##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  (Mark
One)
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2005ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _______________ to _______________
 Commission file number
 UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 (Exact Name of Registrant as Specified in Its Charter)
 Florida
    
    04-3691059(State or Other Jurisdiction
    
    (I.R.S. Employerof Incorporation or Organization)
    
    Identification No.)1411 Edgewater Drive, Suite 100, Orlando, Florida
    
    32804(Address of Principal Executive Offices)
    
    (Zip Code)
 Registrants Telephone Number, Including Area Code (407) 712-6151
 United Community Bankshares of Florida, Inc.Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.
 þ o
 o þ
 o þ
   Common stock, par value $.01 per share
    
    4,871,908 shares outstanding at November 10, 2005
  CONFORMED COPY




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UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
   
 PagePart I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed
Consolidated Balance Sheets (Unaudited) 
at September 30, 2005 and at December 31, 2004
    
    
    2Condensed Consolidated Statements of Income (Unaudited) 
Three and Nine months ended September 30, 2005 and 2004
    
    
    3Condensed Consolidated Statements of Shareholders Equity (Unaudited) 
Nine months ended September 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited) 
Nine months ended September 30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    6-9Item 2. Managements Discussion and Analysis
    
    
    10-16Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3. Defaults upon Senior Securities
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 5. Other Information
    
    
    18Item 6. Exhibits
    
    
    19SIGNATURES
    
    
    20Ex-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-32.2 Section 906 Certification
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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 
 Part I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 Condensed Consolidated Balance Sheets (Unaudited)
($ in thousands, except per share amounts)
 At
    
    AtSeptember 30,
    
    December 31,2005
    
    2004AssetsCash and due from banks
    
    $
    20,810
    
    
    $
    12,283Interest-earning demand deposits in other banks
    
    
    
    
    
    
    9,857Federal funds sold
    
    
    102,098
    
    
    
    63,831Total cash and cash equivalents
    
    
    122,908
    
    
    
    85,971Securities available for sale
    
    
    156,147
    
    
    
    68,640Securities held to maturity
    
    
    10,711
    
    
    
    Loans, net of allowance for loan losses of $4,202 and $3,077
    
    
    329,752
    
    
    
    241,214Property and equipment, net
    
    
    7,458
    
    
    
    6,863Net deferred tax asset
    
    
    2,292
    
    
    
    1,180Goodwill
    
    
    950
    
    
    
    950Core deposit intangible, net
    
    
    217
    
    
    
    267Other assets
    
    
    2,456
    
    
    
    1,382Total assets
    
    $
    632,891
    
    
    $
    406,467Liabilities and Shareholders EquityLiabilities:Deposits:Noninterest-bearing demand deposits
    
    $
    95,162
    
    
    $
    52,472Savings, NOW and money-market deposits
    
    
    228,327
    
    
    
    166,751Time deposits
    
    
    246,336
    
    
    
    146,419Total deposits
    
    
    569,825
    
    
    
    365,642Borrowings
    
    
    4,409
    
    
    
    6,009Other liabilities
    
    
    1,610
    
    
    
    1,026Total liabilities
    
    
    575,844
    
    
    
    372,677Shareholders Equity:Common stock, $.01 par value, 20 million shares authorized,
4,871,908 and 3,263,406 shares issued and outstanding
    
    
    49
    
    
    
    33Additional paid-in capital
    
    
    54,361
    
    
    
    32,021Retained earnings
    
    
    3,883
    
    
    
    2,003Accumulated other comprehensive loss
    
    
    (1,246
    )
    
    
    (267
    )Total shareholders equity
    
    
    57,047
    
    
    
    33,790Total liabilities and shareholders equity
    
    $
    632,891
    
    
    $
    406,467
 
 2




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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 
 Condensed Consolidated Statements of Income (Unaudited)
($ in thousands, except per share amounts)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Interest income:Loans
    
