================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB
--------------------
[X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 005-55641
UNITED FINANCIAL HOLDINGS, INC.
(Name of Small Business Issuer in its Charter)
FLORIDA 59-2156002
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
333 THIRD AVENUE NORTH, SUITE 200
ST. PETERSBURG, FLORIDA 33701-3346
(Address of Principal Executive Offices)
(727) 898-2265
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
================================================================================
Common Stock, $0.01 Par value 4,192,771
- ----------------------------- ------------------------------------------
Class Outstanding as of November 10, 1999
================================================================================
<PAGE>
UNITED FINANCIAL HOLDINGS, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -
At September 30, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Earnings -
For the three months and nine months ended
September 30, 1999 and 1998 2
Condensed Consolidated Statements of Comprehensive Income -
For the three months and nine months ended
September 30, 1999 and 1998 3
Condensed Consolidated Statement of Stockholders' Equity -
For the nine months ended September 30, 1999 4
Condensed Consolidated Statements of Cash Flows -
For the nine months ended September 30, 1999 and 1998 5-6
Notes to Condensed Consolidated Financial Statements 7-10
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-18
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 2. Changes in Securities and Use of Proceeds 19
ITEM 3. Defaults Upon Senior Securities 19
ITEM 4. Submission of Matters to a Vote of Shareholders 20
ITEM 5. Other Information 20
ITEM 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
United Financial Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
September 30, December 31,
ASSETS 1999 1998
------------- ------------
Cash and due from banks $ 8,053 $ 7,967
Federal funds sold 5,707 4,011
Trading securities 187 157
Securities held to maturity, market value
of $14,506 and $11,437 respectively 14,778 11,206
Securities available for sale, at market 10,204 14,527
Loans, net 145,040 116,546
Premises and equipment, net 9,769 9,275
Federal Home Loan Bank stock 507 433
Federal Reserve Bank stock 204 159
Intangible assets 1,772 1,451
Other real estate owned 1,620 1,015
Other assets 5,413 5,155
-------- --------
Total assets $ 203,254 $ 171,902
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand $ 36,124 $ 27,742
NOW and money market 64,556 48,550
Savings & Time Deposits 70,873 62,803
-------- --------
Total deposits 171,553 139,095
Securities sold under agreements to repurchase 5,851 8,796
Convertible subordinated debentures 630 630
Long-term debt - 34
Other liabilities 2,096 2,576
--------- --------
Total liabilities 180,130 151,131
Company-obligated Mandatory Redeemable Capital Securities of Subsidiary
Trust Holding Solely Subordinated Debentures
Of The Company 6,750 6,000
STOCKHOLDERS' EQUITY
7% convertible preferred stock 100 209
Common stock 42 40
Paid-in capital 9,673 9,192
Common stock subscription receivable - (393)
Accumulated other comprehensive income (96) 141
Retained earnings 6,655 5,582
-------- --------
Total stockholders' equity 16,374 14,771
-------- --------
Total liabilities and stockholders' equity $ 203,254 $ 171,902
========= =========
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30 Sept. 30 Sept. 30
1999 1998 1999 1998
-------- -------- -------- --------
Interest income
Loans and loan fees $ 3,293 $ 2,682 $ 9,167 $ 7,553
Securities 431 491 1,292 1,302
Federal funds sold and securities
purchased under reverse repurchase
agreements 70 145 204 470
-------- -------- -------- --------
Total interest income 3,794 3,318 10,663 9,325
Interest expense
Deposits 1,245 1,310 3,567 3,665
Long-term debt and
other borrowings 57 100 182 269
Subordinated debentures issued to
subsidiary trust 158 - 474 -
-------- -------- -------- --------
Total interest expense 1,460 1,410 4,223 3,934
-------- -------- -------- --------
Net interest income 2,334 1,908 6,440 5,391
Provision for loan losses 205 90 610 340
-------- -------- -------- --------
Net interest income after
provision for loan losses 2,129 1,818 5,830 5,051
Other income
Service charges on
deposit accounts 210 182 584 529
Trust and investment management
income 1,089 617 2,450 1,755
Gain on Sale of Loans 40 61 290 191
All other fees and income 156 241 502 614
-------- -------- -------- --------
Total other income 1,495 1,101 3,826 3,089
Other expense
Salaries and employee benefits 1,535 1,168 4,098 3,430
Occupancy expense 128 128 388 419
Furniture and equipment expense 140 127 438 382
Data Processing 132 110 371 331
Marketing and business development 156 194 287 260
Other operating expenses 552 329 1,601 1,157
-------- -------- -------- --------
2,643 2,056 7,183 5,979
-------- -------- -------- --------
Earnings before income taxes 981 863 2,473 2,161
Income tax expense 343 274 892 786
-------- -------- -------- --------
NET EARNINGS $ 638 $ 589 $ 1,581 $ 1,375
======== ======== ======== ========
Earnings Per Share:
Basic $ .15 $ .17 $ .38 $ .39
Diluted $ .15 $ .15 $ .37 $ .36
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in thousands)
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30 Sept. 30 Sept. 30
1999 1998 1999 1998
-------- -------- -------- --------
Net earnings $ 638 $ 589 $ 1,581 $ 1,375
Other comprehensive income
Unrealized holding gains
(losses) (27) 180 (359) 205
Income tax (expense) benefit
related to items of other
comprehensive income 9 (61) 122 (70)
-------- -------- -------- --------
Comprehensive income $ 620 $ 708 $ 1,344 $ 1,510
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
