U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 333-45979
Unity Holdings,
Inc. |
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Georgia |
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58-2350609 |
950 Joe Frank
Harris Parkway, S.E., Cartersville, Georgia 30121 |
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(770) 606-0555 |
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N/A |
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ___ No X
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company," in Rule 12b‑2 of the Exchange Act. (Check one):
Large accelerated filer |
Accelerated filer |
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Smaller reporting company |
X |
Non-accelerated filer |
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(Do not check if a smaller reporting company) |
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes ___ No X
State the number of shares outstanding of each of the issuer's classes of common equity, as of November 10, 2009:
1,148,499; $0.01 par
value.
UNITY HOLDINGS,
INC. AND SUBSIDIARY
INDEX |
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Page No. |
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PART I. |
FINANCIAL INFORMATION |
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Item 1 - Financial Statements |
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Consolidated Balance Sheets |
3 |
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Consolidated Statements of Operations |
4 |
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Consolidated Statements of Comprehensive Loss |
5 |
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Consolidated Statements of Cash Flows |
6 |
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Notes to Consolidated Financial Statements |
7 |
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Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations |
12 |
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Item 3 - Quantitative and Qualitative Disclosures about Market Risk |
20 |
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Item 4T - Controls and Procedures |
20 |
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PART II. |
OTHER INFORMATION |
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Item 6 - Exhibits |
21 |
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signatures |
22 |
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UNITY HOLDINGS, INC. AND SUBSIDIARY |
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CONSOLIDATED BALANCE SHEETS |
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9/30/2009 |
12/31/2008 |
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ASSETS |
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Cash and due from banks |
$ |
3,550,535 |
$ |
4,196,837 |
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Interest-bearing deposits in banks |
27,042,883 |
905,830 |
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Federal funds sold |
5,225,000 |
11,172,000 |
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Securities available for sale |
16,675,291 |
18,265,634 |
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Restricted equity securities, at cost |
2,551,700 |
2,881,678 |
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Loans |
213,234,948 |
249,636,747 |
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Less allowance for loan losses |
8,006,400 |
5,388,430 |
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Loans, net |
205,228,548 |
244,248,317 |
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Premises and equipment |
10,673,053 |
10,989,657 |
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Foreclosed assets |
17,419,416 |
9,136,196 |
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Other assets |
9,623,593 |
11,234,044 |
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TOTAL ASSETS |
$ |
297,990,019 |
$ |
313,030,193 |
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LIABILITIES |
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Deposits |
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Noninterest-bearing |
$ |
14,448,023 |
$ |
13,329,798 |
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Interest-bearing |
244,487,175 |
235,752,907 |
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Total deposits |
258,935,198 |
249,082,705 |
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Other borrowings |
27,700,000 |
38,900,000 |
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Guaranteed subordinated debentures |
3,093,000 |
3,093,000 |
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Other liabilities |
1,146,501 |
1,669,278 |
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Total liabilities |
290,874,699 |
292,744,983 |
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Commitments and contingencies |
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Redeemable common stock held by KSOP |
169,584 |
551,512 |
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STOCKHOLDERS' EQUITY |
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Preferred stock, par value $.01; 10,000,000 shares authorized; none issued |
- |
- |
||||
Common stock, par value $.01; 10,000,000 shares authorized; |
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1,148,499 and 1,148,513 issued and outstanding, respectively. |
11,485 |
11,485 |
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Capital surplus |
11,785,103 |
11,785,163 |
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Retained earnings |
(5,040,893) |
7,876,572 |
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Accumulated other comprehensive income |
190,041 |
60,478 |
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Total stockholders' equity |
6,945,736 |
19,733,698 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
297,990,019 |
$ |
313,030,193 |
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See Notes to Consolidated Financial Statements. |
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UNITY HOLDINGS, INC. AND SUBSIDIARY |
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CONSOLIDATED STATEMENTS OF OPERATIONS |
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(Unaudited) |
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Three Months Ended |
Nine Months Ended |
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September 30, |
September 30, |
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2009 |
2008 |
2009 |
2008 |
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Interest income |
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Loans |
$ |
3,273,523 |
$ |
4,259,591 |
$ |
10,566,370 |
$ |
13,711,016 |
Taxable securities |
118,819 |
268,563 |
376,833 |
860,474 |
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Nontaxable securities |
56,073 |
60,237 |
167,926 |
188,242 |
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Federal funds sold |
1,321 |
9,554 |
3,702 |
30,951 |
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Deposits in banks |
392 |
701 |
1,255 |
4,505 |
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Total interest income |
3,450,128 |
4,598,646 |
11,116,086 |
14,795,188 |
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Interest expense |
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Deposits |
1,657,928 |
2,093,014 |
5,101,121 |
6,627,755 |
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Other borrowings |
317,935 |
472,017 |
1,058,306 |
1,336,323 |
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Total interest expense |
1,975,863 |
2,565,031 |
6,159,427 |
7,964,078 |
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Net interest income |
1,474,265 |
2,033,615 |
4,956,659 |
6,831,110 |
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Provision for loan losses |
1,700,000 |
2,000,000 |
10,396,234 |
2,573,000 |
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Net interest income (expense) after |
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provision for loan losses |
(225,735) |
33,615 |
(5,439,575) |
4,258,110 |
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Other income |
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Service charges on deposit accounts |
223,772 |
267,130 |
663,484 |
738,705 |
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Mortgage Loan Fees |
54,408 |
78,457 |
293,556 |
222,235 |
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Other operating income |
116,605 |
208,164 |
310,119 |
599,226 |
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Total other income |
394,785 |
553,751 |
1,267,159 |
1,560,166 |
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Other expenses |
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Salaries and employee benefits |
1,000,427 |
1,033,599 |
2,987,289 |
3,626,234 |
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Equipment and occupancy expenses |
281,734 |
295,131 |
841,304 |
909,943 |
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Loss on sale of foreclosed assets |
358,690 |
194,649 |
1,364,122 |
344,635 |
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Other operating expenses |
1,075,005 |
824,262 |
3,252,687 |
2,287,608 |
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Total other expenses |
2,715,856 |
2,347,641 |
8,445,402 |
7,168,420 |
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Loss before income taxes (benefits) |
(2,546,806) |
(1,760,275) |
(12,617,818) |
(1,350,144) |
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Income tax expense (benefit) |
0 |
(823,454) |
681,223 |
(683,369) |
