 152,766 122,426
Amortization of intangible assets 34,624 31,831 66,802 111,208 121,048
Other operating expenses 694,421 1,189,671 1,854,300 1,052,426 908,754
----------- ----------- ----------- ----------- -----------
3,844,607 3,858,149 7,571,995 6,226,122 4,621,391
----------- ----------- ----------- ----------- -----------
Earnings before income taxes 1,298,513 760,594 2,269,688 2,371,467 2,347,782
Income tax expense (benefit)
Current 563,400 339,450 957,932 952,448 981,272
Deferred (51,000) (49,000) (97,986) (61,000) (110,000)
----------- ----------- ----------- ----------- -----------
512,400 290,450 859,946 891,448 871,272
----------- ----------- ----------- ----------- -----------
NET EARNINGS $ 786,113 $ 470,144 $ 1,409,742 $ 1,480,019 $ 1,476,510
=========== =========== =========== =========== ===========
Earnings Per Share:
Basic $ .22 $ .13 $ .41 $ .47 $ .64
Diluted $ .21 $ .13 $ .38 $ .40 $ .43
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 108
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Net earnings $ 786,113 $ 470,144 $ 1,409,742 $ 1,480,019 $ 1,476,510
Other comprehensive income:
Unrealized holding gains
(losses) 25,666 (14,040) 18,642 (103,639) 277,398
Income tax (expense)
benefit related to items of
other comprehensive income (9,658) 5,283 (7,015) 38,999 (104,385)
----------- ----------- ----------- ----------- -----------
Comprehensive income $ 802,121 $ 461,387 $ 1,421,369 $ 1,415,379 $ 1,649,523
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 109
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 -- -- -- --
Dividends on Common Stock -- -- -- --
Dividends on Preferred Stock -- -- -- --
Accumulated other comprehensive income -- -- -- --
Issuance of Common Stock 485 -- -- 399,276
Conversion of 7% Preferred to Common Stock 210 (25,000) -- 24,769
------- --------- ---------- ----------
Balance at June 30, 1998 (unaudited) $35,138 $ 208,500 $ -- $6,213,977
======= ========= ========== ==========
</TABLE>
<TABLE>
<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) -- 786,113 786,113
Dividends on Common Stock (unaudited) -- (233,254) (233,254)
Dividends on Preferred Stock (unaudited) -- (8,172) (8,172)
Accumulated other comprehensive income (unaudited) 16,008 -- 16,008
Issuance of Common Stock (unaudited) -- -- 399,761
Conversion of 7% Preferred to Common Stock (unaudited) -- -- (21)
-------- ---------- -----------
Balance at June 30, 1998 (unaudited) $ 73,507 $4,920,475 $11,451,597
======== ========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 110
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 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 $ 786,113 $ 470,144 $ 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 250,000 90,000 90,000 150,000 180,000
Provision for depreciation
and amortization 320,814 379,594 566,344 500,994 370,421
Gain on sale of equipment -- -- -- -- (2,703)
Writedown of investment
security -- 255,000 255,000 -- --
Write-off of leasehold
improvements -- 130,065 130,065 -- --
Accretion of securities (25,368) (20,473) (44,317) (35,062) (46,438)
discount
Amortization of unearned
loan fees (41,530) (68,990) (64,941) (104,663) (193,969)
Amortization of securities
premiums 12,637 16,329 38,874 58,804 57,168
Gain on sales of loans (197,659) (109,999) (289,720) (424,611) (339,153)
Decrease (increase) in
interest receivable 43,836 (159,414) (171,487) (25,317) (35,428)
Increase in interest payable 2,977 25,058 59,399 37,793 66,784
Increase in other assets (200,465) (534,134) (2,641,922) (118,290) (445,845)
Decrease (increase) in other
liabilities (381,394) 563,645 276,211 211,633 98,494
------------ ----------- ------------ ------------ ------------
Net cash provided by
(used in) operating
activities 569,961 1,036,825 (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) --
Proceeds from sales and
repayments of securities 756,631 509,547 883,444 1,785,312 3,170,697
Net increase (decrease) in
Federal funds sold (19,326,000) 1,680,000 (380,000) (4,665,000) 10,234,000
Proceeds from maturities of
securities 2,525,761 3,690,000 9,479,845 4,040,000 975,000