(in thousands)
7%
Convertible
Common Preferred Paid-In
Stock Stock Capital
-------- --------- ----------
Balance at December 31, 1998 $ 40 $ 209 $ 9,192
Net Earnings - - -
Dividends on Common & Preferred Stock - - -
IPO subscriptions & costs - - (25)
Accumulated other comprehensive income - - -
Performance Shares Issued 1 - 398
Conversion of 7% Preferred to Common Stock 1 (109) 108
-------- -------- ----------
Balance at September 30, 1999 $ 42 $ 100 $ 9,673
======== ======== ==========
Accumulated
Other Stock
Comprehensive Subscription Retained
Income Receivable Earnings Total
------------- ------------ -------- --------
Balance at December 31, 1998 $ 141 $ (393) $ 5,582 $14,771
Net Earnings - - 1,581 1,581
Dividends on Common & Preferred
Stock - - (508) (508)
IPO subscriptions & costs - 393 - 368
Accumulated other
comprehensive income (237) - - (237)
Performance Shares
Issued - - - 399
Conversion of 7%
Preferred to Common
Stock - - - -
------------- ------------ -------- --------
Balance at September 30, 1999 $ (96) $ - $ 6,655 $16,374
============= ============ ======== =======
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
(continued)
Nine Months Ended
Sept. 30, Sept. 30,
1999 1998
--------- ---------
Cash flows from operating activities:
Net earnings $ 1,581 $ 1,375
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
Provision for loan losses 610 340
Provision for depreciation and amortization 581 492
Unrealized gain on trading securities (32) (79)
Gain on sale of held to maturity security - (78)
Accretion of securities discount (21) (50)
Amortization of unearned loan fees (100) (46)
Amortization of securities premiums 14 18
Gain on sales of loans (491) (291)
(Increase) decrease in interest receivable (44) 26
Increase (decrease) in interest payable 22 (16)
Increase in other assets (1,199) (628)
Decrease in other liabilities (502) (191)
--------- ---------
Net cash provided by operating activities 419 872
Cash flows from investing activities:
Purchase of Federal Reserve Bank stock and FHLB stock (118) (73)
Net (increase) decrease in Federal funds sold (1,696) 7,196
Principal repayments of held to maturity securities 1,265 225
Proceeds from sale of held to maturity security - 111
Principal repayments of available for sale securities 2,017 791
Proceeds from maturities of available for
sale securities 4,000 2,001
Proceeds from maturities of held to
maturity securities 130 3,026
Purchases of available for sale securities (4,991) (6,104)
Purchases of held to maturity securities (1,899) (7,155)
Proceeds from sales of loans 5,180 2,427
Net (increase) in loans (33,695) (15,738)
Capital expenditures (1,015) (106)
--------- ---------
Net cash used in investing activities (30,822) (13,399)
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(unaudited)
(in thousands)
(Continued)
Nine Months Ended
Sept. 30, Sept. 30,
1999 1998
--------- ---------
Cash flows from financing activities:
Net increase in demand deposits, NOW accounts,
money market accounts and savings accounts $ 24,674 $ 10,346
Net increase (decrease) in certificates of deposit 7,783 (3,955)
Net (decrease) increase in securities sold under (2,945) 3,473
agreements to repurchase
Repayment of long-term debt (34) (1)
Issuance of Company-obligated mandatory redeemable
capital securities of subsidiary trust holding solely
subordinated debentures of the Company 750 -
Issuance of common stock 767 400
Dividend paid on preferred stock (10) (15)
Dividend paid on common stock (496) (374)
--------- ---------
Net cash provided by financing activities 30,489 9,874
--------- ---------
Net increase in cash and due from banks 86 (2,653)
Cash and due from banks at beginning of period 7,967 7,337
--------- ---------
Cash and due from banks at end of period $ 8,053 $ 4,684
========= =========
Cash paid during the period for:
Interest $ 4,201 $ 3,950
Income taxes $ 876 $ 736
Supplemental Disclosure of Non-cash Activity
Reclassification of loans to foreclosed real estate $ 1,038 $ 283
Non-cash common stock issued $ 399 $ 116
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
UNITED FINANCIAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - HOLDING COMPANY AND SUBSIDIARIES BACKGROUND INFORMATION
United Financial Holdings, Inc. (the "Company") is a registered bank holding
company formed in 1982, the principal subsidiary of which is United Bank
("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 five branch offices serving the southern Pinellas County
area of the State of Florida.
The Company's other operating subsidiaries are Eickhoff, Pieper, & Willoughby,
Inc., an investment advisory firm registered under the Investment Advisers Act
of 1940 ("EPW") headquartered in Tampa, Florida, with an office in Jacksonville,
Florida, and United Trust Company, a Florida-chartered trust company ("United
Trust") located in St. Petersburg, Florida. EPW offers investment management
services to corporate, municipal and high net worth individual clients
throughout the State of Florida. 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). In
addition, United Trust also provides retail trust and investment management
services to individual and corporate clients.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments, consisting
primarily of normal recurring adjustments, necessary for a fair presentation of
the results for the interim periods have been made to fairly state the results
for the interim periods. The results of operations of the three and nine months
ended September 30, 1999 are not necessarily indicative of the results expected
for the full year.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the Company's December 31,
1998 Form 10-KSB. This quarterly report should be read in conjunction with such
annual report.
