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 JUNE 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 4,151,821
- -------------------------------------- -------------------------------
Class Outstanding as of July 31, 1999
<PAGE>
UNITED FINANCIAL HOLDINGS, INC.
INDEX
PAGE
================================================================================
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -
At June 30, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Earnings -
For the three month and six months ended June 30, 1999 and 1998 2
Condensed Consolidated Statements of Comprehensive Income -
For the three month and six months ended June 30, 1999 and 1998 3
Condensed Consolidated Statement of Stockholders' Equity -
For the six months ended June 30, 1999 4
Condensed Consolidated Statements of Cash Flows -
For the six months ended June 30, 1999 and 1998 5-6
Notes to Condensed Consolidated Financial Statements 7-9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 2. Changes in Securities and Use of Proceeds 17
ITEM 3. Defaults Upon Senior Securities 18
ITEM 4. Submission of Matters to a Vote of Shareholders 18
ITEM 5. Other Information 19
ITEM 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 19
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
United Financial Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
June 30, December 31,
ASSETS 1999 1998
---------- -----------
Cash and due from banks $ 7,087 $ 7,967
Federal funds sold 4,106 4,011
Trading securities 108 157
Securities held to maturity, market value
of $14,191 and $11,437 respectively 14,538 11,206
Securities available for sale, at market 11,520 14,527
Loans, net 128,646 116,546
Premises and equipment, net 9,854 9,275
Federal Home Loan Bank stock 507 433
Federal Reserve Bank stock 204 159
Intangible assets 1,521 1,451
Other real estate owned 1,079 1,015
Other assets 5,399 5,155
----------- ------------
Total assets $ 184,569 $ 171,902
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand $ 31,636 $ 27,742
NOW and money market 52,231 48,550
Savings & Time Deposits 70,446 62,803
----------- ------------
Total deposits 154,313 139,095
Securities sold under agreements to repurchase 5,319 8,796
Convertible subordinated debentures 630 630
Long-term debt - 34
Other liabilities 1,919 2,576
------------ ------------
Total liabilities 162,181 151,131
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 9,386 9,192
Common stock subscription receivable - (393)
Accumulated other comprehensive income (78) 141
Retained earnings 6,188 5,582
------------ --------------
Total stockholders' equity 15,638 14,771
------------ --------------
Total liabilities and stockholders' equity $ 184,569 $ 171,902
============ ==============
See accompanying notes to condensed consolidated financial statements.
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United Financial Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
--------- --------- --------- ---------
Interest income
Loans and loan fees $ 3,001 $ 2,446 $ 5,874 $ 4,871
Securities 440 441 861 810
Federal funds sold securities
purchased under reverse
repurchase agreements 85 194 133 326
--------- --------- --------- ---------
Total interest income 3,526 3,081 6,868 6,007
Interest expense
Deposits 1,187 1,277 2,272 2,394
Long-term debt and
other borrowings 59 46 125 130
Subordinated debentures
issued to subsidiary trust 158 - 365 -
--------- --------- --------- ---------
Total interest expense 1,404 1,323 2,762 2,524
--------- --------- --------- ---------
Net interest income 2,122 1,758 4,106 3,484
Provision for loan losses 180 160 405 250
--------- --------- --------- ---------
Net interest income after
provision for loan losses 1,942 1,598 3,701 3,233
Other income
Service charges on
deposit accounts 197 172 373 347
Trust and investment
management income 697 589 1,360 1,138
Gain on Sale of Loans 139 113 251 129
All other fees and income 174 226 346 374
--------- --------- --------- ---------
Total other income 1,207 1,100 2,330 1,988
Other expense
Salaries & employee benefits 1,198 1,128 2,564 2,263
Occupancy expense 130 143 260 291
Furniture & equipment expense 157 127 298 256
Data Processing 107 109 238 221
Marketing & business development 90 60 131 116
Other operating expenses 611 381 1,049 776
--------- --------- --------- ---------
2,293 1,948 4,540 3,923
--------- --------- --------- ---------
Earnings before income taxes 856 750 1,491 1,298
Income tax expense 319 298 549 512
--------- --------- --------- ---------
NET EARNINGS $ 537 $ 452 $ 942 $ 786
========= ========= ========= =========
Earnings Per Share:
Basic $ .13 $ .13 $ .23 $ .22
Diluted $ .12 $ .12 $ .22 $ .21
See accompanying notes to condensed consolidated financial statements.