Purchases of securities (11,563,670) (8,484,140) (13,464,361) (7,106,735) (3,272,094)
Proceeds from sales of loans 1,649,324 1,220,364 3,969,174 5,598,856 4,426,770
Net increase in loans (4,309,027) (3,495,844) (19,263,329) (10,384,509) (14,319,006)
Capital expenditures (35,300) (3,429,676) (4,185,913) (2,836,673) (2,168,104)
Proceeds from sales of fixed assets -- -- -- -- 5,406
------------ ----------- ------------ ------------ ------------
Net cash used in
investing activities (30,375,931) (8,355,849) (23,007,240) (13,582,249) (947,331)
</TABLE>
(continued)
F-8
<PAGE> 111
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Six Month Ended June 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 shares
- 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 28,954,750 (5,778,944) 10,754,834 12,994,380 (13,631,078)
Net decrease (increase) in
certificates of deposit (1,488,052) 10,574,090 11,319,353 2,316,607 12,780,217
Net increase (decrease) in
securities sold under
agreements to repurchase 3,087,673 673,134 (688,114) (995,537) 1,178,218
Increase in borrowings -- -- 2,004,202 75,000 --
Repayment of long-term debt (307,500) (132,500) (140,000) (136,250) (52,000)
Issuance of common stock 284,155 -- 52,500 16,962 382,500
Dividend paid on preferred
stock (8,172) (8,169) (16,345) (43,435) (102,529)
Dividend paid on common stock (233,254) (228,721) (458,017) (383,018) (276,809)
----------- ----------- ----------- ----------- ------------
Net cash provided by
financing activities 30,289,600 5,098,890 22,828,413 13,781,279 239,391
----------- ----------- ----------- ----------- ------------
Net increase (decrease) in cash
and cash equivalents 483,630 (2,220,134) (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 $ 7,820,439 $ 5,682,254 $ 7,336,809 $ 7,902,388 $ 5,972,058
=========== =========== =========== =========== ============
Supplemental Disclosures of Cash
Flow Information
Cash paid during the year for:
Interest $ 2,520,590 $ 1,888,945 $ 4,041,687 $ 3,381,780 $ 3,174,457
Income taxes $ 391,251 $ 504,400 $ 927,817 $ 961,579 $ 1,102,764
</TABLE>
(continued)
F-9
<PAGE> 112
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Six Month Ended June 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> 113
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 June 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 held principally for
resale in the near term are classified as trading securities and recorded at
their fair values. Unrealized gains and losses on trading securities are
included in other income. The Company had no trading securities for the six
months ended June 30, 1998 and 1997 and the years ended December 31, 1997,
1996 and 1995.
F-11
<PAGE> 114
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 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> 115
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> 116
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> 117
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 six-months ended June 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> 118
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 June 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 June 30,
1998.
F-16
<PAGE> 119
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>
June 30, December 31,
1998 1997 1996 1995
---- ---- ---- ----
Balance Sheets (unaudited)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 49,162 $ 203,278 $ 245,940 $ 356,494
Due from subsidiaries Bank 150,588 197,014 144,886 151,409
Investment in Bank 11,268,973 10,428,370 9,881,984 8,911,085
Investment in EPW 129,727 102,723 70,360 --
Investment in United Trust 2,456,845 2,360,985 -- --
Goodwill 567,125 561,063 631,886 --
Other assets 154,346 125,291 83,676 87,474
----------- ----------- ----------- -----------
$14,776,766 $13,978,724 $11,058,732 $ 9,506,462
=========== =========== =========== ===========
Note payable $ 2,329,402 $ 2,629,402 $ 750,200 $ 875,200
Convertible subordinated
debentures 630,000 630,000 630,000 --
Other liabilities 365,766 228,160 185,918 144,380
Stockholders' equity 11,451,598 10,491,162 9,492,614 8,486,882
