<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>uni10q.txt
<DESCRIPTION>FORM 10-Q FOR UNIFIED FINANCIAL SERVICES
<TEXT>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 MARCH 31, 2001
-------------------------------------------------
Commission file number 0-22629
---------------------------------------------------------
UNIFIED FINANCIAL SERVICES, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 35-1797759
--------------------------------------- --------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
2424 HARRODSBURG ROAD
LEXINGTON, KENTUCKY 40503
--------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(859) 296-2016
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
of 1934 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. /X/ Yes / / No
Number of shares
Title of class outstanding as of May 1, 2001
----------------------------------- ------------------------------------
Common stock, $0.01 par value 2,880,028
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
FORM 10-Q
<TABLE>
INDEX
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition - March 31, 2001 (Unaudited) and
December 31, 2000...............................................................................1
Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, 2001
and 2000........................................................................................3
Consolidated Statements of Comprehensive Income (Unaudited) - Three Months Ended
March 31, 2001 and 2000.........................................................................4
Consolidated Statements of Cash Flow (Unaudited) - Three Months Ended March 31, 2001
and 2000........................................................................................5
Notes to Consolidated Financial Statements......................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.....................................................................................13
Cautionary Statement Regarding Forward-Looking Statements......................................13
General........................................................................................13
Comparison of Results for the Three Months Ended March 31, 2001 and 2000.......................14
Liquidity and Capital Resources................................................................16
Risk Factors...................................................................................17
Item 3. Quantitative and Qualitative Disclosure About Market Risk......................................21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................................................26
SIGNATURES.......................................................................................................27
EXHIBIT INDEX....................................................................................................28
</TABLE>
- i -
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<CAPTION>
ASSETS
------
MARCH 31,
2001 DECEMBER 31,
(UNAUDITED) 2000
-------------- -------------
<S> <C> <C>
Current Assets
Cash and cash equivalents................................... $ 5,537,297 $ 5,582,098
Due from banks.............................................. 597,992 1,162,639
Federal funds sold.......................................... 10,115,000 7,667,000
Bond investments............................................ 30,605,107 10,841,435
Investment in securities and non-affiliated
mutual funds.............................................. 541,529 573,272
Loans (net of allowance for loan losses of
$345,000 for 2001 and $305,000 for 2000).................. 27,739,725 20,834,674
Accounts receivable (net of allowance for
doubtful accounts of $603,561 for 2001 and
$500,042 for 2000)........................................ 14,084,518 13,086,031
Prepaid assets and deposits................................. 281,237 297,270
Deferred tax asset.......................................... -- 80,037
-------------- -------------
Total current assets.................................... 89,502,405 60,124,456
-------------- -------------
Fixed Assets, at cost
Equipment and furniture (net of accumulated
depreciation of $4,427,889 for 2001 and
$4,250,692 for 2000)...................................... 3,565,690 3,500,020
-------------- -------------
Total fixed assets...................................... 3,565,690 3,500,020
-------------- -------------
Non-Current Assets
Investment in affiliate..................................... 10 10
Organization cost (net of accumulated amortization
of $197,418 for 2001 and $164,227 for 2000)............... 475,734 508,925
Goodwill (net of accumulated amortization of
$269,493 for 2001 and $243,414 for 2000).................. 1,084,301 1,110,380
Other non-current assets.................................... 376,562 391,136
-------------- -------------
Total non-current assets................................ 1,936,607 2,010,451
-------------- -------------
TOTAL ASSETS....................................... $ 95,004,702 $ 65,634,927
============== =============
(Continued on next page)
See accompanying notes.
- 1 -
<PAGE>
<PAGE>
<CAPTION>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
MARCH 31, DECEMBER 31,
2001 2000
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current Liabilities:
Current portion of capital lease obligations................ $ 4,796 $ 7,884
Current portion of bank borrowings.......................... 320,379 1,944,662
Borrowed funds.............................................. 12,000 1,143,000
Bank line of credit......................................... 1,265,000 1,668,626
Deposits ................................................... 64,037,571 34,620,338
Accounts payable and accrued expenses....................... 1,414,236 2,508,776
Accrued compensation and benefits........................... 429,855 440,472
Payable to insurance companies.............................. 9,719,543 8,016,752
Payable to broker-dealers................................... 388,110 172,374
Income taxes payable, current............................... 12,935 --
Deferred income taxes....................................... -- 14,308
Other liabilities........................................... 959,919 827,328
------------- -------------
Total current liabilities............................... 78,564,344 51,364,520
------------- -------------
Long-Term Liabilities
Long-term portion of capital lease obligations.............. 909 1,049
Long-term portion of borrowings............................. 1,834,688 342,339
Other long-term liabilities................................. 572,503 92,553
------------- -------------
Total long-term liabilities............................. 2,348,100 435,941
------------- -------------
Total liabilities.................................. 80,912,444 51,800,461
------------- -------------
Commitments and Contingencies.................................... -- --
------------- -------------
Stockholders' Equity
Common stock, par value $.01 per share...................... 33,300 33,300
Additional paid-in capital.................................. 16,259,091 16,259,091
Retained deficit............................................ (2,425,592) (2,628,248)
Accumulated other comprehensive income...................... 225,459 170,323
------------- -------------
Total stockholders' equity......................... 14,092,258 13,834,466
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................... $ 95,004,702 $ 65,634,927
============= =============
See accompanying notes.
</TABLE>
- 2 -
<PAGE>
<PAGE>
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2001 2000
------------ -----------
<S> <C> <C>
REVENUE:
Gross revenue (see note 12).................................................. $ 8,154,843 $ 6,743,484
------------ -----------
Total gross revenue.................................................... 8,154,843 6,743,484
------------ -----------
COST OF SALES:
Cost of sales (see note 12).................................................. 2,122,120 2,115,221
------------ -----------
Total cost of sales.................................................... 2,122,120 2,115,221
------------ -----------
Gross profit (see note 12)............................................. 6,032,723 4,628,263
------------ -----------
EXPENSES:
Employee compensation and benefits........................................... 3,483,527 3,057,647
Mail and courier............................................................. 117,452 154,672
Telephone.................................................................... 191,438 137,465
Equipment rental and maintenance............................................. 157,146 129,895
Occupancy.................................................................... 309,147 236,511
Depreciation and amortization................................................ 280,325 229,440
Professional fees............................................................ 408,736 592,202
Interest..................................................................... 75,073 127,564
Provision for bad debt....................................................... 106,734 24,891
Provision for loan losses.................................................... 40,000 62,000
Business development costs................................................... 10,432 14,236
Other operating expenses (see note 14)....................................... 604,575 864,719
------------ -----------
Total expenses......................................................... 5,784,585 5,631,242
------------ -----------
Income (loss) from operations..................................................... 248,138 (1,002,979)
------------ -----------
OTHER INCOME (LOSS)
Unrealized gain (loss) on securities......................................... (32,524) 4,960
Realized gain (loss) on securities........................................... (23) 14,838
Loss on sale/disposal of fixed assets........................................ -- (436)
All other.................................................................... -- 32,667
------------ -----------
Total other income (loss).............................................. (32,547) 52,029
------------ -----------
Income (loss) before discontinued operations...................................... 215,591 (950,950)
Loss from discontinued operations................................................. -- (252,986)
Income taxes...................................................................... 12,935 12,610
------------ -----------
Net income (loss)................................................................. $ 202,656 $(1,216,546)
============ ===========
Per share earnings
Basic common shares outstanding.............................................. 2,880,028 2,878,462
Net income (loss) before discontinued operations -- basic.................... $ 0.07 $ (0.33)
Net income (loss) -- basic................................................... 0.07 (0.42)
Fully diluted common shares outstanding...................................... 3,050,530 2,979,868
Net income (loss) before discontinued operations -- fully diluted............ $ 0.07 $ (0.32)
Net income (loss) -- fully diluted........................................... 0.07 (0.41)
See accompanying notes.
</TABLE>
- 3 -
<PAGE>
<PAGE>
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
2001 2000
---------- -------------
<S> <C> <C>
Net income (loss)................................................................. $ 202,656 $ (1,216,545)
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on securities, net of
reclassification adjustment.............................................. 55,136 (49,197)
---------- -------------
Comprehensive income (loss)....................................................... $ 257,792 $ (1,265,742)
========== =============
See accompanying notes.
