UNITED FINANCIAL HOLDINGS, INC. FORM 10-KSB
FORM 10-KSB
Fiscal Year Ended December 31, 1998
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Item Number in
FORM 10-KSB...........................................................PAGE No.
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PART I
1. Description of Business ...................................................3
2. Description of Property ..................................................21
3. Legal Proceedings. .......................................................22
4. Submission of Matters to a Vote of Security-Holders ......................22
PART II
5. Market for Common Equity and Related Stockholder Matters..................22
6. Management's Discussion and Analysis or Plan of Operation.................23
7. Consolidated Financial Statements.........................................54
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................................54
PART III
9. Directors, Executive Officers, Promoters and Control Persons
Compliance with Section 16(a) of the Exchange Act.........................54
10. Executive Compensation...................................................54
11. Security Ownership of Certain Beneficial Owners and Management...........54
12. Certain Relationships and Related Transactions...........................55
13. Exhibits and Reports on Form 8-K.........................................55
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
United Financial Holdings, Inc. (the "Company") is a registered bank
holding company formed in 1982, the principal subsidiary of which is United Bank
and Trust Company (the "Bank"), a Florida-chartered commercial bank
headquartered in St. Petersburg, Florida. The Bank was founded in 1979 and is a
community-oriented, full service commercial bank with four branch offices
serving the southern Pinellas County area of the State of Florida. The Bank
provides a broad range of traditional banking services with emphasis on
commercial loans and loans under the lending program of the U.S. Small Business
Administration (the "SBA"). The Company's operations include three business
segments: commercial banking, trust services, and investment advisory services,
which constituted 91.2%, 5.9% and 2.9%, respectively, of the Company's 1998 net
income before taxes and corporate overhead. At December 31, 1998, the Company
had consolidated total assets of $171.9 million, net loans of $116.5 million,
deposits of $139.1 million and stockholders' equity of $14.8 million. .
The Bank is a community-oriented full service, commercial bank and
currently operating from four branch offices serving the southern Pinellas
County area of the State of Florida. It offers consumer and commercial loans,
ATM cards, credit cards, and a full range of deposit account types including
demand deposits, NOW accounts, money market accounts, savings accounts, and
certificates of deposit. The primary focus of the Bank's commercial lending
activities is on loans to small and medium sized businesses and professional
firms. The Bank's commercial loans include loans secured by real estate or other
assets, loans made under the SBA's lending program and secured and unsecured
loans to small businesses. The Company believes the Bank is one of the largest
originators, among similarly sized financial institutions, of SBA loans in the
State of Florida (measured by dollar volume of loans originated).
The Company's other operating subsidiaries are Eickhoff, Pieper, &
Willoughby, Inc., an investment advisory firm registered under the Investment
Advisers Act of 1940 ("EPW") headquartered in Tampa, Florida, with an office in
Jacksonville, Florida, and United Trust Company, a Florida-chartered trust
company ("United Trust") registered with the Department and located in St.
Petersburg, Florida. EPW offers investment management services to corporate,
municipal and high net worth individual clients throughout the State of Florida.
As of December 31, 1998, EPW had $328.7 million in assets under management.
United Trust is a wholesale provider of data processing, administrative and
accounting support and asset custody services to professionals holding assets in
trust (primarily legal and accounting firms). United Trust also provides retail
trust and investment management services to individual and corporate clients. As
of December 31, 1998, United Trust had $269.7 million in assets under trust.
BACKGROUND
In 1986 a group of investors, headed by Neil W. Savage, the Company's
President and Chief Executive Officer and the Bank's Chairman and Chief
Executive Officer, acquired control of the Company, then known as Pinellas
Bancshares Corporation. The Company's name was changed to its present name in
1995 and the Bank's name was changed from United Bank of Pinellas to its present
name that same year.
In September 1995 the Company purchased FSC, a trust data processing and
accounting service for professionals, and merged this entity into the Company.
In January 1996, the Company acquired EPW. The Company formed United Trust
during the fourth quarter of 1997 and effective December 31, 1997, transferred
all of the Bank's trust assets to United Trust.
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RECENT DEVELOPMENTS
On December 16, 1998, the Company completed an Initial Public Offering
(IPO) in which it issued 507,705 shares of common stock at a price of $7.25 per
share. The common stock trades on the NASDAQ Small Cap Market under the symbol
"UFHI". Prior to the IPO, the stock was not regularly traded on any organized
market or stock exchange. Concurrent with the common stock offering, the Company
issued through UFH Capital Trust I, 1,349,920 shares of $5.00 par value Trust
Preferred securities with an annual dividend rate of 9.40%. The Trust Preferred
securities trade on the NASDAQ Small Cap Market under the symbol "UFHIP".
Proceeds from the offering totaled $9,554,011 net of underwriting fees and Trust
Preferred costs of $876,450.
On January 4, 1999, the Bank completed the purchase of a bank branch site
at 7490 Bryan Dairy Road in Pinellas Park for $400,000. The Bank has received
regulatory approval to establish its fifth banking location at this site and
intends to have this branch open during the second quarter of 1999.
BUSINESS STRATEGY
The principal elements of the Company's business strategy are to increase
its market share in its existing business segments and to seek out niche
business segments in which the Company can compete effectively in order to
create new sources of non-interest income and increase traditional interest
income from new lending opportunities. The Company has sought to implement its
strategy of increasing its market share in its existing business segments by
expanding the Bank's market coverage through DE NOVO branching, increasing the
Bank's emphasis on originating loans secured by real estate and other assets for
its own portfolio, pursuing small business secured and unsecured lending for its
own portfolio, and continuing to originate a high volume of SBA loans, both for
its own portfolio and for sale in the secondary market. A primary element of the
Company's business strategy as a community banking organization is to seek to
provide customers with a level of personalized service exceeding that provided
by its competitors, including the local banking operations of large regional and
national banking companies.
The Company has sought to add new sources of non-interest income through
the creation of United Trust, which receives fees for the wholesale trust
services it offers to legal and accounting firms and the retail trust and
investment management services it offers to other clients, and the acquisition
of EPW, which generates fee income from the investment management services it
offers to corporate, municipal and high net worth individual clients. By
expanding the range of trust and investment management services it offers, the
Company seeks to differentiate itself from other similarly sized community
banking organizations operating in the Company's market. While pursuing these
strategies, management remains committed to improving asset quality, managing
interest rate risk, enhancing profitability and maintaining its status as a
well-capitalized institution for regulatory capital purposes.
The results of the Company's business strategy have been substantial asset
and revenue growth. The Company's total assets have increased from approximately
$106.6 million at December 31, 1995 to $171.9 million at December 31, 1998. The
Company's consolidated net revenues increased from $7.1 million for the year
ended December 31, 1995 to $11.5 million for the year ended December 31, 1998.
During this period of asset and revenue growth, the Company's net income
increased from $1.5 million for the year ended December 31, 1995 to $1.8 million
for the year ended December 31, 1998.
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The Company intends to continue selectively adding branches in its market
area, and recently completed its purchase of a new branch site. The Company has
no current plans to add Bank branches outside of the Pinellas County market. The
Company's current goal is to try and open one new branch each year. Accordingly,
in the future, the Company may consider strategic expansion though the
acquisition of other banks or bank branches or by DE NOVO branching. Similar to
the Company's previous efforts that resulted in it establishing United Trust and
acquiring EPW, the Company may consider from time to time expansion
opportunities into other business lines that might add to the Company's
non-interest income and the acquisition or development of other businesses that
the Company considers complementary to its existing business. For example, the
Company recently commenced efforts to consider the feasibility of making a
minority investment in an existing or new property casualty insurance company.
From time to time, the Company may commence similar exploratory efforts to
evaluate the possibility of acquiring or establishing similar or additional
lines of business.
MARKET AREA
Currently, the Bank has four offices located in southern Pinellas County,
Florida, which is the Bank's primary market area. The population of Pinellas
County was estimated to be 888,000 on April 1, 1997 by the University of
Florida's Bureau of Economic and Business Research. This compares with a
population of 852,000 at the 1990 census and 729,000 at the 1980 census.
Pinellas County has been a retirement and tourism destination for many years,
and over 25% of its population is over 65 years of age, compared with a state
wide average of 18.6%.
According to information published by the Florida Bankers Association, as
of December 31, 1997, Pinellas County was the fourth largest county in Florida
in terms of bank and thrift deposits, with total deposits of $12.2 billion, or
6.49% of the state's total deposits. There is a significant seasonal population
increase during the months of November to April of each year; seasonal residents
are not included in the cited population statistics. The Company believes that
while the population of Pinellas County will continue to grow, the rate of
growth is likely to be lower than the population growth rate of the State of
Florida as a whole, and is likely to slow due to the nature of the market area.
As a peninsula surrounded on the south, east and west by water, Pinellas County
has limited room for future development. The local economy is dependent upon
service industries, manufacturing, tourism, and medical facilities as its major
sources of employment and commerce.
United Trust's primary market for retail business is also Pinellas County.
Its wholesale services are marketed more widely to the Tampa Bay Area,
consisting of Pinellas, Hillsborough, Pasco and Manatee Counties. EPW markets
its services to high net worth individuals and to commercial and governmental
clients throughout the State of Florida and secondarily in the Southeastern
United States.
Pinellas County is a highly competitive market for financial, trust and
investment services. The Bank faces competition for deposits from other
commercial banks, thrift institutions, money market funds and credit unions.
Competition for loans of the types originated by the Bank is also strong.
Management believes that Pinellas County is considered an attractive market by
financial institutions seeking to obtain deposits, as evidenced by the 293
offices of commercial banks and thrift institutions existing in Pinellas County
at December 31, 1997.
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OPERATING STRATEGY
Management of the Company believes that the consolidation of the banking
industry and the emergence of large regional and national bank holding companies
has created opportunities for locally-owned and operated financial institutions
to effectively compete for customers who desire a level of personalized banking
services that the large banking organizations may not be able to offer. The Bank
was organized as a community financial institution owned and managed by people
who are actively involved in the Bank's local market area and committed to the
area's economic growth and development. With local ownership and management, the
Company believes that the Bank can be more responsive to the banking needs of
the community it serves and can tailor its services to meet its customers' needs
rather than providing the standardized services that larger bank holding
companies tend to offer.
Local ownership and operation allows the Bank faster, more responsive and
flexible decision-making which may not be available at the branch offices of the
large bank holding companies which constitute the majority of the financial
institution offices located in the Bank's market area.
The principal business of the Bank is to attract deposits from the general
public and to invest those funds in various types of loans and other
interest-earning assets. The Bank's earnings depend primarily upon the
difference between (i) the interest and fees received by the Bank from loans,
the securities held in its investment portfolio, and other investments; and (ii)
expenses incurred by the Bank in connection with obtaining funds for lending
(including interest paid on deposits and other borrowings) and expenses relating
to day-to-day operations.
The Bank's customers are primarily individuals (including seasonal
residents), professionals and small and medium size businesses, located
predominantly in Pinellas County, Florida. The Bank seeks to develop new
business through an ongoing program of personal calls on both present and
potential customers. As a local independent bank, the Bank utilizes traditional
local advertising media as well as direct mailings, telephone contacts, and
brochures to promote the Bank and develop loans and deposits. In addition, the
Bank's directors all have worked or lived in or near the Bank's market area for
a number of years, contributing to the Bank's image as a locally-oriented
independent institution, which management believes is an important factor to its
targeted customer base.
SOURCES OF FUNDS
The primary source of funds for lending, investment and other general
business purposes is deposit accounts. Other sources of funds are loan
repayments, proceeds from the sale of loans and investment securities, and
borrowings. The Bank expects that loan repayments will be a relatively stable
source of funds, while levels of deposits maintained at the Bank will be
significantly influenced by general interest rate and money market conditions.
Generally, the Company may use short-term borrowings to compensate for
reductions in sources of funds normally available, while longer term borrowings
may be used to support expanded lending activities. Management believes that the
Company's funding requirements can be met through retail deposits in the
Company's local market area without reliance on brokered deposits. For
additional discussion of asset and liability management policies and strategies,
see "Liquidity and Asset/Liability Management."
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As of December 31, 1998, the scheduled maturities of deposits of $100,000
or more were as follows (dollars in thousands):
Three months or less.......................................... $ 4,466
Over three through six months................................. 1,482
Six through twelve months..................................... 4,594
Over twelve months............................................ 921
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$ 11,463
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The Bank offers a full range of deposit services, including checking and
other transaction accounts, savings accounts and time deposits. The following
table sets forth the principal types of deposit accounts offered and the
aggregate amounts of such accounts at December 31, 1998 (dollars in thousands):
Weighted Percent
Average of Total
Interest Rate Amount Deposits
============== ========= ========
Non-interest bearing............. 0.00% $ 27,742 19.9%
NOW and Money Market accounts.... 3.11 48,550 34.9%
Savings.......................... 2.05 4,687 3.4$
Time deposits with original
maturities of:
One year or less.............. 5.04 47,949 34.5%
Over 1 year through 5 years... 5.78 10,168 7.3%
-------- -----
Total time deposits......... 5.15 58,117 41.8%
-------- -----
Total deposits.............. 3.48% $139,096 100.0%
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At December 31, 1998, scheduled maturities of time deposits were as
follows (dollars in thousands):
Period Ended December 31, Percent of
Time Time
Deposits Deposits
---------- -----------
1999............................. $ 47,949 82.5%
2000-2001........................ 6,395 11.0%
2002-2006........................ 3,773 6.5%
---------- ---------
Total time deposits............ $ 58,117 100.0%
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LENDING ACTIVITIES
The primary source of income generated by the Bank is interest earned on
loans held in the Bank's loan portfolio. The Bank's lending activities include
commercial, real estate and consumer loans. During 1998, the Bank's net loans
increased $21.7 million.
COMMERCIAL LOANS. The Bank offers commercial loans for working capital
purposes, business expansion, seasonal needs, acquisition of equipment, and
other business needs. Collateral pledged to secure these loans may include
equipment, accounts receivable, or other assets. The Bank often requires
personal guarantees of these loans.
SBA LOANS. The SBA lending program was established by Congress in 1953 to
assist new and established small businesses in obtaining necessary capital.
Under this program, the SBA guarantees up to 90% of the principal balance of the
loan, subject to a maximum guarantee per loan of $750,000, thereby removing a
portion of the credit risk to the lending financial institution and generally
enabling lenders to offer loans under this program at more attractive interest
rates for borrowers than other available financing. The SBA loans originated by
the Company typically have SBA guarantees for 60% to 90% of the principal
balance of the loan. The existence of a secondary market for the guaranteed
portion of the SBA loans provides the Bank an opportunity to sell the guaranteed
portion of the loans and obtain additional liquidity and income. The Bank
typically services such loans and receives servicing fees with respect to such
loans.
The only loans sold by the Bank during 1998, 1997 and 1996 were SBA loans.
When the Bank sells an SBA loan and retains the servicing of the loan, a
servicing asset is recorded. The book value of such assets, which the Company
believes approximates the fair value of such assets, at December 31, 1998,
December 31, 1997, and December 31, 1996 was $141 thousand, $78 thousand, and
$83 thousand, respectively. Amortization expense relating to such servicing
assets of $13 thousand and $2 thousand was recorded for 1998 and 1997,
respectively. The Company periodically reviews these assets for impairment. No
valuation for impairment of these assets was deemed necessary for the periods
presented.
At December 31, 1996, the Bank had $7.0 million of SBA loans, of which
approximately 27.0% was guaranteed by the SBA. During 1996, the Bank sold
guaranteed portions of its SBA loans totaling $5.2 million. At December 31,
1997, the Bank had $5.7 million of SBA loans, of which approximately 19.0% was
guaranteed by the SBA. During 1997, the Bank sold guaranteed portions of its SBA
loans totaling $3.7 million. . At December 31, 1998, the Bank had $6.6 million
of SBA loans, of which approximately 22.0% was guaranteed by the SBA. During
1998, the Bank sold guaranteed portions of its SBA loans totaling $2.9 million.
The Bank recognized gains on the sale of SBA loans during 1996, 1997 and 1998 of
$425 thousand, $290 thousand and $239 thousand respectively, and had loan
servicing fees on SBA loans during 1996, 1997 and 1998 of $153 thousand, $164
thousand and $144 thousand respectively.
REAL ESTATE LOANS. The Bank offers commercial and, on a limited basis,
residential real estate loans. Commercial real estate loans are made for general
corporate purposes, construction and expansion of facilities. Residential loans
are made in the form of fixed and variable rate mortgages and home equity loans.
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The following tables set forth information concerning the loan portfolio,
based on total dollars and percent of portfolio, by collateral type as of the
dates indicated (dollars in thousands):
AT DECEMBER 31,
1998 1997 1996
------- ------- --------
Real estate mortgage loans:
Commercial real estate .................. $60,693 $44,547 $38,074
One-to-four family residential .......... 7,075 7,482 6,716
Multifamily residential ................. 6,673 5,485 2,898
Construction and land development ....... 3,572 3,071 1,795
------- ------- -------
Total real estate mortgage loans ...... 78,013 60,585 49,483
Commercial loans ........................ 34,904 30,536 25,239
Consumer loans .......................... 4,438 3,998 3,831
Other loans ............................. 1,803 1,871 2,661
------- ------- -------
Gross loans ........................... 119,158 96,990 81,214
Allowances for loan losses .............. (1,984) (1,648 (1,610)
Unearned fees ........................... (628) (521) (341)
-------- ------- -------
Total loans net of allowance and unearned fees $116,546 $ 94,821 $79,263
======== ======== =======
AT DECEMBER 31,
1998 1997 1996
------- ------- --------
Real estate mortgage loans:
Commercial real estate ........... 50.9% 45.9% 46.9%
One-to-four family residential ... 5.9 7.7 8.2
Multifamily residential .......... 5.6 5.7 3.6
Construction and land development 3.1 3.2 2.2
---- ---- ----
Total real estate mortgage loans 65.5 62.5 60.9
Commercial loans.................. 29.3 31.5 31.1
Consumer loans.................... 3.7 4.1 4.7
Other Loans....................... 1.5 1.9 3.3
----- ----- -----
Gross loans....................... 100.0% 100.0% 100.0%
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The following table sets forth the contractual amortization of real estate
and commercial loans at December 31, 1998 and December 31, 1997. Loans having no
stated schedule of repayments and no stated maturity are reported as due in one
year or less. The table also sets forth the dollar amount of loans scheduled to
mature after one year, according to their interest rate characteristics (dollars
in thousands):
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DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- -------------------
Real Real
Estate Commercial Estate Commercial
--------- ---------- --------- ----------
Amounts due:
One year or less............... $ 27,448 $ 24,751 $ 29,645 $ 22,250
After one through five years... 40,433 9,722 30,409 7,518
More than five years........... 10,132 431 531 768
---------- -------- --------- ---------
Total...................... $ 78,013 $ 34,904 $ 60,585 $ 30,536
========= ======== ========= =========
Interest rate terms on amounts due after one year:
Adjustable..................... $ 29,195 $ 3,042 $ 20,774 $ 3,489
Fixed.......................... 21,370 7,111 10,166 4,797
--------- -------- --------- ---------
Total...................... $ 50,565 $ 10,153 $ 30,940 $ 8,286
========= ======== ========= =========
INVESTMENT MANAGEMENT SERVICES
EPW offers investment management services to high net worth individuals,
corporate pension and profit sharing plans, charitable entities, and state and
local government pension plans. EPW receives fees for its services which vary
according to the amount of assets in the account under management. EPW markets
its services throughout the State of Florida.
TRUST SERVICES
United Trust offers wholesale trust services that include on-line trust
account information processing, asset custody and investment support services.
These services are offered to legal and accounting firms and to other
custodians. United Trust also offers retail trust services including investment
management, probate and custodian services which are marketed principally to
customers of the Bank and EPW and clients of local attorneys and accountants.
CREDIT ADMINISTRATION
The loan approval process consists of a combination of individual and
committee loan authority. Individual lending authority is based upon experience
and is broken down into secured and unsecured requests. The Officers' Loan
Committee (the "Officers' Loan Committee") is made up of commercial lenders and
credit administration personnel. The Officers' Loan Committee currently has
final approval on all unsecured credit for $50,000 to $500,000 and secured
credits for $150,000 to $500,000. The General Loan Committee (the "General Loan
Committee") is made up of four non-employee directors, the Chairman of the Board
of Directors of the Company ("Board of Directors") and the President of the
Bank. The General Loan Committee has final approval authority for all loans from
$500,000 to the legal lending limit of the Bank, except for loans involving
directors of the Bank which must be approved by a vote of the full Board of
Directors with the interested director not present during the loan discussion
and vote.
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The Company has a policies and procedures manual that addresses the
specific underwriting guidelines for specific types of credits. Any deviation
from these guidelines is considered to be a policy exception that must be
outlined during the approval process and voted upon by the appropriate committee
or approved by a loan officer with sufficient lending authority. The guidelines
are reviewed and approved by the Board of Directors on an annual basis.
The Company's lending philosophy is to extend credit to businesses or
individuals in the Bank's market area who demonstrate sufficient cash flow to
repay the debt and whose track record indicate they are borrowers with whom the
Bank desires to establish an ongoing lending relationship.
The loan portfolio is under continued review in order to monitor potential
credit deterioration. Loans are graded at their inception by the loan officers.
Credit administration reviews existing credits on an on-going basis. The Company
also employs an independent third-party loan review company which reviews
specific larger size credits on a quarterly basis. This quarterly review is
presented to the General Loan Committee for its further review.
ASSET QUALITY
ALLOWANCE/PROVISION FOR LOAN LOSSES. The allowance for loan losses
represents management's estimate of an amount adequate to provide for potential
losses within the existing loan portfolio. The 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.
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 presents a problem to the
loan portfolio, an additional allocation may be recommended.
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The following table sets forth information concerning the activity in the
allowance for loan losses during the periods indicated (dollars in thousands):
AT DECEMBER 31,
1998 1997 1996
------ ------ ------
Allowance at beginning of period $1,647 $1,610 $1,527
Charge-offs:
Real estate loans ............ 195 - -
Commercial loans ............. 212 52 38
Consumer loans ............... 19 39 31
------ ------ ------
Total charge-offs ........ 426 91 69
Recoveries:
Real estate loans ............ - - -
Commercial loans ............. 9 38 1
Consumer loans ............... 2 - 1
------ ------ ------
Total recoveries ......... 11 38 2
Net charge-offs ................ 415 53 67
Provision for loan losses ...... 752 90 150
------ ------ ------
Allowance at end of period ..... $1,984 $1,647 $1,610
====== ====== ======
The following table presents information regarding the Company's total
allowance for loan losses as well as its general allocation of such amount to
the various loan categories based upon management's estimates (dollars in
thousands).
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
---------------- ---------------- --------------
ALLOWANCE ALLOCATION Percen- Percent- Percent-
age age age
of Loan of Loan of Loan
Port- Port- Port-
Amount folio Amount folio Amount folio
-------- ------ ------- ------ ------- --------
Performing/not classified:
Commercial Loans.......... $ 485 27% $ 368 31% $ 324 30%
Real Estate Loans......... 607 59 459 53 406 55
Consumer Loans............ 121 7 92 9 81 10
------ ---- ------ ---- ------ ----
Subtotal.................. 1,213 93 919 93 811 95
Non-performing/ classified:
Marginal.................. 29 3 2 5 - 0
Substandard............... 677 4 483 2 221 5
Doubtful.................. 51 0 - 0 - 0
Loss...................... - 0 - 0 - 0
------ ---- ------ ---- ------ ----
Subtotal.................. 757 8 485 7 221 5
Unallocated............... 14 0 243 0 578 0
------ ---- ------ ---- ------ ----
Total..................... $1,984 100% $1,647 100% $1,610 100%
====== ==== ====== ==== ====== ====
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NONPERFORMING ASSETS. Nonperforming assets include (i) loans which are 90
days or more past due and have been placed into non-accrual status, (ii)
accruing loans that are 90 days or more delinquent that are deemed by management
to be adequately secured and in the process of collection, and (iii) ORE (I.E.,
real estate acquired through foreclosure or deed in lieu of foreclosure). All
delinquent loans are reviewed on a regular basis and are placed on non-accrual
status when, in the opinion of management, the possibility of collecting
additional interest is deemed insufficient to warrant further accrual. As a
matter of policy, interest is not accrued on loans past due 90 days or more
unless the loan is both well secured and in process of collection. When a loan
is placed in non-accrual status, interest accruals cease and uncollected accrued
interest is reversed and charged against current income. Additional interest
income on such loans is recognized only when received.
The following table sets forth information regarding the components of
nonperforming assets at the dates indicated (dollars in thousands):
AT DECEMBER 31,
1998 1997 1996
-------- --------- ---------
Real estate loans................. $ 2,820 $ 374 $ 330
Commercial loans.................. 1,181 26 42
Consumer loans.................... - - -
-------- --------- ---------
Total non-accrual loans(1)..... 4,001 400 372
Other Real Estate................. 1,015 - -
Accruing Loans 90 days past due.. 449 251 -
-------- --------- ---------
Total nonperforming assets..... $ 5,465 $ 651 $ 372
======== ========= =========
(1) $1,439 of the non-accrual loans as of December 31, 1998 are being paid on
a monthly basis on a pre-judgment stipulation, and interest and principal
are being recorded as received on a cash basis.
COMPETITION
The banking industry in general, and the Bank's market area in particular,
are characterized by significant competition for both deposits and lending
opportunities. In its market area, the Bank competes with other commercial
banks, thrift institutions, credit unions, finance companies, mutual funds,
insurance companies, brokerage and investment banking firms, and various other
non-bank providers of financial services. Competition for deposits may have the
effect of increasing the rates of interest the Bank will pay on deposits, which
would increase the Bank's cost of funds and possibly reduce its net earnings.
Competition for loans may have the effect of lowering the rate of interest the
Bank will receive on its loans, which would lower the Bank's return on invested
assets and possibly reduce its net earnings. Many of the Bank's competitors have
been in existence for a significantly longer period of time than the Bank, are
larger and have greater financial and other resources and lending limits than
the Bank, and may offer certain services that the Bank does not provide.
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There are approximately 293 branch offices of commercial banks and thrift
institutions operating in Pinellas County. In order to compete effectively, the
Bank seeks to differentiate its services from those offered by larger
institutions, including the branch offices of large regional and national bank
holding companies. The Bank seeks to provide banking products and services which
are customized to its market area and target customers on a personalized basis,
which management believes cannot be matched by many of the larger institutions
that tend to offer many banking products and services on an impersonal basis.
Management believes that, as the banking industry has undergone further
consolidation, the opportunity to attract customers seeking personalized service
has been enhanced. The Bank seeks to tailor its products and services to its
specific geographic market and targeted customers, and to thereby attract the
business of professionals, entrepreneurs, and small to medium sized commercial
businesses while continuing to provide exceptional banking services to all of
its customers. The profitability of the Bank depends upon its ability to compete
effectively in its market area. While management believes that the Bank's local
ownership, community oriented operating philosophy and personalized service
enhances the Bank's ability to compete in its market area, there can be no
assurance that the Bank will be able to continue to compete effectively or that
competitive factors will not have an adverse effect on the Bank's operating
results or financial condition.
EMPLOYEES
At December 31, 1998, the Company had 87 full-time and 6 part-time
employees, none of whom were represented by a union or subject to a collective
bargaining agreement. The Company believes its relations with its employees to
be good.