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share are based on the weighted average number common shares
outstanding during the periods. Diluted earnings per share includes the weighted
average number of common shares outstanding during the periods and the further
dilution from stock options using the treasury stock method. The following is a
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations for the periods presented (dollars in thousands,
except per share data).
7
<PAGE>
For the three months ended September 30,
1999
Weighted Per
Average Share
Earnings Shares Amount
-------------- ------------- ------------
Basic EPS
Net earnings available to
Common Stockholders $ 635 4,165,619 $ .15
===========
Effect of dilutive securities
Incremental shares from assumed
exercise or conversion of:
Convertible Debt 8 152,789
Preferred Stock 3 84,345
Stock Options - -
-------------- ------------- ------------
Diluted EPS
Net earnings available to Common
Stockholders and assumed
conversions $ 646 4,402,753 $ .15
============== ============= ============
For the three months ended September 30,
1998
Weighted Per
Average Share
Earnings Shares Amount
-------------- ------------- ------------
Basic EPS
Net earnings available to
Common Stockholders $ 582 3,513,858 $ .17
============== ============= ============
Effect of dilutive securities
Incremental shares from assumed
exercise or conversion of:
Convertible Debt 8 152,789
Preferred Stock 7 175,860
Stock Options - 23,259
-------------- ------------- ------------
Diluted EPS
Net earnings available to
Common Stockholders and assumed
conversions $ 597 3,865,766 $ .15
============== ============= ============
8
<PAGE>
For the nine months ended September 30,
1999
Weighted Per
Average Share
Earnings Shares Amount
-------------- ------------- ------------
Basic EPS
Net earnings available to
Common Stockholders $ 1,570 4,093,108 $ .38
============== ============
Effect of dilutive securities
Incremental shares from assumed
exercise or conversion of:
Convertible Debt 23 152,789
Preferred Stock 11 144,685
Stock Options - -
-------------- -------------
Diluted EPS
Net earnings available to
Common Stockholders and assumed
conversions $ 1,604 4,390,582 $ .37
============== ============ ===========
For the nine months ended September 30,
1998
Weighted Per
Average Share
Earnings Shares Amount
-------------- ------------- ------------
Basic EPS
Net earnings available to
Common Stockholders $ 1,359 3,492,702 $ .39
============== ===========
Effect of dilutive securities
Incremental shares from assumed
exercise or conversion of:
Convertible Debt 24 152,789
Preferred Stock 15 188,759
Stock Options - 11,694
-------------- -------------
Diluted EPS
Net earnings available to
Common Stockholders and assumed
conversions $ 1,398 3,845,944 $ .36
============== ============== ===========
9
<PAGE>
NOTE 4 - CAPITAL
In December 1998, the Company issued and sold 450,000 shares of common stock at
$7.25 per share and, through a statutory business trust created and wholly owned
by the Company, issued $6,000,000 of 9.40% Trust Preferred Securities (the
"Trust Preferred Securities") in an underwritten public offering. In January
1999, the Company issued an additional 57,705 shares of common stock and
$749,600 of additional Trust Preferred Securities pursuant to the underwriter's
exercise of its over-allotment option.
NOTE 5 - COMPREHENSIVE INCOME
Under Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", certain transactions and other economic events that
bypass the income statement must be displayed as other comprehensive income. The
Company's comprehensive income consists of net earnings and unrealized gains and
losses on securities available-for-sale, net of income taxes.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This report contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
words "believe," "estimate," "expect," "intend," "anticipate," "plan" and
similar expressions and variations thereof identify certain of such
forward-looking statements which speak only as of the dates on which they were
made. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
indicated in the forward-looking statements as a result of various factors. Such
factors include, but are not limited to competition, general economic
conditions, potential changes in interest rates, and changes in the value of
real estate securing loans made by the Company, some of which have been or will
be identified from time to time in the Company's reports filed with the
Securities and Exchange Commission. Additional discussion of these factors
effecting the Company's business and prospects is contained in the Company's
filings with the Securities and Exchange Commission. Readers are cautioned not
to place undue reliance on any forward-looking statements contained herein,
which speak only as of the date hereof. The Company undertakes no obligation to
publicly update or revise such forward-looking statements.
COMPARISON OF BALANCE SHEETS AT SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
Overview
Total assets of the Company were $203.3 million at September 30, 1999,
compared to $171.9 million at December 31, 1998, an increase of $31.4 million or
18.3%. This increase was primarily the result of the Company's internal growth
of earning assets (primarily loans) funded by an increase in deposits.
10
<PAGE>
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 $25.0 million at September 30, 1999,
compared to $25.7 million at December 31, 1998, a decrease of $0.7 million or
2.8%. Included in investment securities at September 30, 1999, were $10.2
million of securities held as "available for sale" to provide the Company
greater flexibility to respond to changes in interest rates. These securities
have been recorded at market value.