</TABLE>
- 4 -
<PAGE>
<PAGE>
<TABLE>
UNIFIED FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
2001 2000
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss)........................................ $ 202,656 $ (1,216,545)
Adjustments to reconcile net income to cash
provided by operating activities:
Income taxes payable................................ 12,936 --
Deferred income taxes............................... 65,729 30,406
Provision for depreciation and amortization......... 280,325 235,498
Provision for loan losses........................... 40,000 62,000
Provision for bad debt.............................. 103,519 --
Amortization of bond discount....................... (5,389) --
Change in market value of securities................ 102,407 (29,013)
Comprehensive income................................ 55,136 (49,197)
Loss on disposal of fixed assets.................... -- 436
Loss on sale of securities.......................... 13,656 9,791
(Increase) decrease in operating assets
Receivables...................................... (1,102,006) (64,282)
Loans made to customers, net of repayments....... (6,945,051) (4,628,932)
Prepaid and sundry assets........................ 16,033 341,983
Other non-current assets......................... 14,574 (90,730)
Increase (decrease) in operating liabilities
Deposits......................................... 29,417,233 6,447,294
Accounts payable and accrued expenses............ 823,986 (230,898)
Accrued compensation and benefits................ (10,617) 3,885
Accrued income taxes............................. -- (26,902)
Other liabilities................................ 552,539 (31,422)
------------ ------------
Net cash provided by operating activities.............. 23,637,666 763,372
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of equipment.................................... (286,723) (207,995)
Due from banks........................................... 564,647 (206,262)
Federal funds sold/purchased............................. (2,448,000) 5,213,000
Bond investments......................................... (19,841,822) (6,451,286)
Securities sold under agreement to repurchase............ (1,131,000) 147,525
Proceeds from sale of fixed assets....................... -- 80
Proceeds from sale of debt securities.................... -- 181,291
Proceeds from sale of securities......................... 23 --
Investments in securities and mutual funds............... (804) (101,446)
------------ ------------
Net cash used in investing activities.................. (23,143,679) (1,425,093)
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings on bank line of credit........................ (403,626) 122,997
Proceeds from issuance of treasury stock................. -- 250,517
Repayment of borrowings.................................. (131,934) (330,128)
Repayment of capital lease obligations................... (3,228) (11,206)
------------ ------------
Net cash provided by (used in) financing activities.... (538,788) 32,180
------------ ------------
Net increase (decrease) in cash and cash equivalents........ (44,801) (629,541)
Cash and cash equivalents - beginning of year............... 5,582,098 5,709,082
------------ ------------
Cash and cash equivalents - end of period................... $ 5,537,297 $ 5,079,541
============ ============
See accompanying notes.
</TABLE>
- 5 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001 AND 2000
-----------------------
Note 1 - NATURE OF OPERATIONS
Unified Financial Services, Inc., a Delaware holding company
for various financial services companies, was organized on
December 7, 1989. We distribute a vertically integrated
financial services platform via the traditional industry
channels of our subsidiaries and via the Internet. Through our
subsidiaries, all of which are wholly owned, we provide
services primarily in six lines of business: trust and
retirement services; mutual fund administration services;
banking; insurance; brokerage; and investment advisory
services.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of
Unified Financial Services, Inc. and our subsidiaries after
elimination of all material intercompany accounts and
transactions.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
three-months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2001.
The balance sheet at December 31, 2000 has been derived from
the audited financial statements at that date but does not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements.
For further information refer to the consolidated financial
statements and footnotes thereto included in our Annual Report
on Form 10-K for the year ended December 31, 2000.
The consolidated financial statements give retroactive effect
to our pooling-of-interest transactions. As a result, the
consolidated statements of financial condition, statements of
operations and statements of cash flows are consolidated for
all periods presented. As required by generally accepted
accounting principles, the consolidated financial statements
become our historical consolidated financial statements upon
issuance of the financial statements for the periods that
include the date of the transaction.
Financial Statement Presentation
--------------------------------
Certain amounts in the 2000 financial statements have been
reclassified to conform to the 2001 presentation.
- 6 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001 AND 2000
-----------------------
Note 3 - UNIFIED TRUST COMPANY, NATIONAL ASSOCIATION
On June 26, 2000, First Lexington Trust Company, a subsidiary
of our company, converted to a limited purpose national
banking association with the corporate name "Unified Trust
Company, National Association." Unified Trust Company,
National Association is required by the Office of the
Comptroller of the Currency to maintain minimum capital of
$2.0 million. As of March 31, 2001, Unified Trust Company,
National Association had $2.1 million total capital.
Note 4 - OPTIONS
Under the terms of our stock incentive plan, employees,
directors, advisers and consultants of our company and its
subsidiaries are eligible to receive the following: (a)
incentive stock options; (b) nonqualified stock options; (c)
stock appreciation rights; (d) restricted stock; (e)
restricted stock units; and (f) performance awards.
As of March 31, 2001, options to acquire 103,836 shares of our
common stock were outstanding and issued to certain of our
employees, directors and advisers pursuant to our stock
incentive plan. In addition, as of such date, our board had
granted options to acquire 66,666 shares of our common stock
outside of such plan. Such options have exercise prices as
follows:
6,350 shares at $25.00 per share
19,186 shares at $27.50 per share
500 shares at $30.25 per share
76,800 shares at $40.00 per share
1,000 shares at $44.00 per share
66,666 shares at $45.00 per share
As of March 31, 2001, 85,536 of such options were intended to
qualify as incentive stock options pursuant to Section 422 of
the Internal Revenue Code of 1986, as amended.
Options outstanding at December 31, 2000 170,752
Options issued during period --
Options exercised during period --
Forfeitures at $40.00 per share (250)
-------
Options outstanding at March 31, 2001 170,502
=======
- 7 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001 AND 2000
-----------------------
Note 5 - BANK BORROWINGS
Bank borrowings at March 31, 2001 consisted of the following:
<TABLE>
<S> <C>
Payable in quarterly principal installments of $100,000,
beginning July 1, 2001, with final payment due April 30, 2002,
secured by assignment of receivables, interest paid monthly
at prime bank rate $1,800,000
Payable in monthly installments including interest at
8.25%, final payment due March 31, 2014, collateralized
by equipment 347,156
Payable in monthly installments including interest at
10.4%, final payment due April 26, 2002, collateralized
by equipment 7,911
----------
Total 2,155,067
----------
Less current maturities 320,379
----------
Long-term portion $1,834,688
==========
</TABLE>
The $1,800,000 bank borrowing listed above represents our
refinancing of existing bank indebtedness in February 2001,
and was treated as a non-cash transaction. Consequently, the
refinancing is not reflected in our Consolidated Statements of
Cash Flow.
The maturities of bank borrowings for each of the succeeding
five years subsequent to March 31, 2001, were as follows:
<TABLE>
<S> <C>
2002 $ 320,379
2003 1,518,145
2004 13,108
2005 13,108
2006 13,108
Thereafter 277,219
-----------------
Total $ 2,155,067
=================
</TABLE>
Note 6 - BANK LINE OF CREDIT
As of March 31, 2001, we had $1,265,000 outstanding under a
bank line of credit. The line of credit is payable at
maturity, June 30, 2001, bears interest at prime and is
secured by an assignment of the receivables of one of our
subsidiaries.
- 8 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001 AND 2000
-----------------------
Note 7 - CAPITAL LEASE OBLIGATIONS
We lease both computer and office equipment under capital
leases. The lease obligations are payable over a 60-month
period. The following is a summary of future minimum lease
payments under capitalized lease obligations as of March 31,
2001:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, AMOUNT
--------------------- ------
<S> <C>
2001 $ 5,130
2002 724
2003 302
-------
6,156
Less: amount representing interest (451)
-------
Total $ 5,705
=======
</TABLE>
Note 8 - RENTAL AND LEASE INFORMATION
We lease certain office facilities and equipment. Rental
expense for the three months ended March 31, 2001 and 2000
were $309,147 and $236,511, respectively.
At March 31, 2001, we were committed to minimal rental
payments under certain noncancellable operating leases. As of
March 31, 2001, the minimum future rental commitments for each
of the succeeding five years subsequent to March 31, 2001 were
as follows:
<TABLE>
<S> <C>
2002 $1,021,586
2003 450,503
2004 307,366
2005 246,845
2006 199,589
Thereafter 361,488
----------
Total $2,587,377
==========
</TABLE>
Note 9 - COMMITMENTS AND CONTINGENCIES
We are a party to various lawsuits, claims and other legal
actions arising in the ordinary course of business. In the
opinion of management, after consultation with legal counsel,
all such matters are without merit or are of such kind, or
involve such amounts, that unfavorable disposition would not
have a material adverse effect on our financial position or
results of operations.
Note 10 - CASH SEGREGATED UNDER FEDERAL REGULATION AND NET CAPITAL
REQUIREMENTS
Unified Financial Securities is subject to the Securities and
Exchange Commission's Uniform Net Capital Rule, which requires
the maintenance of minimum net capital, as defined, of the
greater of (i) 6-2/3% of aggregate indebtedness or (ii)
$50,000, and a ratio of aggregate indebtedness to net capital
of not more than 15 to 1. At March 31, 2001, the net capital
and ratio of aggregate indebtedness for Unified Financial
Securities were $272,433 and 1.605 to 1, respectively.