    $
    5,740
    
    
    $
    3,640
    
    
    $
    14,478
    
    
    $
    10,343Securities
    
    
    1,215
    
    
    
    429
    
    
    
    2,996
    
    
    
    1,161Other
    
    
    1,112
    
    
    
    195
    
    
    
    2,397
    
    
    
    482Total interest income
    
    
    8,067
    
    
    
    4,264
    
    
    
    19,871
    
    
    
    11,986Interest expense:Deposits
    
    
    3,399
    
    
    
    1,510
    
    
    
    8,183
    
    
    
    4,222Borrowings
    
    
    44
    
    
    
    8
    
    
    
    87
    
    
    
    16Total interest expense
    
    
    3,443
    
    
    
    1,518
    
    
    
    8,270
    
    
    
    4,238Net interest income
    
    
    4,624
    
    
    
    2,746
    
    
    
    11,601
    
    
    
    7,748Provision for loan losses
    
    
    485
    
    
    
    106
    
    
    
    1,162
    
    
    
    492Net interest income after provision
for loan losses
    
    
    4,139
    
    
    
    2,640
    
    
    
    10,439
    
    
    
    7,256Noninterest income:Service charges and fees on deposit accounts
    
    
    152
    
    
    
    104
    
    
    
    408
    
    
    
    297Other
    
    
    66
    
    
    
    35
    
    
    
    172
    
    
    
    91Total noninterest income
    
    
    218
    
    
    
    139
    
    
    
    580
    
    
    
    388Noninterest expense:Salaries and employee benefits
    
    
    1,523
    
    
    
    952
    
    
    
    4,182
    
    
    
    2,583Occupancy and equipment
    
    
    578
    
    
    
    332
    
    
    
    1,580
    
    
    
    970Other
    
    
    833
    
    
    
    545
    
    
    
    2,242
    
    
    
    1,728Total noninterest expense
    
    
    2,934
    
    
    
    1,829
    
    
    
    8,004
    
    
    
    5,281Income before income taxes
    
    
    1,423
    
    
    
    950
    
    
    
    3,015
    
    
    
    2,363Income taxes
    
    
    525
    
    
    
    366
    
    
    
    1,135
    
    
    
    913Net income
    
    $
    898
    
    
    $
    584
    
    
    $
    1,880
    
    
    $
    1,450Earnings per share:Basic
    
    $
    .19
    
    
    $
    .18
    
    
    $
    .43
    
    
    $
    .45Diluted
    
    $
    .18
    
    
    $
    .18
    
    
    $
    .42
    
    
    $
    .44Dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
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UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 Condensed Consolidated Statements of Shareholders Equity (Unaudited)
 Nine Months Ended September 30, 2005 and 2004
($ in thousands)
 AccumulatedOtherCommon Stock
    
    Additional
    
    Retained
    
    Comprehensive
    
    TotalNumber of
    
    Par
    
    Paid-In
    
    Earnings
    
    Income
    
    Shareholders'Shares
    
    Value
    
    Capital
    
    (Deficit)
    
    (Loss)
    
    EquityBalance at December 31, 2003
    
    
    3,256,888
    
    
    $
    33
    
    
    $
    31,970
    
    
    $
    (38
    )
    
    $
    (289
    )
    
    $
    31,676Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,450
    
    
    
    
    
    
    
    1,450Other comprehensive income-change in
unrealized loss on securities available
for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121
    
    
    
    121Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,571Proceeds from stock options exercised
    
    
    6,518
    
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    51Balance at September 30, 2004
    
    
    3,263,406
    
    
    $
    33
    
    
    $
    32,021
    
    
    $
    1,412
    
    
    $
    (168
    )
    
    $
    33,298Balance at December 31, 2004
    
    
    3,263,406
    
    
    $
    33
    
    
    $
    32,021
    
    
    $
    2,003
    
    
    $
    (267
    )
    
    $
    33,790Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,880
    
    
    
    
    
    
    
    1,880Other comprehensive loss-change in
unrealized loss on securities available
for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (979
    )
    