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Net loss |
$ |
(2,546,806) |
$ |
(936,821) |
$ |
(13,299,041) |
$ |
(666,775) |
Basic loss per share |
$ |
(2.22) |
$ |
(0.90) |
$ |
(11.58) |
$ |
(0.66) |
Diluted loss per share |
$ |
(2.22) |
$ |
(0.90) |
$ |
(11.58) |
$ |
(0.66) |
Cash dividends per share |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
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See Notes to Consolidated Financial Statements. |
UNITY HOLDINGS, INC. AND SUBSIDIARY |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS |
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(Unaudited) |
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Three Months Ended |
Nine Months Ended |
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September 30, |
September 30, |
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2009 |
2008 |
2009 |
2008 |
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Net Loss |
$ |
(2,546,806) |
$ |
(936,821) |
$ |
(13,299,041) |
$ |
(666,775) |
Other comprehensive income (loss): |
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Unrealized gains (losses) on securities |
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available-for-sale arising during period, |
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net of tax |
177,015 |
224,302 |
129,563 |
(82,540) |
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Reclassification of adjustments for gains |
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realized in net loss, net of tax |
- |
3,226 |
- |
3,226 |
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Comprehensive loss |
$ |
(2,369,791) |
$ |
(709,293) |
$ |
(13,169,478) |
$ |
(746,089) |
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See Notes to Consolidated Financial Statements. |
UNITY HOLDINGS, INC. AND SUBSIDIARY |
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CONSOLIDATED STATEMENTS OF CASH FLOWS |
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(Unaudited) |
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Nine Months Ended |
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September 30, |
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2009 |
2008 |
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OPERATING ACTIVITIES |
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Net loss |
$ |
(13,299,041) |
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$ |
(666,775) |
Adjustments to reconcile net loss to net cash |
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provided by operating activities: |
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Depreciation |
416,402 |
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436,750 |
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Provision for loan losses |
10,396,234 |
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2,573,000 |
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Gain on sale of securities available for sale |
- |
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(4,744) |
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Loss on Silverton Financial Services stock |
123,178 |
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- |
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Loss on disposal of equipment |
- |
|
427 |
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Loss on sale of foreclosed assets |
1,364,122 |
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344,635 |
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Decrease in interest receivable |
252,600 |
|
511,754 |
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Decrease in interest payable |
(110,954) |
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(21,570) |
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Stock compensation expense |
- |
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9,527 |
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Net other operating activities |
889,827 |
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(1,495,731) |
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Net cash provided by operating activities |
32,368 |
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1,687,273 |
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INVESTING ACTIVITIES |
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(Increase) decrease in interest-bearing deposits in banks |
(26,137,053) |
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101,105 |
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Purchases of securities available-for-sale |
(5,995,734) |
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(15,739,945) |
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Proceeds from sales of securities available-for-sale |
- |
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2,268,731 |
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Proceeds from maturities of securities available-for-sale |
7,771,429 |
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14,743,058 |
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(Purchase) redemption of restricted equity securities |
206,800 |
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(744,150) |
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Decrease in federal funds sold |
5,947,000 |
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849,000 |
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Decrease (increase) in loans |
12,746,561 |
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(21,747,234) |
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Capital improvements on other real estate owned |
(72,325) |
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- |
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Proceeds from sale of other real estate |
6,301,957 |
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1,054,068 |
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Purchase of premises and equipment |
(99,798) |
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(150,676) |
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Net cash provided by (used in) investing activities |
668,837 |
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(19,366,043) |
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FINANCING ACTIVITIES |
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(Decrease) increase in deposits |
9,852,493 |
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(3,506,774) |
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Proceeds from other borrowings |
- |
|
26,750,000 |
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Repayments of other borrowings |
(11,200,000) |
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(9,900,000) |
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Proceeds from exercise of stock options |
- |
|
1,594,592 |
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Net cash provided by (used in) financing activities |
(1,347,507) |
|
14,937,818 |
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Net decrease in cash and due from banks |
(646,302) |
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(2,740,952) |
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Cash and due from banks at beginning of period |
4,196,837 |
|
6,311,833 |
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Cash and due from banks at end of period |
$ |
3,550,535 |
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$ |
3,570,881 |
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SUPPLEMENTAL DISCLOSURES |
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Cash paid (received) during the period for: |
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Interest |
$ |
6,270,381 |
|
$ |
7,985,648 |
Income taxes |
$ |
(1,035,173) |
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$ |
557,536 |
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NONCASH TRANSACTIONS |
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Financed sale of premises and equipment |
$ |
- |
|
$ |
63,500 |
Loans transferred to other real estate owned |
$ 15,876,974 |
|
$ |
5,901,560 |
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See Notes to Consolidated Financial Statements. |
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UNITY HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The
consolidated financial information for Unity Holdings, Inc. (the "Company") included
herein is unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair statement of results for the interim
periods.
The results of operations for the three and nine month periods ended September
30, 2009 are not necessarily indicative of the results to be expected for the
full year.
NOTE 2. MANAGEMENT'S PLAN OF ACTION
Due to the increased losses and deteriorating capital position of the company, management continues to pursue interested investors. A public offering of common stock went effective on September 18, 2009, and private investors who may wish to purchase large amounts of preferred stock are also being considered. However, little additional capital has been raised as of the date of this filing.
Due to the present capital position of the company and expectation of continued losses in the future, the ability of the company to continue as a going concern is largely dependent upon securing additional capital.
NOTE 3. LOSSES PER SHARE
Presented below is a summary of the components used to calculate basic and diluted losses per common share. The dilutive effect is calculated as the net effect of the assumed exercise of stock options based on the treasury stock method using average market prices for the year.
Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Basic Losses Per Share: |
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Weighted average common shares outstanding |
1,148,499 |
|
1,039,249 |
1,148,507 |
|
1,004,913 |
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Net loss |
$ |
(2,546,806) |
|
$ |
(936,821) |
$ |
(13,299,041) |
|
$ |
(666,775) |
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Basic losses per share |
$ |
(2.22) |
|
$ |
(0.90) |
$ |
(11.58) |
|
$ |
(0.66) |
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Diluted Losses Per Share: |
|
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|
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Weighted average common shares outstanding |
1,148,499 |
|
1,039,249 |
1,148,507 |
|
1,004,913 |
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Dilutive Effect |
- |
|
- |
- |
|
- |
|||||
Weighted average common shares outstanding-after dilutive effect |
1,148,499 |
|
1,039,249 |
1,148,507 |
|
1,004,913 |
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|
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Net loss |
$ |
(2,546,806) |
|
$ |
(936,821) |
$ |
(13,299,041) |
|
$ |
(666,775) |
|
Diluted losses per share |
$ |
(2.22) |
|
$ |
(0.90) |
$ |
(11.58) |
|
$ |
(0.66) |
NOTE 4. SECURITIES
The amortized cost and fair value of securities are summarized as follows:
Gross |
Gross |
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Amortized |
Unrealized |
Unrealized |
Fair |
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Cost |
Gains |
Losses |
Value |
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Securities Available for Sale |
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September 30, 2009: |
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U.S. Government sponsored agency securities |
$ |
11,239,086 |
$ |
120,875 |
$ |
(13,125) |
$ |
11,346,836 |
|||||
Municipal securities |
5,148,265 |
180,190 |
- |
5,328,455 |
|||||||||
$ |
16,387,351 |
$ |
301,065 |
$ |
(13,125) |
$ |
16,675,291 |
Securities with a carrying value of $10,335,440 at September 30, 2009 were pledged to secure public deposits and for other purposes required or permitted by law.
There were no realized gains or losses on sales of securities available for sale during 2009.
The amortized cost and fair value of debt securities as of September 30, 2009 by contractual maturity are shown below:
|
Securities Available for Sale |
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|
Amortized |
|
Fair |
|||
|
Cost |
|
Value |
|||
Due in less than one year |
$ |
- |
|
$ |
- |
|
Due from one to five years |
6,998,297 |
|
7,104,347 |
|||
Due from five to ten years |
526,422 |
|
548,614 |
|||
Due after ten years |
|
8,862,632 |
|
9,022,330 |
||
|
$ |
16,387,351 |
|
$ |
16,675,291 |
|
Restricted equity securities as of September 30, 2009 consist of the following:
Federal Home Loan Bank stock |
|
$ |
1,976,900 |
Federal Reserve Bank stock |
481,800 |
||
Trust preferred securities |
|
93,000 |
|
|
|
$ |
2,551,700 |
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
At September 30, 2009 one debt security had an unrealized loss of $13,125, which represents a 0.08% aggregate depreciation from the Company's amortized cost basis. In analyzing an issuer's financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies has occurred, and industry analysts' reports. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other than temporary.
NOTE 4. SECURITIES (Continued)
The following table shows the gross unrealized losses and fair value of securities, aggregated by category and length of time that securities have been in a continuous unrealized loss position at September 30, 2009.
Less Than Twelve Months |
Twelve Months or More |
|||||||||||
Gross |
|
Gross |
|
|||||||||
Unrealized |
Fair |
Unrealized |
Fair |
|||||||||
Losses |
Value |
Losses |
Value |
|||||||||
U.S. Government sponsored federal agencies |
$ |
(13,125) |
$ |
986,875 |
$ |
- |
$ |
- |
||||
State and municipal securities |
- |
- |
- |
- |
||||||||
Temporarily impaired debt securities |
$ |
(13,125) |
$ |
986,875 |
$ |
- |
$ |
- |
NOTE 5. FAIR VALUE DISCLOSURES
On January 1, 2008, the Company adopted fair value standards that define fair value, establish a framework for measuring fair value, and expand disclosures about fair value measurements. These standards apply to reported balances that are required or permitted to be measured at fair value under existing accounting guidance; accordingly, the standards do not require any new fair value measurements of reported balances.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level
1 - Valuations for assets and liabilities
traded in active exchange markets, such as the New York Stock Exchange. Level
1 also includes U.S. Treasury and federal agency securities and federal agency
mortgage-backed securities, which are traded by dealers or brokers in active
markets. Valuations are obtained from readily available pricing sources for
market transactions involving identical assets or liabilities.
Level
2 - Valuations for assets and liabilities
traded in less active dealer or broker markets. Valuations are obtained from
third party pricing services for identical or similar assets or liabilities.
Level
3 - Valuations for assets and liabilities
that are derived from other valuation methodologies, including option pricing
models, discounted cash flow models and similar techniques, and not based on
market exchange, dealer, or broker traded transactions. Level 3 valuations
incorporate certain assumptions and projections in determining the fair value
assigned to such assets or liabilities.
Assets Measured at Fair Value on a Recurring Basis
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.
Available for Sale Securities
Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities
NOTE 5. FAIR VALUE DISCLOSURES (Continued)
with similar characteristics or discounted cash flows. Level
2 securities include U.S. agency securities, mortgage-backed agency securities,
obligations of states and political subdivisions and certain corporate, asset
backed and other securities. In certain cases where Level 1 or Level 2 inputs
are not available, securities are classified within Level 3 of the hierarchy.
Currently, all of the Company's securities are considered to be Level 2
securities.
The following table presents financial assets measured at fair value on a recurring basis:
|
Fair Value Measurements at September 30, 2009 Using |
|||||||||||
|
Quoted Prices |
Significant |
||||||||||
Assets/Liabilities |
In Active |
Other |
Significant |
|||||||||
Measured at |
Markets for |
Observable |
Unobservable |
|||||||||
|
Fair Value |
Identical Assets |
Inputs |
Inputs |
||||||||
|
September 30, 2009 |
(Level 1) |
(Level 2) |
(Level 3) |
||||||||
|
||||||||||||
|
||||||||||||
Available for sale securities |
$ |
16,675,291 |
$ |
- |
$ |
16,675,291 |
$ |
- |
Assets
Measured at Fair Value on a Nonrecurring Basis
Following is a description of the valuation methodologies
used for instruments measured at fair value on a non-recurring basis and
recognized in the accompanying balance sheet, as well as the general
classification of such instruments pursuant to the valuation hierarchy.
Impaired Loans
Loan impairment is reported when full payment under the loan
terms is not expected. Impaired loans are carried at the present value of
estimated future cash flows using the loan's existing rate, or the fair value
of collateral if the loan is collateral dependent. A portion of the allowance
for loan losses is allocated to impaired loans if the value of such loans is
deemed to be less than the unpaid balance. If these allocations cause the
allowance for loan losses to require increase, such increase is reported as a
component of the provision for loan losses. Loan losses are charged against the
allowance when Management believes the uncollectability of a loan is confirmed.