Loans
Total loans were $148.1 million at September 30, 1999, compared to $119.2
million at December 31, 1998, an increase of $28.9 million or 24.3%. For the
same period, real estate mortgage loans increased by $23.3 million or 29.8%,
commercial loans increased by $6.1 million or 17.5%, and all other loans
including consumer loans decreased by $.4 million or 7.2%. Loans net of
allowance for loan loss were $145.0 million at September 30, 1999, compared to
$116.5 million at December 31, 1998.
The following table sets forth information concerning the loan portfolio by
collateral types as of the dates indicated (dollars in thousands):
September 30, 1999 December 31, 1998
Real estate mortgage loans:
Commercial real estate $ 75,335 $ 60,693
One-to-four family residential 6,739 7,075
Multifamily residential 14,610 6,673
Construction and land development 4,610 3,572
----------- -----------
Total real estate mortgage loans 101,294 78,013
Commercial loans 41,025 34,904
Consumer loans 4,945 4,438
Other loans 849 1,803
----------- -----------
Gross loans 148,113 119,158
Allowances for loan losses (2,181) (1,984)
Unearned fees (892) (628)
----------- -----------
Total loans net of allowance
and unearned fees $ 145,040 $ 116,546
=========== ===========
Asset Quality and Allowance 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
allowance is based upon an ongoing quarterly assessment of the probable
estimated losses inherent in the loan portfolio, and to a lesser extent, unused
commitments to provide financing.
11
<PAGE>
The methodologies for assessing the appropriateness of the allowance
consists of several key elements, that include: 1) a risk rating of the
portfolio; 2) a review of the underlying collateral on specific loans; and 3)
historical loan losses. The risk rating is calculated by applying loss factors
to outstanding loans and unused commitments, in each case based on the internal
risk grade of those loans. Changes in risk grades of both performing and
non-performing loans affect the amount of the formula allowance. On the larger
criticized or classified credits, a review is conducted of the underlying
collateral which secures each credit. A worse case scenario review is conducted
on those loans to calculate the amount, if any, of potential loss. The
historical loan loss method is a review of the last six years of actual losses.
The historical loss percentage is calculated and applied to the current
outstanding loans in total.
Various conditions which would affect the loan portfolio are also
evaluated. General economic and business conditions that affect the portfolio
are reviewed including: 1) credit quality trends including trends in past due
and non-performing loans; 2) collateral values in general; 3) loan volumes and
concentration; 4) recent loss experience in particular segments of the
portfolio; 5) duration and strength of the current business cycle; 6) bank
regulatory examination results; and 7) findings of the external loan review
process. Senior management and the Directors' General Loan Committee review
these conditions quarterly. If any of these conditions is present and an
analysis indicates it might affect the loan portfolio generally, an additional
allocation may be recommended.
The following table sets forth information concerning the activity in the
allowance for loan losses during the periods indicated (dollars in thousands):
For the nine months ended
September 30, 1999 September 30, 1998
Allowance at beginning of period $ 1,984 $ 1,647
Charge-offs:
Real estate loans 144 -
Commercial loans 269 153
Consumer loans 25 16
------------ ------------
Total charge-offs 438 169
Recoveries:
Real estate loans - -
Commercial loans 25 8
Consumer loans - -
------------ ------------
Total recoveries 25 8
Net charge-offs 413 161
Provision for loan losses 610 340
------------ ------------
Allowance at end of period $ 2,181 $ 1,826
============ ============
12
<PAGE>
Nonperforming Assets
Nonperforming assets include 1) loans which are 90 days or more past due
and have been placed into non-accrual status; 2) 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 3) 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):
September 30, 1999 December 31, 1998
Real estate loans $ 1,556 $ 2,820
Commercial loans 359 1,181
Consumer loans - -
------------ ------------
Total non-accrual loans(1) 1,915 4,001
Other Real Estate 1,620 1,015
Accruing Loans 90 days past due 383 449
------------ ------------
Total nonperforming assets $ 3,918 $ 5,465
============ ============
- --------------------
(1) $1,355 of the non-accrual loans as of September 30, 1999 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.
Bank Premises and Equipment
Bank premises and equipment totaled $9.8 million at September 30, 1999,
compared to $9.3 million at December 31, 1998, an increase of $.5 million or
5.4%. This increase was primarily due to the acquisition of a new bank branch
office building and related equipment, partially offset by depreciation and
amortization of leasehold improvements.
13
<PAGE>
Deposits
Total deposits were $171.6 million at September 30, 1999, compared to
$139.1 million at December 31, 1998, an increase of $32.5 million or 23.4%.
During the nine months ended September 30, 1999, demand deposits increased $8.4
million, NOW and money market deposits increased $16.0 million, and savings
deposits and time deposits increased $8.1 million.
Long-term Debt and Convertible Subordinated Debentures
There was no long-term debt outstanding (excluding convertible subordinated
debentures) at September 30, 1999, compared to $34 thousand at December 31,
1998, a decrease of $34 thousand. The decrease was due to the repayment of debt
with an unrelated bank. In addition, $630 thousand in convertible subordinated
debentures were outstanding during both periods.
Mandatory Redeemable Capital Securities of Subsidiary Trust
In December 1998, the Company, through a statutory business trust created
and owned by the Company, issued approximately $6.7 million (including an
overallotment of approximately $750 thousand that closed on January 14, 1999) of
Trust Preferred Securities that will mature on December 10, 2028. The principal
assets of the Trust are Debentures issued to the Company in an aggregate amount
of $6.96 million, with an interest rate of 9.40% and a maturity date of December
10, 2028.