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United Financial Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
--------- --------- --------- ---------
Net earnings $ 537 $ 452 $ 942 $ 786
Other comprehensive income
Unrealized holding
gains (losses) (215) 20 (332) 25
Income tax (expense) benefit
related to items of other
comprehensive income 73 (8) 113 (9)
--------- --------- --------- ---------
Comprehensive income $ 395 $ 464 $ 723 $ 802
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
(in thousands)
Accumu-
7% lated Stock
Convert- Other Subscrip-
ible Compre- tion Re-
Common Preferred Paid-In hensive Receiv- tained
Stock Stock Capital Income able Earnings Total
-------- --------- -------- -------- ------- -------- --------
Balance at
December 31,
1998 $ 40 $ 209 $ 9,192 $ 141 $ (393) $ 5,582 $14,771
Net Earnings - - - - - 942 942
Dividends on Common
& Preferred Stock - - - - - (336) (336)
IPO subscriptions &
costs - - (25) - 393 - 368
Accumulated other
comprehensive income - - - (219) - - (219)
Performance Shares
Issued 1 - 112 - - - 113
Conversion of 7%
Preferred to Common
Stock 1 (109) 107 - - - (1)
-------- --------- -------- -------- ------- -------- --------
Balance at
June 30, 1999 $ 42 $ 100 $ 9,386 $ (78)$ - $ 6,188 $15,638
======== ========= ======== ======== ======= ======== =======
See accompanying notes to condensed consolidated financial statements.
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United Financial Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Six Months Ended
June 30, June 30,
1999 1998
----------- -----------
Cash flows from operating activities:
Net earnings $ 942 $ 786
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities
Provision for loan losses 405 250
Provision for depreciation and amortization 384 320
Unrealized gain on trading securities (8) -
Accretion of securities discount (7) (25)
Amortization of unearned loan fees (75) (42)
Amortization of securities premiums 10 13
Gain on sales of loans (434) (198)
Decrease (increase) in interest receivable (88) 44
Increase in interest payable 23 3
(Increase) in other assets (330) (200)
Decrease in other liabilities (681) (381)
----------- -----------
Net cash provided by
operating activities 141 570
Cash flows from investing activities:
Purchase of Federal Reserve Bank stock
and FHLB stock (118) (73)
Net (increase) in Federal funds sold (95) (19,326)
Principal repayments of held to
maturity securities 1,090 340
Principal repayments of available for
sale securities 1,981 416
Proceeds from maturities of available for
sale securities 3,000 500
Proceeds from maturities of held to
maturity securities (170) 2,026
Purchases of available for sale securities (4,491) (5,649)
Purchases of held to maturity securities (1,899) (5,915)
Proceeds from sales of loans 4,457 1,649
Net (increase) in loans (16,455) (4,309)
Capital expenditures (922) (35)
----------- -----------
Net cash used in investing activities (13,622) (30,376)
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(unaudited)
(in thousands)
(continued)
Six Months Ended
June 30, June 30,
1999 1998
----------- ------------
Cash flows from financing activities:
Net increase in demand deposits, NOW accounts,
money market accounts and savings accounts $ 8,597 $ 28,954
Net (decrease) increase in certificates
of deposit 6,620 (1,488)
Net increase (decrease) in securities sold under (3,477) 3,088
agreements to repurchase
Repayment of long-term debt (34) (308)
Issuance of Company-obligated mandatory redeemable
capital securities of subsidiary trust holding solely
subordinated debentures of the Company 750 -
Issuance of common stock 480 284
Dividend paid on preferred stock (7) (8)
Dividend paid on common stock (328) (233)
----------- -----------
Net cash provided by financing activities 12,601 30,289
----------- -----------
Net increase in cash and due from banks (880) 483
Cash and due from banks at beginning of period 7,967 7,337
----------- -----------
Cash and due from banks at end of period $ 7,087 $ 7,820
=========== ===========
Cash paid during the period for:
Interest $ 2,739 $ 2,521
Income taxes $ 535 $ 391
Supplemental Disclosure of Non-cash Activity
Performance shares issued $ 113 $ 116
See accompanying notes to condensed consolidated financial statements.