During the first three quarters of 2009, certain impaired loans were partially
charged-off or re-evaluated for impairment resulting in a remaining balance for
these loans, net of specific allowances, of $14.5 million as of September 30,
2009. This valuation would be considered Level 3, consisting of appraisals of
underlying collateral and discounted cash flow analysis.
Foreclosed Assets
Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the foreclosed assets as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3. At September 30, 2009, the carrying value of foreclosed assets was $17.4 million. This valuation would be considered Level 3, due to the valuation being based on independent third party appraisals, subject to management adjustments to deduct selling costs or other downward revisions as deemed necessary based on market conditions.
Fair Value Option
Effective January 1, 2008, companies are allowed to report
selected financial assets and liabilities at fair value. The changes in fair
value are recognized in earnings and the assets and liabilities measured under
this methodology are required to be displayed separately in the balance sheet. The
Company has not elected the fair value option that is offered under existing
accounting guidance.
NOTE 5. FAIR VALUE DISCLOSURES (Continued)
Fair Value Disclosures
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly,
the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
Cash, Due From Banks, Interest-bearing Deposits in Banks and Federal Funds Sold: The carrying amounts of cash, due from banks, interest-bearing deposits in banks and federal funds sold approximate fair values.
Securities: Fair values for securities are based on available quoted market prices. The carrying values of restricted equity securities with no readily determinable fair value approximate fair values.
Loans: For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. For other loans, the fair values are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers with similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.
Bank Owned Life Insurance: The carrying amounts of bank owned life insurance approximates their fair values.
Deposits: The carrying amounts of demand deposits, savings deposits, and variable-rate certificates of deposit approximate their fair values. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Other Borrowings and Guaranteed Subordinated Debentures: The carrying amounts of variable-rate other borrowings, guaranteed subordinated debentures and federal funds purchased approximate their fair values. Fair values for fixed-rate other borrowings are estimated using a discounted cash flow calculation that applies interest rates currently being offered on other borrowings with similar terms.
Accrued Interest: The carrying amounts of accrued interest approximate their fair values.
Off-Balance Sheet Instruments: Fair values of the Company's off-balance sheet financial instruments are based on fees currently charged to enter into similar agreements. Since the majority of the Company's off-balance sheet instruments consist of nonfee-producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value.
The carrying amounts and estimated fair values of the Company's financial instruments were as follows:
Carrying |
Fair |
||||
Value |
Value |
||||
(Dollars in Thousands) |
|||||
Financial assets: |
|||||
Cash, due from banks, interest-bearing deposits in banks, and federal funds sold |
$ |
35,818 |
$ |
35,818 |
|
Securities available for sale |
16,675 |
16,675 |
|||
Restricted equity securities |
2,552 |
2,552 |
|||
Loans, net |
205,229 |
198,881 |
|||
Bank owned life insurance |
6,336 |
6,336 |
|||
Accrued interest receivable |
1,237 |
1,237 |
|||
Financial liabilities: |
|||||
Deposits |
258,935 |
264,391 |
|||
Borrowings |
27,700 |
28,199 |
|||
Guaranteed subordinated debentures |
3,093 |
3,093 |
|||
Accrued interest payable |
391 |
391 |
|||
NOTE 6. SUBSEQUENT EVENTS
Subsequent events have been evaluated through November 12, 2009, which is the date the financial statements were available to be issued.
Item 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the financial position and operating results of
Unity Holdings, Inc. and its subsidiary, Unity National Bank, during the
periods included in the accompanying consolidated financial statements.
Forward Looking Statements
Certain statements made herein under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" ("MD&A") are
forward-looking statements for purposes of the Securities Act of 1933 (the
"Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"),
and as such may involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements. Such forward looking statements
include statements using the words such as "may," "will," "anticipate,"
"should," "would," "believe," "contemplate," "expect," "estimate," "continue,"
"may," or "intend," or other similar words and expressions of the future. Our
actual results may differ significantly from the results we discuss in these
forward-looking statements.
These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, without limitation: the effects of future economic conditions; governmental monetary and fiscal policies, as well as legislative and regulatory changes; the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities, and other interest-sensitive assets and liabilities; interest rate risks; the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating regionally, nationally, and internationally, together with such competitors offering banking products and services by mail, telephone, computer, and the Internet.
Critical Accounting Policies
We have adopted various accounting policies which govern the application of
accounting principles generally accepted in the United States of America in the
preparation of our financial statements. Our significant accounting policies
are described in the footnotes to the consolidated financial statements at
December 31, 2008 as filed in our annual report on Form 10-K.
Certain accounting policies involve significant judgments and assumptions by us which have a material impact on the carrying value of certain assets and
liabilities. We consider these accounting policies to be critical accounting
policies. The judgments and assumptions we use are based on historical
experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could
differ from these judgments and estimates which could have a material impact on
our carrying values of assets and liabilities and our results of operations.
We believe the allowance for loan losses is a critical accounting policy that
requires the most significant judgments and
estimates used in preparation of our consolidated financial statements. Refer
to the portion of this discussion that addresses our allowance for loan losses
for a description of our processes and methodology for determining our
allowance for loan losses. Refer to Note 5 in the notes to the consolidated
financial statements for a discussion on the policies regarding the valuation
of foreclosed assets.
Liquidity and Capital Resources
During the nine month period ended September 30, 2009, earning assets decreased
$18.1 million. The loan portfolio decreased $36.4 million in an effort to
reduce the asset size of the bank, improve liquidity, and preserve capital. Of
this decrease, $15.9 million in loans was transferred to foreclosed assets,
which increased $8.3 million net of sales and impairments. Federal funds sold
decreased $5.9 million, as these funds were transferred to interest bearing
deposits. Securities available for sale decreased $1.6 million due to calls
being exercised by the issuers of the securities. Most of the called bonds
were replaced with government agency securities with 2-5 year maturities.
Deposits increased $9.9 million, and other borrowings decreased $11.2 million
due to the paydown of Federal Home Loan Bank advances. In total, liabilities
decreased $1.9 million during the nine month period, while total assets
decreased $15.0 million. As of September 30, 2009, our liquidity position, as
determined under guidelines established by regulatory authorities, remained
satisfactory. We will continue to monitor liquidity and make adjustments as
deemed necessary. We consider our liquidity strategy to be adequate to meet
operating and loan funding requirements without incurring excessive risk.