Stockholders' Equity
Stockholders' equity was $16.4 million at September 30, 1999, or 8.07% of
total assets, compared to $14.8 million, or 8.61% of total assets at December
31, 1998. At September 30, 1999, the Bank's Tier I (core) Capital ratio was
7.52%, its Tier I Risk-based Capital ratio was 8.75%, and its Total Risk-based
Capital ratio was 10.00%. The capital ratios of the Bank at that date all
exceeded the minimum regulatory guidelines for an institution to be considered
"well capitalized". The increase in stockholders' equity was due to year-to-date
1999 net income, less dividends declared and changes in the market value of
securities available for sale, net of deferred taxes.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
Overview
Net income for the three months ended September 30, 1999 was $638 thousand
or $0.15 per share diluted, compared to $589 thousand or $0.15 per share diluted
for the same period in 1998. On a pre-tax basis, United Trust earned $406
thousand in 1999 versus $53 thousand in 1998, EPW's pre-tax operating profits
(before deducting $207 thousand of costs associated with the cash payment in
lieu of the issuance of revenue shares) increased to $82 thousand from $71
thousand during this period and the Bank's pre-tax profits increased to $885
thousand from $754 thousand during this same period.
Analysis of Net Interest Income
Interest income for the three months ended September 30, 1999 was $3.8
million, compared to $3.3 million for the same period in 1998, a $0.5 million or
15.2% increase. This increase in interest income is primarily due to an increase
in earning assets, consisting mostly of loans. Interest expense was $1.5 million
for the three months ended September 30, 1999, compared to $1.4 million for the
same period in 1998, a $0.1 million or 7.1% increase. This increase is primarily
due to the interest expense associated with the issuance of the Trust Preferred
Securities in December 1998.
14
<PAGE>
Provision for Loan Losses
For the three months ended September 30, 1999, the provision for loan
losses charged to expense was $205 thousand, compared to $90 thousand for the
same period in 1998, an increase of $115 thousand or 127.8%. The increase in the
provision was primarily due to the level of loans outstanding and nonperforming
assets. The allowance of possible loan losses was $2.2 million at September 30,
1999. Management's judgment as to the adequacy of the allowance is based upon a
number of assumptions about the future events which it believes to be
reasonable, but which may or may not be accurate. Because of the inherent
uncertainty of assumptions made during the evaluation process, there can be no
assurance that loan losses in future periods will not exceed the allowance for
loan losses or that additional allocations will not be required.
Noninterest Income
Noninterest income for the three months ended September 30, 1999 was $1.5
million compared to $1.1 million for the same period in 1998, an increase of
$0.4 million or 36.4%. This increase was primarily due to increased revenues
from EPW and United Trust whose combined revenues increased $472 thousand during
this period. Included in this increase was an extraordinary fee of $350 thousand
from a trust account for services provided in conjunction with the sale of a
closely held company.
Noninterest Expense
Total noninterest expense for the three months ended September 30, 1999 was
$2.6 million, compared to $2.1 million for the same period in 1998, an increase
of $0.5 million or 23.8%. This increase was due to increases in salary and
benefits expense of $367 thousand (which includes $207 for the issuance of
performance shares related to the acquisition of EPW), furniture and equipment
expense of $13 thousand, data processing expense of $22 thousand, and other
operating expense of $223 thousand, which includes $58 thousand in consulting
expense, REO expense of $44 thousand and supplies expense of $18 thousand.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
Overview
Net income for the nine months ended September 30, 1999 was $1.6 million or
$0.37 per share diluted, compared to $1.4 million or $0.36 per share diluted for
the same period in 1998. On a pre-tax basis, United Trust earned $536 thousand
in 1999 versus $95 thousand in 1998, EPW's pre-tax operating profits (before
deducting $297 thousand of costs associated with the cash payment in lieu of the
issuance of performance and revenue shares) increased to $250 thousand from $72
thousand during this period and the Bank's pre-tax profits increased to $2.6
million from $2.1 million during this same period.
15
<PAGE>
Analysis of Net Interest Income
Interest income for the nine months ended September 30, 1999 was $10.7
million, compared to $9.3 million for the same period in 1998, a $1.4 million or
15.1% increase. This increase in interest income is primarily due to an increase
in earning assets, consisting mostly of loans. Interest expense was $4.2 million
for the nine months ended September 30, 1999, compared to $3.9 million for the
same period in 1998, a $0.3 million or 7.7% increase. This increase is primarily
due to the interest expense associated with the issuance of the Trust Preferred
Securities in December 1998.
Provision for Loan Losses
For the nine months ended September 30, 1999, the provision for loan losses
charged to expense was $610 thousand, compared to $340 thousand for the same
period in 1998, an increase of $270 thousand or 79.4%. The increase in the
provision was primarily due to the level of loans outstanding and nonperforming
assets. The allowance of possible loan losses was $2.2 million at September 30,
1999. Management's judgment as to the adequacy of the allowance is based upon a
number of assumptions about the future events which it believes to be
reasonable, but which may or may not be accurate. Because of the inherent
uncertainty of assumptions made during the evaluation process, there can be no
assurance that loan losses in future periods will not exceed the allowance for
loan losses or that additional allocations will not be required.