    
    (979
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    901Net proceeds from the sale of common stock
under a private placement offering
    
    
    1,537,222
    
    
    
    15
    
    
    
    21,463
    
    
    
    
    
    
    
    
    
    
    
    21,478Proceeds from stock options exercised
    
    
    71,280
    
    
    
    1
    
    
    
    828
    
    
    
    
    
    
    
    
    
    
    
    829Tax benefit from stock options exercised
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    49Balance at September 30, 2005
    
    
    4,871,908
    
    
    $
    49
    
    
    $
    54,361
    
    
    $
    3,883
    
    
    $
    (1,246
    )
    
    $
    57,047
 
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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 Nine Months EndedSeptember 30,2005
    
    2004Cash flows from operating activities:Net income
    
    $
    1,880
    
    
    $
    1,450Adjustments to reconcile net income
to net cash provided by operating activities:Provision for loan losses
    
    
    1,162
    
    
    
    492Depreciation and amortization of property and equipment
    
    
    503
    
    
    
    348Deferred income tax (benefit)
    
    
    (521
    )
    
    
    (196
    )Net amortization of premiums and discounts on securities
    
    
    596
    
    
    
    492Amortization of core deposit intangible
    
    
    50
    
    
    
    50Tax benefit from stock options exercised
    
    
    49
    
    
    
    Net change in period-end balances of:Other assets
    
    
    (1,074
    )
    
    
    (104
    )Other liabilities
    
    
    584
    
    
    
    150Net cash provided by operating activities
    
    
    3,229
    
    
    
    2,682Cash flows from investing activities:Purchase of securities available for sale
    
    
    (106,905
    )
    
    
    (15,994
    )Principal collections, calls and maturities of securities available for sale
    
    
    17,232
    
    
    
    14,729Purchase of securities held to maturity
    
    
    (10,711
    )
    
    
    Net funding of loans
    
    
    (89,700
    )
    
    
    (34,087
    )Purchase of premises and equipment
    
    
    (1,098
    )
    
    
    (1,210
    )Net cash used in investing activities
    
    
    (191,182
    )
    
    
    (36,562
    )Cash flows from financing activities:Net increase in deposits
    
    
    204,183
    
    
    
    46,552Net decrease in borrowings
    
    
    (1,600
    )
    
    
    (3,460
    )Net proceeds from sale of common stock
    
    
    22,307
    
    
    
    51Net cash provided by financing activities
    
    
    224,890
    
    
    
    43,143Net increase in cash and cash equivalents
    
    
    36,937
    
    
    
    9,263Cash and cash equivalents at beginning of period
    
    
    85,971
    
    
    
    60,629Cash and cash equivalents at end of period
    
    $
    122,908
    
    
    $
    69,892Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    8,137
    
    
    $
    4,258Income taxes
    
    $
    1,485
    
    
    $
    1,214Noncash transaction-Accumulated other comprehensive income (loss), net change in
unrealized loss on securities available for sale, net of tax
    
    $
    (979
    )
    
    $
    121
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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 1.
    
    General and Basis of Presentation.United Heritage Bankshares of Florida, Inc. (the Holding
Company) owns 100% of the common stock of United Heritage Bank (the Bank) (together, the
Company), a full service, FDIC-insured commercial-banking institution. The Company provides
a variety of financial services to individuals and commercial customers through its eleven
banking offices located in Orange and Seminole Counties, Florida.In the opinion of the management of the Company, the accompanying condensed consolidated
financial statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position at September 30, 2005 and the results of
operations for the three and nine months ended September 30, 2005 and 2004 and cash flows for
the nine months ended September 30, 2005 and 2004. The results of operations for the three
and nine months ended September 30, 2005, are not necessarily indicative of results that may
be expected for the year ending December 31, 2005.The condensed consolidated financial statements include the accounts of the Holding Company
and the Bank. All significant intercompany accounts and transactions have been eliminated in
consolidation.2.
    