Wholesale and brokered CD balances as of September 30, 2009 were approximately $53.0 million, compared to $30.0 million as of December 31, 2008. Wholesale and brokered CD's are useful for obtaining deposit funds for specific maturities, often at a lower rate than local deposits. Due to the subsidiary bank being in an undercapitalized position, we are no longer allowed to accept or renew brokered deposits. At this time, maturing brokered deposits are being replaced primarily by wholesale "Internet" CD's. At September 30, 2009, Federal Home Loan Bank ("FHLB") borrowings amounted to $26.2 million, compared to $37.4 million reported for December 31, 2008. FHLB borrowings have been favorably priced for short and long borrowing terms, so the Company used this funding source to achieve better margins and mitigate interest rate risk. Currently, there is no additional borrowing capacity available from the FHLB. Additionally, we have net subordinated debentures of $3.0 million for use in maintaining capital levels at our bank subsidiary. We have a $2.0 million federal funds line of credit available through our primary correspondent bank, with no balance outstanding. This line of credit is secured by $2.5 million of securities from the bank's investment portfolio.
We also have a line of credit with a correspondent bank for $1.5 million at the parent level to use in capital replenishment. As of September 30, 2009, we had $1.5 million outstanding on the line of credit, which has been used to strengthen the capital position of the Bank. This line of credit matured on August 31, 2009, and the lending institution has not informed the company of the terms of renewal or requested a payoff of the line of credit. The line of credit is secured by the subsidiary bank's stock. If the loan is called or required to be paid off, the subsidiary bank would need regulatory approval to pay a dividend to the holding company for that purpose. If regulatory approval cannot be obtained, the lending institution could gain control of the subsidiary bank.
At September 30, 2009, the Company was "undercapitalized" based on regulatory minimum capital requirements. The minimum capital requirements and the actual capital ratios on a consolidated and bank-only basis are as follows:
Actual |
Minimum Regulatory Requirement |
To Be Considered "Well Capitalized" |
||
Consolidated |
5.44 % |
N/A |
N/A |
|
Bank |
6.16 % |
8.00 % |
10.00 % |
|
Consolidated |
4.16 % |
N/A |
N/A |
|
Bank |
4.88 % |
4.00 % |
6.00 % |
|
Consolidated |
3.25 % |
N/A |
N/A |
|
Bank |
3.86 % |
4.00 % |
5.00 % |
An "undercapitalized" position subjects the subsidiary bank to certain regulatory restrictions. The primary restrictions are the inability to solicit or renew brokered deposits, and caps on maximum rates that can be paid on local deposits. These restrictions may make it more difficult for the bank to gather and retain deposits in the future to fund liquidity needs.
From time to time, the Company may use capital infusions from the parent to maintain adequate capital. We have net subordinated debentures of $3.0 million for use in maintaining capital levels at our bank subsidiary. We also have a line of credit with a correspondent bank for $1.5 million at the parent level to use in capital replenishment. As of September 30, 2009, we have fully utilized the subordinated debentures and had $1.5 million drawn on our holding company line.
In compliance with the written agreement with the Office of the Comptroller of the Currency ("OCC") dated February 3, 2009, the Company is currently engaging in negotiations with potential accredited investors in an effort to raise additional capital for future needs. A registered public offering is also in effect. In June, 2009, the Company entered into an agreement with Moody Capital, LLC to assist in the sale of the stock. Moody Capital will be paid a fee for their services as an investment banker for the Company. The Company's goal is to raise $15 million in additional capital through the sale of preferred stock, common stock, or a combination of both.
To date, interest in the registered public offering has been very limited. To date, we have received no binding subscriptions, but have received one expression of interest from an investment group for the purchase of both common and preferred stock. The details of the proposed transaction have not been finalized, and regulatory approval will be required before closing.
Off-Balance Sheet Arrangements
We are a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of our customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Such commitments involve, to varying degrees, elements of credit
risk and interest rate risk in excess of the amount recognized in the balance
sheets.
Our exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we
do for on-balance sheet instruments. A summary of our commitments as of September
30, 2009 is as follows:
Commitments to extend credit |
$ |
10,558,000 |
Standby letters of credit |
248,000 |
|
$ |
10,806,000 |
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. 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 amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by us to guarantee
the performance of a customer to a third party. Those letters of credit are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. Collateral is required in instances
which we deem necessary.
At September 30, 2009, we had arrangements with our primary correspondent bank for a secured federal funds line of $2.0 million. We maintain a line of credit with the FHLB as an external funding source. According to our pledged collateral for the line, we can borrow up to approximately $26.2 million on this line. At September 30, 2009, the total amount of $26.2 million was outstanding. The Bank also has a line of credit through the Federal Reserve Discount Window. The amount available from this line was $9.0 million as of September 30, 2009, with none of the line outstanding.
In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material effect on the Company's financial statements.
Financial Condition
Total assets decreased $15.0 million for the nine month period ended September
30, 2009. Net loans decreased $39.0 million, with $15.9 million of the loan
balances being transferred to other real estate owned. Investments decreased $1.6
million due to called securities for the period that were not replaced and a
$123,000 write off of stock held in a correspondent bank that was closed by
regulators in May, 2009. Fed funds sold decreased $5.9 million, and the
balances were largely transferred to cash and due from banks and
interest-bearing deposits, which increased $25.5 million. Foreclosed assets
increased approximately $8.3 million, net of sales and write-downs. Other
assets decreased $1.6 million, largely due to a $2.6 million valuation
allowance being established against the December 31, 2008 balance in deferred
tax assets.
Total liabilities decreased $1.9 million, with deposits increasing approximately $9.9 million, other borrowings decreasing $11.2 million, and other liabilities decreasing $523,000. Brokered and other wholesale time deposits increased $23.0 million during the nine month period, while retail deposits decreased $13.1 million. The $11.2 million decrease in other borrowings was due to pay downs of Federal Home Loan Bank advances. The decreases on the funding side of the balance sheet partially offset the decreases on the asset side of the balance sheet while increasing liquid assets to fund brokered and wholesale deposit maturities through the remainder of the year. Commitments and contingencies decreased $382,000 due to the updated valuation on redeemable common stock held by the Company's KSOP. A net loss of approximately $13.3 million, and an increase in market value of the investments of approximately $130,000 resulted in a net decrease of $12.8 million in capital.