Noninterest Income
Noninterest income for the nine months ended September 30, 1999 was $3.8
million compared to $3.1 million for the same period in 1998, an increase of
$0.7 million or 22.6%. This increase was primarily due to increased revenues
from EPW and United Trust whose combined revenues increased $695 thousand during
this period, including an extraordinary fee of $350 thousand for a trust account
for services provided in conjunction with the sale of a closely held company and
gains on the sale of SBA loans, which increased by $99 thousand.
Noninterest Expense
Total noninterest expense for the nine months ended September 30, 1999 was
$7.2 million, compared to $6.0 million for the same period in 1998, an increase
of $1.2 million or 20.0%. This increase was due to increases in salaries and
benefits expense of $668 thousand (including $297 thousand related to the cash
payment in lieu of the issuance of performance shares in connection with the
acquisition of EPW), increases in equipment expense of $56 thousand, data
processing expense of $40 thousand, and other operating expenses of $444
thousand. Other operating expense includes $128 thousand in consulting expense,
$77 thousand in REO expense, $44 thousand in postage and supplies expense and
$33 thousand in software expense.
LIQUIDITY
During the nine months ended September 30, 1999, the Company's primary
sources of funds consisted of deposit inflows and proceeds from the maturity and
principal repayment of securities available for sale. The Company used its
capital resources principally to fund existing and continuing loan commitments
and to purchase securities. At September 30, 1999, the Company had commitments
to originate loans totaling $6.8 million. Management believes the Company has
16
<PAGE>
adequate resources to fund all its commitments. Management also believes that,
if so desired, it can adjust the rates on time deposits to retain deposits in a
changing interest rate environment. As a Florida-chartered commercial bank, the
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 those
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 defined, such as federal funds sold and
United States securities or securities guaranteed by the United States. As of
September 30, 1999, the Bank had liquidity of approximately $26 million, or
approximately 15% of total deposits.
Management believes the Bank was in compliance with all minimum capital
requirements which it was subject to at September 30, 1999.
YEAR 2000 CONSIDERATIONS
During the next year, many businesses, including financial institutions
such as the Company, will face potentially serious issues associated with the
inability of certain existing data processing hardware and software to
appropriately recognize calendar dates beginning in the year 2000. The "Year
2000" problem arose because many existing computer programs use only the last
two digits to refer to a year. Therefore, these computer programs may not
properly recognize a year that begins with "20" instead of "19." Additionally,
many computer programs that can only distinguish the final two digits of the
year may read entries for the year 2000 as the year 1900. For example, computer
systems may compute payment, interest, delinquency or other figures important to
the operations of financial institutions based on the wrong date. If not
corrected, many computer applications, including those owned by the Company and
third parties with which the Company does business, could fail or create
erroneous results, thereby potentially impacting the operations and financial
performance of the Company. Although the Company is currently addressing
potential Year 2000 problems, there can be no assurance that its efforts will
prevent all potential adverse consequences to the Company resulting from the
Year 2000 problem.
In 1997, the Company began the process of evaluating its information
technology for Year 2000 readiness. In April 1998, the Company adopted a formal,
comprehensive Year 2000 Policy Statement designed to identify and address Year
2000 issues that might impact the Company (the "Year 2000 Plan"). The Company
has completed the "Awareness," "Inventory," "Assessment," and
"Testing/Validation" phases of its Year 2000 Plan, which are designed to appoint
and train a group of employees to oversee and implement the Year 2000 Plan, to
provide for the inventory of the software and hardware of the Company, and to
provide further assessment of the nature and size of the Year 2000 issues that
might affect the Company. The Company continues to oversee its internal efforts
and the efforts of third parties to timely and properly address the Year 2000
issues that have been identified. Testing and validation phases of the Year 2000
Plan were completed by June 30, 1999. This validation process has also been
audited by outside consultants.
The Company outsources its principal data processing activities to a third
party and purchases most of its software applications from third party vendors.
Additionally, the Company outsources its trust business data processing and
custodial management activities to a third party. Each of the two foregoing data
processing servicers has represented to the Company that it has completed its
17
<PAGE>
Year 2000 testing. The Company has received and reviewed the third party proxy
test results which support their claims. Also the Company has completed all
testing and validating of its own systems. Based on these efforts to date, the
Company believes that its vendors and significant customers are actively
addressing the problems associated with the Year 2000 issue and that the Company
will be prepared to respond to Year 2000 problems as they arise. The Company
will continue to refine the contingency plans to address the most reasonably
likely worst case scenarios relating to the Year 2000 problem throughout the
year 1999 and into the year 2000. Although the Company's Year 2000 efforts are
ongoing and will continue throughout the Year 2000, there can be no assurance
that the Company will be prepared to timely respond to all year 2000 issues that
may arise.
The Company is also in the process of identifying Year 2000 problems
stemming from non-information technology systems, such as microcontrollers used
to operate security systems and elevators and embedded systems in its buildings
and equipment and other infrastructure, and establishing a program for testing
these systems for Year 2000 compliance. However, the Company does not currently
anticipate that it will encounter any substantial Year 2000 problems with
respect to such non-information technology systems, and believes the cost to
remedy any such problems will not be material.