----------- ----------- ----------- -----------
$14,776,766 $13,978,724 $11,058,732 $ 9,506,462
=========== =========== =========== ===========
</TABLE>
F-17
<PAGE> 120
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>
Six Months
Ended June 30, Year Ended December 31,
1998 1997 1996 1995
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Statements of Earnings
Equity in earnings of Bank $ 828,840 $ 1,492,207 $ 1,535,539 $ 1,528,574
Equity in earnings of EPW 42,004 107,363 65,553 --
Equity in earnings of United
Trust 19,171 -- -- --
Other income 49,525 26,611 1,470 4,837
Interest expense (127,654) (125,699) (119,407) (86,331)
Other expense (74,846) (156,235) (34,991) (1,613)
----------- ----------- ----------- -----------
Earnings before income taxes 737,040 1,344,247 1,448,164 1,445,467
Income tax benefit 49,073 65,495 31,855 31,043
----------- ----------- ----------- -----------
Net earnings $ 786,113 $ 1,409,742 $ 1,480,019 $ 1,476,510
=========== =========== =========== ===========
</TABLE>
F-18
<PAGE> 121
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - SECURITIES
At June 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
----- ----- ------ ------------
JUNE 30, 1998 (unaudited)
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 9,380,554 $ 109,772 $ 37,714 $ 9,452,612
Obligations of State and political
subdivisions 569,188 13,033 -- 582,221
Mortgage-backed securities 1,154,816 12,584 535 1,166,865
Corporate obligations 1,502,660 1,610 -- 1,504,270
Other 100,000 -- -- 100,000
----------- ----------- ----------- -----------
Total $12,707,218 $ 136,999 $ 38,249 $12,805,968
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Historical Gross Gross Carrying
Amortized Unrealized Unrealized Value
Cost Gains Losses (Market Value)
---- ----- ------ --------------
Securities available for sale: (unaudited)
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $12,602,109 $ 112,329 $ 9,405 $12,705,033
Obligations of State and political
subdivisions 1,444,647 6,945 -- 1,451,592
Mortgage-backed securities 1,866,724 15,807 4,299 1,878,232
Equity securities 1,156,140 -- 10,000 1,146,140
----------- ----------- ----------- -----------
Total $17,069,620 $ 135,081 $ 23,704 $17,180,997
=========== =========== =========== ===========
</TABLE>
F-19
<PAGE> 122
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
=========== =========== =========== ===========
</TABLE>
<TABLE>
<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> 123
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - SECURITIES - Continued
<TABLE>
<CAPTION>
Carrying
Value Gross Gross Estimated
(Amortized Unrealized Unrealized Market
Cost) Gains Losses 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
========== ========== ========== ==========
</TABLE>
<TABLE>
<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>
There were no proceeds from sales of investments in debt securities for the six
months ended June 30, 1998 and 1997, and the years ended December 31, 1997,
1996, and 1995.
The amortized cost and estimated market value of debt securities at June 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> 124
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 $ 749,407 $ 749,552 5.80% $ 2,988,584 $ 3,005,435 6.51%
Due after one
year through
five years 4,429,271 4,475,639 6.41% 6,935,753 7,018,039 6.49%
Due after five
years through
ten years 4,467,497 4,508,127 6.34% 2,940,929 2,943,468 6.40%
Due after ten
years 1,906,226 1,905,785 7.40% 1,181,491 1,189,683 6.45%
Mortgage-
backed
securities 1,154,817 1,166,865 7.07% 1,866,723 1,878,232 7.16%
Equity securities -- -- -- 1,156,140 1,146,140 --
----------- ----------- ----------- -----------
Total $12,707,218 $12,805,968 $17,069,620 $17,180,997
=========== =========== =========== ===========
</TABLE>
Investment securities with a carrying value (which approximates market value) of
approximately $4,282,000, $2,809,000 and $4,226,000 at June 30, 1998, December
31, 1997 and 1996, respectively, were pledged to secure public funds and
securities sold under agreements to repurchase.