SUPERVISION AND REGULATION
The Company and the Bank are extensively regulated under both federal and
state law. The following is a brief summary of certain statutes, rules and
regulations affecting the Company and the Bank. This summary is qualified in its
entirety by reference to the particular statutory and regulatory provisions
referenced below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the Company's business. Supervision,
regulation and examination of the Company and the Bank by the bank regulatory
agencies are intended primarily for the protection of depositors rather than
shareholders.
REGULATION OF THE COMPANY. The Company is a bank holding company registered with
the Federal Reserve under the Bank Holding Company Act of 1956, as amended ("BHC
Act"). As such, the Company is subject to the supervision, examination and
reporting requirements of the BHC Act and the regulations of the Federal
Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of the bank; or (iii) it may merge or consolidate with any other bank
holding company. Similar federal statutes require bank holding companies and
other companies to obtain the prior approval of the Office of Thrift Supervision
("OTS") before acquiring ownership or control of a savings association.
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The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anti-competitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the communities
to be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977, as amended
(the "CRA").
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), authorizes (i) the Company, and any other bank
holding company located in Florida to acquire a bank located in any other state,
and (ii) any bank holding company located outside Florida to acquire any
Florida-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that national
and state-chartered banks may branch interstate through acquisitions of banks in
other states, unless a state has "opted out" of the interstate branching
provisions of the Interstate Banking Act prior to June 1, 1997. Neither Florida
nor any other state in the southeastern United States has "opted out".
Accordingly, the Company would have the ability to acquire a bank in a state in
the Southeast and thereafter consolidate all of its bank subsidiaries into a
single bank with interstate branches.
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
In determining whether a particular activity is permissible, the Federal
Reserve must consider whether the performance of such an activity reasonably can
be expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. The investment
management, data processing, administrative and accounting support and asset
custody services offered by EPW and United Trust have been determined by the
Federal Reserve to be permissible activities of bank holding companies. The BHC
Act does not place territorial limitations on permissible nonbanking activities
of bank holding companies. Despite prior approval, the Federal Reserve has the
power to order a bank holding company or its non-bank subsidiaries to terminate
any activity or to terminate its ownership or control of any subsidiary when it
has reasonable cause to believe that continuation of such activity or such
ownership or control constitutes a serious risk to the financial safety,
soundness, or stability of any bank subsidiary of the holding company.
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Under Federal Reserve policy, bank holding companies are expected to act
as a source of financial strength and support to their subsidiary banks. This
support may be required at times when, absent such Federal Reserve policy, the
holding company may not be inclined to provide it. In addition, any capital
loans by a bank holding company to any bank subsidiary are subordinate in right
of payment to deposits and to certain other indebtedness of such subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to maintain the capital
of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority payment.
REGULATION OF THE BANK. The Bank is organized as a Florida-chartered commercial
bank and is regulated and supervised by the Department. In addition, the Bank is
regulated and supervised by the Federal Reserve, which serves as its primary
federal regulator and, to a lesser extent, by the FDIC as the administrator of
the fund that insures the Bank's deposits. Accordingly, the Department and the
Federal Reserve conduct regular examinations of the Bank, reviewing the adequacy
of the loan loss reserves, quality of loans and investments, propriety of
management practices, compliance with laws and regulations, and other aspects of
the Bank's operations. In addition to these regular examinations, the Bank must
furnish to the Federal Reserve quarterly reports containing detailed financial
statements and schedules.
Federal and Florida banking laws and regulations govern all areas of the
operations of the Bank, including reserves, loans, mortgages, capital, issuances
of securities, payment of dividends, and establishment of branches. As its
primary federal regulator, the Federal Reserve has authority to impose
penalties, initiate civil and administrative actions and take other steps
intended to prevent the Bank from engaging in unsafe or unsound practices. The
Bank is a member of the BIF and, as such, deposits in the Bank are insured by
the FDIC to the maximum extent permissible by law.
The Bank is subject to the provisions of the CRA. Under the CRA, the Bank
has a continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire communities, including
low- and moderate-income neighborhoods. The CRA does not establish specific
lending requirements or programs for financial institutions nor does it limit
the Bank's discretion to develop the types of products and services that it
believes are best suited to their particular communities, consistent with the
CRA. The CRA requires the appropriate federal bank regulatory agency (in the
case of the Bank, the Federal Reserve), in connection with their regular
examinations, to assess a financial institution's record in meeting the credit
needs of the community serviced by it, including low- and moderate-income
neighborhoods. A federal banking agency's assessment of a financial
institution's CRA record is made available to the public. Further, such
assessment is required whenever the institution applies to, among other things,
establish a new branch that will accept deposits, relocate an existing office or
merge or consolidate with, or acquire the assets of or assume the liabilities
of, a federally-regulated financial institution. In the case where the Company
applies for approval to acquire a bank or other bank holding company, the
federal regulator approving the transaction will also assess the CRA records of
the Bank. The Bank received a "Satisfactory" CRA rating in its most recent
examination.
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In April 1995, the federal banking agencies adopted amendments revising
their CRA regulations, with a phase-in schedule applicable to various
provisions. Among other things, the amended CRA regulations, which became fully
effective on July 1, 1997, substitute for the prior process-based assessment
factors a new evaluation system that will rate an institution based on its
actual performance in meeting community needs. In particular, the system now
focuses on three tests: (i) a lending test, to evaluate the institution's record
of making loans in its service areas; (ii) an investment test, to evaluate the
institution's record of investing in community development projects; and (iii) a
service test, to evaluate the institution's delivery of services through its
branches and other offices. The amended CRA regulations also clarify how an
institution's CRA performance will be considered in the application process. The
Company does not anticipate that the revised CRA regulations will have any
material impact on the Bank's operations or its CRA rating.
DEPOSIT INSURANCE. The Bank is subject to FDIC deposit insurance assessments.
The Bank is also subject to a risk-based assessment system for insured
depository institutions that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. The system
assigns an institution to one of three capital categories: (i) well capitalized,
(ii) adequately capitalized, and (iii) undercapitalized. An institution is also
assigned, by the FDIC, to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the risk-based assessment system, there are nine
assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
Assessment rates on deposits for an institution in the highest category (i.e.,
"well capitalized" and "healthy") are less than assessment rates on deposits for
an institution in the lowest category (i.e., "undercapitalized" and "substantial
supervisory concern").
In addition to FDIC insurance assessments, the Bank is also subject to
assessments used to pay interest on bonds issued by the Financing Corporation
(the "FICO") under the Deposit Insurance Funds Act (the "Funds Act"). Prior to
enactment of the Funds Act, only insurance payments by SAIF-member institutions
were available to satisfy FICO's interest payment obligations. Through the end
of 1999, the FICO assessment rate on BIF-assessable deposits is required by the
statute to be one-fifth of the SAIF rate. Thereafter, FICO assessment rates for
members of both insurance funds will presumably be equalized.
Currently, the FICO assessment rate for BIF-assessable deposits is 0.013
percent (or 1.3 basis points) and the FICO assessment rate for SAIF assessable
deposits is 0.0648 percent (or 6.48 basis points). In 1998, the Bank's total
FICO payment obligation was $16,200, all of which was attributable to the
BIF-assessable deposits.
The Bank has no SAIF assessable deposits.
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CAPITAL REQUIREMENTS. The Company and the Bank are required to comply with the
capital adequacy standards established by the Federal Reserve. There are three
basic measures of capital adequacy for banks that have been promulgated by the
Federal Reserve; two risk-based measures and a leverage measure. All applicable
capital standards must be satisfied for a bank holding company and a bank to be
considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guidelines for the ratio of total capital ("Total Capital") to
risk-weighted assets (including certain off-balance-sheet items, such as standby
letters of credit) is 8.0%. At least half of Total Capital (i.e., 4% of
risk-weighted assets) must comprise common stock, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder
may consist of subordinated debt, other preferred stock, and a limited amount of
loan loss reserves ("Tier 2 Capital"). In addition, the Federal Reserve has
established minimum leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less
goodwill and certain other intangible assets, of 3% for banks that meet certain
specified criteria, including having the highest regulatory rating. All other
bank holding companies generally are required to maintain a leverage ratio of at
least 3%, plus an additional cushion of 100 to 200 basis points. The guidelines
also provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital leverage ratio" (deducting all intangibles) and other
indicators of capital strength in evaluating proposals for expansion or new
activities.
The FDIC Improvement Act of 1991 ("FDICIA") contains "prompt corrective
action" provisions pursuant to which banks are to be classified into one of the
five categories based upon capital adequacy, ranging from "well capitalized" to
"critically undercapitalized", and which require (subject to certain exceptions)
the appropriate federal banking agency to take prompt corrective action with
respect to an institution which becomes "significantly undercapitalized" or
"critically undercapitalized".
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The Federal Reserve has issued final regulations to implement the "prompt
corrective action" provisions of FDICIA. In general, the regulations define the
five capital categories as follows: (i) an institution is "well capitalized" if
it has a total risk-based capital ratio of 10% or greater, has a Tier 1
risk-based capital ratio of 6% or greater, has a leverage ratio of 5% or greater
and is not subject to any written capital order or directive to meet and
maintain a specific capital level for any capital measures; (ii) an institution
is "adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a
leverage ratio of 4% or greater; (iii) an institution is "undercapitalized" if
it has a total risk-based capital ratio of less than 8%, has a Tier 1 risk-based
capital ratio that is less than 4% or has a leverage ratio that is less than 4%;
(iv) an institution is "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio
that is less than 3% or a leverage ratio that is less than 3%; and (v) an
institution is "critically undercapitalized" if its "tangible equity" is equal
to or less than 2% of its total assets. The Federal Reserve also, after an
opportunity for a hearing, has authority to downgrade an institution from "well
capitalized" to "adequately capitalized" or to subject an "adequately
capitalized" or "undercapitalized" institution to the supervisory actions
applicable to the next lower category, for supervisory concerns. The degree of
regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (i) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, deposit
interest rates, and other activities; (iv) improve their management; (iv)
eliminate management fees; or (vi) divest themselves of all or part of their
operations. Bank holding companies controlling financial institutions can be
called upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans. While the
Company's capital levels have been in excess of those required to be maintained
by a "well capitalized" financial institution, rapid growth, poor loan portfolio
performance, or poor earnings performance, or a combination of these factors,
could change the Company's capital position in a relative short period of time,
making an additional capital infusion necessary.
As a condition of receiving approval from the Department to exceed certain
regulatory investment limitations in order to invest in its new headquarters
building, the Bank agreed to maintain a minimum Tier 1 Leverage ratio of 7%
during the period of time that such investment limitations are exceeded. If the
Bank's Tier 1 Leverage ratio falls below 7%, the Bank is required to increase
its capital by an amount sufficient to reach the 7% minimum ratio within 90
days. As of December 31, 1998, the Bank's Tier 1 Leverage ratio was 7.98%.
DIVIDENDS. As a Florida-chartered commercial bank, the Bank is subject to
the laws of Florida as to the payment of dividends. Under the Florida Financial
Institutions Code, the prior approval of the Department is required if the total
of all dividends declared by a bank in any calendar year will exceed the sum of
the bank's net profits for that year and its retained net profits for the
preceding two years.
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Under Federal law, if, in the opinion of the federal banking regulator, a
bank or thrift under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such regulation
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Prompt
Corrective Action regulations adopted by the federal banking agencies, a
depository institution may not pay any dividend to its holding company if
payment would cause it to become undercapitalized or if it already is
undercapitalized.
FEDERAL RESERVE SYSTEM. The Federal Reserve regulations require banks to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The new Federal Reserve
regulations, effective December 16, 1997, generally require that reserves be
maintained against aggregate transaction accounts as follows: (i) for accounts
aggregating $47.8 million or less (subject to adjustment by the Federal Reserve)
the reserve requirement is 3%; and (ii) for accounts greater than $47.8 million,
the reserve requirement is $1.434 million plus 10.0% (subject to adjustment by
the Federal Reserve between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustments by the Federal Reserve)
are exempted from the reserve requirements. As of December 31, 1998, the Bank
was in compliance with the foregoing requirements. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve may be used to
satisfy liquidity requirements imposed by the Department. Because required
reserves must be maintained in the form of either vault cash, a
noninterest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve, the effect of this reserve requirement is to
reduce the Bank's interest-earning assets.
LIQUIDITY. Under Florida banking regulations, the Bank is required to
maintain a daily liquidity position equal to at least 15% of its total
transaction accounts and 8% of its total nontransaction accounts, less those
deposits of public funds for which security has been pledged as provided by law.
The Bank may satisfy its liquidity requirements with cash on hand (including
cash items in process of collection), deposits held with the Federal Reserve,
demand deposits due from correspondent banks, Federal funds sold,
interest-bearing deposits maturing in 31 days or less and the market value of
certain unencumbered, rated, investment-grade securities and securities issued
by Florida or any county, municipality or other political subdivision within the
State. The Federal Reserve also reviews the Bank's liquidity position as part of
its examination and imposes similar requirements on the Bank. Any
Florida-chartered commercial bank that fails to comply with its liquidity
requirements generally may not further diminish liquidity either by making any
new loans (other than by discounting or purchasing bills of exchange payable at
sight) or by paying dividends. At December 31, 1998, the Bank's net liquid
assets exceeded the minimum amount required under the applicable Florida
regulations.
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MONETARY POLICY AND ECONOMIC CONTROLS. The banking business is affected
not only by general economic conditions, but also by the monetary policies of
the Federal Reserve. Changes in the discount rate on member bank borrowing,
availability of borrowing at the "discount window", open market operations, the
imposition of changes in reserve requirements against bank deposits and the
imposition of and changes in reserve requirements against certain borrowings by
banks and their affiliates are some of the instruments of monetary policy
available to the Federal Reserve. The monetary policies have had a significant
effect on the operating results of commercial banks and are expected to continue
to do so in the future. The monetary policies of the Federal Reserve are
influenced by various factors, including inflation, unemployment and short- and
long-term changes in the international trade balance and in the fiscal policies
of the United States Government. Future monetary policies and the effect of such
policies on the future business and earnings of the Bank cannot be predicted.
FUTURE LEGISLATION. Various legislation, including proposals to overhaul
the bank regulatory system and expand the powers of bank holding companies, is
from time to time introduced in Congress. Such legislation may change banking
statutes and the operating environment of the Company and its bank and non-bank
subsidiaries in substantial and unpredictable ways. There is no assurance that
any legislation will be enacted and, if enacted, the ultimate effect that any
such potential legislation or implementing regulations would have upon the
financial condition or results of operations of the Company.
CHANGES IN ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") recently adopted or
issued proposals and guidelines that may have a significant impact on the
accounting practices of commercial enterprises in general and financial
institutions in particular.
In June, 1998 the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires entities to recognize
all derivatives in their financial statements as either assets or liabilities
measured at fair value. SFAS No. 133 also specified new methods of accounting
for hedging transactions, prescribes the items and transactions that may be
hedged, and specifies detailed criteria to be met to qualify for hedge
accounting. On adoption, entities are permitted to transfer held-to-maturity
debt securities to the available-for-sale or trading category. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. The adoption of SFAS
No. 133 for the year ended December 31, 2000 is not expected to have a material
impact on the results of operations for the Company.
ITEM 2. DESCRIPTION OF PROPERTY
The principal executive offices of the Company, the Bank and United Trust
are located in an office building at 333 Third Avenue North, St. Petersburg,
Florida 33701. This facility was renovated in 1997, is owned by the Company and
has a total of five floors and approximately 47,400 square feet of usable space.
The Company and its subsidiaries occupy a total of approximately 25,000 square
feet on the first two floors and a portion of the third floor of the building.
As of December 31, 1998, the balance of the building was leased to tenants.
Adequate parking, lobby, safe deposit boxes, and drive-thru facilities are
provided to customers of the Bank at this location.
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The Bank has additional branch locations at 5801 North 49th Street (North
Office), 5601 North Park Street (Five Towns Office), and 6500 Gulf Boulevard
(St. Pete Beach Office), all in St. Petersburg, Florida. Except for the Five
Towns Office, these facilities are owned by the Company and offer both lobby and
drive-thru banking facilities to the Bank's customers. The Five Towns Office is
leased for a term expiring October 31, 2001, with four renewal options.
Additionally, on January 4, 1999, the Bank completed the purchase of a
bank branch site at 7490 Bryan Dairy Road in Pinellas Park. The Bank has
received regulatory approval to establish its fifth banking location at this
site and intends to have this branch open during the second quarter of 1999. It
will offer lobby, drive-thru and safe deposit facilities to the Bank's
customers.
EPW's main office is located in an office building in Tampa, Florida in
which EPW leases approximately 3,190 square feet of space pursuant to a lease
expiring February 28, 2003, with no renewal option. EPW's Jacksonville, Florida
office operates out of a private home owned by an officer of EPW.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings in the ordinary course
of its business. Based on information presently available, management does not
believe that the ultimate outcome of such proceedings, in the aggregate, would
have a material adverse effect on the Company's financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of the Company's
security-holders during the fourth quarter of its fiscal year ended December 31,
1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Shares are quoted on the Nasdaq SmallCap Market under
the symbol UFHI. At the close of business on March 19, 1999, there were
outstanding 4,060,307 Common Shares which were held by approximately 350 record
and beneficial shareholders.
The following table sets forth the high and low closing sales prices for
the Common Shares as quoted by Nasdaq for the period indicated:
Year Ended December 31, 1998 HIGH LOW
Fourth Quarter (from December 11, 1998)....... $7.63 $7.25
Year Ended December 31, 1999:
First Quarter (through March 19, 1999)........ $7.75 $6.63
Since 1995, the Company has declared and paid quarterly cash dividends on
the Common Stock to record holders of the Common Stock at each calendar quarter
end, payable on the last day of the following month. Starting in the first
quarter of 1997, such dividends were paid at the rate of $0.03-1/3 per share of
Common Stock until the third quarter of 1998, when a dividend of $0.04 per share
was declared
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The Company is primarily a holding company with no material business
operations, sources of income or assets of its own other than the shares of its
subsidiaries. Because substantially all of the Company's operations are
conducted through subsidiaries, the Company's cash flow and, consequently, its
ability to pay dividends or make other distributions is dependent upon either
third-party borrowings made by the Company or the cash flow of its subsidiaries
and the payment of funds by those subsidiaries, including the Bank, to the
Company in the form of loans, dividends, fees or otherwise. The Company's
subsidiaries are separate and distinct legal entities and will have no
obligation, contingent or otherwise, to make any funds available, whether in the
form of loans, dividends or otherwise. Regulatory limitations on the Bank
restrict its ability to make loans or distributions to the Company.
Recent Sales of Unregistered Securities and Use of Proceeds.
Recent Sales of Unregistered Securities. On October 31, 1998, the
Company issued 18,000 shares of its common stock to certain officers of United
Trust and EPW pursuant to an incentive stock plan established in connection with
the acquisitions by the Company of Fiduciary Services Corp. and EPW. The number
of shares issued pursuant to the incentive stock plan is dependent on the
consolidated revenues generated by United Trust and EPW. Under the plan, no cash
or additional consideration was received by the Company pursuant to the issuance
of such shares. Additionally, on December 31, 1998, the Company issued 6,000
shares of its common stock pursuant to the exercise of stock options by Harold
J. Winner, a director and officer of the Company, for total cash consideration
of $30,500.
The shares of capital stock issued in the foregoing transactions were
offered and sold in reliance upon the exemption from registration under Section
4(2) of the Securities Act of 1933 (the "Securities Act") as transactions by an
issuer not involving any public offering or were otherwise exempt from a
requirement to be registered under the Securities Act. The recipients of the
securities issued represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued in the foregoing transactions.
Use of Proceeds. On December 10, 1998, UFH Capital Trust I ("UFH
Capital"), a Delaware statutory business trust, all of the common equity
interests of which are owned by the Company, and the Company's joint
Registration Statement on Form SB-2 (Nos. 333-60431 and 333-60431-01) (the
"Registration Statement") became effective, registering the initial public
offering by the Company of 450,000 shares of the Company's common stock, par
value $.01 per share, and up to 1,200,000 shares of 9.4% Cumulative Trust
Preferred Securities with a liquidation amount of $5 per share (the "Preferred
Securities"), representing preferred undivided beneficial interests in the
assets of UFH Capital. Furthermore, pursuant to such Registration Statement, the
Company registered up to an additional 67,500 shares of its common stock and UFH
Capital registered up to an additional 180,000 shares of Preferred Securities in
the event that the managing underwriter for the offering, William R. Hough & Co.
(the "Underwriter"), exercised its option to purchase such shares to cover
over-allotments. The aggregate offering price of the 450,000 shares of
registered common stock was $3,262,500 and the aggregate offering price of the
1,200,000 shares of registered Preferred Securities was $6,000,000, all of which
was sold on the commencement of the initial public offering on December 10,
1998.
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The aggregate offering price of the 67,500 shares of the Company's
common stock and 180,000 shares of UFH Capital's Preferred Securities registered
to cover the Underwriter's over-allotment options was $489,375 and $900,000,
respectively. On January 8, 1999, the Underwriter exercised its over-allotment
options with respect to 57,705 shares of the 67,500 shares of the Company's
common stock and 149,920 shares of the 180,000 shares of UFH Capital's Preferred
Securities for an aggregate offering price of $418,361 and $749,600,
respectively.
All of the gross proceeds received by UFH Capital from the offering of
the of the Preferred Securities and certain other funds of UFH Capital were
invested in an equivalent amount of the Company's 9.4% Junior Subordinated
Debentures (the "Junior Subordinated Debentures") totaling $6,959,200, which
were issued by the Company to UFH Capital. All of the Junior Subordinated
Debentures were registered as part of the Registration Statement. In addition, a
guarantee of the Company relating to the Preferred Securities was also
registered as part of the Registration Statement. The Company's and UFH
Capital's initial public offerings terminated on January 8, 1999, upon the
exercise of the Underwriter's over-allotment option with respect to the Common
Stock and the Preferred Securities.
Underwriting discounts and commissions for the 507,705 shares of common
stock sold by the Company in the initial public offering totaled $220,852. In
addition, in view of the fact that the proceeds of the sale of the 1,349,920
shares of Preferred Securities were used to purchase the Junior Subordinated
Debentures of the Company, the Company agreed to pay to the Underwriter, as
compensation for arranging the investment therein of such proceeds, $.20 per
Preferred Security, resulting in an aggregate payment to the Underwriter of
$269,984. Furthermore, in connection with the offerings of the Common Stock and
the Preferred Securities and the sale of the Junior Subordinated Debentures by
the Company to UFH Capital, the Company paid approximately $401,149 in
underwriter's and other expenses related to the offerings, resulting in total
estimated expenses of approximately $891,985. No finder's fees were paid by the
Company with respect to the initial public offerings. After deducting total
estimated expenses, the Company received approximately $9,538,476 in net
proceeds from the offerings.
None of the Company's expenses paid in connection with the issuance and
distribution of its common stock and the Preferred Securities in the registered
offerings, and none of the net offering proceeds, were paid directly or
indirectly to directors or officers of the Company or their associates, persons
owning 10% or more of the Company's common stock, or affiliates of the Company.
From December 10, 1998, through December 31, 1998, approximately $2.7
million of the estimated net offering proceeds of $9,538,476 were used by the
Company to repay debt to the lender under the Company's senior credit facility
and $1.5 million was contributed to the capital of the Bank. Rather than
investing the remaining $5.3 million in short term obligations between such
dates, the remaining net offering proceeds were deposited into 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.
24
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1998 AND DECEMBER 31, 1997
OVERVIEW
Total assets of the Company were $171.9 million at December 31, 1998,
compared to $147.3 million at December 31, 1997, an increase of $24.6 million or
16.7%. 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 $25.7 million at December 31, 1998, compared
to $21.6 million at December 31, 1997, an increase of $4.1 million or 19.0%. At
December 31, 1998, the Company held certain securities totaling $14.5 million as
available for sale. These securities have been recorded at market value.
LOANS
Total loans were $119.2 million at December 31, 1998, compared to $97.0
million at December 31, 1997, an increase of $22.2 million or 22.9%. For the
same period, real estate mortgage loans increased by $17.4 million or 28.7%,
commercial loans increased by $4.4 million or 12.6%, and all other loans
including consumer loans increased by $0.3 million or 5.1%. Net loans were
$116.5 million at December 31, 1998, compared to $94.8 million at December 31,
1997.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses amounted to $2.0 million at December 31,
1998, compared to $1.6 million at December 31, 1997, an increase of $0.4 million
or 25.0%. During 1998, $426 thousand in loans were charged off, $752 thousand
was added to the allowance for loan losses through a provision, which was
accounted for as an expense, reducing net income, and $10 thousand was recovered
from loans previously charged off.
NONPERFORMING ASSETS
Nonperforming assets were $5.5 million at December 31, 1998, compared to
$.7 million at December 31, 1997. Nonperforming assets at December 31, 1998
consisted of nonperforming loans of $4.0 million and other real estate owned of
$1.0 million. A nonperforming loan in the amount of $1.3 million is being paid
on a monthly basis on a pre-judgment stipulation and interest and principal are
being recorded on a cash basis as received. ORE owned consisted of one property
which has been listed for sale. Management believes that this property is
carried at a value that is equal to its current market value.
25
<PAGE>
BANK PREMISES AND EQUIPMENT
Bank premises and equipment was $9.3 million at December 31, 1998,
compared to $9.5 million at December 31, 1997, a decrease of $.2 million or
2.1%. This decrease was primarily due to depreciation of buildings and equipment
and amortization of leasehold improvements
DEPOSITS
Total deposits were $139.1 million at December 31, 1998, compared to
$130.2 million at December 31, 1997, an increase of $8.9 million or 6.8%. From
December 31, 1997 to December 31, 1998, demand deposits decreased $0.7 million,
NOW and money market deposits increased $12.6 million, savings deposits
decreased $0.5 million, time deposits of $100 thousand or greater increased $1.8
million, and other time deposits decreased $4.3 million.
LONG-TERM DEBT AND CONVERTIBLE SUBORDINATED DEBENTURES
Long-term debt outstanding (excluding convertible subordinated debentures)
was $34 thousand at December 31, 1998, compared to $2.7 million at December 31,
1997, a decrease of $2.6 million. The majority of the decrease was due to
repayment of debt with a portion of the proceeds from the Company's public
offering. The remaining debt is payable to 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 $6,749,600 (including an overallotment of
$749,600 that closed on January 14, 1999) of 9.40% Cumulative Trust Preferred
Securities which will mature on December 10, 2028. See Note D of the
Consolidated Financial Statements for additional information.
STOCKHOLDERS' EQUITY
Stockholders' equity was $14.8 million at December 31, 1998, or 8.61% of
total assets, compared to $10.5 million, or 7.13% of total assets at December
31, 1997. At December 31, 1998, the Bank's Tier I (core) Capital ratio was
7.44%, its Tier I Risk-based Capital ratio was 9.52%, and its Total Risk-based
Capital ratio was 10.78%. 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 proceeds
from the Company's initial public offering and 1998 net income.
26
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1997
OVERVIEW
Net income for the year ended December 31, 1998 was $1.8 million or $0.46
per share diluted, compared to $1.4 million or $0.38 per share diluted for the
same period in 1997. On a pre-tax basis, United Trust earned $176 thousand in
1998 versus a loss of $114 thousand in 1997, EPW's pre-tax operating profits
(before deducting $124 thousand of costs associated with the issuance of
performance shares) increased to $210 thousand from $149 thousand during this
period and the Bank's pre-tax profits increased to $2.7 million from $2.5
million during this same period.
BUSINESS SEGMENT INFORMATION
The Company's operations include three business segments: commercial
banking, trust services (operated through United Trust) and investment
management services (operated through EPW). The following are the results of
operations for these three segments for the years ended December 31, 1998 and
1997 (dollars in thousands).