The Company has not incurred material testing, compliance or replacement
costs relating to its Year 2000 investigation to date. The Company spent
approximately $255,000 in 1998 and expects to spend $280,000 in 1999, of which
approximately $250,000 has been incurred to date, towards technology related
costs, including the updating of software and hardware systems to ensure Year
2000 compliance. The Company does not expect to incur additional material
related testing, compliance or replacement costs in the future and does not
believe that the potential non-compliance of its information and non-information
technology systems and programs present a material risk to the Company's
financial condition or results of operations. However, non-material costs may be
incurred due to short-term disruptions resulting from Year 2000 compliance
problems, testing and replacement costs.
Notwithstanding the foregoing, there can be no assurance that the Company
will be successful in implementing its Year 2000 Plan and that it will not be
adversely affected by the failure of third party vendors or significant
customers to become Year 2000 compliant. Although the Company is taking steps to
identify and address Year 2000 problems, if unexpected or unresolved Year 2000
problems develop, given the Company's reliance on data processing services to
maintain customer balances, service customer accounts and to perform other
record keeping and service oriented functions associated with the Company's
three primary business segments, the occurrence of any such events could have a
material impact on the Company's results of operations, liquidity and financial
condition.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and the Bank are parties to various legal proceedings in the
ordinary course of business. Management does not believe that there is any
pending or threatened proceeding against the Company or the Bank which, if
determined adversely, would have a material effect on the business, results of
operations, or financial position of the Company or the Bank.
18
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The following shares of United Financial common stock, par value $0.01
per share ("United Financial Common Stock"), were issued during the nine months
ended September 30, 1999:
In December 1998, the Company sold 450,000 shares of common stock at
$7.25 per share and $6,000,000 of 9.40% Trust Preferred Securities in an
underwritten public offering. In January 1999, the Company issued an additional
57,705 shares of common stock and $749,600 of additional Trust Preferred
Securities pursuant to the underwriter's exercise of its over-allotment option.
Of the net proceeds of approximately $9.5 million, approximately $1.5 million
has been contributed as capital to the Bank and approximately $2.7 million was
used to repay existing debt with an unrelated bank.
On February 26, 1999 and August 31, 1999 an aggregate of 14,744 shares
40,950 shares, respectively, were issued to certain officers of United Trust
pursuant to an incentive stock plan established in connection with the
acquisition of Fiduciary Services Corporation ("FSC"). Under the plan, no
additional cash or consideration was received by the Company pursuant to the
issuance of such shares. These shares of common stock were issued in reliance
upon the exemption from registration under Section 4(2) of the Securities Act of
1933 as transactions by an issuer not involving any public offering. The
recipients of the securities issued represented their intentions to acquire the
securities for investment only and not with a view for resale or distribution
and appropriate legends were affixed to the share certificates issued.
The Company has used the proceeds from the December 1998 public offering
as follows:
In March 1999, the Company purchased a $250,000 equity position, or
approximately 5 percent, in United Insurance Holdings, LC ("Insurance
Holdings"). Insurance Holdings is the parent company of United Property
Insurance and Casualty Company, Inc. The Company has the option to acquire, at
its election, up to an aggregate of 20 percent of the common equity of Insurance
Holdings, if and when bank holding company regulations permit such an
investment. Additionally, the Company originally made a $1 million loan advance
to Insurance Holdings with a maturity date of June 8, 1999. The loan was
subsequently renewed for another 60 day term and a $0.5 million principal
repayment was made in July. In August, the loan was again renewed for a 7 month
term, at a balance of $0.5 million, and a one-time option to advance an
additional $0.5 million. One director of the Company also serves as a director
of Insurance Holdings.
In April 1999, the Company purchased a $500,000 equity position, or
approximately 2.2% of the outstanding capital stock, in Nexity Financial
Corporation ("Nexity"). Nexity intends to acquire an Alabama stated chartered
bank and pursue an internet banking business strategy and ultimately raise
additional capital in an initial public offering.
The remaining net offering proceeds are on deposit in a non-interest
bearing demand deposit account of the Company established with the Bank. The
Bank in turn is using those funds to fund its assets, such as loans and
overnight investments.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
19
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Reinstated provision of the Salary Continuation Plan dated
August 24, 1999 by and between Neil W. Savage and United Financial
27.1 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the period ending September
30, 1999.
20
<PAGE>
UNITED FINANCIAL HOLDINGS, INC. AND SUBSIDIARIES
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
UNITED FINANCIAL HOLDINGS, INC.
(Registrant)
Date: November 12, 1999 By: /s/ NEIL W. SAVAGE
--------------------- -------------------
Neil W. Savage
President and
Chief Executive Officer
Date: November 12, 1999 By: /s/ C. PETER BARDIN
--------------------- --------------------
C. Peter Bardin
Senior Vice President
and Chief Financial
Officer (Principal
Financial and Accounting
Officer)
21
August 24, 1999
Neil W. Savage
President and Chief Executive Officer
United Financial Holdings, Inc.
Dear Neil:
When your Salary Continuation Plan dated August 25, 1994 was terminated on
December 5, 1997, provisions in the agreement were inadvertently terminated.