Results of Operations For The Three Months Ended September 30, 2009 and 2008.
The Company had a net loss of approximately $2.5 million for the three months ended September 30, 2009 compared to a net loss of $937,000 during the third quarter of 2008. The primary components of the loss were an elimination of the income tax benefit of $823,000 and a decrease in net interest income of $559,000. Another significant factor in the net loss is the decrease in the net interest margin due to a decrease in loan yields coupled with an increase in non-performing assets. The Company made a provision of $1.7 million dollars to the reserve for loan losses during the quarter ended September 30, 2009, compared to $2.0 million for the same quarter in the previous year. Non-interest income decreased $159,000 during the third quarter of 2009 compared to the third quarter of 2008. Total other expenses increased $368,000 compared to the three months ended September 30, 2008, with the largest increase being losses on sales and expenses related to foreclosed assets.
Interest income decreased approximately $1.1 million for the quarter ended September 30, 2009 when compared to the quarter ended September 30, 2008. Loan interest and fee income decreased $986,000 for the third quarter in 2009 when compared to the third quarter of 2008. This decrease was primarily due to the decrease in the balances of loans, as well as the increase in non-performing loans during this period, which reduces the interest and fee income of the loan portfolio. The decrease in interest income due to loans being placed on a non-accrual status is approximately $275,000. Investment income decreased $154,000 during the period due to lower balances and yields. The portfolio, which had been decreasing, is now being held relatively constant by the replacement of called and maturing securities. However, investment income will more than likely continue to decrease through the remainder of 2009 due to current investment yields being lower than the yields on called and maturing securities. Because of the substantially low rate environment brought on by the weak economy and the increase in non-performing assets, management expects interest income to continue to be lower than 2008 levels.
Interest expense for the third quarter of 2009 saw a decrease of $589,000 over the third quarter of 2008, with deposit expense decreasing approximately $435,000 for the quarter. Rates on time deposits and other borrowings trended lower due to lower interest rates. Interest on other borrowings decreased $154,000 for the year-to-date period ended September 30, 2009 when compared to the same period in 2008, primarily due to lower outstanding balances on the borrowings.
The net interest margin for the third quarter was 2.30%, a 54 basis point drop from the 2.84% posted for the same period in 2008. Earning asset yields for the quarter ended September 30, 2009 were 5.25%, compared to 6.22% for the same period in 2008. This decrease of 97 basis points is attributable to lower repricing of our loan portfolio and lower reinvestment rates on investments as interest rates have fallen. The cost of funds has decreased 64 basis points, posting a 2.75% cost for the third quarter of 2009 versus 3.39% for third quarter of 2008. Net interest income decreased approximately $559,000 for the third quarter of 2009 when compared to the third quarter of 2008.
The provision for loan losses during the quarter ended September 30, 2009 was $1.7 million, compared to $2.0 million for the quarter ended September 30, 2008. Net charge offs for the third quarter of 2009 were $1.6 million, compared to $1.8 million for the third quarter of 2008, as the local economy continues to be weak compared to the prior year. Management has thoroughly reviewed the loan portfolio and continues its review on an ongoing basis. Impairment testing is done periodically to identify loans that require additional reserves. Management is working to quickly identify and minimize potential losses.
Other income decreased $159,000 in the third quarter of 2009 when compared to the third quarter of 2008. Service charges on deposit accounts decreased $43,000 due to a decrease in overdraft fees. Mortgage loan fees decreased $24,000 due to decreased market activity. Other operating income decreased $92,000 during the third quarter of 2009 compared to the third quarter of 2008, primarily due to a $66,000 decrease in brokerage revenues and a $25,000 decrease in bank-owned life insurance income.
Other expenses increased $368,000 for the quarter ended September 30, 2009 when compared to the quarter ended September 30, 2008. Salaries and employee benefits decreased $33,000 due to staffing and salary reductions at the end of 2008 and the beginning of 2009. As additional cost-cutting measures, there have been no bonus accruals or payouts in 2009, and the Bank's 401k match has been suspended. These steps should lower salaries and benefits expense through the remainder of 2009. Equipment and occupancy decreased $13,000 in the third quarter of 2009 compared to the third quarter of 2008, primarily due to lower maintenance and depreciation expenses. Losses on the sale of foreclosed assets were $359,000 for the third quarter of 2009 vs. $195,000 for the third quarter of 2008, an increase of $164,000. Foreclosed assets are disposed of as quickly as possible to minimize carrying costs. However, some types of assets, such as raw land, land lots, and commercial property usually take longer to sell due to the economic climate. Each foreclosed asset is evaluated and the cost-benefits of a short vs. longer-term holding period are considered regarding the disposal of the asset. The foreclosure expenses are expected to stay elevated for the remainder of 2009 due to the number of foreclosed assets the Bank is carrying. Other operating expenses increased $251,000 during the same period, mostly due to an increase of $196,000 in expenses related to foreclosed assets and a $61,000 increase in FDIC insurance premiums.
Due to a valuation allowance being created to offset the deferred tax asset, there was no tax benefit recognized during the third quarter of 2009 even though the company experienced a pre-tax loss of $2,547,000. The valuation allowance is recoverable in the future if the Company generates enough pre-tax profits to offset the valuation. The effective tax benefit rate for the third quarter of 2008 was 47%.
Results of Operations For The Year To Date Periods Ended September 30, 2009 and 2008.
The Company experienced a net loss of $13.3 million for the nine months ended September 30, 2009, as compared to a net loss of $667,000 for the nine months ended September 30, 2008. Increased loan losses, the establishment of a valuation allowance against the deferred tax asset, increased expenses related to foreclosed assets, and margin compression due to a decrease in loan yields coupled with an increase in non-performing assets are the primary contributors for the decrease. Non-interest income decreased $293,000 due to lower brokerage revenues and overdraft fees. Non-interest expense increased $1.3 million, due primarily to losses on sales and other expenses related to foreclosed assets.