- 9 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001 AND 2000
-----------------------
Note 10 - CASH SEGREGATED UNDER FEDERAL REGULATION AND NET CAPITAL
REQUIREMENTS (continued)
Pursuant to Rule 15c3-3 as promulgated by the Securities and
Exchange Commission, Unified Financial Securities calculates
its reserve requirement and segregates cash and/or securities
for the exclusive benefit of its customers on a periodic
basis. The reserve requirement for Unified Financial
Securities was $0 at March 31, 2001. Balances segregated in
excess of reserve requirements are not restricted
Note 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and
estimated fair value of our financial instruments at March 31,
2001 and 2000. Financial Accounting Standards Board Statement
No. 107, "Disclosures about Fair Value of Financial
Instruments," defines the fair value of a financial instrument
as the amount at which the instrument could be exchanged in a
current transaction between willing parties.
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------------------
2001 2000
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Financial assets:
Cash and cash equivalents $ 5,537 $ 5,537 $ 5,080 $ 5,080
Investment in:
Debt securities -- -- 883 883
Securities and mutual funds 542 542 881 881
Loans 27,740 27,740 7,378 7,378
Receivables (trade) 14,085 14,085 9,669 9,669
Prepaid and sundry 281 281 558 558
Financial liabilities:
Current liabilities 78,239 78,239 25,914 25,914
Capital lease obligation 5,705 5,705 28 28
Long-term debt 2,155 2,155 2,528 2,528
</TABLE>
Note 12 - DISCLOSURES ABOUT REPORTING SEGMENTS
We have six reportable operating segments: trust and
retirement services; mutual fund administration services;
banking; insurance; brokerage; and investment advisory
services. In addition, we also report corporate as a separate
segment.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
We evaluate performance based on profit or loss from
operations before income taxes, not including recurring gains
and losses.
Our reportable segments are strategic business units that
offer different products and services. They are managed
separately because each business requires different technology
and marketing strategies. Most of the businesses were acquired
as a unit and the management at the time of the acquisition
was retained. Reportable segment revenues, gross profit, total
assets, and depreciation and amortization and capital
expenditures were as follows as of or for the three months
ended March 31, 2001 and 2000:
- 10 -
<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001 AND 2000
-----------------------
Note 12 - DISCLOSURES ABOUT REPORTING SEGMENTS (continued)
<TABLE>
<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
----------- -----------
<S> <C> <C>
Revenues:
Trust and retirement....................................................... $ 1,104,714 $ 1,093,564
Mutual fund administration................................................. 1,406,424 1,062,475
Banking.................................................................... 433,643 304,709
Insurance.................................................................. 3,800,543 2,542,609
Brokerage.................................................................. 726,048 1,116,126
Investment advisory........................................................ 467,934 456,418
Corporate.................................................................. 215,537 167,583
----------- -----------
Total................................................................. $ 8,154,843 $ 6,743,484
=========== ===========
Gross profit:
Trust and retirement....................................................... $ 1,104,714 $ 1,015,539
Mutual fund administration................................................. 1,153,223 856,510
Banking.................................................................... 433,643 304,709
Insurance.................................................................. 2,431,422 1,406,158
Brokerage.................................................................. 270,035 438,713
Investment advisory........................................................ 441,515 454,690
Corporate.................................................................. 198,171 151,944
----------- -----------
Total................................................................. $ 6,032,723 $ 4,628,263
=========== ===========
Total assets:
Trust and retirement....................................................... $ 3,733,027 $ 3,760,968
Mutual fund administration................................................. 1,901,868 1,812,660
Banking.................................................................... 72,979,342 23,251,473
Insurance.................................................................. 12,131,546 6,740,072
Brokerage.................................................................. 1,028,407 1,839,243
Investment advisory........................................................ 1,974,326 2,018,245
Corporate.................................................................. 1,256,186 2,717,952
----------- -----------
Total................................................................. $95,004,702 $42,140,613
=========== ===========
Depreciation and amortization:
Trust and retirement....................................................... $ 32,764 $ 17,539
Mutual fund administration................................................. 23,370 18,709
Banking.................................................................... 36,133 39,566
Insurance.................................................................. 56,777 29,898
Brokerage.................................................................. 8,883 8,440
Investment advisory........................................................ 34,441 34,934
Corporate.................................................................. 87,957 80,354
----------- -----------
Total................................................................. $ 280,325 $ 229,440
=========== ===========
Capital expenditures:
Trust and retirement....................................................... $ 93,929 $ 56,187
Mutual fund administration................................................. 9,971 11,160
Banking.................................................................... 10,488 19,946
Insurance.................................................................. 106,574 13,816
Brokerage.................................................................. 1,089 1,811
Investment advisory........................................................ 2,710 --
Corporate.................................................................. 61,962 105,075
----------- -----------
Total................................................................. $ 286,723 $ 207,995
=========== ===========
</TABLE>
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<PAGE>
<PAGE>
UNIFIED FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2001 AND 2000
-----------------------
Note 13 - UNIFIED BANKING COMPANY ASSETS AND LIABILITIES
Unified Banking Company commenced operations on November 1,
1999. Included in our consolidated financial statements at
March 31, 2001 and 2000 were the bank's total assets of
$70,664,316 and $20,967,259, respectively, and total
liabilities of $64,355,610 and $14,075,614, respectively. As
of such dates, certain components of such assets and
liabilities were as follows:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
2001 2000
----------- -----------
<S> <C> <C>
Due from banks $ 597,992 $ 521,077
Investments in securities:
US agency securities 10,115,000 11,966,442
FHLB stock 100,000 500
Loans:
Real estate loans 12,626,657 3,087,675
Commercial loans 6,360,933 2,030,029
Installment loans 4,328,594 877,759
Construction loans 924,586 149,018
Home equity loans 3,843,826 1,319,485
Other loans 129 7,402
Allowance for loan losses 345,000 95,000
Bank deposits:
Demand deposits 4,499,851 1,681,288
Official checks 471,336 164,528
NOW accounts 656,622 340,422
Money market accounts 8,467,937 6,859,021
Savings accounts 39,679 50,730
Time deposits 45,526,507 4,286,933
Other interest-bearing deposits 4,375,639 303,967
Federal and borrowed funds 12,000 438,525
</TABLE>
Note 14 - INVESTMENT IN AFFILIATE
On May 23, 2000, we subscribed for 10 shares of VSX Holdings,
LLC, a Delaware limited liability company, in exchange for $10
and certain intangible property rights. We currently own
approximately 0.5% of the outstanding shares of VSX Holdings,
but have the right to purchase up to an additional 1,990
shares at a price of $1 per share, upon the occurrence of
certain specified events. Our investment in VSX Holdings is
accounted for on the equity method of accounting.
VSX Holdings is involved in the development of an alternative
trading system to be known as VSX.com, which, upon and subject
to organization and regulatory approval, will serve as a
virtual, real-time private financial marketplace. In
connection with the organization of VSX Holdings, a third
party investor made a $3.0 million loan to VSX Holdings. We
also have entered into a management agreement with VSX
Holdings whereby we provide consulting and development
services to VSX Holdings. For the three months ended March 31,
2001 and 2000, we received payments totaling $386,644 and $0,
respectively, from VSX Holdings for such consulting and
development services, which amount is recorded as a reduction
of "Other operating expenses" on our Consolidated Statements
of Operations for the three months ended March 31, 2001 and
2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q
are or may constitute forward-looking statements (as such term is defined in
the Private Securities Litigation Reform Act of 1995). Such forward-looking
statements are based on current expectations, estimates and projections
about Unified Financial Services' industries, management's beliefs and
assumptions made by management. For example, a downturn in economic
conditions generally and in particular those affecting bond and securities
markets could lead to an exit of investors from mutual funds. Similarly, an
increase in Federal and state regulations of the mutual fund, insurance or
banking industries or the imposition of regulatory penalties could have an
effect on our operating results. In addition, by accepting deposits at fixed
rates, at different times and for different terms, and lending funds at
fixed rates for fixed periods, a bank accepts the risk that the cost of
funds may rise and interest on loans and investment securities may be at a
fixed rate. Similarly, the cost of funds may fall, but a bank may have
committed by virtue of the term of a deposit to pay what becomes an
above-market rate. Investments may decline in value in a rising interest
rate environment. Loans have the risk that the borrower will not repay all
funds due in a timely manner as well as the risk of total loss. Collateral
may or may not have the value attributed to it. Although we believe our loan
loss reserve is adequate, it may prove inadequate if one or more large
borrowers, or numerous smaller borrowers, or a combination of both,
experience financial difficulty for individual, national or international
reasons. Because the financial services industry is highly regulated,
decisions of governmental authorities can have a major effect on operating
results. These uncertainties, as well as others, are present in the
financial services industry and we caution stockholders that management's
view of the future on which we price and distribute our products and
estimate costs of operations and regulations may prove to be other than as
anticipated. In addition, our current expectations with respect to our six
business lines, our mission with respect to market leading positions of our
trust and retirement services and mutual fund administration services
business lines, our ability to generate supplemental revenues for our other
business lines, our ability to provide superior returns to our stockholders
and the development of VSX Holdings as an alternative trading system may
prove to be other than expected. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
are subject to certain risks, uncertainties and assumptions that are
difficult to predict; therefore, actual results and outcomes may differ
materially from what is expressed or forecasted in any such forward-looking
statements. Such risks and uncertainties include those set forth herein
under "Risk Factors." Unless required by law, we undertake no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
GENERAL
Unified Financial Services, Inc., a Delaware holding company that
was organized on December 7, 1989, is a vertically integrated provider of
financial products and services, distributing these through six lines of
business: trust and retirement services; mutual fund administration
services; banking; insurance; brokerage; and investment advisory services.