YEARS ENDED DECEMBER 31,
1998
Commercial United Company
Banking Trust EPW Total
-------- ------- ------- ---------
Interest Income ................... $12,561 $ 171 $ 0 $12,732
Interest Expense .................. 5,066 0 4 5,070
------- ------- ------- -------
Net Interest Income ............... 7,495 171 (4) 7,662
Loan Loss Provision ............... 752 0 0 752
------- ------- ------- -------
Net Interest Income after loan loss 6,743 171 (4) 6,910
Provision
Noninterest Income.................. 1,646 956 1,447 4,049
General and Administrative ("G&A") 5,637 926 1,356 7,919
Expenses..........................
Other noninterest expense........... 0 0 0 0
Amortization of goodwill............ 15 25 1 41
------- ------ ------ -------
Total noninterest expense........... 5,652 951 1,357 7,960
------- ------ ------ -------
Net Income before taxes............ $ 2,737 $ 176 $ 86 2,999
======= ====== ======
Net Corporate Overhead expense...... 232
Income tax expense.................. 1,010
-------
Net income.......................... $ 1,757
=======
27
<PAGE>
YEARS ENDED DECEMBER 31,
1997
Commercial United Company
Banking Trust EPW Total
------- ------- ------ --------
Interest Income ................... $10,785 $ 0 $ 0 $ 10,785
Interest Expense .................. 3,970 0 5 3,975
------- ------ ------ -------
Net Interest Income ............... 6,815 0 (5) 6,810
Loan Loss Provision ............... 90 0 0 90
------- ------ ------ -------
Net Interest Income after loan loss 6,725 0 (5) 6,720
Provision
Noninterest Income.................. 1,286 765 1,238 3,289
General and Administrative ("G&A") 5,124 852 1,084 7,060
Expenses..........................
Other noninterest expense........... 384 9 0 393
Amortization of goodwill............ 15 18 0 33
------- ------ ------ -------
Total noninterest expense........... 5,523 879 1,084 7,486
------- ------ ------ -------
Net Income before taxes............. $ 2,488 $ (114) $ 149 2,523
======= ====== ======
Net Corporate Overhead expense...... 253
Income tax expense.................. 860
-------
Net income.......................... $ 1,410
=======
COMMERCIAL BANKING ACTIVITIES. The Company's commercial banking activities
are conducted through the Bank. Net interest income of the Bank for the year
ended December 31, 1998 was $7.5 million, compared to $6.8 million for the same
period in 1997, a $0.7 million or 10.3% increase. Based on the Company's
analysis of its loan portfolio and loan loss reserve, the loan loss provision
was increased substantially to $752 thousand for 1998, compared to $90 thousand
for 1997. Non-interest income for 1998 was $1.6 million, compared to $1.3
million for 1997, an increase of $0.3 million or 23.1%. Total non-interest
expense was $5.7 million for 1998, compared to $5.5 million for 1997, a 3.6%
increase. Net income before taxes was $2.7 million for 1998, compared to $2.5
million for 1997, an 8.0% increase.
The Bank's net income before taxes in 1997 included several non-recurring
noninterest expenses. In 1997, the Bank took a one-time write-down of $255
thousand in the value of a security held in portfolio and $138 thousand from the
write-off of leasehold improvements in a facility which was abandoned. Other
increases in general and administrative expenses were substantially due to the
full year impact from a new branch which was opened in September 1996, expenses
associated with moving into the new headquarters building, and additional
employees hired for accounting and credit administration functions and other
support operations.
TRUSTACTIVITIES. United Trust reported net income before taxes of $176
thousand for the year ended December 31, 1998, compared to a loss of $114
thousand for 1997, an improvement of $290 thousand. This improvement was the
result of the increased volume of trust accounts.
28
<PAGE>
INVESTMENT ADVISORY ACTIVITIES. Net income before taxes for EPW was $86
thousand for the year ended December 31, 1998, compared to $149 thousand for the
same period of 1997, a $63 thousand decrease. In 1998, expenses of $124 thousand
were incurred due to the issuance of "performance shares" pursuant to the
acquisition agreement of EPW. Income before taxes without this expense would
have been $210 thousand, an increase of $61 thousand over 1997. This increase
would have been primarily due to an increase in the volume of assets under
management by EPW resulting from higher market values of the assets under
management.
ANALYSIS OF NET INTEREST INCOME
Net interest income for the year ended December 31, 1998 was $7.4 million,
compared to $6.7 million for the same period in 1997, a $0.7 million or 10.4%
increase. Interest income was $12.7 million for the year ended December 31,
1998, compared to $10.8 million for the same period in 1997, a $1.9 million or
17.4% increase. Interest expense was $5.3 million for the year ended December
31, 1998, compared to $4.1 million for the same period in 1997, a $1.2 million
or 29.3% increase.
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the years ended December 31, 1998 and 1997 (dollars in
thousands):
29
<PAGE>
YEARS ENDED DECEMBER 31,
1998
Average Average
Balance Interest Rate
--------- --------- ----------
Summary of average rates/interest
earning assets: Interest earning assets:
Loans, net(1) ..................... $102,197 $ 10,382 10.16%
Securities:
Investment securities - taxable ... 26,325 1,714 6.51
Investment securities - non-taxable 570 31 8.63
Federal funds sold ................ 9,821 532 5.42
-------- --------
Total earning assets .............. 138,913 12,659 9.13%
Non-earning assets ................ 22,711
--------
Total average assets ................ $161,624
========
Interest bearing liabilities:
NOW & money market ............. $ 50,328 $ 1,564 3.11%
Savings ........................ 4,742 97 2.05
Time, $100,000 & over .......... 9,850 534 5.42
Time other ..................... 49,455 2,669 5.40
Convertible subordinated
debentures ..................... 630 50 8.00
Long-term debt ................. 2,329 200 8.59
Other borrowings ............... 5,036 154 3.06
-------- --------
Total interest bearing liabilities 122,370 5,268 4.30
Non-Interest bearing liabilities:
Deposits........................... 25,276
Other.............................. 2,152
Stockholders' equity............... 11,826
--------
Total liabilities and stockholders' $161,624
equity............................ ========
Net interest & net interest spread. $ 7,391 4.82%
======== ====
Net interest margin................ 5.33%
====
30
<PAGE>
YEARS ENDED DECEMBER 31,
1997
Average Average
Balance Interest Rate
-------- -------- --------
Summary of average rates/interest
earning assets: Interest earning assets:
Loans, net(1) ..................... $ 83,614 $ 8,961 10.72%
Securities:
Investment securities - taxable ... 22,995 1,508 6.56
Investment securities - non-taxable 494 29 9.09
Federal funds sold ................ 5,447 295 5.42
-------- --------
Total earning assets .............. 112,550 10,793 9.60%
Non-earning assets ................ 18,230
--------
Total average assets ................ $130,780
========
Interest bearing liabilities:
NOW & money market ............. $ 30,692 $ 795 2.59%
Savings ........................ 4,774 97 2.02
Time, $100,000 & over .......... 7,518 419 5.57
Time other ..................... 47,445 2,604 5.49
Convertible subordinated
debentures ..................... 630 50 8.00
Long-term debt ................. 1,037 80 7.73
Other borrowings ............... 2,638 56 2.13
-------- --------
Total interest bearing liabilities 94,734 4,101 4.33
Non-Interest bearing liabilities:
Deposits........................... 24,774
Other.............................. 1,380
Stockholders' equity............... 9,892
--------
Total liabilities and stockholders' $130,780
equity............................ ========
Net interest & net interest spread. $ 6,692 5.27%
======== ====
Net interest margin................ 5.96%
====
(1) Includes non-accrual loans.
31
<PAGE>
The following table reflects the change in net interest income due to
changes in the volume and rate of the Company's assets and liabilities for the
twelve month period ended December 31, 1998:
Increase (Decrease)
Changes in net interest income Combination
(dollars in thousands) Volume Rate Rate/Volume Total
------ ------- ----------- ------
Interest earning assets:
Loans, net ........................ $1,992 $ (467) $ (104) $1,421
Securities:
Investment securities - taxable ... 218 (11) (2) 206
Investment securities - non-taxable 7 (2) (3) 2
Federal funds sold ................ 237 - - 237
------ ------ ------ ------
Total change in interest income ..... 2,454 (480) (108) 1,866
Interest bearing liabilities:
NOW & money market................. 509 159 102 769
Savings............................ (1) 1 (1) -
Time, $100,000 & over.............. 130 (11) (4) 115
Time other......................... 110 (43) (2) 65
Convertible subordinated debentures. - - - -
Long-term debt..................... 100 (9) 11 120
Other Borrowings................... 51 24 22 98
------ ------ ------ ------
Total change in interest expense..... 899 139 129 1,167
------ ------ ------ ------
Increase (decrease) in net interest
income.............................. $1,555 $ (619) $(237) $ 699
====== ====== ====== ======
32
<PAGE>
NONINTEREST INCOME
Noninterest income for the year ended December 31, 1998 was $4.1 million
compared to $3.2 million for the same period in 1997, an increase of $0.9
million or 28.1%. This increase was primarily due to increased revenues from EPW
and United Trust whose combined revenues increased $469 thousand during this
period. Income on cash value life insurance was $137 thousand in 1998 while all
other fees and commissions increased by $190 thousand.
The following table indicates the components of noninterest income for the
years ended December 31, 1998 and 1997 (dollars in thousands):
For the Years Ended
December 31, Increase/
1998 1997 (Decrease)
----------- ----------- -----------
Service charges on deposit accounts...... $ 707 $ 675 $ 32
Trust and investment management income... 2,355 1,886 469
Other service charges, fees, and income.. 415 225 190
Loan servicing fees...................... 148 164 (16)
Net trading account profit............... 87 - 87
Income on cash value life insurance...... 137 - 137
Gain on sale of SBA loans................ 239 290 (51)
----------- ----------- -----------
Total noninterest income................. $ 4,088 $ 3,240 $ 848
=========== =========== ===========
NONINTEREST EXPENSE
Total noninterest expense for the year ended December 31, 1998 was $8.0
million, compared to $7.6 million for the same period in 1997, an increase of
$0.4 million or 5.3%.
The following table reflects the components of noninterest expense for the
years ended December 31, 1998 and 1997 (dollars in thousands):
For the Years Ended
December 31, Increase/
1998 1997 (Decrease)
----------- ----------- ------------
Salaries and employee benefits ....... $ 4,631 $ 4,048 $ 583
Occupancy expense .................... 522 514 8
Furniture and equipment expense ...... 512 494 18
Data processing expense .............. 437 418 19
Legal and professional fees .......... 121 177 (56)
Amortization of intangible assets..... 79 67 12
Advertising .......................... 265 37 302
Relocation expense ................... - 138 (138)
Stationery and supplies............... 137 151 (14)
Directors fees ....................... 191 199 (8)
Securities write-down................. - 255 (255)
Other operating expenses.............. 1,027 846 181
---------- ----------- -----------
Total noninterest expense............. $ 7,959 $ 7,572 $ 387
========= ========== ==========
33
<PAGE>
YEARS ENDED DECEMBER 31, 1997 AND 1996
COMPARISON OF BALANCE SHEETS AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
OVERVIEW
Total assets of the Company were $147.3 million at December 31, 1997,
compared to $122.7 million at December 31, 1996, an increase of $24.6 million or
20.0%. This increase was primarily the result of the Company's internal growth
of earning assets (primarily loans) funded by an increase in deposits.
INVESTMENT SECURITIES
Investment securities, consisting of U.S. Treasury and federal agency
securities, obligations of state and political subdivisions and mortgage-backed
and corporate debt securities, were $21.6 million at December 31, 1997, compared
to $18.7 million at December 31, 1996, an increase of $2.9 million or 15.3%. At
December 31, 1997, the Company held certain securities totaling $11.5 million as
"available for sale". These securities have been recorded at market value.
LOANS
Total loans were $97.0 million at December 31, 1997, compared to $81.2
million at December 31, 1996, an increase of $15.8 million or 19.4%. For the
same period, real estate mortgage loans increased by $11.1 million or 22.5%,
commercial loans increased by $5.3 million or 21.0%, and all other loans
including consumer loans were virtually unchanged. Net loans were $94.8 million
at December 31, 1997, compared to $79.3 million at December 31, 1996.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses amounted to $1.6 million at December 31,
1997, virtually unchanged from December 31, 1996. During 1997, $90.9 thousand in
loans were charged off, $90 thousand was added to the allowance for loan losses
through a provision, which was accounted for as an expense, reducing net income,
and $38 thousand was recovered from loans previously charged off.
NONPERFORMING ASSETS
Nonperforming assets were $651 thousand at December 31, 1997, compared to
$372 thousand at December 31, 1996, an increase of $279 thousand or 75.0%. All
nonperforming assets consisted of nonperforming loans.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment was $9.5 million at December 31, 1997,
compared to $6.0 million at December 31, 1996, an increase of $3.5 million or
58.3%. This increase was primarily due to the final funding of the building and
equipment related to the Company's new headquarters facility which opened in May
1997.
34
<PAGE>
DEPOSITS
Total deposits were $130.2 million at December 31, 1997, compared to
$108.1 million at December 31, 1996, an increase of $22.1 million or 20.4%. Of
the $22.1 million increase, $1.7 million was in demand deposits, $8.5 million
was in NOW and money market deposits, $0.6 million was in savings deposits, $4.9
million was in time deposits of $100,000 or greater, and $6.4 million was in
other time deposits.
LONG-TERM DEBT AND CONVERTIBLE SUBORDINATED DEBENTURES
Long-term debt outstanding was $2.7 million at December 31, 1997, compared
to $0.8 million at December 31, 1996, an increase of $1.9 million. This increase
was due primarily to borrowings from a non-affiliated bank secured by the Bank's
common stock to fund the capitalization of United Trust.
STOCKHOLDERS' EQUITY
Stockholders' equity was $10.5 million at December 31, 1997, or 7.12% of
total assets, compared to $9.5 million, or 7.73% of total assets at December 31,
1996. At December 31, 1997, the Bank's Tier I (core) Capital ratio was 6.77%,
its Tier I Risk-based Capital ratio was 8.90%, and its Total Risk-based Capital
ratio was 10.15%. The capital ratios of the Bank at that date all exceeded the
minimum regulatory guidelines for an institution to be considered "well
capitalized".
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
1996
OVERVIEW
Net income for the year ended December 31, 1997 was $1.4 million or $0.38
per share diluted, compared to $1.5 million or $0.40 per share diluted for the
same period in 1996. On a pre-tax basis, United Trust lost $114 thousand in 1997
and $421 thousand in 1996, EPW's pre-tax profits increased to $149 thousand from
$92 thousand during this period and the Bank's pre-tax profits declined to $2.5
million from $2.8 million during this same period.
BUSINESS SEGMENT INFORMATION
The Company's operations include three business segments: commercial
banking, trust services (operated through United Trust) and investment
management services (operated through EPW). The following are the results of
operations for these three segments for the years ended December 31, 1997 and
1996 (dollars in thousands).
35
<PAGE>
YEARS ENDED DECEMBER 31, 1997
Commercial United Company
Banking Trust EPW Total
---------- -------- ------ ---------
Interest Income..................... $ 10,785 $ 0 $ 0 $ 10,785
Interest Expense.................... 3,970 0 5 3,975
--------- ------- ----- --------
Net Interest Income................. 6,815 0 (5) 6,810
Loan Loss Provision................. 90 0 0 90
--------- ------- ----- ---------
Net Interest Income after loan loss 6,725 0 (5) 6,720
provision.........................
Noninterest Income.................. 1,286 765 1,238 3,289
General and Administrative ("G&A") 5,124 852 1,084 7,060
expenses..........................
Other noninterest expense........... 384 9 0 393
Amortization of goodwill............ 15 18 0 33
--------- ------- ----- --------
Total noninterest expense........... 5,523 879 1,084 7,486
--------- ------- ----- --------
Net Income before taxes............. $ 2,488 $ (114) $ 149 $ 2,523
========= ======= =====
Net Corporate Overhead expense...... 253
Income tax expense.................. 860
--------
Net income.......................... $ 1,410
========
YEARS ENDED DECEMBER 31, 1996
Commercial United Company
Banking Trust EPW (1) Total
---------- -------- ------ ---------
Interest Income..................... $ 9,577 $ 0 $ 0 $ 9,577
Interest Expense.................... 3,278 0 5 3,283
--------- ------- ------ -------
Net Interest Income................. 6,299 0 (5) 6,294
Loan Loss Provision................. 150 0 0 150
--------- ------- ------ -------
Net Interest Income after loan loss 6,149 0 (5) 6,144
provision.........................
Noninterest Income.................. 1,251 381 936 2,568
General and Administrative ("G&A") 4,532 780 839 6,151
expenses..........................
Other noninterest expense........... 0 0 0 0
Amortization of goodwill............ 14 22 0 36
--------- ------- ----- --------
Total noninterest expense........... 4,546 802 839 6,187
--------- ------- ----- --------
Net Income before taxes............. $ 2,854 $ (421) $ 92 $ 2,525
========= ======= =====
Net Corporate Overhead expense...... 154
Income tax expense.................. 891
--------
Net income.......................... $ 1,480
========
(1) For the eleven months ended December 31, 1996
36
<PAGE>
COMMERCIAL BANKING ACTIVITIES. The Company's commercial banking activities
are conducted through the Bank. Net interest income of the Bank for the year
ended December 31, 1997 was $6.8 million, compared to $6.3 million for the same
period in 1996, a $0.5 million or 7.9% increase. Based on the Company's analysis
of its loan portfolio and loan loss reserve, the loan loss provision was reduced
$90 thousand for 1997, compared to $150 thousand for 1996, a 40.0% decrease.
Non-interest income for 1997 was $1.3 million, compared to $1.3 million for
1996. Total non-interest expense was $5.5 million for 1997, compared to $4.6
million for 1996, a 19.6% increase. Net income before taxes was $2.5 million for
1997, compared to $2.9 million for 1996, a 13.8% decrease.
The decline in the Bank's net income before taxes in 1997 compared to 1996
was mainly due to increases in noninterest expenses. The principal components of
this increase were an increase in Company general and administrative expenses of
$592 thousand, a one time write-down of $255 thousand in the value of a security
held in portfolio, and $138 thousand from the write-off of leasehold
improvements in a facility which was abandoned. Other increases in general and
administrative expenses were substantially due to the full year impact from a
new branch which was opened in September 1996, expenses associated with moving
into the new headquarters building, and additional employees hired for
accounting and credit administration functions and other support operations.
TRUST ACTIVITIES. United Trust reported a net loss before taxes of $114
thousand for the year ended December 31, 1997, compared to a loss of $421
thousand for 1996, an improvement of $307 thousand. This improvement was the
result of the increased volume of trust accounts.
INVESTMENT ADVISORY ACTIVITIES. Net income before taxes for EPW was $149
thousand for the year ended December 31, 1997, compared to $92 thousand for the
same period of 1996, a $57 thousand or 61.9% increase. This increase was
primarily due to an increase in the volume of assets under management by EPW
resulting from higher market values of the assets under management.
ANALYSIS OF NET INTEREST INCOME
Net interest income for the year ended December 31, 1997 was $6.7 million,
compared to $6.2 million for the same period in 1996, a $0.5 million or 8.2%
increase. Interest income was $10.8 million for the year ended December 31,
1997, compared to $9.6 million for the same period in 1996, a $1.2 million or
12.5% increase. Interest expense was $4.1 million for the year ended December
31, 1997, compared to $3.4 million for the same period in 1996, a $0.7 million
or 20.6% increase.
The following table summarizes the average yields earned on
interest-earning assets and the average rates paid on interest-bearing
liabilities for the years ended December 31, 1997 and 1996 (dollars in
thousands):
37
<PAGE>
YEARS ENDED DECEMBER 31,
1997
Average Average
Balance Interest Rate
--------- ---------- ---------
Summary of average rates/interest
earning assets:
Interest earning assets:
Loans, net(1)...................... $ 83,614 $ 8,961 10.72%
Securities:
Investment securities - taxable.... 22,995 1,508 6.56
Investment securities - non-taxable 494 29 9.09
Federal funds sold................. 5,447 295 5.42
--------- ----------
Total earning assets............... 112,550 10,793 9.60%
Non-earning assets................. 18,230
---------
Total average assets................. $ 130,780
=========
Interest bearing liabilities:
NOW & money market................. $ 30,692 $ 795 2.59%
Savings............................ 4,774 97 2.02
Time, $100,000 & over.............. 7,518 419 5.57
Time other......................... 47,445 2,604 5.49
Convertible subordinated debentures 630 50 8.00
Long-term debt..................... 1,037 80 7.73
Other borrowings................... 2,638 56 2.13
--------- ----------
Total interest bearing liabilities... 94,734 4,101 4.33
Non-Interest bearing liabilities:
Deposits........................... 24,774
Other.............................. 1,380
Stockholders' equity............... 9,892
----------
Total liabilities and stockholders' $ 130,780
equity............................ ==========
Net interest & net interest spread. $ 6,692 5.27%
========== ====
Net interest margin................ 5.96
====
38
<PAGE>
YEARS ENDED DECEMBER 31,
1996
Average Average
Balance Interest Rate
--------- --------- ---------
Summary of average rates/interest
earning assets:
Interest earning assets:
Loans, net(1)...................... $ 75,590 $ 8,121 10.74%
Securities:
Investment securities - taxable.... 18,168 1,216 6.69
Investment securities - non-taxable 659 38 9.22
Federal funds sold................. 4,144 220 5.31
--------- ---------
Total earning assets............... 98,561 9,595 9.76%
Non-earning assets................. 13,774
---------
Total average assets................. $ 112,335
=========
Interest bearing liabilities:
NOW & money market................. $ 23,938 $ 542 2.26%
Savings............................ 4,977 108 2.16
Time, $100,000 & over.............. 4,307 242 5.61
Time other......................... 43,089 2,315 5.37
Convertible subordinated debentures 578 46 7.96
Long-term debt..................... 886 78 8.80
Other borrowings................... 3,959 89 2.26
--------- ----------
Total interest bearing liabilities... 81,733 3,420 4.18
Non-Interest bearing liabilities:
Deposits........................... 20,421
Other.............................. 1,235
Stockholders' equity............... 8,945
---------
Total liabilities and stockholders' $ 112,335
equity............................. =========
Net interest & net interest spread. $ 6,175 5.58%
========== ====
Net interest margin................ 6.27%
====
(1) Includes non-accrual loans.
39
<PAGE>
The following table reflects the change in net interest income due to
changes in the volume and rate of the Company's assets and liabilities for the
twelve month period ended December 31, 1997:
Increase(Decrease)
--------------------------------------
Changes in net interest income Combination
(dollars in thousands) Volume Rate Rate/Volume Total
------ ------ ----------- --------
Interest earning assets:
Loans, net......................... $ 861 $ (24) $ 2 $ 839
Securities:
Investment securities - taxable.... 323 (24) (6) 293
Investment securities - non-taxable. (15) (1) 6 (10)
Federal funds sold................. 69 5 1 75
------ ------ ------- -------
Total change in interest income...... 1,238 (44) 3 1,197
Interest bearing liabilities:
NOW & money market................. 153 78 22 253
Savings............................ (4) (7) - (11)
Time, $100,000 & over.............. 180 (2) (1) 177
Time other......................... 234 50 5 289
Convertible subordinated debentures. 4 - - 4
Long-term debt..................... 13 (9) (2) 2
Other Borrowings................... (30) (5) 2 (33)
------ ------ ------- -------
Total change in interest expense..... 550 105 26 681
------ ------ ------- --------
Increase (decrease) in net interest
income............................. $ 688 $ (149) $ (23) $ 516
====== ======= ======= ========
NONINTEREST INCOME
Noninterest income for the year ended December 31, 1997 was $3.2 million
compared to $2.5 million for the same period in 1996, an increase of $0.7
million or 28.0%. This increase was primarily due to increased revenues from EPW
and United Trust whose combined revenues increased $657 thousand during this
period. Service charge income on deposits also increased by $119 thousand during
this same period. Gain on sale of SBA loans declined $135 thousand during this
period.
40
<PAGE>
The following table indicates the components of noninterest income for the
years ended December 31, 1997 and 1996 (dollars in thousands):
For the Years Ended
December 31, Increase/
1997 1996 (Decrease)
---------- ---------- -----------
Service charges on deposit accounts........$ 675 $ 556 $ 119
Trust and investment management income..... 1,886 1,229 657
Other service charges, fees, and income.... 225 209 16
Loan servicing fees........................ 164 153 11
Gain on sale of SBA loans.................. 290 425 (135)
---------- ---------- -----------
Total noninterest income.................. $ 3,240 $ 2,572 $ 668
========== ========== ===========
NONINTEREST EXPENSE
Total noninterest expense for the year ended December 31, 1997 was $7.6
million, compared to $6.2 million for the same period in 1996, an increase of
$1.3 million or 22.6%. The increase is mainly due to the inclusion of a full
year of EPW's operations and the St. Petersburg Beach branch in the 1997
results, versus the inclusion of only eleven and four months of operations,
respectively, in 1996, as well as the expansion of the Bank's facilities,
expansion of United Trust and EPW's operations and a one-time write-down of $255
thousand in the Bank's investment securities portfolio.
The following table reflects the components of noninterest expense for the
years ended December 31, 1997 and 1996 (dollars in thousands):
For the Years Ended
DECEMBER 31,
Increase/
1997 1996 (Decrease)
------------ ------------ -----------
Salaries and employee benefits.... $ 4,048 $ 3,724 $ 324
Occupancy expense................. 514 387 127
Furniture and equipment expense... 494 423 71
Data processing expense........... 418 375 43
Legal and professional fees....... 177 153 24
Amortization of intangible assets. 67 111 (44)
Advertising....................... 133 124 9
Relocation expense................ 138 - 138
Stationery and supplies........... 150 141 9
Directors fees.................... 199 143 56
Securities write-down............. 255 - 255
Other operating expenses.......... 979 645 334
------------ ------------ ------------
Total noninterest expense......... $ 7,572 $ 6,226 $ 1,346
============ ============ ============
41
<PAGE>
LIQUIDITY AND ASSET MANAGEMENT
LIQUIDITY
The Investment and Asset/Liability Committee of the Board of Directors
reviews the Company's liquidity, which is its ability to generate sufficient
cash to meet the funding needs of current loan demand, deposit withdrawals, and
other cash demands. The primary sources of funds consist of deposits,
amortization and prepayments of loans, sales of investments, other funds from
operations and the Company's capital. The Bank is a member of the Federal Home
Loan Bank of Atlanta ("FHLB") and has the ability to borrow to supplement its
liquidity needs.
When the Company's primary sources of funds are not sufficient to meet
deposit outflows, loan originations and purchases and other cash requirements,
the Company may supplementally borrow funds from the FHLB and from other
sources. The FHLB acts as an additional source of funding for banks and thrift
institutions that make residential mortgage loans.
FHLB borrowings, known as "advances", are secured by the Bank's mortgage
loan portfolio, and the terms and rates charged for FHLB advances vary in
response to general economic conditions. As a shareholder of the FHLB, the Bank
is authorized to apply for advances from this bank. A wide variety of borrowing
plans are offered by the FHLB, each with its own maturity and interest rate. The
FHLB will consider various factors, including an institution's regulatory
capital position, net income, quality and composition of assets, lending
policies and practices, and level of current borrowings from all sources, in
determining the amount of credit to extend to an institution. As of December 31,
1998, the Company had no FHLB advances outstanding.