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<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 six months
ended June 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).
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<PAGE>
For the three months ended June 30
----------------------------------
1999 1998
-------------------------- ----------------------------
Weighted Per Weighted Per
Average Share Average Share
Earnings Shares Amount Earnings Shares Amount
--------- --------- ------ --------- --------- ------
Basic EPS
Net earnings
available to
Common
Stockholders $ 530 4,061,313 $ .13 $ 444 3,493,150 $ .13
====== ======
Effect of dilutive securities
Incremental shares
from assumed exercise or
conversion of:
Convertible Debt 8 152,789 8 152,789
Preferred Stock 7 174,854 8 193,702
Stock Options 0 0 0 34,824
--------- --------- --------- ---------
Diluted EPS
Net earnings available to Common
Stockholders and assumed
conversions $ 545 4,388,956 $ .12 $ 460 3,874,465 $ .12
========= ========= ====== ========= ========= ======
For the six months ended June 30
----------------------------------
1999 1998
-------------------------- ----------------------------
Weighted Per Weighted Per
Average Share Average Share
Earnings Shares Amount Earnings Shares Amount
--------- --------- ------ --------- --------- ------
Basic EPS
Net earnings
available to Common
Stockholders $ 935 4,056,251 $ .23 $ 778 3,481,948 $ .22
====== ======
Effect of dilutive securities
Incremental shares
from assumed exercise or
conversion of:
Convertible Debt 16 152,789 16 152,789
Preferred Stock 7 175,355 8 195,315
Stock Options 0 0 0 34,824
--------- --------- --------- ---------
Diluted EPS
Net earnings available to Common
Stockholders and assumed
conversions $ 958 4,384,395 $ .22 $ 802 3,864,876 $ .21
========= ========= ====== ========= ========= ======
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<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.
COMPARISON OF BALANCE SHEETS AT JUNE 30, 1999 AND DECEMBER 31, 1998
Overview
Total assets of the Company were $184.6 million at June 30, 1999, compared
to $171.9 million at December 31, 1998, an increase of $12.7 million or 7.4%.
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 $26.1 million at June 30, 1999, compared to
$25.7 million at December 31, 1998, an increase of $0.4 million or 1.6%.
Included in investment securities at June 30, 1999, were $11.5 million of
securities held as "available for sale" to provide the Bank greater flexibility
to respond to changes in interest rates. These securities have been recorded at
market value.
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<PAGE>
Loans
Total loans were $131.5 million at June 30, 1999, compared to $119.2
million at December 31, 1998, an increase of $12.3 million or 10.3%. For the
same period, real estate mortgage loans increased by $5.8 million or 7.5%,
commercial loans increased by $6.7 million or 19.3%, and all other loans
including consumer loans decreased by $0.2 million or 3.2%. Loans net of
allowance for loan loss were $128.6 million at June 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):
June 30, 1999 December 31, 1998
Real estate mortgage loans:
Commercial real estate $ 67,487 $ 60,693
One-to-four family residential 6,171 7,075
Multifamily residential 6,687 6,673
Construction and land development 3,480 3,572
------------- -------------
Total real estate mortgage loans 83,835 78,013
Commercial loans 41,629 34,904
Consumer loans 4,497 4,438
Other loans 1,544 1,803
------------- -------------
Gross loans 131,505 119,158
Allowances for loan losses (2,076) (1,984)
Unearned fees (783) (628)
------------- -------------
Total loans net of allowance
and unearned fees $ 128,646 $ 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.
The methodologies for assessing the appropriateness of the allowance
consists of several key elements, which include: 1) the formula allowance; 2)
review of the underlying collateral on specific loans; and 3) historical loan
losses. The formula allowance 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 loss percentage is calculated and applied to the current outstanding loans
in total.