Unified bases its foundation upon two of its lines of business which seek to
be market leaders in their respective fields - trust and retirement services
and mutual fund administration services.
It is the mission of our company to capture market leading
positions in these two business lines, generate supplemental revenue for
each line to the others and, by our ability to distribute our products/
services through electronic delivery channels with strategic third-party
relationships, to provide superior returns to our stockholders.
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Going forward, the vertically integrated platform will be refined
and managed with these two businesses forming the foundation and being the
main drivers of our income. While we expect the other core lines to be
profitable in their own discipline, each should be significantly enhanced by
the supplemental income each should receive through its affiliation with the
two main driver businesses.
Additionally, we intend to develop the VSX project, a virtual
real-time private financial marketplace. It will be funded by independent
investment and we will retain an equity position and management contract for
services rendered.
Our principal executive offices are located at 2424 Harrodsburg
Road, Lexington, Kentucky 40503, telephone number (859) 296-2016. We and our
subsidiaries also maintain offices at 431 North Pennsylvania Street,
Indianapolis, Indiana, telephone number (317) 917-7001; 2353 Alexandria
Drive, Lexington, Kentucky 40504, telephone number (859) 296-4407; 100
Browenton Place, Louisville, Kentucky 40222, (502) 326-5016; 220 Lexington
Green Circle, Suite 600, Lexington, Kentucky 40512, telephone number (859)
245-2500; 1725 Southlake Boulevard, Southlake, Texas 76092, telephone number
(817) 431-2197; 36 West 44th Street, The Bar Association Building, Suite
1310, New York, New York 10036, telephone number (212) 852-8852; and One
Firstar Plaza, Suite 2605, St. Louis, Missouri 63101, telephone number (314)
552-6440.
The following presents management's discussion and analysis of our
consolidated financial condition and results of operations as of the dates
and for the periods indicated. This discussion should be read in conjunction
with the other information set forth in this Quarterly Report on Form 10-Q,
including our consolidated financial statements and the accompanying notes
thereto.
COMPARISON OF RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Revenue for the quarter ended March 31, 2001 compared to the
quarter ended March 31, 2000 increased $1,412,000, or 20.9%, from $6,743,000
to $8,155,000. For such quarters, trust and retirement services revenue
increased $11,000 and mutual fund administration services revenue increased
$344,000, or 32.4%, due to an increase in the number of portfolios serviced
and a growth in the amount of assets under service. As of March 31, 2001, we
provided fund administrative services to 26 mutual fund families consisting
of 127 portfolios and approximately $4.3 billion in mutual fund assets as
compared to 26 mutual fund families consisting of 118 portfolios and
approximately $4.0 billion in mutual fund assets as of March 31, 2000.
Banking revenue increased $129,000, or 42.3%, for the quarter ended March
31, 2001 compared to the same quarter of 2000. Banking revenue increased
primarily due to an increase in net interest income. For such quarters, we
experienced a $20,362,000, or 276.0%, increase in loans, net of allowance.
For the quarter ended March 31, 2001 compared to the same quarter of 2000,
insurance revenue increased $1,258,000, or 49.5%, primarily due to a
$3,524,000, or 35.2%, increase in total insurance premiums written. The
increase in total insurance premiums written reflected a continued hardening
of the insurance market whereby the overall volume of specialty lines
business should increase due to additional price increases imposed by
specialty insurance carriers and additional business flowing into the
specialty lines from standard line carriers. Additionally, insurance revenue
for the quarter ended March 1, 2001 included a $226,000 revenue sharing
payment received by our insurance operation based upon lower than
anticipated claims losses, compared to $6,000 received during the first
quarter of 2000. For such quarters, brokerage revenue declined $390,000, or
34.9%, primarily due to a $181,000 decline in trading revenue due to the
loss of two client relationships and the inclusion in 2000 revenue of
$34,400 we received in connection with our recently completed private
placement, without any corresponding amount in 2001. Additionally, brokerage
revenue declined due to less trading activity due to overall market
conditions and the termination of our Internet brokerage trading web site at
the end of 2000. For such quarters, investment advisory revenue increased
$12,000, or 2.5%, due to a shifting of existing investment advisory clients
to bundled fee relationships, which include other wealth management services
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and yield higher fees. This increase in fees was partially offset by a
decline in fees received based upon asset values due to the recent decline
in the market value of many investment portfolios. For such quarters,
corporate revenue increased $48,000, or 28.6%, due to a $135,000 payment
that we received in connection with the settlement of a trademark dispute,
partially offset by a $28,000 decline in interest income. Additionally,
corporate revenue for the quarter ended March 31, 2000 included $46,200 of
gross revenue related to discontinued operations.
Gross profit for the quarter ended March 31, 2001 compared to the
same quarter of 2000 increased $1,405,000, or 30.4%, from $4,628,000 to
$6,033,000. For such quarters, gross profit as a percentage of revenue
increased to 74.0% from 68.6%. Trust and retirement services gross profit
increased $89,000, or 8.8%, for the quarter ended March 31, 2001 compared to
the corresponding quarter of 2000. For such quarters, mutual fund
administration services gross profit increased $297,000, or 34.6%, due to
the increase in the number of portfolios serviced and the amount of assets
under service. Banking gross profit increased $129,000, or 42.3%, for the
quarter ended March 31, 2001 compared to the first quarter of 2000 due to
the increase in net interest income. For the quarter ended March 31, 2001
compared to the same quarter of 2000, insurance gross profit increased
$1,025,000, or 72.9%, due to the increase in total insurance premiums
written and revenue sharing payments and new adjusting contracts received.
As previously discussed, we experienced increases in both our personal and
commercial business lines. For such quarters, brokerage gross profit
declined $169,000, or 38.5%, principally due to a $67,000 decline in trading
gross profit due to the loss of two client relationships. Additionally,
gross profit declined due to decreased trading activity due to overall
market conditions and due to the termination of our Internet brokerage
trading web site at the end of 2000. Investment advisory gross profit
declined $13,000, or 2.9%, primarily due to a reclassification of certain
expenses to cost of sales and increased labor expenses. For such periods,
corporate gross profit increased $46,000, or 30.4%, due to the reasons
discussed above.
Total expenses for the quarter ended March 31, 2001 were $5,785,000,
or 70.9% of total revenue, compared to $5,631,000, or 83.5% of total
revenue, for the same quarter of 2000. Employee compensation and benefits
expense increased $426,000, or 13.9%, for the quarter ended March 31, 2001
compared to the first quarter of 2000 due to: (i) new personnel hired in
connection with the expansion of our mutual fund administration services
operations, which accounted for $186,000 of such increase, (ii) the hiring
of additional information technology services personnel, which accounted for
$236,000 of such increase, and (iii) additional staffing due to increased
volume of business in our banking, trust and retirement and investment
advisory segments, which accounted for $445,000 of such increase. This
increase was partially offset by a $291,000 reduction in compensation and
benefits expense associated with discontinued operations. Mail and courier
expense declined $37,000, or 24.1%, primarily due to a reduction in the
number of newsletter mailings and our insurance operation switching to bulk
rate mailings, offset by an increase in mail and courier expenses at our
trust and retirement services operation. Telephone expense increased
$54,000, or 39.3%, for the quarter ended March 31, 2001 compared to the
first quarter of 2000 primarily due to the roll-out of our wide-area network
in March 2000, which accounted for $35,000 of the increase. Telephone
expense at our insurance operation was $15,000 higher due to increases in
business volume and long distance rates. For such quarters, occupancy
expense increased $73,000, or 30.7%, primarily due to additional space
leased by our trust and retirement services operation, the relocation of our
banking operation and office space leased for our executive offices in
Lexington, Kentucky. Depreciation and amortization expense increased
$51,000, or 22.2%, for the first quarter of 2001 compared to the first
quarter of 2000 due to the expansion of our trust and retirement services
operation into new office space as well as new equipment purchased for new
personnel at our insurance and fund administration services operations.