A Florida chartered commercial bank is required to maintain a liquidity
reserve of at least 15% of its total transaction accounts and 8% of its total
nontransaction accounts less deposits of certain public funds. The liquidity
reserve may consist of cash on hand, cash on demand with other correspondent
banks and other investments and short-term marketable securities as determined
by the rules of the Department, such as federal funds sold and United States
securities or securities guaranteed by the United States or agencies thereof.
The Company complies with applicable liquidity reserve requirements. As of
December 31, 1998, the Bank had liquidity of approximately $23.7 million or
approximately 15.4% of total deposits combined with borrowings. The Company's
primary sources of funds consist of principal payments on loans and investment
securities, proceeds from sales and maturities of securities available for sale
and net increases in deposits. The Company uses its funds principally to
purchase investment securities and fund existing and continuing loan
commitments. At December 31, 1998, the Company had commitments to originate
loans totaling $21.8 million. Scheduled maturities of certificates of deposit
during the 12 months following December 31, 1998 total $47.9 million as of
December 31, 1998. Management believes the Company has adequate resources to
fund all its commitments, and, if so desired, that it can adjust the rates on
certificates of deposit to retain deposits in a changing interest-rate
environment.
42
<PAGE>
ASSET/LIABILITY MANAGEMENT
One of the primary objectives of the Company is to reduce fluctuations in
net interest income caused by changes in interest rates. To manage interest rate
risk, the Board of Directors has established interest-rate risk policies and
procedures which delegate to the Investment and Asset/Liability Committee the
responsibility to monitor and report on interest-rate risk, devise strategies to
manage interest-rate risk, monitor loan originations and deposit activity, and
approve all pricing strategies.
The management of interest-rate risk is one of the most significant
factors affecting the ability to achieve future earnings. The measure of the
mismatch of assets maturing or repricing within certain periods, and liabilities
maturing or repricing within the same period, is commonly referred to as the
"gap" for such period. Controlling the maturity or repricing of an institution's
assets and liabilities in order to minimize interest rate risk is commonly
referred to as gap management. "Negative gap" occurs when, during a specific
time period, an institution's liabilities are scheduled to reprice more rapidly
than its assets, so that, barring other factors affecting interest income and
expense, in periods of rising interest rates the institution's interest expense
would increase more rapidly than its interest income, and in periods of falling
interest rates the institution's interest expense would decrease more rapidly
than its interest income. "Positive gap" occurs when an institution's assets are
scheduled to reprice more rapidly than its liabilities, so that, barring other
factors affecting interest income and expense, in periods of falling interest
rates, the institution's interest income would decrease more rapidly than its
interest expense, and in periods of rising interest rates, the institution's
interest income would increase more rapidly than its interest expense. It is
common to focus on the one-year gap, which is the difference between the dollar
amount of assets and the dollar amount of liabilities maturing or repricing
within the next 12 months.
To the extent market conditions permit, the Bank follows a strategy
intended to protect its net interest income from adverse changes in interest
rates by maintaining spreads through the adjustability of its interest earning
assets and its interest bearing liabilities. The Bank employs a number of
strategies designed to protect its net interest income. The Bank calculates its
net interest margin on a monthly basis and compares it to a quarterly national
peer group ratio. Historically, the Bank has enjoyed a higher than peer group
average net interest margin as well as a higher margin than most of the
community banks operating in Pinellas County.
Additionally, the Investment and Asset/Liability Committee meets on a
quarterly basis to review the most recent margin analysis, the Bank's overall
pricing strategies, and a monthly gap report measuring its interest rate
sensitivity position.
The Bank is also a member of the FHLB. Member banks have access to a
variety of fixed and variable rate borrowings, ranging from overnight to up to
20 years or longer. Access to these instruments can permit the Bank to match
maturities of either specific groups of loans or larger, single loans.
Currently, the Bank has no FHLB advances outstanding.
43
<PAGE>
The cumulative one-year gap at December 31, 1998 was a negative $28.7
million or a negative 16.7% (expressed as a percentage of total assets). The
exclusion of approximately $4.0 million of non-accrual loans increased the
negative gap by over 2%. The Company performs an income simulation analysis to
measure net interest income volatility when the portfolio is subjected to a 200
basis point interest rate shock. Based on the results of this simulation and the
current interest rate environment (taking into account competitive pricing and
generally declining interest rates), the Company believes that its gap position
as of December 31, 1998 was appropriate, and currently anticipates that a
similar negative gap position will continue in the subsequent one year time
period.
The following table presents the maturities or repricing of
interest-earning assets and interest-bearing liabilities at December 31, 1998.
The balances shown have been derived based on the financial characteristics of
the various assets and liabilities. Adjustable and floating-rate assets are
included in the period in which interest rates are next scheduled to adjust
rather than their scheduled maturity dates. Fixed-rate loans are shown in the
periods in which they are scheduled to be repaid according to contractual
amortization and, where appropriate, prepayment assumptions based on the coupon
rates in the portfolio have been used to adjust the repayment amounts. Repricing
of time deposits is based on their scheduled maturities.
41
<PAGE>
INTEREST SENSITIVITY ANALYSIS
(dollars in thousands)
Non-Rate
Sensitive
0 to 3 4 to 6 7 to 12 13 to 60 60+ Assets/
Months Months Months Months Months Liabilities Total
------- ------- ------- ------- ------- --------- -------
ASSETS:
Federal funds
sold........$ 4,001 $ 0 $ 0 $ 0 $ 0 N/A $ 4,011
Securities.... 3,050 2,097 1,211 13,052 7,073 N/A 26,483
Loans:(1)
Fixed......... 7,949 3,614 3,480 20,867 6,376 N/A 42,286
Variable...... 27,318 8,033 4,369 30,589 2,561 N/A 72,870
-------- -------- --------- ------- -------- -------- -------
Total rate
sensitive
assets.........$ 42,328 $ 13,744 $ 9,060 $ 64,508 $ 16,010 N/A $145,650
======== ======== ======== ======== ======== ======== ========
LIABILITIES:
Interest
demand.....$ 32,407 $ 0 $ 0 $ 0 $ 0 $ 16,143 $ 48,550
Savings........ 4,686 0 0 0 0 0 4,686
Time deposits.. 14,585 11,234 22,130 10,168 0 0 58,117
Other borrowings 8,796 0 0 0 0 0 8,796
Long term debt.. 4 4 8 18 630 0 664
-------- -------- --------- --------- -------- -------- --------
Total rate
sensitive
liabilities.. $ 60,478 $ 11,238 $ 22,138 $ 10,186 $ 630 $ 16,143 $120,813
======== ======== ========= ========= ======== ======== ========
Dollar gap.... $(18,150)$ 2,506 $ (13,078)$ 54,322 $ 15,380 $(16,143)$ 24,837
Cumulative
Dollar gap.. $(18,150)$(15,644)$ (28,722)$ 25,600 $ 40,980 $ 24,837 $ 24,837
Cumulative gap/
total assets(2).(10.56)% (9.10)% (16.71)% 14.89% 23.84% 14.45% 14.45%
(1) Excludes nonaccrual loans of approximately $4.0 million.
(2) Calculated based on total assets of $171,902.
44
<PAGE>
The following table summarizes the Company's securities by maturity and
weighted average yields at December 31, 1998. Yields on tax exempt securities
are stated at their nominal rates and have not been adjusted for tax rate
differences. Refer to Note F - Securities in the Company's Consolidated
Financial Statements for additional information regarding the Securities
portfolio.
Within One Year
Carrying Average
Value Yield
----------- ----------
At December 31, 1998:
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S.Government
corporations and agencies $ 0 0.00%
Obligations of State and political
Subdivisions 130 5.84%
Corporate obligations 0 0.00%
Other 100 6.05%
--------- -----
$ 230 5.93%
Mortgage Backed Securities
Total $ 230 5.93%
========= =====
At December 31, 1998:
Securities available for
sale:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 2,513 6.61%
Obligations of State and political
Subdivisions 0 0.00%
--------- -----
$ 2,513 6.61%
Mortgage Backed Securities
Equity Securities
--------- -----
Total $ 2,513 6.61%
========= =====
45
<PAGE>
After One Year But
Within 5 Years
Carrying Average
Value Yield
----------- ----------
At December 31, 1998:
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S.Government
corporations and agencies $ 2,507 5.82%
Obligations of State and
political Subdivisions 524 6.66%
Corporate obligations 502 7.62%
Other 0 0.00%
---------- ------
$ 3,533 6.21%
Mortgage Backed Securities
Total $ 3,533 6.21%
========== ======
At December 31, 1998:
Securities available for
sale:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 4,363 6.33%
Obligations of State and
policical Subdivisions 0 0.00%
---------- -----
$ 4,363 6.33%
Mortgage Backed Securities
Equity Securities
---------- -----
Total $ 4,363 6.33%
========== =====
46
<PAGE>
After 5 Years But
Within 10 Years
Carrying Average
Value Yield
----------- ----------
At December 31, 1998:
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S.Government
corporations and agencies $ 3,469 6.59%
Obligations of State and
political Subdivisions 0 0.00%
Corporate obligations 0 0.00%
Other 0 0.00%
--------- -----
$ 3,469 6.59%
Mortgage Backed Securities
Total $ 3,469 6.59%
========= =====
At December 31, 1998:
Securities available for sale:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 2,010 6.59%
Obligations of State and
policical Subdivisions 1,500 6.26%
--------- -----
$ 3,510 6.47%
Mortgage Backed Securities
Equity Securities
--------- -----
Total $ 3,510 6.47%
========= =====
47
<PAGE>
After 10 Years Total
Carrying Average Carrying Average
Value Yield Value Yield
--------- -------- --------- --------
At December 31, 1998:
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S.Government
corporations and agencies $ 0 0.00% $ 5,976 6.26%
Obligations of State and
political Subdivisions 525 4.62% 1,179 5.66%
Corporate obligations 0 0.00% 502 7.62%
Other 0 0.00% 100 6.05%
--------- ---- ---------- -----
$ 525 4.62% $ 7,757 6.25%
Mortgage Backed Securities 3,449 7.21%
Total $ 525 4.62% $ 11,206 6.55%
========= ==== ========= ====
At December 31, 1998:
Securities available for
sale:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 0 0.00% $ 8,886 6.47%
Obligations of State and
political Subdivisions 0 0.00% 1,500 6.26%
--------- ---- --------- ----
$ 0 0.00% $ 10,386 6.43%
Mortgage Backed Securities 3,066 6.77%
Equity Securities 1,075 2.28%
--------- ---- --------- ----
Total $ 0 0.00% $ 14,527 6.20%
========= ==== ========= ====
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 whom the Company does business, could fail or create
erroneous results, thereby potentially impacting the operations and financial
performance of the Company. Although the Company is currently addressing
potential Year 2000 problems, there can be no assurance that its efforts will
prevent all potential adverse consequences to the Company resulting from the
Year 2000 problem.
48
<PAGE>
In 1997, the Company began the process of evaluating its information
technology for Year 2000 readiness. In April 1998, the Company adopted a formal,
comprehensive Year 2000 Policy Statement designed to identify and address Year
2000 issues that might impact the Company (the "Year 2000 Plan"). The Company
has completed the "Awareness," "Inventory" and "Assessment" phases of its Year
2000 Plan, which are designed to appoint and train a group of employees to
oversee and implement the Year 2000 Plan, to provide for the inventory of the
software and hardware of the Company and others that should be assessed for Year
2000 problems, and to provide further assessment of the nature and size of the
Year 2000 issues that might effect the Company, respectively. The Company is
currently in the process of overseeing its internal efforts and the efforts of
third parties to timely and properly address the Year 2000 issues that have been
identified, as well as testing and validating the actions that have been taken
thus far to address those issues. It is expected that those testing and
validation efforts will be completed by June 30, 1999.
The Company outsources its principal data processing activities to a third
party and purchases most of its software applications from third party vendors.
Additionally, the Company outsources its trust business data processing and
custodial management activities to a third party. Each of the two foregoing data
processing servicers have orally advised the Company that it believes its
systems are Year 2000 compliant. The Company is in the process of testing and
validating those claims. Based on these efforts to date, the Company believes
that its vendors and significant customers are actively addressing the problems
associated with the Year 2000 issue and that the Company will be prepared to
respond to Year 2000 problems as they arise. The Company is in the process of
finalizing contingency plans to address the most reasonably likely worst case
scenario relating to the Year 2000 problem. The anticipated completion date for
those plans is by March 31, 1999. If the Company is unable for any reason to
timely complete such a contingency plan and problems associated with the Year
2000 issue arise and are not addressed as expected by the Company, as each of
the Company's business segments is very dependent upon computer systems to
effectively conduct most of their business operations and fulfill most of their
obligations to third parties, the Company's business operations could be
significantly disrupted and the Company's financial condition and results of
operations could be significantly adversely affected. The Company's Year 2000
efforts are ongoing and have not yet been completed. Accordingly, there can be
no assurance that the Company will be prepared to timely respond to all year
2000 issues that may arise.
The Company is also in the process of identifying Year 2000 problems
stemming from non-information technology systems, such as microcontrollers used
to operate security systems and elevators and embedded systems in its buildings
and equipment and other infrastructure, and establishing a program for testing
these systems for Year 2000 compliance. However, the Company does not currently
anticipate that it will encounter any substantial Year 2000 problems with
respect to such non-information technology systems, and believes the cost to
remedy any such problems will not be material.
49
<PAGE>
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 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.
FORWARD LOOKING STATEMENTS
This Form 10-KSB 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" 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 competition, general economic conditions, potential changes in
interest rates, and changes in the value of real estate securing loans made by
the issuer.
FACTORS AFFECTING FUTURE RESULTS
IMPACT OF CHANGES IN REAL ESTATE VALUES
A significant portion of the Company's loan portfolio consists of loans
secured by real estate. At December 31, 1998, 5.9% of the Company's loans were
secured by one-to-four family residential real estate, 56.5% were secured by
commercial real estate and multifamily residential, 2.9% were construction loans
and the Company had other real estate ("ORE") acquired through foreclosure with
a book value of $1.0 million. The properties securing these loans are
concentrated in Florida. Real estate values and real estate markets generally
are affected by, among other things, changes in national, regional or local
economic conditions, fluctuations in interest rates and the availability of
loans to potential purchasers, changes in the tax laws and other governmental
50
<PAGE>
statutes, regulations and policies and acts of nature. Any decline in real
estate prices, particularly in Florida, could significantly reduce the value of
the real estate collateral securing the Company's real estate loans, increase
the level of the Company's nonperforming loans, require write-downs in the book
value of its ORE, and have a material negative impact on the Company's financial
performance.
NONPERFORMING ASSETS
The Company's ratio of nonperforming assets to total assets was 3.18% at
December 31, 1998, which is above the average level of other similarly-sized
financial institutions. While the Company carefully manages its loan portfolio
with a view to minimizing its nonperforming assets, there can be no assurance
that the Company's ratio of nonperforming assets to total assets will improve or
not increase, particularly if general economic conditions deteriorate.
ADEQUACY OF ALLOWANCE FOR LOAN LOSSES
Industry experience indicates that a portion of the Company's loans will
become delinquent and a portion of the loans will require partial or entire
charge-off. Regardless of the underwriting criteria utilized by the Company,
losses may be experienced as a result of various factors beyond the Company's
control, including, among other things, changes in market conditions affecting
the value of properties and problems affecting the credit of the borrower. The
Company's determination of the adequacy of its allowance for loan losses is
based on various considerations, including an analysis of the risk
characteristics of various classifications of loans, previous loan loss
experience, specific loans which would have loan loss potential, delinquency
trends, estimated fair value of the underlying collateral, current economic
conditions, the view of the Company's regulators, and geographic and industry
loan concentration. If, however, delinquency levels were to increase as a result
of adverse general economic conditions, especially in Florida, the loan loss
reserve so determined by the Company may not be adequate. To the extent that the
Company's loan losses exceed its allowance for loan losses, the Company's
results of operations would be adversely affected. There can be no assurance
that the Company's allowance for loan losses will be adequate to cover its loan
losses or that the Company will not experience losses in its loan portfolio
which may require significant increases to the allowance for loan losses in the
future.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The Company's profitability is dependent to a large extent on its net
interest income, which is the difference between its interest income on
interest-earning assets and its interest expense on interest-bearing
liabilities. The Company, like most financial institutions, is affected by
changes in general interest rate levels, which are currently at relatively low
levels, and by other economic factors beyond its control. Interest rate risk
arises from mismatches (i.e., the interest sensitivity gap) between the dollar
amount of repricing or maturing assets and liabilities, and is measured in terms
of the ratio of the interest rate sensitivity gap to total assets. More assets
repricing or maturing than liabilities over a given time frame is considered
asset-sensitive and is reflected as a positive gap, and more liabilities
repricing or maturing than assets over a given time frame is considered
liability-sensitive and is reflected as a negative gap. An asset-sensitive
position (i.e., a positive gap) will generally enhance earnings in a rising
51
<PAGE>
interest rate environment and will negatively impact earnings in a falling
interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment. Fluctuations in interest rates are not predictable or controllable.
The Company has attempted to structure its asset and liability management
strategies to mitigate the impact on net interest income of changes in market
interest rates. At December 31, 1998, the Company had a one year cumulative
negative gap of 16.7%. This negative one year gap position may, as noted above,
have a negative impact on earnings in a rising interest rate environment.
REGULATORY OVERSIGHT
The Bank is subject to extensive regulation, supervision and examination
by the Department as its chartering authority and primary regulator, by the
Federal Reserve as its federal regulator and by the FDIC as administrator of the
insurance fund that insures the Bank's deposits up to applicable limits. As the
holding company of the Bank, the Company is subject to regulation and oversight
by the Federal Reserve. Such regulation and supervision governs the activities
in which an institution may engage and is intended primarily for the protection
of the FDIC insurance funds and depositors. Regulatory authorities have been
granted extensive discretion in connection with their supervisory and
enforcement activities and regulations have been implemented which have
increased capital requirements, increased insurance premiums and have resulted
in increased administrative, professional and compensation expenses. Any change
in the regulatory structure or the applicable statutes or regulations could have
a material impact on the Company, the Bank and their operations. Additional
legislation and regulations may be enacted or adopted in the future which could
significantly affect the powers, authority and operations of the Bank and the
Bank's competitors which in turn could have a material adverse affect on the
Bank and its operations.
DEPENDENCE ON EXISTING MANAGEMENT
The Company's business depends in large part upon the availability of the
services of its senior management, including Neil W. Savage, Ward J. Curtis,
Jr., Harold J. Winner and William A. Eickhoff. If the services of any of such
senior management personnel were to become unavailable to the Company, the
Company's business and operating results could be adversely affected. While the
Company maintains key man life insurance policies on certain of its senior
management personnel, naming the Company as beneficiary, there can be no
assurance that the proceeds of any such policies would adequately compensate the
Company for the loss of the services of any of such persons. Neither Mr. Savage
nor Mr. Winner have entered into a non-competition agreement with the Company or
the Bank. Although both Mr. Eickhoff's and Mr. Curtis's employment contracts
contain non-competition clauses, the provisions terminate under certain
conditions.
CONTROL BY EXISTING SHAREHOLDERS
The Company's directors and executive officers (and their respective
affiliates and immediate family members) own approximately 49.6% of the
outstanding Common Stock. As a result of such ownership, these persons will
likely be able to effectively control the election of the Company's directors
and the outcome of matters requiring shareholder approval, and thereby control
the management and policies of the Company.
52
<PAGE>
COMPETITION
The Company competes with various types of financial institutions,
including other commercial banks and savings institutions, and with finance
companies, mortgage banking companies, money market mutual funds, investment
advisory firms and companies and credit unions, many of which have substantially
greater financial resources than the Company and, in some cases, operate under
fewer regulatory constraints.
ANTI-TAKEOVER CONSIDERATIONS
The Company's articles of incorporation and bylaws and Florida law contain
certain provisions that may discourage or make more difficult any attempt by a
person or group to obtain control of the Company. In addition, the board of
directors of the Company is empowered to issue from time to time one or more
series of Undesignated Preferred Stock without shareholder approval, the terms
of which could have the effect of delaying or preventing a change in control of
the Company.
POSSIBLE VOLATILITY OF SHARE PRICE
The market price of the Common Stock may experience fluctuations that are
unrelated to the operating performance of the Company. The market price of the
Common Stock may be affected by conditions in the securities markets generally
as well as developments in the banking industry or the United States or world
economy. Any securities exchange on which the Common Stock may be traded may
from time to time experience significant price and volume fluctuations that may
be unrelated to the operating performance of particular companies. The market
price of the Common Stock, like the stock prices of many publicly traded bank
holding companies, may prove to be highly volatile.
RESTRICTIONS ON ABILITY TO PAY DIVIDENDS
The Company is primarily a holding company with no material business
operations, sources of income or assets of its own other than the shares of its
subsidiaries. Because substantially all of the Company's operations are
conducted through subsidiaries, the Company's cash flow and, consequently, its
ability to pay dividends or make other distributions is dependent upon either
third-party borrowings made by the Company or the cash flow of its subsidiaries
and the payment of funds by those subsidiaries, including the Bank, to the
Company in the form of loans, dividends, fees or otherwise. The Company's
subsidiaries are separate and distinct legal entities and will have no
obligation, contingent or otherwise, to make any funds available, whether in the
form of loans, dividends or otherwise. Regulatory limitations on the Bank
restrict its ability to make loans or distributions to the Company.
53
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are contained on pages F-1 through F-41 of
this Report:
Report of Independent Certified Public Accountants;
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Earnings - Years ended December 31, 1998, 1997 and
1996;
Consolidated Statements of Comprehensive Income - Years ended December 31,
1998, 1997 and 1996;
Consolidated Statement of Stockholders' Equity - Years ended December 31,
1998, 1997 and 1996;
Consolidated Statements of Cash Flows - Years ended December 31, 1998, 1997
and 1996;
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information required by Item 9 of Form 10-KSB is incorporated herein by
reference to the Registrant's definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Registrant's fiscal
year.
ITEM 10. EXECUTIVE COMPENSATION
Information required by Item 10 of Form 10-KSB is incorporated herein by
reference to the Registrant's definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Registrant's fiscal
year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 11 of Form 10-KSB is incorporated herein by
reference to the Registrant's definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Registrant's fiscal
year.
54
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 12 of Form 10-KSB is incorporated herein by
reference to the Registrant's definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Registrant's fiscal
year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation of the Company*
3.2 Bylaws of the Company*
4.1 Form of Indenture with respect to the Company's 9.4% Junior
Subordinated Debentures*
4.2 Form of Specimen Junior Subordinated Debenture (included in Exhibit
4.1)*
4.3 Certificate of Trust of UFH Capital Trust I*
4.4 Trust Agreement of UFH Capital Trust I*
4.5 Form of Amended and Restated Trust Agreement of UFH Capital Trust I*
4.6 Form of Certificate for Cumulative Trust Preferred Security of UFH
Capital Trust I*
4.7 Form of Guarantee Agreement for UFH Capital Trust I*
4.8 Form of Agreement as to Expenses and Liabilities*
4.9 Specimen of Common Stock to be registered hereunder*
10.1 UFH Stock Option and Incentive Compensation Plan*
10.2 Trust Department Stock Option Plan*
10.3 Eickhoff, Pieper & Willoughby Stock Option Plan*
10.4 Modification Agreement*
10.5 Property Management Agreement between Imaginative Investments, Inc.
and the Southeast Companies of Tampa Bay, Inc.*
10.6 Employment Agreement of Charles O. Lowe*
10.7 Employment Agreement of Ward J. Curtis, Jr.*
10.8 Employment Agreement of Harold J. Winner*
10.9 Employment Agreement of John H. Pieper
10.10 Employment Agreement of Neil W. Savage*
<PAGE>
10.11 Employment Agreement of William A. Eickhoff*
10.12 Salary Continuation Agreement of Harold J. Winner*
10.13 Salary Continuation Agreement of Neil W. Savage*
10.14Agreement between Willow Green Partnership, LTD and Irwin Contracting
relating to foreclosed property acquired by United Bank.
10.15Pinellas Bancshares Corporation 8% Convertible Debentures held by
Eickhoff & Pieper, a Florida General Partnership*
10.16Loan Agreement between AmSouth f/k/a AmSouth Bank of Florida and UFH
f/k/a Pinellas Bancshares Corporation*
21 List of Subsidiaries*
27 Financial Data Schedule
*This information is incorporated herein by reference to the Company's
Registration Statement on Form SB-2 (Registration Statement Nos. 333-60431
and 333-60431-01) and the amendment thereto previously filed with the
Commission.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fiscal year ending
December 31, 1998.
56
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
9134, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED FINANCIAL HOLDINGS, INC.
/s/Neil W. Savage
Date: March 23, 1999 By: _______________________________
Neil W. Savage President and
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/John B. Norrie
_________________________________ Chairman of the Board March 23, 1999
John B. Norrie
/s/Neil W. Savage
_________________________________ President, Chief March 23, 1999
Neil W. Savage Executive Officer
and Director
(Principal Executive
Officer)
/s/Ronald E. Clampitt
_________________________________ Director March 23, 1999
Ronald E. Clampitt
/s/Ward J. Curtis
_________________________________ Director March 23, 1999
Ward J. Curtis
/s/David K. Davis
_________________________________ Director March 23, 1999
David K. Davis
/s/William A. Eickhoff
_________________________________ Director March 23, 1999
William A. Eickhoff
/s/Edward D. Foreman
_________________________________ Director March 23, 1999
Edward D. Foreman
/s/Ian F. Irwin
_________________________________ Director March 23, 1999
Ian F. Irwin
/s/Charles O. Lowe
_________________________________ Director March 23, 1999
Charles O. Lowe
57
<PAGE>
/s/Jack A. MaCris, M.D.
_________________________________ Director March 23, 1999
Jack A. MaCris, M.D.
/s/Ronald R. Petrini
_________________________________ Director March 23, 1999
Ronald R. Petrini
/s/John B. Wier, Jr.
_________________________________ Director March 23, 1999
John B. Wier, Jr.
/s/Harold J. Winner
_________________________________ Director March 23, 1999
Harold J. Winner
/s/C. Peter Bardin
_________________________________ Chief Financial Officer March 23, 1999
C. Peter Bardin (Principal Financial Officer)
58
UNITED FINANCIAL HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1998, 1997 and 1996
<PAGE>
UNITED FINANCIAL HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants............................1
Consolidated Balance Sheets at December 31, 1998 and 1997.....................2
Consolidated Statements of Earnings for the years ended
December 31, 1998, 1997 and 1996..............................................3
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1998, 1997 and 1996..............................................5
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996..............................................6
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996..............................................7
Notes to Consolidated Financial Statements....................................9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
United Financial Holdings, Inc.