Interest income decreased approximately $3.7 million for the nine months ended September 30, 2009 when compared to the nine months ended September 30, 2008. Loan interest and fee income decreased $3.1 million for the year to date period ended September 30, 2009 when compared to the same year to date period in 2008. This decrease was driven by decreased volume and rates. Average loan balances decreased approximately $29.7 million over the 12 month period. Average yields decreased 90 basis points, from 7.10% for the nine months ended September 30, 2008 to 6.20% for the nine months ended September 30, 2009. Loans being placed on a non-accrual status also contributed to an estimated $450,000 decline in interest income. Income on investments decreased approximately $504,000, as the average balances were lower for year-to-date 2009 as compared to year-to-date 2008, combined with lower yields. The level of investment earnings may decrease later in the year due to the lower balances and rates. The low rate environment brought on by the weak economy will continue to negatively affect interest income.
Interest expense for the nine month period ended September 30, 2009 saw a decrease of $1.8 million over the nine month period of 2008. Deposit expense decreased approximately $1.5 million for the year-to-date period. Interest rates on money market accounts and time deposits were much lower for the first nine months of 2009 compared to the same period last year, and the average balances on these deposits was lower. Interest on other borrowings decreased $278,000 for the nine months ended September 30, 2009 when compared to the same period in 2008 due to lower rates and balances.
The net interest margin for the year to date period ended September 30, 2009 was 2.61 %, a 62 basis point drop from the 3.23% posted for the same period in 2008. Loan yields for the first nine months of 2009 were 6.20%, compared to 7.10% for the same period in 2008. This decrease of 90 basis points is primarily attributable to the lower average balances in accruing loans for 2009 and the quick repricing nature of our loan portfolio as rates dropped. Increases in the interest foregone on nonperforming assets also had an affect on the margin. The cost of funds decreased 70 basis points between the two periods. Money market accounts showed the largest decrease in cost of funds - 131 basis points - because they are priced as a percentage of the Prime rate. Net interest income decreased approximately $1.9 million for the first nine months of 2009 when compared to the first nine months of 2008.
The provision for loan losses during the year to date period ended September 30, 2009 was $10.4 million, compared to $2.6 million for the year to date period ended September 30, 2008. Net charge offs continued to increase as the economy further deteriorated. Management has thoroughly reviewed the loan portfolio and continues its review on an ongoing basis. Impairment testing is done regularly to identify loans that require additional reserves. Management is working to quickly identify and minimize potential losses.
Other income decreased $293,000 for the first nine months of 2009 when compared to the first nine months of 2008. Service charges on deposit accounts decreased $75,000, primarily because of lower overdraft fees. Mortgage origination fee income increased $71,000 due to increased mortgage volume attributable to lower interest rates. Other operating income decreased $289,000 primarily due to a $123,000 write-off of correspondent bank stock during the first quarter of 2009 and lower brokerage fees.
Other expenses increased $1.3 million for the nine months ended September 30, 2009 when compared to the nine months ended September 30, 2008. Salaries and employee benefits decreased $639,000 due to staffing and salary reductions at the end of 2008 and the beginning of 2009. Equipment and occupancy expenses decreased $69,000 due to reduced repairs and maintenance, as well as lower depreciation. Losses on sales of foreclosed asset increased $1.0 million over last year. The volume of foreclosed asset sales has increased, although the individual sale losses have been less than expected. Other operating expenses increased $965,000 compared to the same period last year. This increase is primarily due to foreclosure-related expenses being $748,000 more than last year and an increase of $204,000 in FDIC deposit insurance.
Due to a valuation allowance being created to offset the deferred tax asset, there is a year-to-date tax expense of $681,000 related to the recognition of a prior year tax benefit, even though the company experienced a pre-tax loss of $12.6 million. The valuation allowance is recoverable in the future if the Company generates enough pre-tax profits to offset the valuation.
Allowance for Loan Losses
Management continually evaluates its loan loss reserve for adequacy. Our
evaluation considers significant factors relative to the credit risk and loss
exposure in the loan portfolio, including past due and classified loans,
historical experience, underlying collateral values, and current economic
conditions that may affect the borrower's ability to repay. The allowance for
loan losses is evaluated by allocating a reserve based on the average of
historical charge offs. This reserve is applied by loan type, excluding cash
secured loans. Classified and impaired loans may require a specific reserve
based on the facts surrounding the loan, including but not limited to
inadequate collateral coverage, insufficient cash flow or other credit quality
issues. This evaluation is inherently subjective, as it requires estimates
that are susceptible to significant change. A general reserve is established
for the entire loan portfolio based on the current economic and interest rate environments,
loan portfolio volumes and concentrations, industry standards, recent credit
quality experience, and management experience. The general reserve allows for
conditions that may arise that do not occur frequently or for which a specific
reserve is not present.
In addition to the analysis procedures above,
the credit administration department has continually monitored the performance
of the loan portfolio. Some additional provisions to the reserve were made on
rated assets that may be more likely to cause losses given the current
environment. The current reserve as a percentage of the loan portfolio is 3.75%
compared to 2.16% at December 31, 2008. The current reserve reflects the
potential of losses in the portfolio at September 30, 2009 given more
aggressive impairment testing and after some identified losses have occurred.
Losses may vary from current estimates and future additions to the allowance
may be necessary. Thus, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan losses as estimated at any point
in time. Management believes the loan loss reserve is adequate at this time.
Information regarding the effects of charge offs and recoveries on the allowance for loan loss data is as follows:
September 30, |
|||||
2009 |
|
2008 |
|||
(in $000s) |
|||||
Average amount of loans outstanding |
$ |
227,725 |
|
$ |
257,449 |
|
|
||||
Balance of allowance for loan losses |
|
|
|||
at beginning of period |
5,388 |
|
3,280 |
||
|
|
|
|||
Loans charged off |
|
|
|||
Commercial and financial |
363 |
|
230 |
||
Real estate mortgage |
6,971 |
|
1,467 |
||
Installment |
486 |
|
140 |
||
Total charge offs |
7,820 |
|
1,837 |
||
|
|
||||
Loans recovered |
|
|
|||
Commercial and financial |
- |
|
6 |
||
Real estate mortgage |
14 |
|
7 |
||
Installment |
28 |
|
35 |
||
Total recoveries |
42 |
|
48 |
||
|
|
||||
Net charge-offs |
7,778 |
|
1,789 |
||
Additions to allowance charged |
|
|
|||
to operating expense during period |
10,396 |
|
2,573 |
||
|
|
||||
Balance of allowance for loan losses |
|
|
|||
at end of period |
$ |
8,006 |
|
$ |
4,064 |
|
|
|
|||
Ratio of net loans charged off during |
|
|
|||
the period to average loans outstanding |
3.42 % |
|
0.69 % |
Nonperforming Loans
It is our policy to discontinue the accrual of interest income when, in the opinion of management, collection of interest becomes doubtful due to factors such as (1) a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected, and (2) the principal or interest is more than ninety days past due, unless the loan is both well-secured and in the process of collection.