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<PAGE>
Various conditions which would affect the loan portfolio are also
evaluated. General economic and business conditions that affect the port-
folio 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 presents a
problem to the loan portfolio, 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 six months ended
June 30, 1999 June 30, 1998
-------------- --------------
Allowance at beginning of period $ 1,984 $ 1,648
Charge-offs:
Real estate loans 27 -
Commercial loans 269 131
Consumer loans 21 1
-------------- --------------
Total charge-offs 317 147
Recoveries:
Real estate loans - -
Commercial loans 4 8
Consumer loans - -
-------------- --------------
Total recoveries 4 8
Net charge-offs 313 138
Provision for loan losses 405 250
-------------- --------------
Allowance at end of period $ 2,076 $ 1,759
============== ==============
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.
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<PAGE>
The following table sets forth information regarding the components of
nonperforming assets at the dates indicated (dollars in thousands):
June 30, 1999 December 31, 1998
-------------- -----------------
Real estate loans $ 2,430 $ 2,820
Commercial loans 587 1,181
Consumer loans - -
-------------- -----------------
Total non-accrual loans(1) 3,017 4,001
Other Real Estate 1,074 1,015
Accruing Loans 90 days past due.. 552 449
-------------- -----------------
Total nonperforming assets $ 4,648 $ 5,465
============== =================
(1) $1,391 of the non-accrual loans as of June 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 was $9.9 million at June 30, 1999, compared to
$9.3 million at December 31, 1998, an increase of $.6 million or 6.5%. 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.
Deposits
Total deposits were $154.3 million at June 30, 1999, compared to $139.1
million at December 31, 1998, an increase of $15.2 million or 10.9%. During the
six months ended June 30, 1999, demand deposits increased $3.9 million, NOW and
money market deposits increased $3.7 million, and savings deposits and time
deposits increased $7.6 million.
Long-term Debt and Convertible Subordinated Debentures
There was no long-term debt outstanding (excluding convertible
subordinated debentures) at June 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.
Stockholders' Equity
Stockholders' equity was $15.6 million at June 30, 1999, or 8.45% of total
assets, compared to $14.8 million, or 8.61% of total assets at December 31,
1998. At June 30, 1999, the Bank's Tier I (core) Capital ratio was 7.54%, its
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<PAGE>
Tier I Risk-based Capital ratio was 9.11%, and its Total Risk-based Capital
ratio was 10.36%. 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
JUNE 30, 1999 AND 1998
Overview
Net income for the three months ended June 30, 1999 was $537 thousand or
$0.12 per share diluted, compared to $452 thousand or $0.12 per share diluted
for the same period in 1998. On a pre-tax basis, United Trust earned $83
thousand in 1999 versus $43 thousand in 1998, EPW's pre-tax operating profits
(before deducting $35 thousand of costs associated with the issuance of
performance shares in 1998) increased to $107 thousand from $79 thousand during
this period and the Bank's pre-tax profits increased to $890 thousand from $732
thousand during this same period.
Analysis of Net Interest Income
Interest income for the three months ended June 30, 1999 was $3.5 million,
compared to $3.1 million for the same period in 1998, a $0.4 million or 12.9%
increase. This increase in interest income is primarily due to an increase in
earning assets, consisting mostly of loans. Interest expense was $1.4 million
for the three months ended June 30, 1999, compared to $1.3 million for the same
period in 1998, a $0.1 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 three months ended June 30, 1999, the provision for loan losses
charged to expense was $180 thousand, compared to $160 thousand for the same
period in 1998, an increase of $20 thousand or 12.5%. The allowance of possible
loan losses was $2.1 million at June 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 June 30, 1999 was $1.2
million compared to $1.1 million for the same period in 1998, an increase of
$0.1 million or 9.1%. This increase was primarily due to increased revenues from
EPW and United Trust whose combined revenues increased $108 thousand during this
period.
Noninterest Expense
Total noninterest expense for the three months ended June 30, 1999 was
$2.3 million, compared to $1.9 million for the same period in 1998, an increase
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of $0.4 million or 21.1%. This increase was due to increases in salary and
benefits expense of $70 thousand, furniture and equipment expense of $30
thousand, marketing and business development expense of $30 thousand, and other
operating expense of $230 thousand, which includes $70 thousand in consulting
expense, legal and professional fees of $41 thousand and REO expense of $21
thousand.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998
Overview
Net income for the six months ended June 30, 1999 was $942 thousand or
$0.22 per share diluted, compared to $786 thousand or $0.21 per share diluted
for the same period in 1998. On a pre-tax basis, United Trust earned $130
thousand in 1999 versus $42 thousand in 1998, EPW's pre-tax operating profits
increased to $78 thousand from $72 thousand during this period and the Bank's
pre-tax profits increased to $1,675 thousand from $1,337 thousand during this
same period.