St. Petersburg, Florida
We have audited the consolidated balance sheets of United Financial Holdings,
Inc. and Subsidiaries (the "Company") as of December 31, 1998 and 1997, and the
related consolidated statements of earnings, comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits of the consolidated financial statements in accordance
with generally accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Our audits of the consolidated financial statements referred to above, were
conducted for the purpose of forming an opinion on the consolidated financial
statements taken as a whole. The consolidating balance sheet as of December 31,
1998 and the consolidating statement of earnings for the year ended December 31,
1998, are presented for purposes of additional analysis of the consolidated
financial statements rather than to present the financial position and results
of operations of the individual companies. The consolidating information has
been subjected to the audit procedures applied in the audit of the consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the consolidated financial statements taken as a whole.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of United
Financial Holdings, Inc. and Subsidiaries as of December 31, 1998 and 1997, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
/s/Grant Thornton, LLP
________________________________
Grant Thornton, LLP
Tampa, Florida
January 29, 1999
F-1
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1998 1997
ASSETS ------------ -------------
Cash and due from banks $ 7,966,757 $ 7,336,809
Federal funds sold 4,011,000 7,441,000
Trading securities 157,354 -
Securities held to maturity, market value
of $11,435,699 and $10,212,426, respectively 11,205,629 10,097,258
Securities available for sale, at market 14,527,487 11,472,052
Loans, net 116,545,851 94,821,324
Premises and equipment, net 9,274,501 9,541,801
Federal Home Loan Bank stock 433,500 364,900
Federal Reserve Bank stock 158,800 153,750
Accrued interest receivable 995,458 950,042
Intangible assets, less accumulated amortization
of $1,642,935 and $1,570,288, respectively 1,451,031 1,336,494
Other real estate owned 1,015,255 -
Other assets 4,159,556 3,803,254
------------ ------------
Total Assets $171,902,179 $147,318,684
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand $ 27,741,896 $ 28,384,616
NOW and money market 48,550,267 36,031,184
Savings 4,686,318 5,245,222
Time, $100,000 and over 11,462,762 9,692,130
Other time 46,654,262 50,865,952
------------ ------------
Total Deposits 139,095,505 130,219,104
Securities sold under agreements to repurchase 8,795,715 1,080,745
Accrued interest payable 391,769 396,184
Convertible subordinated debentures 630,000 630,000
Long-term debt 33,750 2,678,152
Other liabilities 2,184,334 1,823,337
------------ -----------
Total Liabilities 151,131,073 136,827,522
Company-obligated Mandatory Redeemable Capital Securities of Subsidiary
Trust Holding Solely Subordinated Debentures
Of The Company 6,000,000 -
STOCKHOLDERS' EQUITY
7% convertible preferred stock, $10 par value; 150,000 shares authorized;
20,850 and 23,350 shares issued and outstanding at
December 31, 1998 and 1997, respectively 208,500 233,500
Common stock, $.01 par value; 20,000,000 shares authorized; 4,045,563 and
3,444,318 shares issued & outstanding at
December 31, 1998 & 1997, respectively 40,455 34,443
Paid-in capital 9,192,103 5,789,932
Common stock subscription receivable (393,260) -
Accumulated other comprehensive income 141,313 57,499
Retained earnings 5,581,995 4,375,788
---------- ----------
Total stockholders' equity 14,771,106 10,491,162
---------- ----------
Total liabilities and stockholders' equity $171,902,179 $147,318,684
============ ============
The accompanying notes are an integral part of these statements. F - 2
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
Interest income
Loans and loan fees $ 10,381,551 $ 8,960,703 $ 8,121,249
Securities
U.S. Treasury 552,623 598,549 316,369
Obligations of other U.S. Government
agencies and corporations 880,517 746,786 702,235
Obligations of states
and political subdivisions 104,137 39,570 54,670
Other 207,938 151,612 180,517
Federal funds sold and securities purchased under
reverse repurchase agreements 532,014 295,297 220,028
------------ ------------ ------------
Total interest income 12,658,780 10,792,517 9,595,068
Interest expense
NOW and money market 1,563,767 794,997 541,882
Savings 96,920 96,656 107,523
Time deposits, $100,000 and over 534,471 419,007 241,685
Other time 2,668,754 2,603,631 2,314,600
Long-term debt 250,057 130,547 124,544
Subordinated debentures issued
to subsidiary trust 28,198 - -
Federal funds purchased and securities sold under
agreements to repurchase 126,152 56,248 89,338
------------ ------------ ------------
Total interest expense 5,268,319 4,101,086 3,419,572
------------ ------------ ------------
Net interest income 7,390,461 6,691,431 6,175,496
Provision for loan losses 752,000 90,000 150,000
------------ ------------ ------------
Net interest income after
provision for loan losses 6,638,461 6,601,431 6,025,496
Other income
Service charges on deposit accts 706,839 674,637 555,747
Trust & investment mgmnt income 2,355,156 1,886,534 1,229,136
Net trading account profit 87,354 - -
Gain on sales of loans 239,498 289,720 424,611
Gain on sale of held to
maturity security 78,498 - -
Loan servicing fees 147,881 164,368 153,153
Income on cash value life insurance 136,728 - -
All other fees and income 336,549 224,993 209,446
------------ ------------ ------------
Total other income 4,088,503 3,240,252 2,572,093
(Continued on F - 4)
The accompanying notes are an integral part of these statements. F - 3
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
----------- ------------ ------------
Other expense
Salaries and employee benefits $ 4,630,580 $ 4,047,859 $3,723,903
Occupancy expense 522,472 514,374 387,256
Furniture and equipment expense 512,000 494,360 423,224
Data processing expense 436,767 417,522 375,339
Legal and professional fees 120,702 176,778 152,766
Amortization of intangible assets 79,443 66,802 111,208
Marketing and business development 301,611 265,472 236,608
Directors fees 190,662 198,750 142,645
Telephone expense 171,535 149,367 115,270
Stationery, printing and supplies 137,092 151,327 141,062
Postage expense 90,373 79,834 71,760
Headquarter relocation expense - 138,314 -
Securities writedown - 255,000 -
Other operating expenses 765,849 616,236 345,081
----------- ------------ ------------
7,959,086 7,571,995 6,226,122
----------- ------------ ------------
Earnings before income taxes 2,767,878 2,269,688 2,371,467
Income tax expense (benefit)
Current 1,192,177 957,932 952,448
Deferred (181,607) (97,986) (61,000)
----------- ------------ ------------
1,010,570 859,946 891,448
----------- ------------ ------------
NET EARNINGS $ 1,757,308 $ 1,409,742 $ 1,480,019
=========== ============ ============
Earnings Per Share:
Basic $ .49 $ .41 $ .47
Diluted $ .46 $ .38 $ .40
The accompanying notes are an integral part of these statements. F - 4
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
Net earnings $ 1,757,308 $ 1,409,742 $ 1,480,019
Other comprehensive income
Unrealized holding gains (losses) 126,991 18,642 (103,639)
Income tax (expense) benefit related to items of other
comprehensive income (43,177) (7,015) 38,999
------------ ------------ ------------
Comprehensive income $ 1,841,122 $ 1,421,369 $ 1,415,379
============ ============ ============
The accompanying notes are an integral part of these statements. F - 5
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
7% 6%
Convertible Convertible
Common Preferred Preferred Paid-In
STOCK STOCK STOCK CAPITAL
Balance at December 31, 1995 $26,361 $ 982,500 $ 125,140 $4,588,669
Net Earnings - - - -
2% Common Stock dividend 669 - - 265,230
Conversion of 6% Pref to Common Stk 996 - (125,140) 124,098
Conversion of 7% Pref to Common Stk 6,192 (749,000) - 742,698
Dividends on Common Stock - - - -
Dividends on Preferred Stock - - - -
Accum other comprehensive income - - - -
Issuance of Common Stock for cash 90 - - 16,872
-------- -------- --------- ---------
Balance at December 31, 1996 34,308 233,500 - 5,737,567
Net Earnings - - - -
Dividends on Common Stock - - - -
Dividends on Preferred Stock - - - -
Accumulated other comprehensive income - - - -
Issuance of Common Stock for cash 135 - - 52,365
-------- -------- --------- ---------
Balance at December 31, 1997 34,443 233,500 - 5,789,932
Net Earnings - - - -
Conversion of 7% Pref to Common Stock 210 (25,000) - 24,770
Dividends on Common Stock - - - -
Dividends on Preferred Stock - - - -
Accumulated other comprehensive income - - - -
Issuance of Common Stock in IPO 5,077 - - 2,799,334
Performance shares issued 320 - - 263,787
Issuance of Common Stock for cash 405 - - 314,280
-------- -------- --------- ---------
Balance at December 31, 1998 $40,455 $ 208,500 $ - $9,192,103
======== ========= ========= ==========
(Continued on F - 6b)
The accompanying notes are an integral part of this statement. F - 6a
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumu-
lated
Other Stock
Compre- Sub-
hensive scription Retained
Income Receivable Earnings TOTAL
Balance at December 31, 1995 $110,512 $ - $2,653,700 $ 8,486,882
Net Earnings - - 1,480,019 1,480,019
2% Common Stock dividend - - (266,858) (959)
Conversion of 6% Pref to Common Stock - - - (46)
Conversion of 7% Pref to Common Stock - - - (110)
Dividends on Common Stock - - (383,018) (383,018)
Dividends on Preferred Stock - - (43,435) (43,435)
Accum other comprehensive income (64,640) - - (64,640)
Issuance of Common Stock for cash - - - 16,962
--------- --------- --------- ---------
Balance at December 31, 1996 45,872 - 3,440,408 9,491,655
Net Earnings - - 1,409,742 1,409,742
Dividends on Common Stock - - (458,017) (458,017)
Dividends on Preferred Stock - - (16,345) (16,345)
Accum other comprehensive income 11,627 - - 11,627
Issuance of Common Stock for cash - - - 52,500
--------- --------- --------- ----------
Balance at December 31, 1997 57,499 - 4,375,788 10,491,162
Net Earnings - - - 1,757,308 1,757,308
Conversion of 7% Pref to Common Stock - - - (20)
Dividends on Common Stock - - (535,631) (535,631)
Dividends on Preferred Stock - - (15,470) (15,470)
Accum other comprehensive income 83,814 - - 83,814
Issuance of Common Stock in IPO - (393,260) - 2,411,151
Performance shares issued - - - 264,107
Issuance of Common Stock for cash - - - 314,685
--------- --------- --------- ----------
Balance at December 31, 1998 $141,313 $(393,260) $5,581,995 $14,771,106
========= ========= ========== ===========
The accompanying notes are an integral part of this statement. F - 6b
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
------------ ----------- -----------
Cash flows from operating activities:
Net earnings $ 1,757,308 $ 1,409,742 $ 1,480,019
Adjustments to reconcile net
earnings to net cash provided
by (used in) operating activities
Provision for loan losses 752,000 90,000 150,000
Provision for depreciation and
amortization 650,669 566,344 500,994
Unrealized gain on trading
securities (87,354) - -
Gain on sale of held to
maturity security (78,498) - -
Writedown of investment security - 255,000 -
Write-off of leasehold improvements - 130,065 -
Accretion of securities discount (58,715) (44,317) (35,062)
Amortization of unearned loan fees (149,954) (64,941) (104,663)
Amortization of securities premiums 26,125 38,874 58,804
Gain on sales of loans (372,500) (422,831) (424,611)
Increase in interest receivable (45,416) (171,487) (25,317)
(Decrease) increase in int payable (4,415) 59,399 37,793
Increase in other assets (1,558,741) (2,641,922) (118,290)
Decrease in other liabilities 360,997 276,211 211,633
----------- ----------- -----------
Net cash provided by (used in)
operating activities 1,191,506 (519,863) 1,731,300
Cash flows from investing activities:
Purchase of Federal Reserve Bank stock
and FHLB stock (73,650) (46,100) (13,500)
Net decrease (increase) in Fed
funds sold 3,430,000 (380,000) (4,665,000)
Principal repayments of held to
maturity securities 580,646 388,715 678,419
Proceeds from sale of held to
maturity security 110,906 - -
Principal repayments of available
for sale securities 900,182 494,729 1,106,893
Proceeds from maturities of
available for sale securities 3,260,000 4,491,876 1,199,781
Proceeds from maturities of
held to maturity securities 4,567,408 4,987,969 2,840,219
Purchases of available for
sale securities (7,153,908) (6,937,869) (3,518,560)
Purchases of held to maturity
securities (6,304,138) (6,526,492) (3,588,175)
Proceeds from sales of loans 3,243,766 3,969,174 5,598,856
Net increase in loans (25,197,839) (19,130,218) (10,384,509)
Capital expenditures (310,722) (4,185,913) (2,836,673)
------------ ----------- -----------
Net cash used in investing activities (22,947,349) (22,874,129) (13,582,249)
(Continued on F - 8)
The accompanying notes are an integral part of this statement. F - 7
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
------------ ------------ -----------
Cash flows from financing activities:
Acquisition of Eickhoff,
Pieper & Willoughby $ - $ - $ (62,819)
Cash paid in lieu of fractional
share - 2% stock dividend - (565)
Cash paid in lieu of fractional
shares - 6% pref stock conversion - - (46)
Net increase in demand deposits, NOW accounts, money market
accounts and savings accounts 11,317,459 10,754,834 12,994,380
Net (decrease) increase in
certificates of deposit (2,441,058) 11,319,353 2,316,607
Net increase (decrease)in securities sold under
agreements to repurchase 7,714,970 (688,114) (995,537)
Increase in borrowings - 2,004,202 75,000
Repayment of long-term debt (2,644,402) (140,000) (136,250)
Issuance of Company-obligated mandatory redeemable capital
securities of subsidiary trust holding solely subordinated
debentures of the Company 6,000,000 - -
Issuance of common stock 2,989,923 52,500 16,962
Dividend paid on preferred stock (15,470) (16,345) (43,435)
Dividend paid on common stock (535,631) (458,017) (383,018)
------------ ----------- -----------
Net cash provided by
financing activities 22,385,791 22,828,413 13,781,279
------------ ----------- -----------
Net increase (decrease) in cash
and cash equivalents 629,948 (565,579) 1,930,330
Cash and cash equivalents at
beginning of year 7,336,809 7,902,388 5,972,058
------------ ----------- -----------
Cash and cash equivalents at
end of year $ 7,966,757 $ 7,336,809 $ 7,902,388
============ ============ ============
Cash paid during the year for:
Interest $ 5,263,904 $ 4,041,687 $ 3,381,780
Income taxes $ 1,108,451 $ 927,817 $ 961,579
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Reclassification of loans to
foreclosed real estate $ 1,253,160 $ 408,113 $ 541,085
============ ============ ============
Reclassification of foreclosed
real estate to loans $ 262,500 $ 124,000 $ 369,000
============ ============ ============
Non-cash portion of the acquisition price of Eickhoff, Pieper
& Willoughby was the issuance of convertible subordinated
debentures $ $ $ 630,000
============ ============ ============
Performance shares issued $ 264,107 $ $
============ ============ ============
The accompanying notes are an integral part of these statements F - 8
<PAGE>
United Financial Holdings, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 four branch offices serving the southern Pinellas County
area of the State of Florida.
Following is a summary of the significant accounting policies that have been
consistently applied in the preparation of the consolidated financial statements
of United Financial Holdings, Inc. and Subsidiaries.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of United Financial
Holdings, Inc. (the "Company") and its Subsidiaries, the Bank, Eickhoff, Pieper
& Willoughby ("EPW"), United Trust Company ("Trust") and UFH Capital Trust I
("UFHCT"), after all significant intercompany accounts and transactions have
been eliminated. United Trust was formed on November 30, 1997. On December 31,
1997, the Bank transferred all assets of the trust division to the newly formed
United Trust Company.
2. CASH AND CASH EQUIVALENTS
For the purpose of presentation in the Consolidated Statements of Cash Flows,
cash and cash equivalents includes cash on hand and non-interest bearing amounts
due from correspondent banks.
3. USE OF ESTIMATES IN FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
4. SECURITIES
The Company's investment securities are classified in the following categories
and accounted for as follows:
(Continued on F - 10)
F - 9
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
o TRADING SECURITIES. Government and corporate bonds and corporate securities
held principally for resale in the near term are classified as trading
securities and recorded at their fair values. The Company had one trading
security, which was transferred from securities available for sale during
the year ended December 31, 1998, at which time book value approximated
market value. The security has an unrealized gain of $87,354 at December 31,
1998. The Company had no trading securities for the years ended December 31,
1997 and 1996.
o SECURITIES HELD TO MATURITY. Bonds, notes and debentures for which the
Company has the positive intent and ability to hold to maturity are reported
at cost, adjusted for amortization of premiums and accretion of discounts
which are recognized in interest income using the interest method over the
period to maturity. Such securities may be sold or transferred to the
available for sale or trading securities classification only as a result of
isolated, non-recurring, or unusual changes in circumstances which the
Company could not have reasonably anticipated, such as a change in statutory
or regulatory requirements regarding investment limitations or a significant
deterioration in a security issuer's credit-worthiness.
o SECURITIES AVAILABLE FOR SALE. Securities available for sale consist of
bonds, notes, debentures, and certain equity securities not classified as
trading securities nor as securities held to maturity, which may be sold
prior to maturity as part of asset/liability management or in response to
other factors, are carried at fair value with any valuation adjustment
reported in a separate component of stockholders' equity, net of the tax
effect.
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary are recognized as
writedowns of the individual securities to their fair value. Such writedowns are
included in earnings as realized losses. The Company had a writedown of one
investment security totaling $255,000 for the year ended December 31, 1997.
There were no such writedowns during 1998 and 1996.
Gains and losses on the sale of securities available for sale are determined
using the specific-identification method.
5. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal balance. These receivables are adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or costs on
originated loans and un-amortized premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment to the related loan's yield, generally over the
contractual life of the loan.
(Continued on F - 11)
F - 10
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received.
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
6. ACCOUNTING FOR IMPAIRMENT OF LOANS
The Company's measurement of impaired loans includes those loans which are
non-performing and have been placed on non-accrual status and those loans which
are performing according to all contractual terms of the loan agreement but may
have substantive indication of potential credit weakness.
Residential mortgages and consumer loans and leases outside the scope of SFAS
No. 114 are collectively evaluated for impairment.
7. PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives. Leasehold improvements are amortized over the lives of
the respective leases or the service lives of the improvements, whichever is
shorter. The straight-line method of depreciation is followed for substantially
all assets for financial reporting purposes, but accelerated methods are used
for tax purposes.
8. OTHER REAL ESTATE OWNED (ORE)
Other real estate owned is initially recorded at fair value at the date of
foreclosure, less estimated selling costs. Costs relating to development and
improvement of property are capitalized, whereas costs relating to the holding
of property are expensed.
Valuations are periodically performed by management, or obtained from
independent appraisers, and an allowance for loss is established by a charge to
operations if the value of the property declines below its original estimated
fair value.
(Continued on F - 12)
F - 11
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
If a sale of real estate owned results in a gain, the gain is accounted for in
accordance with FASB Statement No. 66, ACCOUNTING FOR SALES OF REAL ESTATE.
Accordingly, gains may be deferred or recognized currently depending on the
terms of the sale. Losses are charged to operations as incurred.
9. INTANGIBLE ASSETS
Intangible assets include core deposit premiums paid to acquire certain customer
deposit bases and the remaining excess of cost over net tangible assets
acquired. These assets are being amortized on a straight-line basis over their
estimated lives of 10-40 years.
10. INCOME TAXES
Deferred income tax assets and liabilities are computed annually for differences
between the consolidated financial statements and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in net deferred assets and
liabilities.
11. STOCK BASED COMPENSATION
The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
Effective in 1996, the Company adopted the disclosure option of SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, which requires that companies not
electing to account for stock-based compensation as prescribed by the statement,
disclose the pro forma effects on earnings and earnings per share as if SFAS No.
123 had been adopted. Additionally, certain other disclosures are required with
respect to stock compensation and the assumptions used are to determine the pro
forma effects of SFAS No. 123.
12. LOAN FEES
Net loan fees and processing costs are deferred and amortized over the lives of
the loans using the interest method of amortization.
13. ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically reviews its long-lived assets for impairment.
Impairment losses on long-lived assets are recognized when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. The Company did not
record any impairment losses during the years ended December 31, 1998 and 1997.
(Continued on F - 13)
F - 12
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
14. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENT OF LIABILITIES
The FASB has issued SFAS No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES, which was effective for the
Company's fiscal year beginning January 1, 1997. SFAS No. 125 provides standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. A transfer of financial assets in which the
transferor surrenders control over those assets is accounted for as a sale to
the extent that consideration other than beneficial interests in the transferred
assets is received in exchange. After a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished.
15. REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS
No. 130 establishes standards for reporting and display of comprehensive income.
A specific reporting format is not required, provided the financial statements
show the amount of total comprehensive income for the period. Those items which
are not included in net income are required to be shown in the financial
statements with appropriate footnote disclosure and the aggregate balance of
such items must be shown separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods is required. The Company adopted
SFAS No. 130 effective January 1, 1998.
16. DISCLOSURES ABOUT BUSINESS SEGMENTS
In June 1997, the FASB adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for the
way the Company reports information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial reports. SFAS No. 131 is effective for periods
beginning after December 15, 1997. Management has implemented SFAS No. 131 in
the year ended December 31, 1997 and believes its trust operations and
investment advisory activities are immaterial to the consolidated financial
statements in terms of their respective assets, revenues, profit or loss and
other operating data.
(Continued on F - 14)
F - 13
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
17. EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, EARNINGS PER SHARE. SFAS No. 128
simplified the method for computing and presenting earnings per share ("EPS")
previously required by APB Opinion No. 15, EARNINGS PER SHARE, and makes them
comparable to international EPS standards. SFAS No. 128 is effective for periods
ending after December 15, 1997, and requires restatement of all prior period EPS
data and has been implemented by the Company. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.
18. RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1997 and 1996
balances to conform to the December 31, 1998 presentation.
19. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The FASB recently issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES. SFAS No. 133 requires entities to recognize all derivatives
in their financial statements as either assets or liabilities measured at fair
value. SFAS No. 133 also specified new methods of accounting for hedging
transactions, prescribes the items and transactions that may be hedged, and
specifies detailed criteria to be met to qualify for hedge accounting. On
adoption, entities are permitted to transfer held-to-maturity debt securities to
the available-for-sale or trading category. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999. The adoption of SFAS No. 133 for the year
ended December 31, 2000 is not expected to have a material impact on the results
of operations for the Company.
NOTE B - ACQUISITIONS
On September 30, 1995, the Company purchased 100% of the stock of Fiduciary
Services Corp. ("FSC") for $450,000, issuing 150,000 shares at $3.00 per share
of common stock of the Company plus a contingent payment of performance shares
based upon net earnings of the trust department through 2001. The acquisition of
FSC was accounted for as a purchase. The purchase price was allocated to net
tangible assets acquired based upon their estimated fair market values. The
performance shares will be recorded as additional purchase price. Included in
intangible assets is $395,706 of excess of cost over net tangible assets
acquired. Pro forma information is not presented, as the effect of the
acquisition is immaterial to the financial statements.
(Continued on F - 15)
F - 14
<PAGE>
NOTE B - ACQUISITIONS
On January 31, 1996, the Company completed the acquisition of EPW, an
independent investment management firm. The acquisition was facilitated by the
issuance of $630,000, 8% convertible subordinated debentures, plus a contingent
payment of performance shares based upon net earnings of EPW through 2001. The
performance shares will be recorded as compensation.
For the above acquisitions, the Company has reserved from its authorized but
unissued Common Stock, 225,000 shares as performance shares and 32,013 shares
have been paid out as of December 31, 1998, of which 20,808 shares were
accounted for as additional consideration and 11,205 shares were accounted for
as compensation.
NOTE C - INITIAL PUBLIC OFFERING
On December 16, 1998, the Company completed an Initial Public Offering (IPO) in
which it issued 507,705 shares of common stock at a price of $7.25 per share.
The common stock trades on the NASDAQ Small Cap Market under the symbol "UFHI".
Concurrent with the common stock offering, the Company issued through UFH
Capital Trust I, 1,349,920 shares of $5.00 par value Trust Preferred securities
with a coupon rate of 9.40%. The Trust Preferred securities trade on the NASDAQ
Small Cap Market under the symbol "UFHIP". Proceeds from the offering totaled
$9,554,011 net of underwriting fees and Trust Preferred costs of $876,450.
NOTE D - UFH CAPITAL TRUST I
On December 16, 1998, UFH Capital Trust I ("UFHCT"), a Delaware statutory
business trust created by the Company, issued $6,749,600 (including an
overallotment of $749,600 that closed on January 14, 1999) of 9.40% Cumulative
Trust Preferred Securities ("Securities") which will mature on December 10,
2028, subject to earlier redemption in certain circumstances. The principal
asset of UFHCT is a $6,959,200 subordinated debenture of the Company. The
subordinated debenture bears interest at the rate of 9.40% and matures December
16, 2028, subject to earlier redemption in certain circumstances. The Company
owns all of the common securities of UFHCT.
The Securities, the assets of UFHCT, and the common securities issued by UFHCT,
are redeemable in whole or in part on or after December 10, 2003 or at any time,
in whole (but not in part) within 180 days following the occurrence of certain
events. The Securities are included in Tier I Capital for regulatory purposes,
subject to certain limitations.
The obligations of the Company with respect to the issuance of the Securities
constitute a full and unconditional guarantee by the Company of UFHCT's
obligation with respect to the Securities.
(Continued on F - 16)
F - 15
<PAGE>
NOTE D - UFH CAPITAL TRUST I
Subject to certain exceptions and limitations, the Company may, from time to
time, defer subordinated debenture interest payments, which would result in a
deferral of distribution payments on the related securities and, with certain
exceptions, prevent the Company from declaring and paying cash distributions on
the Company's common stock or debt securities that rank pari passu or junior to
the subordinated debentures.
NOTE E - UNITED FINANCIAL HOLDINGS, INC.
(Parent Only)
CONDENSED FINANCIAL INFORMATION
The Bank, EPW, Trust and UFHCT are wholly-owned subsidiaries of United Financial
Holdings, Inc. The majority of the Company's assets are represented by its
investment in the Bank and its primary source of income is dividends from the
Bank.
During 1989, the Company authorized the issuance of 150,000 shares of $10 par
value cumulative, convertible, 7% preferred stock. The shares are convertible
into common shares at $1.19 per share.
Following is condensed financial information of the Company.
December 31,
1998 1997 1996
------------ ------------- -------------
BALANCE SHEETS
Cash and cash equivalent $ 4,451,859 $ 203,278 $ 245,940
Trading securities 157,354 - -
Due from subsidiaries 192,432 197,014 144,886
Investment in Bank 13,617,578 10,428,370 9,881,984
Investment in EPW 136,275 102,723 70,360
Investment in United Trust 2,646,885 2,360,985 -
Investment in UFH Cap Trust I 209,600 - -
Intangible assets 546,230 561,063 631,886
Receivable from UFH Cap Trust I 774,476 - -
Other assets 120,530 125,291 83,676
------------ ------------ ------------
$ 22,853,219 $ 13,978,724 $ 11,058,732
============ ============ ============
(Continued on F - 17)
F - 16
<PAGE>
NOTE E UNITED FINANCIAL HOLDINGS, INC.