Professional fees declined $183,000, or 31.0%, due to a reduction in legal
fees paid during the first quarter of 2001 compared to the first quarter of
2000 offset by a $110,000 increase in appraiser and consulting fees at our
insurance operation due to its increased volume of business. Additionally,
the first quarter of 2000 included a $200,000 consulting fee paid by us. For
such quarters, our provision for bad debt increased $82,000, or 328.8%, due
to a reserve
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taken in 2001 for doubtful receivables generated by our mutual fund
administration operation. Other operating expenses declined $260,000, or
30.1%, due to a $387,000 benefit received by us during the quarter ended
March 31, 2001 in connection with the construction and development of the
VSX marketplace and its corresponding products, with no corresponding
benefit included for the first quarter of 2000.
Net income for the quarter ended March 31, 2001 was $203,000 compared
with a net loss of $1,217,000 for the first quarter of 2000. Gross revenue
increased in the first quarter of 2001 by $1,412,000 with a corresponding
increase in gross profit of $1,405,000 compared to the first quarter of
2000. Partially offsetting improved profits were increased expenses of
$153,000, resulting primarily from higher employee compensation and benefits
expense of $426,000. A $387,000 benefit received in connection with the
development of the VSX marketplace and a decrease in professional fees
partially offset such increase. The prior year also included a $253,000 loss
from discontinued operations. For the quarter ended March 31, 2001, basic
and diluted earnings per share were $0.07 and $0.07, respectively, compared
to a basic and diluted loss per share of $0.42 and $0.41, respectively, for
the first quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. Our primary sources of liquidity historically have been
and continue to be cash flow from operating activities, available borrowing
capacity from capitalized leases and a loan from a regional bank to finance
capital equipment. The net decrease in cash and cash equivalents at March
31, 2001 from December 31, 2000 was $44,801. The net decrease reflected our
sale of bond investments, Federal funds sold, securities sold under
agreements to repurchase and an increase in loans receivable, which was
offset by the increase in customer deposits and a decrease in due from
banks. We received $386,644 from VSX Holdings, LLC during the three months
ended March 31, 2001 in connection with services we provided relating to the
construction and development of the VSX marketplace and its corresponding
products.
With respect to our banking operations, long-term liquidity is a
function of the core deposit base and an adequate capital base. We are
committed to growth of our core deposit base and maintenance of our capital
base. The growth of the deposit base is internally generated through product
pricing and product development. During its first three years of operations,
Unified Banking Company is required to maintain a Tier 1 capital to total
assets ratio of at least 8.0%. As of March 31, 2001, Unified Banking Company
had a ratio of Tier 1 capital to total assets equal to 8.9%.
Short-term liquidity needs arise from continuous fluctuations in
the flow of funds on both sides of the balance sheet resulting from growth
and seasonal and cyclical customer demands. The securities portfolio
provides stable long-term earnings as well as being a primary source of
liquidity. The designation of securities as available-for-sale and held-to-
maturity does not impact the portfolio as a source of liquidity due to
the ability to enter into repurchase agreements using those securities.
We anticipate continued loan demand in our market area. We have utilized,
and expect to continue to utilize, Federal Home Loan Bank borrowings to fund
a portion of future loan growth.
Unified Banking Company experienced net growth in assets of 66.8%
during the three months of 2001, while deposits increased 85.5% during the
same period. We continue to emphasize growth in stable core deposits while
utilizing the Federal Home Loan Bank and Federal funds purchased as
necessary to balance liquidity and cost effectiveness. We closely monitor
our level of liquidity to meet expected future needs.
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CAPITAL RESOURCES. Total stockholders' equity was $14,092,258 at
March 31, 2001 compared to $13,834,466 at year-end 2000. The increase in
total equity was due to our income from operations for the three months
ended March 31, 2001.
The growth of Unified Banking Company will have an effect on our
working capital. It currently is anticipated that as Unified Banking Company
grows, our working capital ratio will become more in line with ratios
traditionally associated with bank holding companies.
We believe that anticipated revenues from operations should be
adequate for the working capital requirements of our existing core
businesses over the next twelve months. In the event that our plans or
assumptions change, or if our resources available to meet unanticipated
changes in business conditions prove to be insufficient to fund operations,
we could be required to seek additional financing prior to that time.
RISK FACTORS
You should carefully consider the risks described below before
making an investment decision. The risks and uncertainties described below
are not the only ones facing our company. Additional risks not presently
known to us or that we currently believe are immaterial also may impair our
business operations. Our business could be harmed by any of these risks. If
any of the following risks actually occur, our business, financial condition
or results of future operations could be materially adversely affected. In
such case, the price of our common stock could decline, and you may lose all
or part of your investment. In assessing these risks, you should refer to
the other information contained in this report, including our consolidated
financial statements and related notes.
NEED FOR ADDITIONAL CAPITAL; RISK RELATING TO ACQUISITIONS. Our
pending and proposed projects have required and will continue to require
substantial capital for investments in and development of such projects.
There can be no assurance that we will be able to raise the capital
necessary to fund our projects. The failure to raise or generate such funds
may require us to delay or abandon some of our planned future expansion or
expenditures, which could have a material adverse effect on our growth.
To expand our markets and take advantage of the consolidation trend
in the financial services industry, our business strategy includes growth
through acquisitions. Although we believe that the operations of the
companies we have acquired since June 1, 1997 are being successfully
integrated with our operations, there can be no assurance that such
integration will continue to be successful, that future acquisitions can be
consummated on acceptable terms or that any acquired companies can be
successfully integrated into our operations. We also are continually
investigating opportunities for acquisitions. In connection with future
acquisitions, we may incur additional indebtedness or may issue additional
equity. Our ability to make future acquisitions may be constrained by our
ability to obtain such additional financing. To the extent we use equity to
finance future acquisitions, there is a risk of dilution to holders of our
common stock.
In addition, acquisitions may involve a number of special risks,
including: initial reductions in our reported operating results; diversion
of management's attention; unanticipated problems or legal liabilities; and
a possible reduction in reported earnings due to amortization of acquired
intangible assets in the event that such acquisitions are made at levels
that exceed the fair market value of net tangible assets. Some or all of
these items could have a material adverse effect on us. There can be no
assurance that businesses acquired in the future will achieve sales and
profitability that justify the investment therein. In addition, to the
extent that consolidation becomes more prevalent in the industry, the prices
for attractive acquisition candidates may increase to unacceptable levels.
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NO ASSURANCE OF FUTURE GROWTH. There can be no assurance that we
will continue to achieve growth in assets or earnings. Our ability to
achieve such growth will be dependent upon numerous factors including, but
not limited to, general economic conditions, our ability to recruit
qualified personnel, our ability to promptly and successfully integrate
acquired businesses with our existing operations and our ability to execute
our business plan. We also have completed various acquisitions in the past
few years that have significantly enhanced our rate of growth. We cannot
provide you assurances that we will continue to sustain this rate of growth
or grow at all.
CHANGES IN THE LOCAL ECONOMIC CONDITIONS COULD ADVERSELY AFFECT
UNIFIED BANKING COMPANY'S LOAN PORTFOLIO. Unified Banking Company's success
depends to a great extent upon the general economic conditions of Fayette
County, Kentucky. Unlike larger banks that are more geographically
diversified, we primarily provide banking and financial services to
customers in Fayette County, Kentucky. Our commercial, real estate and
construction loans, the ability of the borrowers to repay these loans and
the value of the collateral securing these loans are impacted by our local
economic conditions. We cannot assure you that favorable economic conditions
will exist in our market.
ALLOWANCE FOR LOAN LOSSES MAY NOT BE ADEQUATE TO COVER ACTUAL LOAN
LOSSES. As a lender, Unified Banking Company is exposed to the risk that its
customers may be unable to repay their loans according to their terms and
that any collateral securing the payment of their loans may not be
sufficient to assure repayment. Credit losses are inherent in the lending
business and could have a material adverse effect on our consolidated
operating results. Unified Banking Company's credit risk with respect to its
real estate and construction loan portfolio relates principally to the
general creditworthiness of individuals and the value of real estate serving
as security for the repayment of loans. Our credit risk with respect to
Unified Banking Company's commercial and consumer installment loan portfolio
relates principally to the general creditworthiness of businesses and
individuals within its local market.
We make various assumptions and judgments about the collectibility
of Unified Banking Company's loan portfolio and provide an allowance for
potential losses based on a number of factors. If our assumptions are wrong,
the allowance for loan losses may not be sufficient to cover loan losses. We
may have to increase the allowance in the future. Additions to our allowance
for loan losses would decrease our net income.