Nonaccrual loans at September 30, 2009 were $20.7 million, compared to $20.0 million at December 31, 2008 and $15.9 million at September 30, 2008. During the first nine months of 2009, approximately $19.2 million of non-accrual loans were transferred to other real estate owned. The Bank has a larger than normal inventory of other real estate owned that is currently working through the balance sheet. Management is aggressively marketing these properties to move them off the balance sheet with minimum losses. Credit quality has continued to deteriorate concurrently with the economic environment. The Bank works diligently with its past due customers to assist them in solutions to their credit problems, many of which are the result of a slow-down in the customers' business activities.
Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been included in the table below do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources. These classified loans do not represent material credits about which management is aware of any information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms.
Information regarding non-performing assets and potential problem loans is as follows:
September 30, |
December 31, |
|||||||
2009 |
|
2008 |
2008 |
|||||
|
|
|
|
|||||
Nonperforming assets: |
||||||||
Nonaccrual loans |
$ |
20,663 |
|
$ |
19,152 |
19,980 |
||
Restructured loans |
1,402 |
|
429 |
- |
||||
Other real estate owned |
17,347 |
|
6,971 |
9,135 |
||||
Total nonperforming assets |
$ |
39,412 |
|
$ |
26,552 |
29,115 |
||
|
|
|||||||
Potential problem loans: |
|
|
||||||
Loans 90 days or more past due and still accruing |
533 |
|
337 |
1,499 |
||||
Total nonperforming and potential problem loans |
39,945 |
|
26,889 |
30,614 |
||||
|
|
|||||||
Nonperforming assets and potential problem loans to total loans and other real estate |
17.32 % |
|
10.18 % |
11.83 % |
||||
Reserve for loan losses to nonperforming assets and potential problem loans |
20.04 % |
|
15.11 % |
17.60 % |
||||
|
|
|||||||
Interest at contracted rates (a) |
$ |
382 |
|
$ |
299 |
418 |
||
Interest recorded as income |
- |
- |
- |
|||||
Reduction of Interest Income for period |
$ |
382 |
|
$ |
299 |
418 |
||
(a) |
Interest income on nonaccruals that would have been recorded, if the loans remained |
|||||||
current and in accordance with original terms. |
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed only to U. S. dollar interest rate changes, and, accordingly, the Company manages exposure by considering the possible changes in the net interest margin. The Company does not have any trading instruments nor does it classify any portion of the investment portfolio as held for trading. The Company currently does not engage in any hedging activities. Finally, the Company has no exposure to foreign currency exchange rate risk, commodity price risk and other market risks.
Interest rates are the primary component of net income for a financial institution. Interest rate risk is inherent in banking and comprised of two major components; the repricing frequency of interest earning assets and interest bearing liabilities. Management of interest rate risk is done by matching as closely as possible the repricing of assets and liabilities so that fluctuations in interest rates are absorbed on both sides of the balance sheet. The Company has set up policy parameters for various measurements of repricing risk to govern exposure in this area.
The Company must also manage the risk of different levels of rate change among various banking products. The Bank conducts income simulation studies to measure the impact of increasing or decreasing rate scenarios for all the interest sensitive components of the balance sheet. By measuring this exposure over a 12 month period, Management can adjust rate sensitivity and pricing to mitigate this risk. Policy parameters also manage acceptable levels of exposure in this rate category.
With the current economic conditions affecting our customers, credit risk has been brought to the forefront of the Bank's risk analysis profile. Problem loans affect several areas of the bank, including net interest margin, liquidity, and capital adequacy. The Company is proactive in dealing with credit issues. We quickly identify problem loans and begin working with customers early in the process. Our goal is to mitigate loss on loans by adequately reserving for loss based on detailed impairment testing. We are devoting significant resources to the resolution of problem assets in a timely manner.
Item 4T. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and the Chief Financial Officer, of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
There have been no changes in our internal controls or in other factors that
could affect internal controls subsequent to the date of this evaluation.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS
(a) Exhibits
31.1 |
Certification of the Chief Executive Officer, Pursuant to Rule 13a-14(a) under the Securities Exchange act of 1934, as amended. |
|
31.2 |
Certification of the Chief Financial Officer, Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. |
|
32 |
Certification of the Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNITY HOLDINGS, INC.
(Registrant)
DATE: November 12, 2009
/s/ Michael L. McPherson
Michael
L. McPherson, President and C.E.O.
(Principal Executive Officer)
DATE: November 12, 2009
/s/ Jeff L. Sanders
Jeff L.
Sanders, Senior Vice President and C.F.O.
(Principal Financial and Accounting Officer)
EXHIBIT 31.1
CERTIFICATIONS PURSUANT TO RULE 13a-14(a)/15d-14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Michael L. McPherson, Chief Executive Officer, certify that:
1. |
I have reviewed this Form 10-Q of Unity Holdings, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
November 12, 2009 |
|
/s/ Michael L. McPherson |
|
MICHAEL L.McPHERSON |
|
|
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATIONS PURSUANT TO RULE 13a-14(a)/15d-14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Jeff L. Sanders, Chief Financial and Accounting Officer, certify that:
1. |
I have reviewed this Form 10-Q of Unity Holdings, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. |
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
November 12, 2009 |
/s/ Jeff L. Sanders |
|
JEFF L. SANDERS |
||
Chief Financial and Accounting Officer |
Exhibit 32
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Unity Holdings, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Michael L. McPherson, Chief Executive Officer of the Company, and Jeff L. Sanders, Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his/her knowledge that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
/s/Michael L. McPherson
MICHAEL L. McPHERSON
Chief Executive Officer
November 12, 2009
/s/Jeff L. Sanders
JEFF L. SANDERS
Chief Financial and Accounting Officer
November 12, 2009
This certification accompanies this Report pursuant to section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of section 18 of the Securities Exchange Act of 1934, as amended.