    Loans.The components of loans are summarized as follows (in thousands):
 At
    
    AtSeptember 30,
    
    December 31,2005
    
    2004Real estate  mortgage
    
    $
    165,583
    
    
    $
    133,257Construction and land development
    
    
    101,341
    
    
    
    60,675Commercial, financial and agricultural
    
    
    61,409
    
    
    
    44,720Installment and consumer lines
    
    
    6,133
    
    
    
    5,998Total loans
    
    
    334,494
    
    
    
    244,650Allowance for loan losses
    
    
    (4,202
    )
    
    
    (3,077
    )Deferred loan fees, net
    
    
    (540
    )
    
    
    (359
    )Loans, net
    
    $
    329,752
    
    
    $
    241,214
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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
 3.
    
    Loan Impairment and Loan Losses.An analysis of the change in the allowance for loan losses
follows (in thousands):
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Beginning balance
    
    $
    3,744
    
    
    $
    2,869
    
    
    $
    3,077
    
    
    $
    2,526Provision for loan losses
    
    
    485
    
    
    
    106
    
    
    
    1,162
    
    
    
    492Net loan charge-offs
    
    
    (27
    )
    
    
    (23
    )
    
    
    (37
    )
    
    
    (66
    )Balance at September 30
    
    $
    4,202
    
    
    $
    2,952
    
    
    $
    4,202
    
    
    $
    2,952
 The following summarizes impaired loans (in thousands):
 AtSeptember 30,
    
    December 31,2005
    
    2004Impaired loans with a valuation allowance
    
    $
    44
    
    
    $
    83Impaired loans without a valuation allowance
    
    
    
    
    
    
    Less: Valuation allowance on impaired loans
    
    
    (4
    )
    
    
    (5
    )Total net impaired loans
    
    $
    40
    
    
    $
    78
 The average net investment in impaired loans and interest income recognized and received on impaired loans was as follows (in thousands):
 Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 30,2005
    
    2004
    
    2005
    
    2004Average net investment in impaired loans
    
    $
    52
    
    
    $
    362
    
    
    $
    55
    
    
    $
    359Interest income recognized on impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    1
    
    
    $
    2Interest income received on impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    1
    
    
    $
    2
 Nonaccrual and accruing loans past due 90 days or more follows (in thousands):
 AtSeptember 30,
    
    December 31,2005
    
    2004Nonaccrual loans
    
    $
    44
    
    
    $
    50Accruing loans past due 90 days or more
    
    
    
    
    
    
    44Total
    
    $
    44
    
    
    $
    94
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UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
 4.
    
    Computation of Earnings Per Share.Basic earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed by adding the dilutive effect of any unexercised stock options,
using the treasury stock method to determine dilution.
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Weighted-average common
shares outstanding
    
    
    4,850,115
    
    
    
    3,257,526
    
    
    
    4,391,209
    
    
    
    3,257,102Dilutive shares issuable under
stock option plan
    
    
    79,239
    
    
    
    36,312
    
    
    
    82,988
    
    
    
    36,312Weighted-average common
shares on a diluted basis
    
    
    4,929,354
    
    
    
    3,293,838
    
    
    
    4,474,197
    
    
    
    3,293,414
 5.
    
    Private Placement Offering.On March 2, 2005, the Company sold 1,537,222 shares of its common
stock in a private placement transaction at $14.00 per share. The Company raised $21.5
million after deducting related offering costs.6.
    
    Stock Option Plans.The Company has two stock option plans permitting the granting of stock
options for up to 915,956 shares (after amendment in 2005) of the Companys common stock to
selected officers, employees and directors of the Company.The following is a summary of stock option transactions during the nine-month periods ended
September 30, 2005 and 2004:
 AverageNumber of
    
    ExerciseOptions
    
    PriceOutstanding, December 31, 2003
    
    
    335,992
    
    
    $
    10.62Granted
    
    
    156,412
    
    
    
    12.00Exercised
    
    
    (6,518
    )
    
    
    7.82Outstanding, September 30, 2004
    
    
    485,886
    
    
    $
    11.10Outstanding, December 31, 2004
    
    
    546,716
    
    
    $
    11.41Granted
    
    
    225,374
    
    
    
    14.00Exercised
    
    
    (71,280
    )
    
    
    11.63Outstanding, September 30, 2005
    
    
    700,810
    
    
    $
    12.22
  8




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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
 6.
    