UNIFIED BANKING COMPANY MAY BE UNABLE TO MANAGE INTEREST RATE
RISKS THAT COULD REDUCE OUR NET INTEREST INCOME. Like other financial
institutions, Unified Banking Company's results of operations are affected
principally by net interest income, which is the difference between interest
earned on loans and investments and interest expense paid on deposits and
other borrowings. We cannot predict or control changes in interest rates.
Regional and local economic conditions and the policies of regulatory
authorities, including monetary policies of the Board of Governors of the
Federal Reserve System, affect interest income and interest expense. While
Unified Banking Company continually takes measures intended to manage the
risks from changes in market interest rates, changes in interest rates can
still have a material adverse effect on our profitability.
In addition, certain assets and liabilities may react in different
degrees to changes in market interest rates. For example, interest rates on
some types of assets and liabilities may fluctuate prior to changes in
broader market interest rates, while rates on other types may lag behind.
Further, some of Unified Banking Company's assets, such as adjustable rate
mortgages, have features, including rate caps, which restrict changes in
their interest rates.
Factors such as inflation, recession, unemployment, money supply,
international disorders, instability in domestic and foreign financial
markets, and other factors beyond our control may affect interest rates.
Changes in market interest rates also will affect the level of voluntary
prepayments on
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loans and the receipt of payments on mortgage-backed securities resulting in
the receipt of proceeds that may be reinvested at a lower rate than the loan
or mortgage-backed security being prepaid. Although Unified Banking Company
pursues an asset-liability management strategy designed to control our risk
from changes in market interest rates, changes in interest rates can still
have a material adverse effect on our profitability.
INSIDERS MAY CONTROL OUR FUTURE OPERATIONS AS A RESULT OF THE
CONCENTRATION OF CONTROL OF OUR COMMON STOCK. Our executive officers and
directors beneficially own approximately 35.1% of our outstanding common
stock. As a result, these insiders may be able to control the election of
our board of directors and thus our direction and future operations, and our
stockholders may lack an effective vote with respect to such matters.
WE ARE SUBJECT TO EXTENSIVE REGULATION. The banking, trust and
securities industries are heavily regulated under both Federal and state
law. These regulations are primarily intended to protect depositors and the
Federal Deposit Insurance Corporation, with respect to banks, and customers,
with respect to trust companies, broker-dealers and investment advisors, not
our creditors or stockholders. We and our subsidiaries also are subject to
the supervision of the Securities and Exchange Commission, the Office of
Thrift Supervision and the Office of the Comptroller of the Currency, in
addition to other regulatory and self-regulatory organizations. Regulations
affecting banks, trust companies and other financial services companies
undergo continuous change, and the ultimate effect of such changes cannot be
predicted. Regulations and laws may be modified at any time, and new
legislation may be enacted that affects us and our subsidiaries. We cannot
assure you that such modifications or new laws will not adversely affect us
or our subsidiaries.
RISKS ASSOCIATED WITH RAPID GROWTH. We have experienced rapid
growth in net revenues and expansion of our operations and anticipate that
further significant expansion will be required to address potential growth
in our customer base and market opportunities. Such growth has placed, and,
if sustained, will continue to place, strain on our management, information
systems, operation and resources. Our ability to manage any future growth
will continue to depend upon the successful expansion of our sales,
marketing, customer support, administrative infrastructure and the ongoing
implementation and improvement of a variety of internal management systems,
procedures and controls. Continued growth also will require us to hire more
personnel, and expand management information systems. Recruiting qualified
personnel is an intensely competitive and time-consuming process. There can
be no assurance that we will be able to attract and retain the necessary
personnel to accomplish our growth strategies or that we will not experience
constraints that will adversely affect our ability to support satisfactorily
our clients and operations. There can be no assurance that we will be able
to attract, manage and retain additional personnel to support any future
growth, if any, or will not experience significant problems with respect to
any infrastructure expansion or the attempted implementation of systems,
procedures and controls. If our management is unable to manage growth
effectively, our business, financial condition and results of operations
could be materially adversely affected.
DEPENDENCE UPON TECHNOLOGY; PROPRIETARY RIGHTS. Our success and
ability to compete is dependent in part upon our technology, although we
believe that our success is more dependent upon our technical expertise than
our proprietary rights. We principally rely upon a combination of copyright,
trademark and trade secret laws and contractual restrictions to protect our
proprietary technology. It may be possible for a third party to copy or
otherwise obtain and use our products or technology without authorization or
to develop similar technology independently, and there can be no assurance
that such measures have been, or will be, adequate to protect our
proprietary technology or that our competitors will not independently
develop technologies that are substantially equivalent or superior to our
technology. We propose to operate a substantial portion of our business over
the Internet, which is subject to a variety of risks. Such risks include,
but are not limited to, the substantial uncertainties that
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exist regarding the system for assigning domain names and the status of
private rules for resolution of disputes regarding rights to domain names.
There can be no assurance that we will continue to be able to employ our
current domain names in the future or that the loss of rights to one or more
domain names will not have a material adverse effect on our business and
results of operations.
Although we do not believe that we infringe the proprietary rights
of any third parties, there can be no assurance that third parties will not
assert such claims against us in the future or that such claims will not be
successful. We could incur substantial costs and diversion of management
resources with respect to the defense of any claims relating to proprietary
rights, which could have a material adverse effect on our business,
financial condition and results of operations. In addition, we may become
obligated under certain agreements to indemnify another party in connection
with infringement by us of the proprietary rights of third parties. In the
event we are required to indemnify parties under these agreements, it could
have a material adverse effect on our business, financial condition and
results of operations. In the event a claim relating to proprietary
technology or information is asserted against us, we may seek licenses to
such intellectual property. There can be no assurance, however, that
licenses could be obtained on commercially reasonable terms, if at all, or
that the terms of any offered licenses would be acceptable to us. The
failure to obtain the necessary licenses or other rights could have a
material adverse effect on our business, financial condition and results of
operations.
RISKS TO PHYSICAL NETWORK; RISKS TO INTEGRITY OF DATA ON NETWORK.
Our operations are partially dependent upon our ability to protect our
network infrastructure against damage from fire, earthquakes, severe
flooding, mudslides, power loss, telecommunications failures and similar
events or to construct networks that are not vulnerable to the effects of
these events. The occurrence of a natural disaster or other unanticipated
problems at our network in the future could cause additional major
interruptions in the services provided by us.
In addition, some networks may experience interruptions in service
as a result of the accidental or intentional actions of Internet users,
current and former employees or others. Unauthorized use of our network
could jeopardize the security of confidential information stored in our
computer systems, which may result in liability to our customers or deter
potential customers.
Our failure to adequately manage service disruptions resulting from
physical damage to our network or breaches of the network's integrity, could
have a material adverse effect on our business, financial condition and
results of operations.
SECURITY RISKS. Despite the implementation of network security
measures by us, such as limiting physical and network access to our routers,
our Internet access systems and information services are vulnerable to
computer viruses, break-ins and similar disruptive problems caused by our
customers or other Internet users. Such problems caused by third parties
could lead to interruption, delays or cessation in service to our customers.
Furthermore, such inappropriate use of the Internet by third parties also
could potentially jeopardize the security of confidential information stored
in the computer systems of our customers and other parties connected to
the Internet, which may deter potential subscribers. Persistent security
problems continue to plague public and private data networks. Recent break-ins
reported in the press and otherwise have reached computers connected to the
Internet at major corporations and Internet access providers and have involved
the theft of information, including incidents in which hackers bypassed
firewalls by posing as trusted computers. Alleviating problems caused by
computer viruses, break-ins or other problems caused by third parties may
require significant expenditures of capital and resources by us, which could
have a material adverse effect on us. Until more comprehensive security
technologies are developed, the security and privacy concerns of existing
and potential customers may inhibit the growth of the Internet service
industry in general and our customer base and revenues in particular.
Moreover, if we experience a breach of network security or privacy, there
can be no assurance
- 20 -
<PAGE>
<PAGE>
that our customers will not assert or threaten claims against us based on or
arising out of such breach, or that any such claims will not be upheld,
which could have a material adverse effect on our business, financial
condition and results of operation.
THERE IS INTENSE COMPETITION FOR INTERNET PRODUCTS AND SERVICES,
ADVERTISING AND SALES OF GOODS AND SERVICES. Competition for Internet
products and services, advertising and electronic commerce is intense. We
expect that competition will continue to intensify. Barriers to entry are
minimal, and competitors can launch new Web sites at a relatively low cost.