(Parent Only)
CONDENSED FINANCIAL INFORMATION
December 31,
1998 1997 1996
------------ ------------ -------------
Note payable $ - $ 2,629,402 $ 750,200
Convertible subordinated
debentures 630,000 630,000 630,000
Junior subordinated debentures
issued to UFH Cap Trust I 6,959,200 - -
Other liabilities 492,913 228,160 186,877
Stockholders' equity 14,771,106 10,491,162 9,491,655
------------ ------------ ------------
$ 22,853,219 $ 13,978,724 $ 11,058,732
============ ============ ============
STATEMENTS OF EARNINGS
Equity in earnings of Bank $ 1,767,421 $ 1,492,207 $ 1,535,539
Equity in earnings of EPW 48,551 107,363 65,553
Equity in earnings of United Trust 95,599 - -
Unrealized gain on trading 87,354 - -
Other income 100,345 26,611 1,470
Interest expense (275,116) (125,699) (119,407)
Other expense (144,123) (156,235) (34,991)
------------ ------------ ------------
Earnings before income taxes 1,680,031 1,344,247 1,448,164
Income tax benefit 77,277 65,495 31,855
------------ ------------ ------------
Net Earnings $ 1,757,308 $ 1,409,742 $ 1,480,019
============ ============ ============
(Continued on F - 18)
F - 17
<PAGE>
NOTE F - SECURITIES
At December 31, 1998 and 1997, the carrying value and estimated market value of
investments in debt and equity securities were as follows:
Carrying
Value Gross Gross
(Amortized Unrealized Unrealized Estimated
Cost) Gains Losses Market Value
----------- ---------- ---------- -----------
December 31, 1998
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 5,975,832 $ 227,918 $ 31,563 $ 6,172,187
Obligations of State and
political subdivisions 1,179,373 13,869 10,174 1,183,068
Mortgage-backed securities 3,448,531 22,630 92 3,471,069
Corporate obligations 501,893 7,482 - 509,375
Other 100,000 - - 100,000
----------- ---------- ---------- -----------
Total $11,205,629 $ 271,899 $ 41,829 $11,435,699
=========== ========== ========== ===========
Historical Gross Gross Carrying
Amortized Unrealized Unrealized Value
Cost Gains Losses (Market Value)
----------- ----------- ----------- ------------
Securities available for sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 8,747,092 $ 139,132 $ - $ 8,886,224
Obligations of State and
policical subdivisions 1,444,917 55,011 - 1,499,928
Mortgage-backed securities 3,035,227 31,795 577 3,066,445
Equity securities 1,086,140 - 11,250 1,074,890
----------- ----------- ----------- ------------
Total $14,313,376 $ 225,938 $ 11,827 $ 14,527,487
=========== =========== =========== ============
(Continued on F - 19)
F - 18
<PAGE>
NOTE F - SECURITIES
Carrying
Value Gross Gross
(Amortized Unrealized Unrealized Estimated
Cost) Gains Losses Market Value
----------- ---------- ---------- -----------
December 31, 1997
Securities held to maturity:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 6,903,071 $ 57,023 $ 39,655 $ 6,920,439
Obligations of State and
political subdivisions 628,967 17,987 464 646,490
Mortgage-backed securities 1,428,889 9,016 1,588 1,436,317
Corporate obligations 1,036,331 72,849 - 1,109,180
Other 100,000 - - 100,000
----------- ---------- ---------- -----------
Total $10,097,258 $ 156,875 $ 41,707 $ 10,212,426
=========== =========== ========== ===========
Historical Gross Gross Carrying
Amortized Unrealized Unrealized Value
Cost Gains Losses (Market Value)
----------- ----------- ----------- ------------
Securities available for sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 9,436,599 $ 76,140 $ 1,714 $ 9,511,025
Mortgage-backed securities 1,792,192 13,899 1,204 1,804,887
Equity securities 156,140 - - 156,140
----------- ----------- ----------- ------------
Total $11,384,931 $ 90,039 $ 2,918 $ 11,472,052
=========== =========== ========== ===========
Proceeds from the sale of investments in debt securities totaled $110,906 for
the year ended December 31, 1998 with a resulting gain of $78,498, which is
included in other service charges, fees and income. The sale of this held to
maturity debt security during the year ended December 31, 1998 was due to a
significant deterioration in the issuer's credit-worthiness. There were no
proceeds from sales of investments in debt securities for the years ended
December 31, 1997 and 1996.
The amortized cost and estimated market value of debt securities at December 31,
1998, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities due to borrowers having the right to call or prepay
obligations with or without call or prepayment penalties.
(Continued on F - 20)
F - 19
<PAGE>
NOTE F - SECURITIES
Securities Held To Maturity Securities Available For Sale
Carrying Carrying
Value Estimated Historical Value
(Amortized Market Avg Amortized (Market Avg
Cost) Value Yield Cost Value) Yield
--------------------------------------------------------------
Due in one year
or less $ 229,952 $ 230,930 5.92% $ 2,495,235 $ 2,512,813 6.610%
Due after one year
through five
years $ 3,533,389 3,598,650 6.206% 4,255,009 4,362,831 6.332%
Due after five
years through
ten years 3,468,533 3,620,000 6.59% 3,441,763 3,510,508 6.466%
Due after ten years 525,224 515,050 4.620% - - -
Mortgage-backed
securities 3,448,531 3,471,069 7.206% 3,035,227 3,066,445 6.774%
Equity securities - - 1,086,140 1,074,890 2.277%
----------- ----------- ----------- ----------
Total $11,205,629 $11,435,699 $14,313,374 $14,527,487
=========== =========== =========== ===========
Investment securities with a carrying value (which approximates market value) of
approximately $13,447,000 and $2,809,000 at December 31, 1998 and 1997,
respectively, were pledged to secure public funds and securities sold under
agreements to repurchase.
(Continued on F - 21)
F - 20
<PAGE>
NOTE G - LOANS
Major classifications of loans were as follows:
DECEMBER 31,
1998 1997
------------- -------------
Real estate mortgage $ 78,013,492 $ 60,583,746
Commercial 34,903,429 30,536,261
Installment and other 6,240,676 5,869,534
------------- -------------
119,157,597 96,989,541
Less: Allowance for loan losses 1,983,753 1,647,355
Unearned fees 627,993 520,862
------------- -------------
Loans, net $116,545,851 $ 94,821,324
============= =============
Changes in the allowance for loan losses were as follows:
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
----------- ----------- -----------
Balance at beginning of year $ 1,647,355 $ 1,609,785 $ 1,526,695
Provision charged to operating
expenses 752,000 90,000 150,000
Recoveries on loans previously
charged off 10,536 38,510 1,600
Loans charged off (426,138) (90,940) (68,510)
----------- ----------- -----------
Balance at end of year $ 1,983,753 $ 1,647,355 $ 1,609,785
=========== =========== ===========
Changes in unearned fees were as follows:
Balance at beginning of year $ 520,862 $ 341,439 $ 279,206
Points deferred on loans 257,085 244,364 166,896
Points recognized in income (149,954) (64,941) (104,663)
----------- ----------- -----------
Balance at end of year $ 627,993 $ 520,862 $ 341,439
=========== =========== ============
Impaired loans were as follows:
DECEMBER 31,
1998 1997 1996
------------ ----------- -----------
Balance at end of period $ 4,001,964 $ 400,049 $ 372,352
Average balance during period 2,808,974 440,927 224,119
Total related allowance for losses 602,000 13,000 -
Interest income recognized on
impaired loans 86,700 - -
(Continued on F - 22)
F - 21
<PAGE>
NOTE G - LOANS
The only loans sold by the Bank during 1998, 1997 and 1996 were SBA loans. In
accordance with SFAS No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES, a servicing asset is
recorded when the Bank sells the SBA loans. The book value of such assets, which
the Bank believes approximates the fair value of such assets at December 31,
1998, 1997 and 1996 was $141,000, $78,000 and $83,000, respectively.
Amortization expense relating to such servicing assets of $13,000 and $2,000 was
recorded for 1998 and 1997, respectively. The Company periodically reviews these
assets for impairment. No valuation for impairment of these assets was deemed
necessary for the periods presented.
NOTE H - PREMISES AND EQUIPMENT
Major classifications of premises and equipment are as follows:
DECEMBER 31,
1998 1997
------------ ------------
Land $ 1,396,779 $ 1,396,779
Land improvements 64,746 59,673
Leasehold improvements 115,812 113,998
Building and building improvements 7,404,878 7,392,139
Furniture, fixtures and equipment 2,666,993 2,460,523
Construction in progress - 1,294
------------ ------------
11,649,208 11,424,406
Less accumulated depreciation & amortization 2,374,707 1,882,605
------------ ------------
$ 9,274,501 $ 9,541,801
============ ============
Depreciation of premises and equipment and amortization of leaseholds was
$576,515, $501,475 and $390,680 for the years ended December 31, 1998, 1997 and
1996, respectively.
(Continued on F - 23)
F - 22
<PAGE>
NOTE I - INCOME TAXES
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities, consist of the
following:
DECEMBER 31,
1998 1997
------------- -------------
Deferred tax assets
Allowance for loan losses $ 680,000 $ 543,000
Deferred loan fees 158,000 120,000
Deferred compensation 118,000 75,000
Net operating loss carryforward (1) 34,000 59,000
------------- -------------
990,000 797,000
Deferred tax liabilities
Fixed assets 133,000 36,000
Securities available for sale 81,000 30,000
------------- -------------
214,000 66,000
Net deferred tax asset, included with
other assets $ 776,000 $ 731,000
============ ============
(1) Relates to net operating losses of two acquired subsidiaries. The
acquisitions resulted in ownership changes for purposes of Section 382
of the Internal Revenue Code of 1986, as amended. Consequently, the net
operating loss carryforwards are subject to a yearly limitation on their
utilization and can only be applied against future income of the
acquired subsidiaries. Such operating loss carryforwards at December 31,
1998 are approximately $90,000 and begin to expire in 2010. The Company
believes that it will obtain the future income to fully utilize the net
operating loss carryforwards, thus no valuation allowance has been
recorded.
Management believes that it is more likely than not that the net deferred tax
asset will be realized and, therefore, a valuation allowance has not been
recorded against the deferred asset at December 31, 1998, 1997 and 1996.
(Continued on F - 24)
F - 23
<PAGE>
NOTE I - INCOME TAXES
The Company's effective tax rate varies from the statutory rate of 34%. The
reasons for this difference are as follows:
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
---------- ---------- ----------
Computed "expected" tax provision $ 941,000 $ 771,700 $ 806,300
Tax exempt interest income (14,800) (7,500) (9,300)
Goodwill amortization 24,000 22,100 23,100
State taxes net of federal benefit 70,600 58,600 60,100
Other, net (10,230) 15,046 11,248
---------- ---------- ----------
Total $1,010,570 $ 859,946 $ 891,448
========== ========== ==========
NOTE J - DEPOSITS
At December 31, 1998, the scheduled maturities of time deposits are as follows:
1999 $47,948,931
2000 4,524,333
2001 1,870,560
2002 3,017,798
2003 755,402
-----------
$58,117,024
===========
NOTE K - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company enters into retail repurchase agreements with certain of its
customers. These agreements mature daily. All securities collateralizing these
agreements were under the Company's control for each respective time period.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
YEAR ENDED DECEMBER 31,
1998 1997 1996
Average balance $3,983,959 $2,029,453 $3,291,662
Average interest rate 3.55% 2.49% 2.62%
Maximum month-end balance $8,795,715 $2,860,141 $6,977,300
The average rate was determined by dividing the total interest paid by the
average outstanding borrowings.
(Continued on F - 25)
F - 24
<PAGE>
NOTE K - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities underlying the agreements are as follows:
AT DECEMBER 31,
1998 1997
--------------------------
Carrying value $8,644,000 $2,809,000
Estimated fair value 8,804,000 2,809,000
NOTE L - LONG-TERM DEBT
Long-term debt of the Company consists of the following:
DECEMBER 31,
1998 1997
---------------------------
Note payable to an unrelated bank providing
for quarterly principal payments of $3,750
and quarterly interest payments at 8.5%
fixed, due in 2001. The note is collateralized
by certain pieces of data processing equipment.
$ 33,750 $ 48,750
Note payable to an unrelated bank providing
for monthly interest payments at prime (8.50%
at December 31, 1997) and ninety-five (95)
consecutive monthly principal payments are
due beginning on December 1, 1999. The loan
agreement requires a security interest in the
Bank's common stock and contains certain
restrictive covenants. The Company repaid
this note payable in December 1998, with a
portion of the proceeds from the IPO.
- 2,629,402
8% Convertible Subordinated Debentures
issued in conjunction with the acquisition
of EPW. The holder can convert to common stock
at $4.12 per share at any time. Upon conversion,
the common stock issued cannot be traded for a
period of two years. Interest is payable
semi-annually and the debentures mature
January 31, 2006. The debentures are callable
by the Company, in whole or part, as follows:
(Continued on F - 26)
F - 25
<PAGE>
NOTE L - LONG-TERM DEBT
DECEMBER 31,
1998 1997
----------- -----------
YEAR PRICE
2001 103%
2002 102%
2003 101%
2004 and thereafter 100% 630,000 630,000
---------- ----------
$ 663,750 $3,308,152
========== ==========
The annual principal reductions of the long-term debt during each of the next
five years ended December 31 are as follows:
1999 $ 15,000
2000 15,000
2001 3,750
2002 -
2003 -
Thereafter 630,000
----------
$ 663,750
==========
NOTE M - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and a regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weighting, and
other factors.
In addition to the minimum capital requirement detailed above, the Bank has
committed to maintain a minimum Tier One Leverage Ratio (as defined) of 7% in
exchange for permission to exceed the Office of Comptroller's (the "Department")
maximum investment in land and buildings as expressed as a percentage of
capital. As of December 31, 1998, the Bank's Tier One Leverage Ratio was 7.89%,
above the minimum agreed to by the Department.
(Continued on F - 27)
F - 26
<PAGE>
NOTE M - REGULATORY MATTERS
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) to total and Tier I capital (as defined in the regulations) to risk
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1998 and 1997, the most recent notification from the Federal
Reserve categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Bank
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios as of December 31, 1998 are as
follows (dollars in thousands):
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Adequacy Action
Actual Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- ------- --------
Stockholders' equity and
ratio to total assets $ 13,617 8.06%
Intangible assets (404)
--------
Tangible capital and ratio
to adjusted total assets $ 13,213 7.52% $ 2,636 1.5%
======== =======
Tier I (core) capital and
ratio to adjusted total
assets $ 13,073 7.44% $ 5,272 3.0% $ 8,787 5.0%
======== ======= =======
Tier I capital and ratio to
risk weighted assets $ 13,073 9.52% $ 4,118 3.0% $ 8,236 6.0%
-------- ======= =======
Tier II capital - allowance
for loan and lease losses $ 1,719
--------
Total risk-based capital
and ratio to risk-
weighted assets $ 14,792 10.78% $10,981 8.0% $13,727 10.0%
======== ======= =======
Total Assets $168,837
========
Adjusted total assets $175,739
========
Risk-weighted assets $137,267
========
(Continued on F - 28)
F - 27
<PAGE>
NOTE M - REGULATORY MATTERS
The Bank's actual capital amounts and ratios as of December 31, 1997 are as
follows (dollars in thousands):
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Adequacy Action
Actual Purposes Provisions
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ------ ------- -------
Stockholders' equity and
ratio to total assets $ 10,428 7.22%
Intangible asssets (418)
--------
Tangible capital and ratio
to adjusted ttotal assets $ 10,010 6.80% $ 2,206 l.5%
======== ========
Tier I (core) capital and
ratio to adjusted total
assets $ 9,953 6.77% $ 4,412 3.0% $ 7,354 5.0%
======== ======== ========
Tier I capital and ratio to
risk weighted asets $ 9,953 8.90% $ 3,356 3.0% $ 6,713 6.0%
-------- ======== ========
Tier II capital - allowance
for loan and lease losses $ 1,402
---------
Total risk-based capital
and ratio to risk-
weighted assets $ 11,355 10.15% $ 8,950 8.0% $ 11,187 10.0%
========= ======== =========
Total Assets $144,482
========
Adjusted total assets $147,074
========
Risk-weighted assets $111,878
========
(Continued on F - 29)
F - 28
<PAGE>
NOTE N - CONCENTRATIONS OF RISK
All of the Company's loans, commitments, and commercial and standby letters of
credit have been granted to customers who are substantially all located in the
Company's market area. The majority of customers are depositors of the Company.
The concentrations of credit by type of loan are set forth in Note D. The
distribution of commitments to extend credit approximates the distribution of
loans outstanding. Commercial and standby letters of credit were granted
primarily to commercial borrowers. The Company, as a matter of policy, does not
extend credit to any single borrower or group of related borrowers in excess of
its legal lending limit. At December 31, 1998 and 1997, less than 4% of the
Company's loans are unsecured.
At December 31, 1998, the Company held deposits for a customer equal to
approximately 10% of total deposits. Such deposits were invested in short-term
investments. At December 31, 1997, no single customer represented more than 10%
of total deposits.
NOTE O - COMMITMENTS AND CONTINGENT LIABILITIES
OFF BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Such financial instruments are recorded in the financial
statements when they become payable. Those instruments involve, to varying
degrees, elements of credit and interest rate risks in excess of the amount
recognized in the balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in particular
classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual or notional amount
of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Unless noted otherwise, the Company does not require collateral or other
security to support financial instruments with off-balance-sheet credit risk.
The contract or notional amounts are as follows:
DECEMBER 31,
1998 1997
-----------------------------
Commitments to extend credit $20,182,057 $16,644,892
Standby letters of credit and financial
guarantees written $ 1,595,882 $ 1,663,578
(Continued on F - 30)
F - 29
<PAGE>
NOTE O - COMMITMENTS AND CONTINGENT LIABILITIES
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
credit-worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Company generally holds
residential or commercial real estate, accounts receivable, inventory and
equipment as collateral supporting those commitments for which collateral is
deemed necessary.
LITIGATION
The Company is party to certain litigation encountered in the course of its
normal operations, a portion of which involves actions brought against
borrowers, generally involving foreclosure proceedings. In some instances,
borrowers or interested parties have filed or threatened suit in retaliation.
Management, after consulting with legal counsel, believes that it has valid
defenses and intends to vigorously defend these matters. Management is of the
opinion that an unfavorable outcome, if any, would not have a material effect
upon the consolidated financial statements.
OPERATING LEASES
The Company also has operating leases covering certain office equipment and
office facilities expiring at various times through 2004.
The minimum annual rentals under these leases as of December 31, 1998, are as
follows:
Year Amount
---- ---------
1999 $ 81,229
2000 72,887
2001 73,866
2002 66,500
2002 27,690
Thereafter 53,634
---------
Total minimum lease payments $ 375,806
=========
(Continued on F - 31)
F - 30
<PAGE>
NOTE O - COMMITMENTS AND CONTINGENT LIABILITIES
The Company's rent expense was $102,342, $189,096 and $232,325 for
the years ended December 31, 1998, 1997 and 1996, respectively.
NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS
The assumptions used in the estimation of the fair value of the Company's
financial instruments are detailed below. Where quoted prices are not available,
fair values are based on estimates using discounted cash flows and other
valuation techniques. The use of discounted cash flows can be significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. The following disclosures should not be considered a
surrogate of the liquidation value of the Company, but rather represent a
good-faith estimate of the increase or decrease in value of financial
instruments held by the Company since purchase, origination or issuance.
The Company, in estimating the fair value of its financial instruments, used the
following methods and assumptions:
Cash and due from banks and interest bearing deposits with other banks: Fair
value equals the carrying value of such assets.
Investment securities and investment securities available for sale: Fair
values for investment securities are based on quoted market prices.
Federal funds sold: Due to the short-term nature of these assets, the
carrying values of these assets approximate their fair value.
Loans: For variable rate loans, those repricing within six months or less,
fair values are based on carrying values. Fixed rate commercial loans, other
installment loans, and certain real estate mortgage loans were valued using
discounted cash flows. The discount rate used to determine the present value
of these loans was based on interest rates currently being charged by the
Company on comparable loans as to credit risk and term.
Off-balance-sheet instruments: The Company's loan commitments, which
approximate $21,800,000 and $18,300,000 at December 31, 1998 and 1997,
respectively, are negotiated at current market rates and are relatively
short-term in nature and, as a matter of policy, the Company generally makes
commitments for fixed rate loans for relatively short periods of time.
Therefore, the estimated value of the Company's loan commitments
approximates the fees charged for entering into the commitments.
(Continued on F - 32)
F - 31
<PAGE>
NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS
Deposit liabilities: The fair values of demand deposits are, as required by
SFAS 107, equal to the carrying value of such deposits. Demand deposits
include non-interest-bearing demand deposits, savings accounts, NOW accounts
and money market demand accounts. Discounted cash flows have been used to
value fixed rate term deposits. The discount rate used is based on interest
rates currently being offered by the Company on comparable deposits as to
amount and term.
Short-term borrowings: The carrying value of Federal funds purchased,
securities sold under agreements to repurchase and other short-term
borrowings approximate their carrying values.
Long-term debt: The carrying value of the Company's long-term debt
approximates its fair value since the interest rates on these instruments
approximate market interest rates.
Cumulative trust preferred securities: Fair value for cumulative trust
preferred securities are based on quoted market prices.
FOR THE YEARS ENDED
Financial Instruments DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Assets: (In Thousands) (In Thousands)
---------------------- ---------------------
Cash and due from banks $ 7,967 $ 7,967 $ 7,337 $ 7,337
Federal funds sold 4,011 4,011 7,441 7,441
Trading securities 157 157 - -
Securities held to maturity 11,206 11,436 10,097 10,212
Securities available for sale 14,527 14,527 11,472 11,472
Loans 119,158 119,694 96,989 97,042
Federal Home Loan Bank stock 434 434 365 365
Federal Reserve Bank stock 159 159 154 154
Liabilities:
Demand deposits 27,742 27,742 28,385 28,385
NOW and money market 48,550 48,550 36,031 36,031
Savings 4,686 4,686 5,245 5,245
Time, $100,000 and over 11,463 11,492 9,692 9,752
Other time 46,654 46,789 50,866 51,074
Securities sold under agreements
to repurchase 8,796 8,796 1,081 1,081
Long-term debt 664 664 3,308 3,308
Cumulative trust preferred
securities 6,000 6,000 - -
Off balance sheet items - 218 - 183
(Continued on F - 33)
F - 32
<PAGE>
NOTE Q - RELATED PARTIES
The Bank has entered into transactions with its directors, significant
stockholders and their affiliates ("related parties"). Such transactions were
made in the ordinary course of business on substantially the same terms and
conditions, including interest rates and collateral, as those prevailing at the
same time for comparable transactions with other customers and did not, in the
opinion of management, involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such related parties
approximated $5,277,500, $4,462,400 and $4,952,000 at December 31, 1998, 1997
and 1996, respectively.
During November 1997, an affiliate of one of the Company's directors entered
into an exclusive right to a lease agreement (the "Lease Agreement") with
Imaginative Investments, Inc., a subsidiary of the Company and the owner of the
real property covering the Company' principal executive office (the "Owner").
Pursuant to the Lease Agreement, the Owner granted to such entity the exclusive
right to lease 17,918 square feet of the Company's principal executive office
for a total of $246,373 or $13.75 per rental square foot with annual escalations
of 3%, and three to five year lease terms in return for a commission of 3% if no
outside broker is used and 6% in the event an outside broker is used. The Lease
Agreement commenced July 14, 1997 and terminated at midnight on July 14, 1998.
As of December 31, 1998, the space was 100% leased.
During March 1997, an affiliate of one of the Company's directors (the
"Manager") entered into a property Management Agreement with Imaginative
Investments, Inc., a subsidiary of the Company, pursuant to which the Manager is
employed to act as the sole and exclusive manager in the leasing, operation and
management of the Company's principal executive offices for total consideration
of approximately $17,000. The Owner is required to maintain comprehensive
general public liability insurance in the amount of $2,000,000 naming as insured
parties the Owner, Manager and such other parties as the Owner may direct. The
Manager must maintain its own insurance to protect itself from any and all
claims under any workers' compensation laws or other employer's liability laws.
NOTE R - PROFIT-SHARING PLAN
The Company has a defined contribution profit-sharing plan covering
substantially all employees. Contributions are determined annually by the Board
of Directors. The Company contributed $110,000, $99,996 and $75,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. The plan was amended
in 1993 to include an Employee Stock Ownership Plan (ESOP) provision. As of
December 31, 1998, the ESOP owned 135,606 shares of the Company's common stock.
During 1998, the ESOP purchased an additional 34,443 newly issued shares from
the Company and 15,300 shares from existing shareholders. The purchase price of
the newly issued stock was $8.25 as determined by an outside independent
appraisal.
(Continued on F - 34)
F - 33
<PAGE>
NOTE R - PROFIT-SHARING PLAN
The Company sponsors a deferred compensation 401(k) Plan for the benefit of
eligible full-time employees. The 401(k) Plan, which is voluntary, allows
employees to contribute up to 10 percent of their total compensation (or a
maximum of $10,000 as limited by federal regulations) on a pre-tax basis. The
Company makes a matching contribution of 100 percent of the first $500 and 40
percent thereafter, up to the maximum amount allowed by the 401(k) Plan.
Employee contributions to the 401(k) Plan were $184,204, $173,262 and $135,472
for the years ended December 31, 1998, 1997 and 1996, respectively. The
Company's matching contribution was $92,857, $86,927 and $74,207 for the years
ended December 31, 1998, 1997 and 1996, respectively.
NOTE S - STOCKHOLDERS' EQUITY
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations. Options to purchase
481,380 shares of common stock at $7.96 a share, 495,000 shares at $7.96 a share
and 27,000 shares at $4.49 a share at December 31, 1998, 1997 and 1996,
respectively, were not included in the computation of diluted EPS because the
options exercise price was not less than the value of the common shares based on
an independent appraisal. All these options have various lives and expire in
1999 and beyond.
(Continued on F - 35A)
F - 34
<PAGE>
FOR THE YEAR ENDED DECEMBER 31,
1998
----------------------------------------
Weighted Per
Average Share
Earnings Shares Amount
-----------------------------------------
Basic EPS
Net earnings available to
common stockholders $ 1,741,838 3,523,364 $.49
======
Effect of dilutive securities
Incremental shares from
assumed exercise or
conversion of:
Convertible debt 31,434 152,790
Preferred stock 15,470 185,508
Stock options - -
---------- ---------
Diluted EPS Net earnings
available to common
stockholders and assumed
conversions $ 1,788,742 3,861,662 $.46
=========== ========= ========
(Continued on F - 35b)
F - 35a
<PAGE>
NOTE S - STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31,
1997
------------------------------------------
Weighted Per
Average Share
Earnings Shares Amount
------------------------------------------
Basic EPS
Net earnings available to
common stockholders $ 1,393,397 3,432,768 $.41
======
Effect of dilutive securities
Incremental shares from
assumed exercise or
conversion of:
Convertible debt 31,434 152,790
Preferred stock 16,345 196,947
Stock options - 3,207
----------- ---------
Diluted EPS Net earnings
available to common
stockholders and assumed
conversions $ 1,441,176 3,785,712 $.38
=========== ========= ========
FOR THE YEAR ENDED DECEMBER 31,
1996
----------------------------------------
Weighted Per
Average Share
Earnings Shares Amount
------------------------------------------
Basic EPS
Net earnings available to
common stockholders $ 1,436,584 3,026,619 $.47
======
Effect of dilutive securities
Incremental shares from
assumed exercise or
conversion of:
Convertible debt 28,815 140,652
Preferred stock 43,435 592,236
Stock options - 1,899
----------- ----------
Diluted EPS Net earnings
available to common
stockholders and assumed
conversions $ 1,508,834 3,761,406 $.40
=========== ========= ======
(Continued on F - 36)
F - 35b
<PAGE>
NOTE S - STOCKHOLDERS' EQUITY
During the year ended December 31, 1997, the Company adopted the United
Financial Holdings, Inc. Stock Option and Incentive Compensation Plan ("Plan")
under which 468,000 shares of common stock were reserved. Under the Plan, the
Company may grant its Board of Directors and certain officers incentive stock
options or non-qualified stock options to purchase a specified number of shares
of common stock at a price not less than fair market value on the date of grant
and for a term not to exceed 10 years. The options granted to the Board of
Directors are 100% vested and the remaining options vest and become exercisable
at 20% increments after each anniversary date beginning after the second
anniversary date. During 1997, 156,000 and 312,000 options were granted to the
Company's Board of Directors and eligible executive officers, respectively, at
$7.94 per share, the estimated fair value of the Company's common stock at the
grant date. As such, no compensation expense was recorded in connection with the
grant of such options.