F-22
<PAGE> 125
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - LOANS
Major classifications of loans were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
----------- ------------------------------
1998 1997 1996
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Real estate mortgage $64,511,021 $60,583,746 $49,483,289
Commercial 29,310,461 30,536,261 25,239,534
Installment and other 5,626,244 5,869,534 6,490,909
----------- ----------- -----------
99,447,726 96,989,541 81,213,732
Less: Allowance for loan losses 1,759,340 1,647,355 1,609,785
Unearned fees 576,531 520,862 341,439
----------- ----------- -----------
Loans, net $97,111,855 $94,821,324 $79,262,508
=========== =========== ===========
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 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 250,000 90,000 90,000 150,000 180,000
Recoveries on loans previously
charged off 8,446 12,034 38,510 1,600 13,001
Loans charged off (146,461) (34,093) (90,940) (68,510) (1,460)
----------- ----------- ----------- ----------- -----------
Balance at end of year $ 1,759,340 $ 1,677,726 $ 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 97,199 94,558 244,364 166,896 168,202
Points recognized in income (41,530) (68,991) (64,941) (104,663) (193,968)
----------- ----------- ----------- ----------- -----------
Balance at end of year $ 576,531 $ 367,006 $ 520,862 $ 341,439 $ 279,206
=========== =========== =========== =========== ===========
</TABLE>
F-23
<PAGE> 126
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - LOANS - Continued
Impaired loans were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
---------- ----------------------
1998 1997 1996
---------- -------- --------
(unaudited)
<S> <C> <C> <C>
Balance at end of period $3,929,618 $400,049 $372,352
Average balance during period 2,368,174 440,927 224,119
Total related allowance for losses 374,000 13,000 --
Interest income recognized on impaired loans 13,359 -- --
</TABLE>
Loans converted to ORE through foreclosure proceedings totaled approximately
$283,000, $408,000 and $541,000 for the six months ended June 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 six months
ended June 30, 1998 and the years ended December 31, 1997 and 1996,
respectively.
NOTE F - PREMISES AND EQUIPMENT
Major classifications of premises and equipment are as follows:
<TABLE>
<CAPTION>
June 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 117,713 113,998 359,839
Building and building improvements 7,404,878 7,392,139 1,573,206
Furniture, fixtures and equipment 2,426,252 2,460,523 1,942,550
Construction in progress -- 1,294 2,351,755
----------- ----------- ----------
11,405,295 11,424,406 7,667,295
Less accumulated depreciation and amortization 2,114,379 1,882,605 1,679,867
----------- ----------- ----------
$ 9,290,916 $ 9,541,801 $5,987,428
=========== =========== ==========
</TABLE>
Depreciation of premises and equipment and amortization of leaseholds was
$286,188 and $215,717 for the six-months ended June 30, 1998 and 1997, and
$501,475, $390,680 and $249,373 for the years ended December 31, 1997, 1996 and
1995, respectively.
F-24
<PAGE> 127
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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>
June 30, December 31,
-------- ----------------------
1998 1997 1996
-------- -------- --------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets
Allowance for loan losses $629,000 $543,000 $527,000
Deferred loan fees 139,000 120,000 85,000
Deferred compensation 97,000 75,000 59,000
Net operating loss carryforward (1) 42,000 59,000 36,000
-------- -------- --------
907,000 797,000 707,000
Deferred tax liabilities
Fixed assets 143,000 36,000 79,000
Securities available for sale 39,000 30,000 24,000
-------- -------- --------
182,000 66,000 103,000
-------- -------- --------
Net deferred tax asset, included with other assets $725,000 $731,000 $604,000
======== ======== ========
</TABLE>
(1) Relates to approximately $95,000 of 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. The net operating
loss carryforwards at June 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 June 30, 1998, December 31, 1997 and
1996.
F-25
<PAGE> 128
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - INCOME TAXES - Continued
The Company's effective tax rate varies from the statutory rate of 34%. The
reasons for this difference are as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30, For the Years Ended December 31,
------------------------- -----------------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Computed "expected" tax
provision $ 441,500 $ 258,600 $ 771,700 $ 806,300 $ 798,200
Tax exempt interest income (4,300) (2,500) (7,500) (9,300) (9,100)
Goodwill amortization 11,700 7,400 22,100 23,100 6,900
State taxes net of federal
benefit 39,900 19,600 58,600 60,100 68,100
Other, net 23,600 7,350 15,046 11,248 7,172
--------- --------- --------- --------- ---------
Total $ 512,400 $ 290,450 $ 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>
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>
Six Months Ended
June 30, Year Ended December 31,
--------------------------- --------------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Average balance $3,102,880 $2,495,938 $2,029,453 $3,291,662 $6,451,536
Average interest rate 3.53% 2.46% 2.49% 2.62% 2.80%
Maximum month-end balance $4,267,204 $2,686,595 $2,860,141 $6,977,300 $6,977,300
</TABLE>
F-26
<PAGE> 129
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE - Continued
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 June 30 ------------------------------
1998 1997 1996
---------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
Carrying value $4,242,000 $2,809,000 $4,226,000
Estimated fair value 4,242,000 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,
June 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. $ 41,250 $ 48,750 $ 63,750
Note payable to an unrelated bank providing for monthly interest payments
at prime (8.5% at June 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. 2,329,402 2,629,402 750,200
</TABLE>
F-27
<PAGE> 130
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE J - LONG-TERM DEBT - Continued
<TABLE>
<CAPTION>
December 31,
June 30, -------------------------
1998 1997 1996
---------- ---------- --------
(unaudited)
<S> <C> <C> <C>
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> <C> <C> <C>
2001 103%
2002 102%
2003 101%
2004 and thereafter 100% 630,000 630,000 630,000
---------- ---------- ----------
$3,000,652 $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>
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.