    Stock Option Plans, Continued.Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation,as amended by SFAS No. 148, Accounting for
Stock-Based Compensation Transition and Disclosure(collectively, SFAS 123) encourages all
entities to adopt a fair value based method of accounting for employee stock compensation
plans, whereby compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period. However, it
also allows an entity to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees(APB No. 25), whereby compensation cost is
the excess, if any, of the quoted market price of the stock at the grant date (or other
measurement date) over the amount an employee must pay to acquire the stock. The Company
accounts for its stock option plans under the recognition and measurement principles of APB
No. 25. No stock-based employee compensation cost is reflected in net income as all options
granted under those plans had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect on net income
and income per share if the Company had applied the fair value recognition provisions of SFAS
123 to stock-based employee compensation ($ in thousands, except per share data).
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Weighted-average grant-date fair value per
option of stock options
issued during the period
    
    $
    N/A
    
    
    $
    3.99
    
    
    $
    4.97
    
    
    $
    4.41Net income, as reported
    
    $
    898
    
    
    $
    584
    
    
    $
    1,880
    
    
    $
    1,450Deduct: Total stock-based employee
compensation determined under the
fair value based method for
all awards, net of related tax effect
    
    
    (31
    )
    
    
    (150
    )
    
    
    (344
    )
    
    
    (450
    )Proforma net income
    
    $
    867
    
    
    $
    434
    
    
    $
    1,536
    
    
    $
    1,000Basic income per share, as reported
    
    $
    .19
    
    
    $
    .18
    
    
    $
    .43
    
    
    $
    .45Proforma basic income per share
    
    $
    .18
    
    
    $
    .13
    
    
    $
    .35
    
    
    $
    .31Diluted income per share, as reported
    
    $
    .18
    
    
    $
    .18
    
    
    $
    .42
    
    
    $
    .44Proforma diluted income per share
    
    $
    .18
    
    
    $
    .13
    
    
    $
    .34
    
    
    $
    .30
 In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123-R
(revised 2004), Share-Based Payment. This Statement requires a public entity to measure
the cost of employee services received in exchange for an award of equity instruments,
which includes stock options and warrants, based on the grant-date fair value of the award.
That cost will be recognized over the period during which an employee is required to
provide service in exchange for the award. Public entities will adopt this Statement using
a modified version of prospective application. Under this application, this Statement will
apply to new awards and to awards modified, repurchased, or cancelled after the required
effective date and to awards not yet vested that exist as of the effective date. This
Statement is effective as of the beginning of the first interim or annual reporting period
that begins after December 15, 2005. Management has not yet determined what effect this
Statement will have on the Companys future consolidated financial statements.7.
    
    Reclassifications.Certain amounts in the 2004 condensed consolidated financial statements
have been reclassified to conform to the 2005 presentation.
 9




---



##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 
 Item 2. Managements Discussion and Analysis
 Capital Resources and Commitments
 The Companys principal sources of funds are those generated by the Bank, including net
increases in deposits and borrowings, principal and interest payments on loans, and proceeds
from maturities of investment securities.The Company uses its capital resources principally to fund existing and continuing loan
commitments and to purchase investment securities. Off-balance sheet commitments to extend
credit represent legally binding agreements to lend to customers with fixed expiration dates or
other termination clauses. Since many commitments are expected to expire without being funded,
committed amounts do not necessarily represent future cash requirements.The following summarizes the Companys contractual obligations, including certain on-balance
sheet and off-balance sheet obligations, at September 30, 2005 (in thousands):
 Contractual Obligations
    