(Continued on F - 36b)
F - 36a
<PAGE>
NOTE S - STOCKHOLDERS' EQUITY
Weighted
Number Range of Average Aggregate
of Per Share Per Share Option
Shares Option Price Price Price
---------------------------------------------
Outstandings at Dec. 31, 1995 9,000 $ 1.96 $ 1.96 $ 17,640
Options granted 54,000 3.89-8.25 6.21 335,340
Options exercised (9,000) - (1.96) (17,640)
Options forfeited - - - -
------- ----------- ------ ----------
Outstandings at Dec. 31, 1996 54,000 3.89-8.25 6.21 335,340
Options granted 468,000 7.94 7.94 3,715,920
Options exercised (13,500) - (3.89) (52,515)
Options forfeited - - - -
------- ----------- ------ ----------
Outstandings at Dec. 31, 1997 508,500 3.89-8.25 7.88 3,998,745
Options granted - - - -
Options exercised (6,000) - (5.08) (30,480)
Options forfeited (21,120) 5.08-7.94 (6.92) (146,150)
------- ----------- ------ ----------
Outstandings at Dec. 31, 1998 481,380 $ 7.63-8.25 $ 7.94 $3,822,115
======= =========== ====== ==========
The weighted-average remaining contractual life of the outstanding stock options
at December 31, 1998, 1997 and 1996 was 103 months, 114 months and 30 months,
respectively.
These options are exercisable as follows:
Weighted
Average
Year Ending Number of Exercise
December 31, Shares Price
- - -------------------------------------------------------------------------------
1999 457,680 $7.94
2000 18,600 7.94
2001 4,200 7.94
2002 900 7.94
------- -----
481,380 $7.94
======= ====
(Continued on F - 37)
F - 36b
<PAGE>
NOTE S - STOCKHOLDERS' EQUITY
In order to calculate the fair value of the options, it was assumed that the
risk-free interest rate was 6.0%, the dividend yield would be 1.68% over the
exercise period, the expected life of the options would be the entire exercise
period and stock volatility would approximate zero due to a thinly traded market
for the stock. The following information pertains to the fair value of the
options at December 31, 1998, 1997 and 1996.
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
----------- ----------- -----------
Weighted average-grant-date
Fair value of options issued
during the year $ NIL $ 705,120 $ NIL
=========== =========== ===========
Pro forma net earnings $ 1,668,356 $ 1,402,329 $ 1,480,019
=========== =========== ===========
Pro forma basic earnings per share $ .48 $ .41 $ .47
=========== =========== ===========
NOTE T - EXECUTIVE COMPENSATION
The Company has employment contracts with certain executive officers of the
Company, providing for a total annual payment equal to their annual base salary
plus bonuses. These contracts are in effect until termination (as defined) of
the related employee. If the Company, for other than just cause (as defined)
terminates the employee, the affected employee shall receive, for a period of
twelve months, continuing compensation equal to his compensation for the twelve
month period immediately prior to termination.
The Company has established a non-qualified defined benefit plan covering
certain executive employees. The Plan specifies that upon reaching age 65, the
employee will receive an annual benefit (paid monthly) ranging from 40 percent
to 60 percent of their annual salary, for 240 months. The Company will accrue
the present value of the estimated future retirement payments over the period
from the date of each agreement to the retirement date of the respective
executive officer. To fund these benefit plans, the Company purchased single
premium cash value life insurance policies with current cash surrender values of
$2.32 million, which have been capitalized and included in other assets.
NOTE U - STOCK SPLIT
The Board of Directors declared a three-for-one common stock split effective
July 1, 1998 issued on July 31, 1998. All amounts have been restated to reflect
this stock split.
F - 37
<PAGE>
SUPPLEMENTAL SCHEDULES
United Financial Holdings, Inc. and Subsidiaries
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
December 31, 1998
United
Financial
Holdings, United
Inc. Bank EPW Trust
----------------------------------------------------
ASSETS
Cash and due from banks $ 4,451,859 $ 7,955,151 $ 284,958 $ 99,044
Federal funds sold - 4,011,000 - -
Trading securities 157,354 - - -
Securities held to maturity,
market value of $11,435,699 - 11,205,629 - -
Securities available for
sale, at market - 13,117,469 - 1,860,018
Loans, net - 116,545,851 - -
Premises and equipment, net - 9,120,661 59,910 93,930
Federal Home Loan Bank stock - 433,500 - -
Federal Reserve Bank stock - 158,800 - -
Accrued interest receivable - 977,647 - 17,811
Intangible assets, less
accumulated amortization of
$1,642,935 546,230 403,682 - 501,119
Other real estate owned - 1,015,255 - -
Other assets 17,697,776 3,892,806 51,814 94,406
----------- ----------- ------------ ------------
Total assets $22,853,219 $168,837,451 $ 396,682 $ 2,666,328
=========== ============ ============ ============
Eliminating Consolidated
UFHCT Total Entries Total
----------------------------------------------------
ASSETS (continued)
Cash and due from banks $ - $ 12,791,012 $ (4,824,255) $ 7,966,757
Federal funds sold - 4,011,000 - 4,011,000
Trading securities - 157,354 - 157,354
Securities held to maturity,
market value of $11,435,699 - 11,205,629 - 11,205,629
Securities available for sale,
at market - 14,977,487 (450,000) 14,527,487
Loans, net - 116,545,851 - 116,545,851
Premises and equipment, net - 9,274,501 - 9,274,501
Federal Home Loan Bank stock - 433,500 - 433,500
Federal Reserve Bank stock - 158,800 - 158,800
Accrued interest receivable 29,074 1,024,532 (29,074) 995,458
Intangible assets, less
accumulated Amortization
of $1,642,935 - 1,451,031 - 1,451,031
Other real estate owned - 1,015,255 - 1,015,255
Other assets 6,983,200 28,720,002 (24,560,446) 4,159,556
---------- ------------ ------------ ------------
Total assets $7,012,274 $201,765,954 $(29,863,775) $171,902,179
========== ============ ============ ============
(Continued on F - 39a)
F - 38
<PAGE>
SUPPLEMENTAL SCHEDULES
United Financial Holdings, Inc. and Subsidiaries
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
December 31, 1998
United
Financial
Holdings, United
Inc. Bank EPW Trust
------------------------------------------------------
Deposits
Demand $ - - $ 32,566,151 $ -
NOW and money market - 48,550,267 - -
Savings - 4,686,318 - -
Time, $100,000 and over - 11,912,762 - -
Other time - 46,654,262 - -
------------ ------------ ----------- ------------
Total deposits - 144,369,760 - -
Securities sold under
agreements to repurchase - 8,795,715 - -
Accrued interest payable 54,274 338,371 - -
Convertible subordinated
debentures 630,000 - - -
Long-term debt 6,959,200 - 33,750 -
Other liabilities 438,639 1,716,027 226,657 19,442
------------ ------------ ------------ -------------
Total liabilities $ 8,082,113 $155,219,873 $ 260,407 $ 19,442
Company-obligated Mandatory
Redeemable Capital Securities
of SubsidiaryTrust Holding
Solely Subordinated Debentures
Of The Company - - - -
STOCKHOLDERS' EQUITY
7% convertible preferred
stock, $10 par value;
150,000 shares authorized;
20,850 shares issued and
outstanding at
December 31, 1998 208,500 - - -
Common stock, $.01 par value;
20,000,000 shares authorized;
4,045,563 shares issued and
outstanding at
December 31, 1998 40,455 750,000 38,539 1,000,000
Paid-in capital 9,192,103 6,042,746 775,813 1,425,992
Common stock subscription
receivable (393,260) - - -
Accumulated other
comprehensive income 141,313 128,861 - 12,453
Retained earnings 5,581,995 6,695,971 (678,077) 208,441
------------ ------------ ------------ -----------
Total stockholders'
14,771,106 13,617,578 136,275 2,646,886
------------ ------------ ------------ -----------
Total liabilities
and stockholders'
equity $ 22,853,219 $168,837,451 $ 396,682 $ 2,666,328
============ ============ ============ ===========
(Continued on F - 39b) F - 39a
<PAGE>
SUPPLEMENTAL SCHEDULES
United Financial Holdings, Inc. and Subsidiaries
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
December 31, 1998
Eliminating Consolidated
UFHCT Total Entries Total
------------------------------------------------------
Deposits
Demand $ - $ 32,566,151 $ (4,824,255) $ 27,741,896
NOW and money market - 48,550,267 - 48,550,267
Savings - 4,686,318 - 4,686,318
Time, $100,000 and over - 11,912,762 (450,000) 11,462,762
Other time - 46,654,262 - 46,654,262
------------ ------------ ------------- ------------
Total deposits - 144,369,760 (5,274,255) 139,095,505
Securities sold under
agreements to repurchase - 8,795,715 - 8,795,715
Accrued interest payable 28,198 420,843 (29,074) 391,769
Convertible subordinated
debentures - 630,000 - 630,000
Long-term debt - 6,992,950 (6,959,200) 33,750
Other liabilities 774,476 3,175,241 (990,907) 2,184,334
------------ ------------- ------------ ------------
Total liabilities 802,674 164,384,509 (13,253,436) 151,131,073
Company-obligated Mandatory
Redeemable Capital Securities
of SubsidiaryTrust Holding
Solely Subordinated Debentures
Of The Company 6,000,000 6,000,000 - 6,000,000
STOCKHOLDERS' EQUITY
7% convertible preferred
stock, $10 par value;
150,000 shares authorized;
20,850 shares issued and
outstanding at
December 31, 1998 - 208,500 - 208,500
Common stock, $.01 par value;
20,000,000 shares authorized;
4,045,563 shares issued and
outstanding at
December 31, 1998 209,600 2,038,594 (1,998,139) 40,455
Paid-in capital - 17,436,654 (8,244,551) 9,192,103
Common stock subscription
receivable - (393,260) - (393,260)
Accumulated other
comprehensive income - 282,627 (141,314) 141,313
Retained earnings - 11,808,330 (6,226,335) 5,581,995
------------ ------------ ------------ ------------
Total stockholders'
equity 209,600 31,381,445 (16,610,339) 14,771,106
------------ ------------ ------------- ------------
Total liabilities
and stockholders'
equity $ 7,012,274 $201,765,954 $(29,863,775) $171,902,179
============ ============ ============ ============
(Continued on F - 40a) F - 39b
<PAGE>
Supplemental Schedules
United Financial Holdings, Inc. and Subsidiaries
SUPPLEMENTAL CONSOLIDATING STATEMENT OF EARNINGS
For the Year Ended December 31, 1998
United
Financial
Holdings, United
Inc. Bank EPW Trust
-----------------------------------------------------
Interest income
Loans and loan fees $ - $10,381,551 $ - $ -
Securities
U.S. Treasury - 552,623 - -
Obligations of other
U.S. Government agencies
and corporations - 786,035 - 94,482
Obligations of states
and political
subdivisions - 104,137 - -
Other 3,694 205,120 - 76,129
Federal funds sold
and securities
purchased under
reverse repurchase
agreements - 532,014 - -
----------- ----------- ------------ --------------
Total interest
income 3,694 12,561,480 - 170,611
Interest expense
NOW and money market - 1,563,767 - -
Savings - 96,920 - -
Time deposits, $100,000
and over - 547,074 - -
Other time - 2,668,754 - -
Long-term debt
Subordinated debentures
issued to subsidiary trust 29,074 - - -
Federal funds purchased and
securities sold under
agreementsto repurchase - 189,678 - -
----------- ----------- ------------ --------------
Total interest expense 275,117 5,066,193 4,014 -
----------- ----------- ------------ --------------
Net interest income (271,423) 7,495,287 (4,014) 170,611
Provision for
loan losses - 752,000 - -
----------- ----------- ------------ --------------
Net interest income
after provision
for loan losses (271,423) 6,743,287 (4,014) 170,611
(Continued on F - 40b) F - 40a
<PAGE>
Supplemental Schedules
United Financial Holdings, Inc. and Subsidiaries
SUPPLEMENTAL CONSOLIDATING STATEMENT OF EARNINGS
For the Year Ended December 31, 1998
Eliminating Consolidated
UFHCT Total Entries Total
-----------------------------------------------------
Interest income
Loans and loan fees $ - $10,381,551 $ - $ 10,381,551
Securities
U.S. Treasury - 552,623 - 552,623
Obligations of other
U.S. Government agencies
and corporations - 880,517 - 880,517
Obligations of states
and political
subdivisions - 104,137 - 104,137
Other 29,074 314,017 (106,079) 207,938
Federal funds sold
and securities
purchased under
reverse repurchase
agreements - 532,014 - 532,014
----------- ----------- ------------ --------------
Total interest
income 29,074 12,764,859 (106,079) 12,658,780
Interest expense
NOW and money market - 1,563,767 - 1,563,767
Savings - 96,920 - 96,920
Time deposits, $100,000
and over - 547,074 (12,603) 534,471
Other time - 2,668,754 - 2,668,754
Long-term debt - 250,057 - 250,057
Subordinated debentures
issued to subsidiary
trust 29,074 29,074 58,148 (29,950) 28,198
Federal funds purchased
and securities sold under
agreementsto repurchase - 189,678 (63,526) 126,152
----------- ----------- ------------ --------------
Total interest expense 29,074 5,374,398 (106,079) 5,268,319
----------- ----------- ------------ --------------
Net interest income - 7,390,461 - 7,390,461
Provision for
loan losses - 752,000 - 752,000
----------- ----------- ------------ --------------
Net interest income
after provision
for loan losses - 6,638,461 - 6,638,461
(Continued on F - 41a) F - 40b
<PAGE>
Supplemental Schedules
United Financial Holdings, Inc. and Subsidiaries
SUPPLEMENTAL CONSOLIDATING STATEMENT OF EARNINGS
For the Year Ended December 31, 1998
United
Financial
Holdings, United
Inc. Bank EPW Trust
-----------------------------------------------------
Other income
Service charges on
deposit accounts $ - $ 706,839 $ - $ -
Trust and investment
management income - 1,447,113 956,043 -
Net trading account
profit 87,354 - - -
Equity in Earnings of
Subsidiaries 1,755,877 - - -
Other service charges,
fees and income 1,340,192 938,879 - -
----------- ----------- ------------ --------------
Total other income 3,183,423 1,645,718 1,447,113 956,043
Other expenses
Salaries and employee
benefits - 3,164,589 976,701 489,290
Occupancy expense - 451,699 69,341 55,807
Furniture and equipment
expense - 403,283 58,632 50,085
Data processing expense - 311,315 41,239 84,213
Legal and professional fees 25,016 94,466 945 275
Amortization of intangible
assets 38,805 14,725 1,040 24,873
Other operating expenses 80,301 1,211,952 208,736 246,133
----------- ----------- ------------ --------------
144,122 5,652,029 1,356,634 950,676
Earnings before
income taxes 2,767,878 2,736,976 86,465 175,978
Income tax expense
(benefit) 1,010,570 969,555 37,914 71,073
----------- ----------- ------------ --------------
NET EARNINGS $ 1,757,308 $ 1,767,421 $ 48,551 $ 104,905
=========== =========== ============ ==============
(Continued on F - 41b) F - 41a
<PAGE>
Supplemental Schedules
United Financial Holdings, Inc. and Subsidiaries
SUPPLEMENTAL CONSOLIDATING STATEMENT OF EARNINGS
For the Year Ended December 31, 1998
Eliminating Consolidated
UFHCT Total Entries Total
-----------------------------------------------------
Other income
Service charges on
deposit accounts $ - $ 706,839 $ - $ 706,839
Trust and investment
management income - 2,403,156 (48,000) 2,355,156
Net trading account
profit - 87,354 - 87,354
Equity in Earnings of
Subsidiaries - 1,755,877 (1,755,877) -
Other service charges,
fees and income - 2,279,071 (1,339,917) 939,154
----------- ----------- ------------ --------------
Total other income - 7,232,297 (3,143,794) 4,088,503
Other expenses
Salaries and employee
benefits - 4,630,580 - 4,630,580
Occupancy expense - 576,847 (54,375) 522,472
Furniture and equipment
expense - 512,000 - 512,000
Data processing expense - 436,767 - 436,767
Legal and professional fees - 120,702 - 120,702
Amortization of intangible
assets - 79,443 - 79,443
Other operating expenses - 1,747,122 (90,000) 1,657,122
----------- ----------- ------------ --------------
- 8,103,461 (144,375) 7,959,086
Earnings before
income taxes - 5,767,297 (2,999,419) 2,767,878
Income tax expense
(benefit) - 2,089,112 (1,078,542) 1,010,570
----------- ----------- ------------ --------------
NET EARNINGS $ - $ 3,678,185 $ 1,920,877 $ 1,757,308
=========== =========== ============ ==============
F - 41b
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into effective as of the 28th day of December,
1995, by and between EICKHOFF, PIEPER & WILLOUGHBY, INC., a corporation
incorporated under the laws of the State of Florida ("EPW") and JOHN H.
PIEPER (the "Employee").
WHEREAS, EPW has organized and operates an investment management and advisory
services business ("Advisory Services Business");
WHEREAS, EPW desires to enter into an employment relationship with the Employee
to obtain the services of the Employee for its Advisory Services Business, on
terms and conditions set forth herein; and
WHEREAS, the Employee is willing to accept such employment;
NOW, THEREFORE, the Parties hereto, in consideration of the mutual covenants and
promises hereinafter contained, do hereby agree as follows:
1. Employment. EPW hereby employs Employee in the capacity of President or
another position within EPW of the same or greater stature, as the CEO of
EPW may direct or desire from time tO time.
2. Duties. The Employee's principal duties and responsibilities shall be those
that are usual and customary for the Employee's position and as provided
from time to time by the Board of Directors or Chief Executive Officer of
EPW.
3. Acceptance. Employee hereby accepts the employment, on the terms and
conditions herein set forth. Employee agrees to perform such services and
duties and hold such offices as may be assigned to him from time to time by
EPW and to devote his full business time, energies and best efforts to the
performance thereof to the exclusion of all other business activities,
except such activities as EPW may consent to in writing. Employee further
agrees to maintain any and all necessary state and federal licenses that
may be required to provide investment management and advisory services.
4. Term. The term of employment shall begin on the date hereof, with the
Employee's commencing full-time work on that date and shall continue until
terminated as herein provided.
5. Facilities. EPW shall provide the Employee with an office, staff,
stenographic help, equipment and other services and facilities reasonably
required and suitable for the performance of the Employee's duties
hereunder.
6. Salary. For each calendar year of employment, commencing January 1, 1996,
the Employees shall be paid compensation in accordance with the following:
(a) The Employer shall establish an annual "Salary Pool," which shall be
equal to the lesser of the "Fixed Salary Pool" or the "Variable Salary
Pool."
1
<PAGE>
i) The Fixed Salary Pool shall be equal to $115,000 times three, or
if less, times the number of "Shareholders" employed by the
Employer for the particular year.
ii) The Variable Salary Pool shall be equal to 15.5% of "revenues"
times three, or if less, times the number of "Shareholders"
employed by the Employer for the particular year.
(b) For purposes of Salary Pool calculations:
i) "Shareholders" shall be Eicldaoff, Pieper and Willoughby, or
whomever among them is then employed by the Employer.
ii) For any partial year of employment, the "number" of Shareholders
employed shall be adjusted to reflect the partial year. For
example, if in 1998, Eickhoff resigns as of June 30, 1998, then
for that calendar year, the Fixed Salary Pool shall be $115,000
times 2.5. Also, for example, if in 1998, Eickhoff resigns as of
March 31, 1998, then for that calendar year, the Variable Salary
Pool shall be 15.5% of revenues times 2.25.
iii) "Revenues" shall mean the gross receipts earned by EPW for
a'calendar year (with adjustments for returns, allowances and
sales taxes, if any) for which calculations are being made,
calculated in accordance with generally accepted accounting
principles consistently applied. Accrual accounting shall be
used, and compensation paid to EPW from United Bank and Trust
Company shall be included. In the event the Employee and Employer
do not agree upon the calculation of revenues for any annual
period, the disagreement shall be resolved by the regularly
employed independent accountant for the Employer, whose decision
shall, unless fraudulent or patently erroneous, bind the parties.
(c) The Employee shall participate in the Salary Pool only during the
portion of each calendar year he is employed under this Agreement.
(d) The Board of Directors shall allocate the entire Salary Pool for each
year among the Shareholders then employed by the Employer. The
allocation may be estimated prospectively for each calendar
quarter-annual period, upon the advice of the Compensation Committee
of the Employer. If no recommendation is made for a particular
quarter-annual period, the allocation then in effect shall continue
during the applicable period.
(e) However, the allocations for any calendar year from the Salary Pool to
the Employee may be in any amount, from zero to the maximum amount in
the Salary Pool for the year. The allocations to the Employee are
within the sole and absolute discretion of the Board of Directors of
the Employer, after it has the advice and counsel of the Compensation
Committee.
2
<PAGE>
(f) Compensation advances shall be paid monthly in arrears, and shall be
adjusted as of the end of each calendar year, or as of the date
employment terminates if earlier. Any reductions or increases in
compensation shall be settled as of the year end, or if earlier, as of
the date of employment terminates. Revenues shall be calculated for
each year (or applicable shorter period) as soon as practicable, and
may be estimated, subject to adjustment upon completion of the annual
audit of the Employer's books and records by its independent
accountant.
7. Bonus.
(a) "The Employee shall participate each calendar year of employment after
1995 in the Employer's Bonus Pool. The Bonus Pool, and the Employee's
participation, shall be in accordance with the following:
i) The total amount of the Bonus Pool for each calendar year shall
be allocated by the Employer among the Shareholders (as defmed
above in this Agreement) then employed by the Employer. The
amount of the Bonus Pool shall not be reduced when one or more of
the Shareholders is no longer employed by the Employer. However,
the allocations for any calendar year from the Bonus Pool to the
Employee may be, unless the Employee is the sole Shareholder then
employed by Employer, in any amount, from zero to the maximum
amount in the Bonus Pool for the year. The allocations to the
Employee are within the sole and absolute discretion of the Board
of Directors of the Employer, after it has the advice and counsel
of the Compensation Committee.
ii) Allocations shall be made as of the end of each calendar year, as
soon as practicable, but in any event by April 30th of each
subsequent year.
iii) The Bonus Pool is deemed earned for a calendar year on December
31st of the year. The Employee shall not be eligible to
participate in the Bonus Pool for a year unless he has been
employed under this Agreement for the entire calendar year.
iv) The Bonus Pool shall be calculated each calendar year in
accorctance with the following:
If Annual Pre-tax Profit of Employer is: Bonus Pool % of Pre-tax
Profits
$100,000 to $150,000 25%
$150,001 to $250,000 35%
$250,001 to more 40%
v) The annual pre-tax profit for the Employer for each year shall be
calculated on the accrual basis by application of generally
accepted accounting principles consistently applied. For purposes
of this calculation, the Employer's net profits shall not be
consolidated with those of the Trust Department of United Bank
and Trust Company, but otherwise, pre-tax net profits of the
Employer shall bear appropriate allocations of affiliated charges
and expenses, using the principals provided in the EPW Stock
Option Plan between the Employer and Pinellas Bancshares Corp.
3
<PAGE>
vi) In the event the Employee and Employer do not agree upon the
calculation of the Bonus Pool, or aaaua! pre-tax net profits, for
any annual period, the disagreement shall be resolved by the
regularly employed independent accountant for the Employer, whose
decision shall, unless fraudulent or patently erroneous, bind the
parties.
vii) The Bonus Pool for a calendar year shall not be less than
$5,000.00 times the number of Shareholders employed on the last
day of such year.
8. Expenses. EPW shall pay or reimburse the Employee for the reasonable and
necessary business expenses of the Employee, provided that the same have
been approved by EPW in accordance with its policies from time to time
established.
9. Employee Benefit Plans. The Employee shall be eligible to participate, to
the extent he may be eligible, in any profit sharing, retirement, group
insurance or other employee benefit plan maintained by EPW or Pinelias
Bancshares Corp. ('PBC"). EPW reserves the fight to amend or cancel such
benefit plans from time to time, provided that all eligible personnel are
similarly treated.
10. Stock Options. The Employee shall participate ia the EPW Stock Option Plan,
a copy of which is annexed hereto as Exhibit 10.
11. Vacations and Leave. The Employee shall be entitled to 4 weeks vacation and
leave time annually and any such additional vacation and leave time as may
be approved by the Board of Directors of EPW.
12. Non-Disclosure of Confidential Information. The Employee acknowledges that
in and as a result of his employment by EPW, he will be making use of,
acquiring, and/or adding to confidential information of a special and
unique nature and value relating to such matters as the EPW's and United
Bank and Trust Company's ("United") proprietary information, trade secrets,
systems, procedures, manuals, confidential reports, lists of customers and
data about customer (which are deemed for all purposes confidential and
proprietary), as well as the nature and type of services rendered by the
EPW and United, the methods used and preferred by EPW's and United's
customers, and the fees paid by them. As a material inducement to EPW to
enter into this Agreement and to pay to Employee the compensation stated in
this Agreement, Employee covenants and agrees that the Employee shall not,
at any time during or following the term of his employment, directly or
indirectly divulge or disclose for any purpose whatsoever any confidential
information that has been obtained by, or disclosed to, Employee as a
result of employment by EPW. In the event of a breach or threatened breach
by Employee of any of the provisions of this Paragraph, EPW, in addition to
and not in limitation of, any other rights, remedies, or damages available
to EPW at law or in equity, shall be entitled to a permanent injunction ia
order to prevent or restrain any such breach by the Employee or by
Employee's partners, agents, representatives, servants, employers,
employees, family members and/or any and all persons directly or indirectly
acting for or with Employee.
13. Covenants Against Competition. Employee, in consideration of his employment
by EPW and other good and valuable consideration, hereby covenants (the
"Covenant") not to compete with EPW pursuant to the following terms:
4
<PAGE>
(a) Covenant. Employee covenants and agrees with EPW that Employee will
not, directly or indirectly, for himself or in connection with any
person, firm or entity:
i) For a period running during his employment by EPW and from the
date after his employment by EPW terminates until the earlier of
2 years from the date of termination or January 1, 2000 (the
"Non-Compete Term") (the term shall be extended for any period in
which Employee is in violation of the Covenant) come into
competition with EPW by participating in or in connection with or
being employed by any business which engages in a similar line of
business (the "Line of Business") of EPW, predominantly within
EPW's trade area (the "Trade Area").
ii) For a period furming during his employment by EPW and from the
date after his employment by EPW terminates until the earlier of
three (3) years from the date of termination or January 1, 2000
(the term shall be extended from any period in which Employee is
in violation of the Covenant) solicit, sell, or handle any
investment advisory transactions or business for any customers or
clients of EPW (the "Customers or Clients of EPW") or any
subsidiary of EPW; or solicit or persuade any employee of EPW or
the Trust Department of United Bank and Trust Company (the "Trust
Department") to leave the employment of EPW' or Trust Department
or hire any such employee.
(b) Customers or Clients Defined. As used in subsection 13(a)(ii), above,
the phrase "Customers or Clients of EPW" shall mean any customer or
client with which EPW has previously provided goods or services or
otherwise engaged in business association and shall additionally
include all customers and accounts serviced by Employee during the
term of employment of Employee by EPW. "Customers or Clients of EPW"
shall also mean all previous and current customers and clients of the
Trust Department and all persons for whom EPW or Employee has provided
services within the Line of Business.