Analysis of Net Interest Income
Interest income for the six months ended June 30, 1999 was $6.9 million,
compared to $6.0 million for the same period in 1998, a $0.9 million or 15.0%
increase. This increase in interest income is primarily due to an increase in
earning assets, consisting mostly of loans. Interest expense was $2.8 million
for the six months ended June 30, 1999, compared to $2.5 million for the same
period in 1998, a $0.3 million or 12.0% 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 six months ended June 30, 1999, the provision for loan losses
charged to expense was $405 thousand, compared to $250 thousand for the same
period in 1998, an increase of $155 thousand or 62.0%. The allowance of possible
loan losses was $2.1 million at June 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 six months ended June 30, 1999 was $2.3 million
compared to $2.0 million for the same period in 1998, an increase of $0.3
million or 15.0%. This increase was primarily due to increased revenues from EPW
and United Trust whose combined revenues increased $222 thousand during this
period and gains on the sale of SBA loans, which increased by $122 thousand.
Noninterest Expense
Total noninterest expense for the six months ended June 30, 1999 was $4.5
million, compared to $3.9 million for the same period in 1998, an increase of
$0.6 million or 15.4%. Substantially all of this increase occurred in salaries
-14-
<PAGE>
and benefits expense, and includes $90 thousand related to the cash payment in
lieu of the issuance of performance shares in connection with the acquisition of
EPW.
LIQUIDITY
During the six months ended June 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,
to purchase loan participations and to purchase securities. At June 30, 1999,
the Company had commitments to originate loans totaling $6.5 million. Management
believes the Company has 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 June 30, 1999, the Bank had
liquidity of approximately $24 million, or approximately 16% of total deposits.
Management believes the Bank was in compliance with all minimum capital
requirements which it was subject to at June 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
-15-
<PAGE>
and the efforts of third parties to timely and properly address the Year 2000
issues that have been identified. Testing and validation of the actions that
have been taken thus far 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
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
$125,000 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.
-16-
<PAGE>
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.
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 six months
ended June 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. The balance was used for
general corporate purposes.
On February 26, 1999 an aggregate of 14,744 shares 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.
-17-
<PAGE>
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. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Annual Meeting of Shareholders (the "Annual Meeting") of the
Company was held on April 27, 1999. At the Annual Meeting 2,799,109 shares were
present in person or by proxy. The following matters were submitted to a vote of
shareholders:
1. To elect four persons as members of the Board of Directors.
The following directors were elected with a summary of the votes cast for
each nominee:
FOR AGAINST ABSTAIN TERM
Ronald E. Clampitt 2,791,009 8,100 - 3 years
William A. Eickhoff 2,791,009 8,100 - 3 years
Charles O. Lowe 2,791,009 8,100 - 3 years
John B. Norrie 2,791,009 8,100 - 3 years
In addition to the foregoing, the following individuals are directors of
United Financial whose terms continued after the Annual Meeting:
Ward J. Curtis Ronald R. Petrini
David K. Davis, M.D. Neil W. Savage
Edward D. Foreman John B. Wier
Ian F. Irwin Harold J. Winner
Jack A. MaCris, M.D.
2. To ratify the appointment of Grant Thornton L.L.P. as the Company's
independent auditors for 1999.
FOR AGAINST ABSTAIN
2,782,891 - 16,218
-18-
<PAGE>
Grant Thornton was retained as independent accountants for the Company.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
There were no exhibits filed during the period ending June 30, 1999.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the period ending June 30,
1999.
================================================================================
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: August 12, 1999 By: /s/ NEIL W. SAVAGE
------------------- ---------------------
Neil W. Savage
President and Chief
Executive Officer
Date: August 12,1999 By: /s/ C. PETER BARDIN
------------------- ---------------------
C. Peter Bardin
Senior Vice President
and Chief Financial
Officer
(Principal Financial
and Accounting Officer)
-19-
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