Our competitors may develop Internet products and services that are superior
to, or have greater market acceptance than, our solutions. If we are unable
to compete successfully against our competitors, our business, financial
condition and operating results will be adversely affected. Many of our
competitors have greater brand recognition and greater financial, marketing
and other resources than us. This may place us at a disadvantage in
responding to our competitors' pricing strategies, technological advances,
advertising campaigns, strategic partnerships and other initiatives.
COMPETITION. We encounter substantial competition in the businesses
in which we compete. Our principal competitors include mutual funds,
investment advisers, investment counsel firms and financial institutions
such as banks, savings and loan institutions and credit unions. Many of the
institutions with which we compete are larger and have substantially greater
financial resources than us.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The business activities of our company expose us to a variety of
risks. Management of these risks is necessary for the long-term
profitability of our company. We manage these risks through the
establishment of numerous policies, procedures and controls. The most
significant risks that affect us are market risk and credit risk.
Market risk is the risk of loss to us resulting from changes in
interest rates, equity prices or both. We are exposed to market risk since
we, through our subsidiaries, maintain positions in fixed-income and equity
securities. We primarily manage our risk through the establishment of
trading policies and guidelines and through the implementation of control
and review procedures.
Our asset/liability strategy is to minimize the sensitivity of
earnings to changes in interest rates while maintaining an acceptable net
interest margin. Unified Banking Company's asset/liability committee
monitors the interest rate sensitivity of the bank's balance sheet on a
monthly basis. The committee reviews asset and liability repricing in the
context of current and future interest rate scenarios affecting the economic
climate in our market areas.
Our pricing policy is that all earning assets and interest bearing
liabilities be either based on floating rates or have a fixed rate not
exceeding five years. Real estate mortgage loans held by us, while having
long final maturities, are comprised of one-, two- or three-year adjustable
rate loans. The adjustable basis of these loans significantly reduces
interest rate risk.
- 21 -
<PAGE>
<PAGE>
The following table illustrates Unified Banking Company's estimated
static gap with prepayments calculated as of March 31, 2001:
<TABLE>
<CAPTION>
TIME TO MATURITY OR REPRICING
0 TO 1 1 TO 2 2 TO 3 3 TO 6
(DOLLARS IN THOUSANDS) IMMEDIATE MONTHS MONTHS MONTHS MONTHS
--------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS
Federal funds sold ....................... $10,115 $ -- $ -- $ -- $ --
------- ------ ------- ------- ------
Securities
U. S. agencies ......................... -- 591 580 570 1,651
FHLB stock ............................. 100 -- -- -- --
------- ------ ------- ------- ------
Total securities ..................... 100 591 580 570 1,651
------- ------ ------- ------- ------
Loans
Commercial
Fixed ................................ -- 10 209 9 28
Variable ............................. 5,477 -- -- -- --
Secured by deposits .................. 30 -- -- -- --
------- ------ ------- ------- ------
Total commercial ................... 5,507 10 209 9 28
------- ------ ------- ------- ------
Real Estate
Commercial ........................... -- 1,701 11 63 128
------- ------ ------- ------- ------
Residential
Fixed .............................. -- 31 425 311 206
Variable ........................... -- -- 566 -- 1,330
------- ------ ------- ------- ------
Total residential ................ -- 31 991 311 1,536
------- ------ ------- ------- ------
Total real estate ............. -- 1,732 1,002 374 1,664
------- ------ ------- ------- ------
Construction
Fixed ................................ -- -- -- -- --
Variable ............................. 791 -- -- -- --
------- ------ ------- ------- ------
Total construction ............... 791 -- -- -- --
------- ------ ------- ------- ------
Personal
Home equity loans .................... 3,844 -- -- -- --
Installment loans .................... -- 660 87 27 109
Personal open end letters of credit .. 3,103 -- -- -- --
Loans secured by deposits ............ -- -- -- -- 9
------- ------ ------- ------- ------
Total personal ..................... 6,947 660 87 27 118
------- ------ ------- ------- ------
Total loans .............................. 13,245 2,402 1,298 410 1,810
------- ------ ------- ------- ------
TOTAL RATE SENSITIVE ASSETS ............ $23,460 $2,993 $ 1,877 $ 980 $3,461
======= ====== ======= ======= ======
RATE SENSITIVE LIABILITIES
Interest bearing deposits
NOW accounts ........................... $ 657 $ -- $ -- $ -- $ --
------- ------ ------- ------- ------
Money market accounts
Market rate accounts ................. 4,887 -- -- -- --
Business market rate accounts ........ 1,932 -- -- -- --
Special personal MMDA ................ 1,275 -- -- -- --
Special business MMDA ................ 375 -- -- -- --
------- ------ ------- ------- ------
Total money market accounts ........ 8,469 -- -- -- --
------- ------ ------- ------- ------
Savings ................................ 40 -- -- -- --
------- ------ ------- ------- ------
Time deposits
CD's greater than 100K ............... -- 313 200 184 3,677
CD's less than 100K .................. -- 63 148 320 649
------- ------ ------- ------- ------
Total time deposits ................ -- 376 348 504 4,326
------- ------ ------- ------- ------
Individual retirement accounts ....... -- 12 -- -- --
------- ------ ------- ------- ------
Total interest bearing deposits .... 9,166 388 348 504 4,326
------- ------ ------- ------- ------
Borrowed funds (repurchase agreements) ... -- 12 -- -- --
------- ------ ------- ------- ------
TOTAL RATE SENSITIVE LIABILITIES ....... $ 9,166 $ 401 $ 348 $ 505 $4,326
======= ====== ======= ======= ======
<PAGE>
<CAPTION>
TIME TO MATURITY OR REPRICING
GREATER
6 TO 9 9 TO 12 12 TO 48 48 TO 54 THAN 54
(DOLLARS IN THOUSANDS) MONTHS MONTHS MONTHS MONTHS MONTHS TOTALS
------ ------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS
Federal funds sold ....................... $ -- $ -- $ -- $ -- $ -- $10,115
------ ------ ------- ------ ------ -------
Securities
U. S. agencies ......................... 1,565 1,487 16,466 1,531 5,822 30,263
FHLB stock ............................. -- -- -- -- -- 100
------ ------ ------- ------ ------ -------
Total securities ..................... 1,565 1,487 16,466 1,531 5,822 30,363
------ ------ ------- ------ ------ -------
Loans
Commercial
Fixed ................................ 29 29 420 43 76 854
Variable ............................. -- -- -- -- -- 5,477
Secured by deposits .................. -- -- -- -- -- 30
------ ------ ------- ------ ------ -------
Total commercial ................... 29 29 420 43 76 6,361
------ ------ ------- ------ ------ -------
Real Estate
Commercial ........................... 514 34 2,122 1,574 741 6,888
------ ------ ------- ------ ------ -------
Residential
Fixed .............................. 69 69 1,040 127 1,494 3,772
Variable ........................... -- 393 -- -- -- 2,289
------ ------ ------- ------ ------ -------
Total residential ................ 69 462 1,040 127 1,494 6,061
------ ------ ------- ------ ------ -------
Total real estate ............. 583 496 3,162 1,701 2,235 12,949
------ ------ ------- ------ ------ -------
Construction
Fixed ................................ -- -- 134 -- -- 134
Variable ............................. -- -- -- -- -- 791
------ ------ ------- ------ ------ -------
Total construction ............... -- -- 134 -- -- 925
------ ------ ------- ------ ------ -------
Personal
Home equity loans .................... -- -- -- -- -- 3,844
Installment loans .................... 43 36 317 13 -- 1,291
Personal open end letters of credit .. -- -- -- -- -- 3,103
Loans secured by deposits ............ -- 11 16 -- -- 35
------ ------ ------- ------ ------ -------
Total personal ..................... 43 46 333 13 -- 8,274
------ ------ ------- ------ ------ -------
Total loans .............................. 655 572 4,049 1,757 2,311 28,508
------ ------ ------- ------ ------ -------
TOTAL RATE SENSITIVE ASSETS ............ $2,220 $2,058 $20,515 $3,288 $8,133 $68,986
====== ====== ======= ====== ====== =======
RATE SENSITIVE LIABILITIES
Interest bearing deposits
NOW accounts ........................... $ -- $ -- $ -- $ -- $ -- $ 657
------ ------ ------- ------ ------ -------
Money market accounts
Market rate accounts ................. -- -- -- -- -- 4,887
Business market rate accounts ........ -- -- -- -- -- 1,932
Special personal MMDA ................ -- -- -- -- -- 1,275
Special business MMDA ................ -- -- -- -- -- 375
------ ------ ------- ------ ------ -------