    AmountTime deposit maturities
    
    $
    246,336Borrowings
    
    
    4,409Operating leases
    
    
    9,335Loan commitments and unused lines of credit
    
    
    63,856Standby letters of credit
    
    
    4,173Undisbursed construction loans in process
    
    
    47,016Total
    
    $
    375,125
 Management believes that the Company has adequate resources to fund all its commitments, that
substantially all of its existing commitments will be funded within 12 months and, if so
desired, that the Company can adjust the rates and terms on time deposits and other deposit
accounts to retain or obtain new deposits in a changing interest rate environment.
 Regulatory Capital Requirements
 The Company (on a consolidated basis) and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory  and possibly additional discretionary  actions
by regulators that, if undertaken, could have a direct material effect on the Companys
consolidated financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of the Banks assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The capital
amounts and classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
 10




---



##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 Quantitative measures established by regulation to ensure capital adequacy require the Company
and the Bank to maintain minimum amounts and percentages of total and Tier 1 capital to
risk-weighted assets, and of Tier 1 capital to average assets. If such minimum amounts and
percentages are met, the Company and the Bank are considered adequately capitalized. If the
actual amounts exceed the requirements of adequately capitalized, and meet even more
stringent minimum standards, they are considered well capitalized. Management believes as of
September 30, 2005, the Company and the Bank meet all capital adequacy requirements to which
they are subject.The table below shows the total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios of
the Company and the Bank at September 30, 2005 and December 31, 2004, and the minimum required
amounts and percentages ($ in thousands).
 MinimumTo Be WellCapitalized UnderMinimum Capital
    
    Prompt CorrectiveActual
    
    Requirement
    
    Action ProvisionsAmount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %As of September 30, 2005:Total capital to Risk-
Weighted assets:Consolidated
    
    $
    61,328
    
    
    
    15.01
    %
    
    $
    32,690
    
    
    
    8.00
    %
    
    $
    40,863
    
    
    
    10.00
    %Bank
    
    $
    59,986
    
    
    
    14.60
    %
    
    $
    32,866
    
    
    
    8.00
    %
    
    $
    41,083
    
    
    
    10.00
    %Tier I Capital to Risk-
Weighted Assets:Consolidated
    
    $
    57,126
    
    
    
    13.98
    %
    
    $
    16,345
    
    
    
    4.00
    %
    
    $
    24,518
    
    
    
    6.00
    %Bank
    
    $
    55,784
    
    
    
    13.58
    %
    
    $
    16,433
    
    
    
    4.00
    %
    
    $
    24,650
    
    
    
    6.00
    %Tier I Capital
to Average Assets:Consolidated
    
    $
    57,126
    
    
    
    9.37
    %
    
    $
    24,395
    
    
    
    4.00
    %
    
    $
    30,494
    
    
    
    5.00
    %Bank
    
    $
    55,784
    
    
    
    9.15
    %
    
    $
    24,394
    
    
    
    4.00
    %
    
    $
    30,493
    
    
    
    5.00
    %As of December 31, 2004:Total capital to Risk-
Weighted assets:Consolidated
    
    $
    34,746
    
    
    
    12.00
    %
    
    $
    23,159
    
    
    
    8.00
    %
    
    $
    28,949
    
    
    
    10.00
    %Bank
    
    $
    34,393
    
    
    
    11.83
    %
    
    $
    23,258
    
    
    
    8.00
    %
    
    $
    29,072
    
    
    
    10.00
    %Tier I Capital to Risk-
Weighted Assets:Consolidated
    
    $
    31,669
    
    
    
    10.94
    %
    
    $
    11,580
    
    
    
    4.00
    %
    
    $
    17,369
    
    
    
    6.00
    %Bank
    
    $
    31,316
    
    
    
    10.77
    %
    
    $
    11,629
    
    
    