Specifically, the terminated plan effectively compensated for the economic loss
of $36,000 resulting from the transfer of your Split Dollar Life Insurance
agreement, also dated August 25, 1994. With the termination of the Salary
Continuation Plan, this portion of the agreement was eliminated when, in fact,
it should have remained in effect.
The purpose of this letter is to reinstate the payment provision of $36,000 from
the terminated plan subject to the following terms and conditions:
1. PRE-RETIREMENT DEATH. Should you die prior to age sixty-five (65), but
while in the employ of the Corporation, then for a period of twelve (12)
consecutive months, the Corporation will pay "Benefit Income" of Three
Thousand Dollars ($3.000) each month to your designated
beneficiary(ies), or, if none, to your surviving spouse, or, if your
spouse does not survive you, then to your surviving child or children in
equal shares, or, if there is no surviving child, then to your estate.
Payment of Benefit Income shall commence on the first day of the second
calendar month following the date of your death.
a. In the event the beneficiary dies after you but while receiving
Benefit Income, the beneficiary may designate a successor
beneficiary to himself or herself as to any Benefit Income yet
payable to him or her. In the absence of such designation, the
remaining Benefit Income shall be paid to the estate of the
beneficiary upon the beneficiary's death.
b. Beneficiaries designated may be changed at any time.
c. Beneficiaries shall be designated in writing accepted by the
Corporation and executed by you in the presence of two (2)
witnesses.
2. TERMINATION OF EMPLOYMENT PRIOR TO AGE SIXTY-FIVE. In the event your
employment with Corporation terminates during your lifetime, prior to
reaching age sixty-five (65), then for a period of twelve (12) consecutive
months, the Corporation will pay you "Benefit Income" of Three Thousand
Dollars ($3,000) each month. Payment of Benefit Income shall commence on
the first day of the second calendar month following the date of
termination. In the event you shall die after said payments of Benefit
Income have become due but before the expiration of the twelve (12) month
period, the payment of Benefit Income will continue through the remainder
of the twelve (12) month period to those beneficiaries provided in
paragraph 1.a. above.
<PAGE>
Neil W. Savage
Page 2
3. CHANGE IN CONTROL OF CORPORATION. In the event a change in control
application is filed with and approved by the Federal Reserve Bank and
prior to reaching age sixty-five (65), then, whether or not you continue in
the employ of the Corporation, for a period of twelve (12) consecutive
months, the Corporation will pay you "Benefit Income" of Three Thousand
Dollars ($3,000) each month. Payment of Benefit Income shall commence on
the first day of the second calendar month following the date of Change in
Control. In the event you shall die after said payments of Benefit Income
have become due but before expiration of the twelve (12) month period, the
payment of Benefit Income will continue through the remainder of the twelve
month period to those beneficiaries provided in paragraph 1.a. above.
4. RETIREMENT BENEFIT. Should you still be in the employ of the Corporation
when you reach age sixty-five (65), then upon your retirement from
employment with the Corporation on or after age sixty-five (65), the
Corporation will pay you for a period of twelve (12) consecutive months
Three Thousand Dollars ($3,000) each month. Payment of Benefit Income shall
commence on the first day of the second calendar month following the date
of your retirement. In the event you shall die after said payments of
Benefit Income have become due but before expiration of the twelve (12)
month period, the payment of Benefit Income will continue through the
remainder of the twelve month period to those beneficiaries provided in
paragraph 1.a. above.
This issue was presented to the Strategic Review Committee and received its
approval at the August 24, 1999 meeting. The Strategic Review Committee
recommended its adoption at the next regularly scheduled Board meeting of United
Financial Holdings, Inc..
If you are in agreement with the terms and conditions as outlined above, please
indicate your agreement below. A copy of this letter will be maintained in the
files of the Human Resources Department.
Sincerely,
Jack B. Norrie
Chairman
United Financial Holdings, Inc.
Agreed: Witness: ___________________
- -------------------
Neil W. Savage
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,896
<INT-BEARING-DEPOSITS> 157
<FED-FUNDS-SOLD> 5,707
<TRADING-ASSETS> 187
<INVESTMENTS-HELD-FOR-SALE> 10,204
<INVESTMENTS-CARRYING> 14,778
<INVESTMENTS-MARKET> 14,506
<LOANS> 147,221
<ALLOWANCE> 2,181
<TOTAL-ASSETS> 203,254
<DEPOSITS> 171,553
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,096
<LONG-TERM> 630
0
100
<COMMON> 42
<OTHER-SE> 16,232
<TOTAL-LIABILITIES-AND-EQUITY> 203,254
<INTEREST-LOAN> 9,167
<INTEREST-INVEST> 1,292
<INTEREST-OTHER> 204
<INTEREST-TOTAL> 10,663
<INTEREST-DEPOSIT> 3,567
<INTEREST-EXPENSE> 4,223
<INTEREST-INCOME-NET> 6,440
<LOAN-LOSSES> 610
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,183
<INCOME-PRETAX> 2,473
<INCOME-PRE-EXTRAORDINARY> 2,473
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,581
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 5.30
<LOANS-NON> 1,915
<LOANS-PAST> 383
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,984
<CHARGE-OFFS> 438
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 2,181
<ALLOWANCE-DOMESTIC> 2,181
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 278
</TABLE>