Total money market accounts ........ -- -- -- -- -- 8,469
------ ------ ------- ------ ------ -------
Savings ................................ -- -- -- -- -- 40
------ ------ ------- ------ ------ -------
Time deposits
CD's greater than 100K ............... 540 3,295 14,871 100 2,028 25,209
CD's less than 100K .................. 1,543 3,653 10,711 171 3,057 20,317
------ ------ ------- ------ ------ -------
Total time deposits ................ 2,083 6,948 25,582 271 5,085 45,526
------ ------ ------- ------ ------ -------
Individual retirement accounts ....... 30 65 906 338 3,023 4,375
------ ------ ------- ------ ------ -------
Total interest bearing deposits .... 2,113 7,013 26,488 609 8,108 59,067
------ ------ ------- ------ ------ -------
Borrowed funds (repurchase agreements) ... -- -- -- -- -- 12
------ ------ ------- ------ ------ -------
TOTAL RATE SENSITIVE LIABILITIES ....... $2,113 $7,013 $26,489 $ 609 $8,108 $59,078
====== ====== ======= ====== ====== =======
</TABLE>
- 22 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TIME TO MATURITY OR REPRICING
0 TO 1 1 TO 2 2 TO 3 3 TO 6
(DOLLARS IN THOUSANDS) IMMEDIATE MONTHS MONTHS MONTHS MONTHS
--------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
INCREMENTAL GAP REPORT SUMMARY INFORMATION
Total rate sensitive assets ............. $23,460 $ 2,993 $ 1,877 $ 980 $ 3,461
Total rate sensitive liabilities ........ 9,166 401 348 505 4,326
Gap ..................................... 14,294 2,593 1,529 476 (865)
RSA/RSL ................................. 2.56x 7.47x 5.39x 1.94x 0.80x
RSA/assets .............................. 0.33 0.04 0.03 0.01 0.05
RSL/assets .............................. 0.13 0.01 0.00 0.01 0.06
Gap/assets .............................. 20.24% 3.67% 2.17% 0.67% -1.23%
Gap/RSA ................................. 60.93 86.62 81.46 48.52 -25.00
CUMULATIVE GAP REPORT SUMMARY INFORMATION
Total rate sensitive assets ............. $23,460 $26,453 $28,330 $29,311 $32,772
Total rate sensitive liabilities ........ 9,166 9,567 9,915 10,419 14,746
Gap ..................................... 14,294 16,887 18,416 18,891 18,026
RSA/RSL ................................. 2.56x 2.77x 2.86x 2.81x 2.22x
RSA/assets .............................. 0.33 0.37 0.40 0.42 0.46
RSL/assets .............................. 0.13 0.14 0.14 0.15 0.21
Gap/assets .............................. 20.24% 23.91% 26.08% 26.75% 25.53%
Gap/RSA ................................. 60.93 63.84 65.00 64.45 55.00
<CAPTION>
TIME TO MATURITY OR REPRICING
GREATER
6 TO 9 9 TO 12 12 TO 48 48 TO 54 THAN 54
(DOLLARS IN THOUSANDS) MONTHS MONTHS MONTHS MONTHS MONTHS
------ ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
INCREMENTAL GAP REPORT SUMMARY INFORMATION
Total rate sensitive assets ............. $ 2,220 $ 2,058 $20,515 $ 3,288 $ 8,133
Total rate sensitive liabilities ........ 2,113 7,013 26,489 609 8,108
Gap ..................................... 107 (4,955) (5,974) 2,679 25
RSA/RSL ................................. 1.05x 0.29x 0.77x 5.40x 1.00x
RSA/assets .............................. 0.03 0.03 0.29 0.05 0.12
RSL/assets .............................. 0.03 0.10 0.38 0.01 0.11
Gap/assets .............................. 0.15% -7.02% -8.46% 3.79% 0.04%
Gap/RSA ................................. 4.82 -240.71 -29.12 81.48 0.31
CUMULATIVE GAP REPORT SUMMARY INFORMATION
Total rate sensitive assets ............. $34,992 $ 37,050 $57,565 $60,853 $68,986
Total rate sensitive liabilities ........ 16,859 23,872 50,361 50,970 59,078
Gap ..................................... 18,133 13,178 7,204 9,883 9,908
RSA/RSL ................................. 2.08x 1.55x 1.14x 1.19x 1.17x
RSA/assets .............................. 0.50 0.52 0.82 0.86 0.98
RSL/assets .............................. 0.24 0.34 0.71 0.72 0.84
Gap/assets .............................. 25.68% 18.66% 10.20% 14.00% 14.03%
Gap/RSA ................................. 51.82 35.57 12.51 16.24 14.36
</TABLE>
- 23 -
<PAGE>
<PAGE>
We measure the impact of interest rate changes on our income
statement through the use of gap analysis. The gap represents the net
position of assets and liabilities subject to repricing in specified time
periods. During any given time period, if the amount of rate-sensitive
liabilities exceeds the amount of rate-sensitive assets, a company would
generally be considered negatively gapped and would benefit from falling
rates over that period of time. Conversely, a positively gapped company
would generally benefit from rising rates.
We have structured our assets and liabilities to mitigate the risk
of either a rising or falling interest rate environment. Depending upon our
assessment of economic factors such as the magnitude and direction of
projected interest rates over the short and long term, we generally operate
within guidelines set by our asset/liability policy and attempt to maximize
our returns within an acceptable degree of risk.
Interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously. There are other factors that are
difficult to measure and predict that would influence the effect of interest
rate fluctuations on our income statement. For example, a rapid drop in
interest rates might cause our borrowers to repay their loans at a more
rapid pace and certain mortgage-related investments to be prepaid more
quickly than projected. This could mitigate some of the benefits of falling
rates as are expected when negatively gapped. Conversely, a rapid rise in
rates could give us an opportunity to increase our margins and stifle the
rate of repayment on our mortgage-related loans which would increase our
returns.
The following table shows the "rate shock" results of a simulation
model that attempts to measure the effect of rising and falling interest
rates over a two-year horizon in a rapidly changing rate environment.
<TABLE>
<CAPTION>
PERCENTAGE CHANGE IN
BASIS POINT -------------------------------------------------------------
CHANGE IN NET INTEREST INCOME MARKET VALUE OF PORTFOLIO EQUITY
INTEREST RATES PROJECTED CHANGE PROJECTED CHANGE
-------------- -------------------- --------------------------------
<C> <C> <C>
-400 -26.18% -22.81%
-300 -18.74 -11.61
-200 -12.03 -1.14
-100 -6.05 1.37
0 0.00 0.00
100 5.51 -2.63
200 11.54 -5.47
300 17.48 -8.73
400 22.76 -10.90
</TABLE>
We use a sensitivity model that simulated these interest rate
changes on our earning assets and interest-bearing liabilities. This process
allows us to explore the complex relationships among the financial
instruments in various interest rate environments.
The preceding sensitivity analysis is based on numerous assumptions
including: the nature and timing of interest rate levels including the shape
of the yield curve; prepayments on loans and securities; changes in deposit
levels; pricing decisions on loans and deposits; reinvestment/replacement of
asset and liability cash flows; and others. While assumptions are developed
based upon current economic and local market conditions, we cannot make any
assurances as to the predictive nature of these assumptions including how
client preferences or competitor influences might change.
Interest rate exposure is measured by the potential impact on our
income statement of changes in interest rates. We use information from our
gap analysis and rate shock calculations as input to help manage our
exposure to changing interest rates.
- 24 -
<PAGE>
<PAGE>
We use our rate shock information to tell us how much exposure we
have to rapidly changing rates. Based on historical information and our
assessment of future interest rate trends, we do not believe it is likely
that rapidly rising rates would have a significant positive impact on our
results of operations. Conversely, we also believe there is minimal
likelihood that rapidly falling rates would have a significant negative
impact on our results of operations.
We believe that more likely scenarios include gradual changes in
interest rate levels. We continue to monitor our gap and rate shock analyses
to detect changes to our exposure to fluctuating rates. We have the ability
to shorten or lengthen maturities on newly acquired assets, sell investment
securities, or seek funding sources with different maturities in order to
change our asset and liability structure for the purpose of mitigating the
effect of interest rate risk.
- 25 -
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See Exhibit Index attached hereto.
(b) Reports on Form 8-K.
We did not file any Current Reports on Form 8-K during the quarter
ended March 31, 2001.
- 26 -
<PAGE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNIFIED FINANCIAL SERVICES, INC.
(Registrant)
Dated: May 1, 2001 By: /s/ Timothy L. Ashburn
------------------------------------------------
Timothy L. Ashburn, Chairman and Chief Executive
Officer
Dated: May 1, 2001 By: /s/ Thomas G. Napurano
------------------------------------------------
Thomas G. Napurano, Executive Vice President and
Chief Financial Officer
- 27 -
<PAGE>
<PAGE>
EXHIBIT INDEX
Ex. No. Description
------- -----------
11.1 Computations of Earnings per Share.
- 28 -
</TEXT>
</DOCUMENT>