(e) Line of Business Defined. As used in subsection 13(a), above, the
phrase "Line of Business" shall be defined as the sale of investment
advisory and management services.
(d) Trade Area Defined. As used in subsection 13(a), above, the phrase
"Trade Area" shall encompass Pinelias and Hillsborough Counties,
Florida.
(e) Breach of Covenant. Employee agrees that any breach of this Covenant
will result in irreparable injury to EPW, for which EPW will have no
adequate remedy at law, and Employee consents to an injunction in
favor of EPW, enjoining any breach of this Covenant by any court of
competent jurisdiction, without prejudice, to any other right or
remedy to which EPW may be entitled. In the event that this Covenant
shall be determined by any court of competent jurisdiction to be
unenforceable by reason of its being extended over too great a period
of time, or too large a geographical area, or over too great a range
of activities, the parties agree that this Covenant shall be
interpreted to extend only over the maximum period of time,
geographical area, or range of activities as to which it may be
enforceable. Employee hereby waives any bond requirement pending any
proceeding by EPW to enforce this Covenant. o
5
<PAGE>
(f) Purchase of EPW. The Covenant shall not apply to a Employee after the
Employee, alone or with others, purchases EPW or after there has been
a "change of control" in accordance with the First Right of Refusal
Agreement between Employee and Pinelias Bancshares Corporation
executed and dated contemporaneously herewith.
(g) Termination of Employee. If Employee is terminated from Employment by
EPW as a result of a material breach pursuant to subsection 14(e)(iii)
of employment agreement, then subsection 13(a)(i) of the Covenant
shall not apply to Employee.
14. Termination. Employment of the Employee under this Agreement will be
terminated:
(a) By the Employee's death.
(b) If the Employee is Totally Disabled.
i) For the purpose of this Agreement, the Employee will be Totally
Disabled if the Employee (1) has been declared legally
incompetent by a final court decree (the date of such decree
being deemed to be the date on which the disability occurred),
(2) receives disability insurance benefits from any disability
income insurance policy maintained by EPW for a period of six (6)
consecutive months, or (3) has been found to be disabled pursuant
to a Disability Determination.
ii) A Disability Determination means a finding that the Employee,
because of a medically determinable disease, injury, or other
mental or physical disability, is unable to perform substantially
all of his regular duties to EPW and that such disability has
lasted at least, six (6) months. The Disability Determination
shall be based on the written opinion of the physician regular
attending the Employee whose disability is in question.
(iii)If EPW disagrees with the opinion of this physician (the "First
Physician"), it may engage at its own expense another physician
(the "Second Physician") to examine the Employee. If the First
and Second Physicians agree in writing that the Employee is or is
not disabled, their written opinion shall, 'except as otherwise
set forth in this subsection, be conclusive on the issue of
disability.
iv) If the First and Second Physicians disagree on the disability of
the Employee, is not Totally Disabled, EPW shall have the right
to request additional Disability Determinations provided it
agrees to pay all the expenses of the Disability Determinations
and does not request an additional Disability Determination more
frequently than once every six (6) months.
v) If there is a conclusive finding that the Employee is not Totally
Disabled, EPW shall have the right to request additional
Disability Determinations provided it agrees to pay all the
expenses of the Disability Determinations and does not request an
additional Disability Determination more frequently than once
every six (6) months.
6
<PAGE>
vi) In conjunction with a Disability Determination, the Employee
hereby consents to any required medical examination, and agrees
to furnish any medical information requested by any examining
physician and to waive any applicable physician-patient privilege
that may arise because of such examination.
vii) All physicians except the First Physician must be board-certified
in the specialty most closely related to the nature of the
disability alleged to exist.
(c) At the election of the Employee upon six (6) months advance notice.
(d) By mutual agreement of the Employee and EPW.
(e) By EPW for Just Cause. For purposes of this Agreement, "Just Cause"
shall mean only the following:
i) a final non-appealable conviction of or a plea of guilty or nolo
contendere by the Employee to a felony or misdemeanor involving fraud,
embezzlement, theft, or dishonesty or other such criminal conduct
against EPW or others,
ii) habitual neglect of the Employee's duties or failure by the Employee
to perform or observe any substantial lawful obligation of such
employment that is not remedied within thirty (3) days after written
notice thereof from EPW or its Board of Directors, or
iii) any material breach by the Employee of this Agreement that is not
remedied within thirty (30) days after written notice thereof from EPW
or its Board of Directors.
(f) On December 31, 1999 if the Employee has not renewed the Employment
Agreement in writing by July 1, 1999. Employee may renew this
Agreement for a 3 year term from December 31, 1999 if Employee
affirmatively states (prior to or on July 1, 1999), in writing, to the
Board of EPW that Employee wishes to renew this Agreement. In the
event of such renewal, Employee will no longer participate in the EPW
Stock Option Plan or the cash bonus provided in Section 7 of this
Agreement but shall participate in any bonus plan for the Trust
Department of United Bank and Trust Company and EPW will be treated as
part of the Trust Department for these purposes.
(g) On or after December 31, 2002, by either party upon three (3) months
notice to the other.
15. Life Insurance. EPW shall provide a minimum of $900,000.00 (WAE), $900,000
(JHP), $675,000.00 (JPW) in life insurance which shall include the
(convertible) whole life policy issued by Massachusetts Mutual, policy
number 7041723 (WAE), policy number 7041733 (JHP), and policy number
9754602 (JPW) with a current death benefit of $265,061.00 (WAE),
$267,938.00 (JHP) and $200,756.00 (JPW). Upon termination of employment,
employee, at its option, may require EPW to assign the life insurance
policies to suc~ployee provided any such policies are assignable at no cost
to EPW. & 1~~ ~
7
<PAGE>
16. Resignation From Offices Upon Termination. In the event of termination of
this Agreement other than for death, the Employee hereby agrees to resign
from all positions held in EPW. Positions to be resigned include without
limitations, any position as officer, agent, trustee or consultant of EPW
or any affiliate of EPW (excluding PBC). If at the time of termination the
Employee is a member of the Board of Directors of PBC the Employee shall
remain as director thereof.
17. Waiver. A Party's failure to insist on compliance or enforcement of any
provision of this Agreement, shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that
provision or of any other provision of this Agreement by that party or any
other party.
18. Governing Law. This Agreement shall in all respects be subject to, and
governed by, the laws of the State of Florida.
19. Severability. The invalidity or enforceability of any provision in the
Agreement shall not in any way affect the validity or enforceability of any
other provision and this Agreement shall be construed in all respects as if
such invalid or enforceable provision had never been in the Agreement.
20. Notice. Any and all notices required or permitted herein shall be deemed
delivered if delivered personally or if mailed by registered or certified
mail to EPW at its principal place of business and to the Employee at the
address hereinafter set forth following the Employee's signature, or at
such other address or addresses as either party may hereafter designate in
writing to the other.
21. Assignment. The rights and benefits of either of the parties under this
Agreement may not be assigned, nor the burdens delegated, without the prior
written consent of the other party.
22. Amendments. This Agreement may be amended at any time by mutual consent of
the parties hereto, with any such amendment to be invalid unless in
writing, signed by EPW and the Employee.
23. Entire Agreement. This Agreement contains the entire agreement and
understanding by and between the Employee and EPW with respect to the
employment of Employee, and no representations, promises, agreements, or
understandings, written or oral, relating to the employment of the Employee
by EPW not contained herein shall be of any force or effect. The terms and
provisions of any employee manual or handbook are not a part of this
Agreement.
24. Burden and Benefit. This Agreement shall be binding upon, and shall inure
to the benefit of, EPW and Employee, and their respective heirs, personal
and legal representatives, successors, and assigns.
25. References to Gender and Number Terms. In construing this Agreement,
feminine or number pronouns shall be substituted for those masculine in
form and vice versa, and plural terms shall be substituted for singular and
singular for plural in any place in which the context so requires.
26. Headings. The various headings !n this Agreement are inserted for
convenience only and are not part of the Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate
at St. Petersburg, Florida, effective the day and year first above written.
/s/William A. Eickhoff
_________________________________________________
Eickhoff, Pieper and Willoughby, Inc.
William A. Eickhoff, as its Chairman and CEO
(Corporate Seal)
Address of EPW for notice purposes:
John H. Pieper
Address
Employee for notice purposes:
(Seal)
Exhibits:
10 - EPW Stock Option Plan
Standard Form of Agreement Between Owner and
Contractor where the basis of payment is a Stipulated Sum
AIA Document A101 - Electronic Format
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES: CONSULTATION WITH AN ATTORNEY IS
ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. AUTHENTICATION OF
THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D40
I.
The 1987 Edition of AIA Document A201, General Conditions of the Contract for
Construction, is adopted in this document by reference. Do not use with other
general conditions unless this document is modified. This document has been
approved and endorsed by The Associated General Contractors of America.
Copyright 1915, 1918, 1925, 1937, 1951, 1958, 1961, 1962, 1967, 1974, 1977,
copyright 1987 the American Institute &Architects, 1735 New York Avenue, N.W.,
Washington, D.C., 20006-5292. Reproduction of the material herein or substantial
quotation of its provisions without written permission of the AIA violates the
copyright laws of the United States and will be subject to legal prosecution.
AGREEMENT
made as of the 04 day of December in the year of Nineteen Hundred and 98
BETWEEN the Owner: Willow Green Partnership, LTD, c/o Howard Calhoun Hofacker
& Associated, Inc., 888 Sixty Second Avenue North, St. Petersburg, FL 33702
and the Contractor: Irwin Contracting, Inc., 222 2nd Street North, St.
Petersburg, FL 33701
The Project is: Willow Greens units 2304-2305-2306-2307-2308-2401-2408,
1050 Starker Road, Largo, FL 33711
The Architect is: N/A
The Owner and Contractor agree as set forth below.
AIA DOCUMENT Al01 o OWNER-CONTRACTOR AGREEMENT o TWELFTH EDITION o AIA o
COPYRIGHT 1987 (degree) THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK
AVENUE, N.W., WASHINGTON, D.C., 20006-5292. WARNING; Unlicensed photocopying
violates U.S. copyright laws and is subject to legal prosecution. This document
was electronically produced with permission of the AIA and can be reproduced
without violation until the date &expiration as noted below.
EElectronic Format A101-1987
User Document: OWNCNTRT.DOC -- 12/4/1998. AIA License Number 105356, which
expires on 5/30/1999 -- Page #1
<PAGE>
ARTICLE 1
THE CONTRACT DOCUMENTS
The Contract Documents consist of this Agreement, Conditions of the Contract
(General, Supplementary and other Conditions), Drawings, Specifications, addenda
issued prior to execution of this Agreement, other documents listed in this
Agreement and Modifications issued after execution of this Agreement; these form
the Contract, and are as fully a part of the Contract as if attached to this
Agreement or repeated herein. The Contract represents the entire and integrated
agreement between the parties hereto and supersedes prior negotiations,
representations or agreements, either written or oral. An enumeration of the
Contract Documents, other than Modifications, appears in Article 9.
ARTICLE 2
THE WORK OF THIS CONTRACT
The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract Documents
to be the responsibility of others, or as follows: It shall be expressly
understood by-all parties that this contract shall be for the completion of 7
units which were started by others. all others. All work shall be completed in a
workmanship manner utilizing similar specifications and fini.qhes. There are no
plans or written specifications and no Architect participation. Irwin
Contracting, Inc. shall be directed solely by the owner or its authorized agent
or representitive. Specific units shall include interior work in units
2304-2305-2306-2307-2308-2401-and 2408 only. All other units and all extrior
work shall be specifically excluded. Work shall be specifically limited to items
listed per attached Exhibit "A".l
ARTICLE 3
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
3.1 The date of commencement is the date from which the Contract Time of
Paragraph 3.2 is measured, and shall be the date of this Agreement, as
first written above, unless a different date is stated below or provision
is made for the date to be fixed in a notice to proceed issued by the
Owner. (Insert the date of commencement, if it different the date of this
Agreement, or, if applicable, state that the date will be fixed in a notice
to proceed.)
Date of Commencement shall be two days after receipt of signed contract
and Notice to Proceed from owner or reciept of building permit
whichever comes last.
Unless the date of commencement is established by a notice to proceed
issued by the Owner, the Contractor shall notify the Owner in writing not
less than five days before commencing the Work to permit the timely filing
of mortgages, mechanic's liens and other security interests.
AIA DOCUMENT Al01 o OWNER-CONTRACTOR AGREEMENT o TWELFTH EDITION o AIA o
COPYRIGHT 1987 (degree) THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK
AVENUE, N.W., WASHINGTON, D.C., 20006-5292. WARNING; Unlicensed photocopying
violates U.S. copyright laws and is subject to legal prosecution. This document
was electronically produced with permission of the AIA and can be reproduced
without violation until the date &expiration as noted below.
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expires on 5/30/1999 -- Page #2
<PAGE>
3.2 The Contractor shall achieve Substantial Completion of the entire Work not
later than
(Insert the calendar date or number of calendar days after the
date of commencement. Also insert any requirements for earlier Substantial
Completion of certain portions of the Work, if not stated elsewhere in the
Contract Documents.)
120 days from Notice to Proceed.
________________________________
, subject to adjustments of this Contract Time as provided in the Contract
Documents. (Insert provisions, if any, for liquidated damages relating to
failure to complete on time.)
ARTICLE 4
CONTRACT SUM
4.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum of Two Hundred Sixty Thousand
Seventy Six Dollars ($ 260,076 ), subject to additions and deductions as
provided in the Contract Documents.
4.2 The Contract Sum is based upon the following alternates, if any, which are
described in the Contract Documents and are hereby accepted by the Owner:
(State the numbers or other identification of accepted alternates. If
decisions on other alternates are to be made by the Owner subsequent to the
execution of this Agreement, attach a schedule of such other alternates
showing the amount for each and the date until which that amount is valid.)
AIA DOCUMENT Al01 o OWNER-CONTRACTOR AGREEMENT o TWELFTH EDITION o AIA o
COPYRIGHT 1987 o THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE,
N.W., WASHINGTON, D.C., 20006-5292. WARNING; Unlicensed photocopying violates
U.S. copyright laws and is subject to legal prosecution.This document was
electronically produced with permission of the AIA and can be reproduced without
violation until the date of expiration as
noted below.
4.3 Unit prices, if any, are as follows:
ARTICLE 5
PROGRESS PAYMENTS
5.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner
shall make progress payments on account of the Contract Sum to the
Contractor as provided below and elsewhere in the Contract Documents.
5.2 The period covered by each Application for Payment shall be one calendar
month ending on the last day of the month, or as follows:
AIA DOCUMENT Al01 o OWNER-CONTRACTOR AGREEMENT o TWELFTH EDITION o AIA o
COPYRIGHT 1987 (degree) THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK
AVENUE, N.W., WASHINGTON, D.C., 20006-5292. WARNING; Unlicensed photocopying
violates U.S. copyright laws and is subject to legal prosecution. This document
was electronically produced with permission of the AIA and can be reproduced
without violation until the date &expiration as noted below.
EElectronic Format A101-1987
User Document: OWNCNTRT.DOC -- 12/4/1998. AIA License Number 105356, which
expires on 5/30/1999 -- Page #3
<PAGE>
5.3 Provided an Application for Payment is received by the Architect not later
than the 25th day of a month, the Owner shall make payment to the
Contractor not later than the 10th day of the Next month. If an Application
for Payment is received by the Architect after the application date fixed
above, payment shall be made by the Owner not later than 15 days after the
Architect receives the Application for Payment.
5.4 Each Application for Payment shall be based upon the Schedule of Values
submitted by the Contractor in accordance with the Contract Documents. The
Schedule of Values shall allocate the entire Contract Sum among the various
portions of the Work and be prepared in such form and supported by such
data to substantiate its accuracy as the Architect may require. This
schedule, unless objected to by the Architect, shall be used as a basis for
reviewing the Contractor's Applications for Payment.
5.5 Applications for Payment shall indicate the percentage of completion of
each portion of the Work as of the end of the period covered by the
Application for Payment.
5.6 Subject to the provisions of the Contract Documents, the amount of each
progress payment shall be computed as follows:
5.6.1. Take that portion of the Contract Sum properly allocable to completed
Work as determined by multiplying the percentage completion of each portion
of the Work by the share of the total Contract Sum allocated to that ponion
of the Work in the Schedule of Values, less retainage of percent ( 10 %).
Pending final determination of cost to the Owner of changes in the Work,
amounts not in dispute may be included as provided in Subparagraph 7.3.7 of
the General Conditions even though the Contract Sum has not yet been
adjusted by Change Order;
5.6.2Add that portion of the Contract Sum properly allocable to materials and
equipment delivered and suitably stored at the site for subsequent
incorporation in the completed construction (or, if approved in advance by
the Owner, suitably stored off the site at a location agreed upon in
writing), less retainage of percent ( %); N/A
5.6.3 Subtract the aggregate of previous payments made by the Owner; and
5.6.4Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of the
General Conditions.
5.7 The progress payment amount determined in accordance with Paragraph 5.6
shall be further modified under the following circumstances:
AIA DOCUMENT Al01 OWNER-CONTRACTOR AGREEMENT TWELFTH EDITION AIA
COPYRIGHT 1987 (degree) THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK
AVENUE, N.W., WASHINGTON, D.C., 20006-5292. WARNING; Unlicensed photocopying
violates U.S. copyright laws and is subject to legal prosecution. This document
was electronically produced with permission of the AIA and can be reproduced
without violation until the date &expiration as noted below.
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expires on 5/30/1999 -- Page #4
<PAGE>
5.7.1Add, upon Substantial Completion of the Work, a sum sufficient to increase
the total payments to 0% percent (%) of the Contract Sum, less such amounts
as the Architect shall determine for incomplete Work and unsettled claims;
and
5.7.2Add, if final completion of the Work is thereafter materially delayed
through no fault of the Contractor, any additional amounts payable in
accordance with Subparagraph 9.10.3 of the General Conditions.
5.8 Reduction or limitation of retainage, if any, shall be as follows:
(If it is intended, prior to Substantial Completion of the entire Work, to
reduce or limit the retainage resulting from the percentages inserted in
Subparagraphs 5.6.1 and 5.6.2 above, and this is not explained elsewhere in
the Contract Documents, insert here provisions for such reduction or
limitation.)
AIA DOCUMENT Al01 OWNER-CONTRACTOR AGREEMENT TWELFTH EDITION AIA COPYRIGHT 1987
THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK AVENUE, N.W., WASHINGTON,
D.C., 20006-5292. WARNING; Unlicensed photocopying violates U.S. copyright laws
and is subject to legal prosecution. This document was electronically produced
with permission of the AIA and can be reproduced without violation until the
date of expiration as noted below. Electronic Format A101-1987 User Document:
OWNCNTRT.DOC -- 12/4/1998. AIA License Number 105356, which expires on 5/30/1999
ARTICLE 6
FINAL PAYMENT
Final payment, constituting the entire unpaid balance of the Contract Sum, shall
be made by the Owner to the Contractor when (1) the Contract has been fully
performed by the Contractor except for the Contractor's responsibility to
correct nonconforming Work as provided in Subparagraph 12.2.2 of the General
Conditions and to satisfy other requirements, if any, which necessarily survive
final payment; and (2) a final Certificate for Payment has been issued by the
Architect; such final payment shall be made by the Owner not more than 30 days
after the issuance of the Architect's final Certificate for Payment, or as
follows:
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 Where reference is made in this Agreement to a provision of the General
Conditions or another Contract Document, the reference refers to that
provision as amended or supplemented by other provisions of the Contract
Documents
AIA DOCUMENT Al01 o OWNER-CONTRACTOR AGREEMENT o TWELFTH EDITION o AIA o
COPYRIGHT 1987 (degree) THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK
AVENUE, N.W., WASHINGTON, D.C., 20006-5292. WARNING; Unlicensed photocopying
violates U.S. copyright laws and is subject to legal prosecution. This document
was electronically produced with permission of the AIA and can be reproduced
without violation until the date &expiration as noted below.
EElectronic Format A101-1987
User Document: OWNCNTRT.DOC -- 12/4/1998. AIA License Number 105356, which
expires on 5/30/1999 -- Page #5
<PAGE>
7.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, or in the absence thereof, at
the legal rate prevailing from time to time at the place where the Project
is located. (Insert rate of interest agreed upon, if any.)
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the ProJEct and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers.)
7.3 Other provisions:
ARTICLE 8
TERMINATION OR SUSPENSION
8.1
8.2 The Contract may be terminated by the Owner or the Contractor as provided
in Article 14 of the General Conditions.
The Work may be suspended by the Owner as provided in Article 14 of the General
Conditions.
ARTICLE 9
ENUMERATION OF CONTRACT DOCUMENTS
9.1 The Contract Documents, except for Modifications issued after execution of
this Agreement, are enumerated as follows:
9.1.1The Agreement is this executed Standard Form of Agreement Between Owner and
Contractor, AIA Document A 101, 1987 Edition.
9.1.2The General Conditions are the General Conditions of the Contract for
Construction, AIA Document A201, 1987 Edition.
9.1.3The Supplementary and other Conditions of the Contract are those contained
in the Project Manual dated, and are as follows:
Document Title Pages
N/A
9.1.4The Specifications are those contained in the Project Manual dated as in
Subparagraph 9.1.3, and are as follows: (Either list the Specifications
here or refer to an exhibit attached to this Agreement.)
Document Title Pages
N/A
AIA DOCUMENT Al01 o OWNER-CONTRACTOR AGREEMENT o TWELFTH EDITION o AIA o
COPYRIGHT 1987 (degree) THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK
AVENUE, N.W., WASHINGTON, D.C., 20006-5292. WARNING; Unlicensed photocopying
violates U.S. copyright laws and is subject to legal prosecution. This document
was electronically produced with permission of the AIA and can be reproduced
without violation until the date &expiration as noted below.
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expires on 5/30/1999 -- Page #6
<PAGE>
9.1.5The Drawings are as follows, and are dated unless a different date is
shown below: (Either list the Drawings here or refer to an exhibit attached
to this Agreement.)
Number Date
N/A
9.1.6 The addenda, if any, are as follows: Number N/A Pages
Date Pages
Portions of addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in
this Article 9.
9.1.7Other documents, if any, forming part of the Contract Documents are as
follows: (List here any additional documents which are intended to form
part of the Contract Documents. The General Conditions provide that bidding
requirements such as advertisement or invitation to bid, Instructions to
Bidders, sample forms and the Contractor's bid are not part of the Contract
Documents unless enumerated in this Agreement. They should be listed here
only if intended to be part of the Contract Documents.) Exhibit "A"
Attached
This Agreement is entered into as of the day and year first written above and is
executed in at least three original copies of which one is to be delivered to
the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
Willow Green Partnership Irwin Contracting, Inc.
OWNER, Howard Calhoun, Receiver /s/Innes H. Irwin, President
_____________________________
(Signature)
Innes H. Irwin, President
(Printed name and title)
Original Price: $311,868
1) Delete all monies allowed for cabinets $ 23,268
2) Delete all monies allowed for appliances $ 11,900
3) Delete all monies for carpet $ 16,624
Revised Price Please note: $ 260,076
1) Since the completion of our Plumbing Contract is dependent on prompt
delivery of cabinets, any extra trips caused by delay of cabinets will be
charged at a time and material rate. Cabinet company should be Contracted
to build units at once and a 10 day prior delivery will be given.
2) Monies for 'VCT flooring and ceramic tile for the tub and shower floors and
walls are still in our Contract.
AIA DOCUMENT Al01 o OWNER-CONTRACTOR AGREEMENT o TWELFTH EDITION o AIA o
COPYRIGHT 1987 (degree) THE AMERICAN INSTITUTE OF ARCHITECTS, 1735 NEW YORK
AVENUE, N.W., WASHINGTON, D.C., 20006-5292. WARNING; Unlicensed photocopying
violates U.S. copyright laws and is subject to legal prosecution. This document
was electronically produced with permission of the AIA and can be reproduced
without violation until the date &expiration as noted below.
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expires on 5/30/1999 -- Page #7
<PAGE>
CHANGE ORDER AIA DOCUMENT G701 -
OWNER [ ]
ARCHITECT [ ]
CONTRACTOR [ ]
FIELD [ ]
OTHER [ ]
ELECTRONIC FORMAT
- - --------------------------------------------------------------------------------
THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS
ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. AUTHENTICATION OF
THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA
DOCUMENT D401.
- - -------------------------------------------------------------------------------
PROJECT: WILLOW GREEN TOWNHOMES, 1050 STARKEY ROAD, LARGO, FL
TO CONTRACTOR: IRWIN CONTRACTING, INC., 222 SECOND STREET NORTH,
ST. PETERSBURG, FL 33701
The Contract is changed as follows:
CHANGE ORDER NUMBER
DATE: NOVEMBER 27, 1998
ARCHITECT'S PROJECT NO: 9845
CONTRACT DATE:
CONTRACT FOR:
1. ADDITIONAL HARDWARE REQUIRED FOR COMPLETION OF UNITS 2302, 2303, 2406, AND
2504. $ 802
2. UPGRADE CERAMIC TILE FLOORING UNIT 2504. 1,876
3. REMOVE AND REPLACE CONCRETE IN KITCHEN AREA OF 2406. 144
4. ADDITIONAL WORK FOR 2406 4,514
A) CONCRETE SLAB IN BACK YARD.
B) INSTALL 55 LF OF 2 PIECE CROWN MOLDING IN MASTER BEDROOM
C) REMOVE AND REPLACE BOTTOM OF STAIRS, PROVIDE 36" LANDING AND ONE
ADDITIONAL STEP AWAY FROM WALL, AND FRAME KNEE WALL.
D) REMOVE AND REPLACE BASE AT NEW STAIR CONFIGURATION
E) INSTALL 2 PIECES OF FLUTED TRIM IN DINING ROOM
F.) CUT OPEN SECOND FLOOR PLYWOOD TO RELOCATE DINING ROOM LIGHT.
TOTAL C/O # 1 $ 7,336
<PAGE>
- - -------------------------------------------------------------------------------
NOT VALID UNTIL SIGNED BY THE OWNER, ARCHITECT AND CONTRACTOR.
The original (Contract Sum) (Guaranteed maximum Price) was
$104,149
Net change by previously authorized Change Orders $ 0
The (Contract Sum)(Guaranteed Maximum Price) prior to this Change Order was
$104.149
The (Contract Sum) (Guaranteed Maximum Price) will be (increased) (decreased)
(unchanged) by this Change Order in the amount of $ 7,336
The new (Contract Sum)(Guaranteed Maximum Price) including this Change Order
will be $ 111,485
The Contract Time will be (increased) (decreased) (unchanged) by N/A ( N/A )
days.
The Date of Substantial Completion as of the date of this Change Order therefore
is N/A
NOTE: This summary does not reflect changes in the Contract Sum, Contract Time
or Guaranteed maximum Price which have been authorized by Construction Change
Directive.
ARCHITECT:
N/A
Address:
N/A
BY: ________________________________
DATE:_______________________________
CONTRACTOR
IRWIN CONTRACTING, INC.
Address:
222 SECOND STREET NORTH
ST. PETERSBURG, FL 33701
BY: ________________________________
DATE: ______________________________
OWNER:
WILLOW GREEN PARTNERSHIP, LTD.
Address: 888 SIXTY SECOND AVENUE NORTH ST. PETERSBURG, FL 33702
BY: ______________________
DATE:_____________________
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