F-28
<PAGE> 131
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE K - REGULATORY MATTERS - Continued
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 June 30, 1998, the Bank's Tier One Leverage Ratio was 6.87%,
slightly below the minimum agreed to by the Department. The Bank has ninety days
to increase its Tier One Ratio back to the 7% minimum. The Company intends to
contribute a portion of the proceeds of the public offering as additional Bank
Capital or, in the event that the offering is delayed, the Bank has several
viable alternatives to correct the deficiency.
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 June 30, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
As of June 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> 132
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 June 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 $ 11,269 6.43%
Intangible assets (411)
---------
Tangible capital and ratio
to adjusted total assets $ 10,858 6.20% $2,628 1.5%
========= ======
Tier I (core) capital and
ratio to adjusted total
assets $ 10,779 6.15% $5,256 3.0% $ 8,761 5.0%
========= ====== =======
Tier I capital and ratio to
risk-weighted assets $ 10,779 8.94% $3,619 3.0% $ 7,238 6.0%
====== =======
Tier II capital - allowance
for loan and lease losses 1,511
---------
Total risk-based capital and
ratio to risk-weighted
assets $ 12,290 10.19% $9,650 8.0% $12,063 10.0%
========= ====== =======
Total assets $ 175,242
=========
Adjusted total assets $ 175,221
=========
Risk-weighted assets $ 120,626
=========
</TABLE>
F-30
<PAGE> 133
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> 134
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> 135
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 June 30, 1998 and December 31, 1997, less than 3% of
the Company's loans are unsecured.
At June 30, 1998, the Company held deposits for a customer equal to
approximately 23% 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,
June 30, -------------------------------
1998 1997 1996
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Commitments to extend credit $18,142,093 $16,644,892 $14,939,490
Standby letters of credit and financial guarantees
written $ 1,396,078 $ 1,663,578 $ 2,334,992
</TABLE>
F-33
<PAGE> 136
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>
<CAPTION>
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> 137
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 $77,343, $112,500, $189,096, $232,325 and
$143,891 for the six months ended June 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 $19,500,000, $18,300,000, and $17,300,000 at June 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> 138
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>
Financial Instruments June 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 $ 7,820 $ 7,820 $ 7,337 $ 7,337 $ 7,902 $ 7,902
Federal funds sold 26,767 26,767 7,441 7,441 7,061 7,061
Securities held to maturity 12,707 12,806 10,097 10,212 9,196 9,196
Securities available for sale 17,181 17,181 11,472 11,472 9,759 9,759
Loans 99,455 99,511 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 25,562 25,562 28,385 28,385 26,647 26,647
NOW and money market 68,605 68,605 36,031 36,031 27,990 27,990
Savings 4,449 4,449 5,245 5,245 4,688 4,688
Time, $100,000 and over 9,925 9,986 9,692 9,752 4,735 4,771
Other time 49,145 49,346 50,866 51,074 44,504 44,731
Securities sold under
agreements to repurchase 4,168 4,168 1,081 1,081 1,769 1,769
Long-term debt 2,371 2,371 2,678 2,678 1,444 1,444
Off balance sheet items - 195 - 183 - 173
</TABLE>
F-36
<PAGE> 139
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 $5,015,000, at June 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 June 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 $53,202 and $49,998 during the six months
ended June 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> 140
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 $92,139 and $86,871 for the six
months ended June 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 $52,968 and $49,997 for the six months ended
June 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 June 30, 1997 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 Six Months Ended June 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 $777,941 3,481,947 $ .22 $461,972 3,430,818 $ .13
====== =======
Effective of dilutive securities
Incremental shares from
assumed exercise or
conversion of:
Convertible debt 15,717 152,790 15,717 152,790
Preferred Stock 8,172 195,315 8,172 196,947
Stock options -- 34,824 -- 15,183
-------- --------- -------- ---------
Diluted EPS
Net earnings available to
common stockholders and
assumed conversions $801,830 3,864,876 $ .21 $485,861 3,795,738 $ .13
======== ========= ====== ======== ========= =======
</TABLE>
F-38
<PAGE> 141
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. No options under this plan were granted during the six months ended
June 30, 1998.
F-39
<PAGE> 142
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> <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 June 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 June 30, 1998, December 31, 1997, 1996 and 1995 was 171 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> 143
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 June 30, 1998 and 1997, and December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Six Months Ended
June 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 $ -- $ --
=========== ============ ============= ============= ============
Pro forma net earnings $ 741,637 $ 470,144 $ 1,402,329 $ 1,480,019 $ 1,476,510
=========== ============ ============= ============= ============
Pro forma basic earnings per
share $ .21 $ .13 $ .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 to be issued on July 31, 1998. All amounts have been restated to
reflect this stock split.
F-41
<PAGE> 144
================================================================================
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................................................ 18
Market for the Securities and Related Matters.................. 18
Accounting Treatment........................................... 19
Capitalization................................................. 20
Dilution....................................................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................... 22
Business....................................................... 39
Management..................................................... 55
Certain Relationships and Related Transactions................. 64
Principal and Selling Stockholders............................. 65
Description of the Capital Stock............................... 66
Description of Preferred Securities and
Junior Subordinated Debentures................................. 67
Description of the Guarantee................................... 85
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Guarantee................................. 87
Certain Federal Income Tax Considerations...................... 88
ERISA Considerations........................................... 92
Underwriting................................................... 93
Legal Matters.................................................. 95
Experts........................................................ 95
Available Information.......................................... 96
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.
================================================================================
================================================================================
750,000 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.
,1998
-------------
================================================================================
<PAGE> 145
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................................................................. +
----------------
NASDAQ Small-Cap Market Listing Fee............................................. +
----------------
Legal Fees and Expenses......................................................... +
----------------
Trustee Fees and Expenses....................................................... +
----------------
Accounting Fees and Expenses.................................................... +
----------------
Printing and Mailing Expenses................................................... +
----------------
Blue Sky Fees and Expenses...................................................... +
----------------
Miscellaneous Expenses.......................................................... +
----------------
Total Fees and Expenses...................................................... $ 400,000.00
================
</TABLE>
- -----------------
+ To be filed by amendment.
The Company is paying all of the foregoing expenses. None are being paid
by the Selling Stockholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES+
- -----------------
+ To be filed by amendment.
II-1
<PAGE> 146
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+
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+
5.1 Opinion of Holland & Knight LLP regarding the Junior Subordinated Debentures+
5.2 Opinion of ____________, special Delaware counsel, regarding the Cumulative Trust
Preferred Securities to be issued by UFH Capital Trust I+
8.1 Tax Opinion of Holland & Knight LLP+
12 Statement regarding computation of earnings to fixed charges+
23.1 Consent of Holland & Knight LLP (included in Exhibit 5.1)+
23.2 Consent of ______________ (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 (included with signature pages to this Registration Statement)+
25.1 Form T-1: Statement of Eligibility of Wilmington Trust Company to act as Trustee+
25.2 Form T-1: Statement of Eligibility of Wilmington Trust Company to act as Trustee and
Restated Trust Agreement+
25.3 Form T-1: Statement of Eligibility of Wilmington Trust Company to act as Trustee and
Agreement for UFH Capital Trust I+
27.1 Financial Data Schedule (FDS use only)+
27.2 Financial Data Schedule (FDS use only)+
</TABLE>
- -----------------------
+ To be filed by amendment.
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
II-2
<PAGE> 147
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-3
<PAGE> 148
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 registration
statement to be signed on its behalf by the undersigned, in the City of St.
Petersburg, State of Florida on July 29, 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 registration
statement to be signed on its behalf by the undersigned, in the City of St.
Petersburg, State of Florida on July 29, 1998.
UFH CAPITAL TRUST, INC.
By: /s/ Neil W. Savage
--------------------------------------------------
Neil W. Savage, Trustee
By: /s/ C. Peter Bardin
--------------------------------------------------
C. Peter Bardin, Trustee
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints NEIL
W. SAVAGE and C. PETER BARDIN, for himself and not for one another, and each and
either of them and his substitutes, a true and lawful attorney in his name,
place and stead, in any and all capacities, to sign his name to any and all
amendments to this registration statement, including post-effective amendments,
and to cause the same to be filed with the Securities and Exchange Commission,
granting unto said attorneys and each of them full power of substitution and
full power and authority to do and perform any act and thing necessary and
proper to be done in the premises, as fully to all intents and purposes as the
undersigned could do if personally present, and each of the undersigned for
himself hereby ratifies and confirms all that said attorneys or any one of them
shall lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
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 July 29, 1998 Chief Executive Officer, President and
- ------------------------------- Director (principal executive officer)
Neil W. Savage
/s/ C. Peter Bardin July 29, 1998 Chief Financial Officer (principal financial
- ------------------------------- and accounting officer)
C. Peter Bardin
/s/ Ronald E. Clampitt July 29, 1998 Director
- -------------------------------
Ronald E. Clampitt
/s/ David K. Davis, M.D. July 29, 1998 Director
- -------------------------------
David K. Davis, M.D.
July 29, 1998 Director
/s/ Edward D. Foreman
- -------------------------------
Edward D. Foreman
</TABLE>
<PAGE> 149
<TABLE>
<S> <C> <C>
Director
- -------------------------------
Charles O. Lowe
/s/ John B. Norrie July 29, 1998 Director
- -------------------------------
John B. Norrie
Director
- -------------------------------
Harold J. Winner
/s/ Ward J. Curtis, Jr. July 29, 1998 Director
- -------------------------------
Ward J. Curtis, Jr.
Director
- -------------------------------
Jack A. MaCris, M.D.
/s/ Ronald R. Petrini July 29, 1998 Director
- -------------------------------
Ronald R. Petrini
/s/ John B. Wier, Jr. July 29, 1998 Director
- -------------------------------
John B. Wier, Jr.
Director
- -------------------------------
Henry Esteva
/s/ Ian F. Irwin July 29, 1998 Director
- -------------------------------
Ian F. Irwin
Director
- -------------------------------
William A. Eickhoff
</TABLE>
<PAGE> 150
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+
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+
5.1 Opinion of Holland & Knight LLP regarding the Junior Subordinated Debentures+
5.2 Opinion of ____________, special Delaware counsel, regarding the Cumulative Trust
Preferred Securities to be issued by UFH Capital Trust I+
8.1 Tax Opinion of Holland & Knight LLP+
12 Statement regarding computation of earnings to fixed charges+
23.1 Consent of Holland & Knight LLP (included in Exhibit 5.1)+
23.2 Consent of ______________ (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 (included with signature pages to this Registration Statement)+
25.1 Form T-1: Statement of Eligibility of Wilmington Trust Company to act as Trustee+
25.2 Form T-1: Statement of Eligibility of Wilmington Trust Company to act as Trustee and
Restated Trust Agreement+
25.3 Form T-1: Statement of Eligibility of Wilmington Trust Company to act as Trustee and
Agreement for UFH Capital Trust I+
27.1 Financial Data Schedule (FDS use only)+
27.2 Financial Data Schedule (FDS use only)+
</TABLE>
- -----------------------
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 29, 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".
GRANT THORNTON LLP
Tampa, Florida
July 31, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF SMITH, MACKINNON, GREELEY, BOWDOIN & EDWARDS, P.A.
CONSENT OF COUNSEL
United Financial Holdings, Inc.
We hereby consent to the use in this Form SB-2 Registration Statement
of United Financial Holdings, Inc. and the UFH Capital Trust I of our name in
the Prospectus which is a part of such Registration Statement, under the
heading "Legal Matters."
/s/ Smith, Mackinnon, Greeley, Bowdoin & Edwards, P.A.
July 31, 1998