    4.00
    %
    
    $
    17,443
    
    
    
    6.00
    %Tier I Capital
to Average Assets:Consolidated
    
    $
    31,669
    
    
    
    8.12
    %
    
    $
    15,592
    
    
    
    4.00
    %
    
    $
    19,490
    
    
    
    5.00
    %Bank
    
    $
    31,316
    
    
    
    8.04
    %
    
    $
    15,586
    
    
    
    4.00
    %
    
    $
    19,482
    
    
    
    5.00
    %
 11




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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
  Nine Months
    
    
    
    
    
    Nine MonthsEnded
    
    Year Ended
    
    EndedSeptember 30,
    
    December 31,
    
    September 30,2005
    
    2004
    
    2004Average equity as a percentage
of average assets
    
    
    9.40
    %
    
    
    8.81
    %
    
    
    8.95
    %Total equity to total assets at end of period
    
    
    9.01
    %
    
    
    8.31
    %
    
    
    9.02
    %Return on average assets (1)
    
    
    .47
    %
    
    
    .56
    %
    
    
    .55
    %Return on average equity (1)
    
    
    5.04
    %
    
    
    6.38
    %
    
    
    6.12
    %Noninterest expense to average assets (1)
    
    
    2.02
    %
    
    
    2.02
    %
    
    
    1.99
    %Nonperforming loans and foreclosed assets to
total assets at end of period
    
    
    .01
    %
    
    
    .02
    %
    
    
    .10
    %
 
 (1)
    
    Annualized for the nine months ended September 30, 2005 and 2004.  Nine
    
    
    
    
    
    NineMonths Ended
    
    Year Ended
    
    Months EndedSeptember 30,
    
    December 31,
    
    September 30,2005
    
    2004
    
    2004Loans
    
    
    6.91
    %
    
    
    6.46
    %
    
    
    6.43
    %Investment securities
    
    
    3.61
    %
    
    
    3.01
    %
    
    
    2.93
    %Other interest-earning assets
    
    
    2.97
    %
    
    
    1.28
    %
    
    
    1.05
    %All interest-earning assets
    
    
    5.33
    %
    
    
    4.92
    %
    
    
    4.87
    %Savings, NOW and money-market deposits
    
    
    2.13
    %
    
    
    1.61
    %
    
    
    1.57
    %Time deposits
    
    
    3.35
    %
    
    
    2.75
    %
    
    
    2.72
    %All interest-bearing liabilities
    
    
    2.74
    %
    
    
    2.11
    %
    
    
    2.08
    %Interest-rate spread
    
    
    2.59
    %
    
    
    2.81
    %
    
    
    2.79
    %
 Changes in Financial Condition
 
 12




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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 Results of Operations
  Three Months Ended September 30,2005
    
    2004Interest
    
    Average
    
    
    
    
    
    Interest
    
    AverageAverage
    
    and
    
    Yield/
    
    Average
    
    and
    
    Yield/Balance
    
    Dividends
    
    Cost
    
    Balance
    
    Dividends
    
    Cost($ in thousands)Interest-earning assets:Loans
    
    $
    317,113
    
    
    $
    5,740
    
    
    
    7.24
    %
    
    $
    229,422
    
    
    $
    3,640
    
    
    
    6.35
    %Securities
    
    
    130,528
    
    
    
    1,215
    
    
    
    3.72
    %
    
    
    54,602
    
    
    
    429
    
    
    
    3.14
    %Other (1)
    
    
    128,964
    
    
    
    1,112
    
    
    
    3.45
    %
    
    
    56,807
    
    
    
    195
    
    
    
    1.37
    %Total interest-earning assets
    
    
    576,605
    
    
    
    8,067
    
    
    
    5.60
    %
    
    
    340,831
    
    
    
    4,264
    
    
    
    5.00
    %Noninterest-earning assets
    
    
    34,435
    
    
    
    
    
    
    
    
    
    
    
    32,039Total assets
    
    $
    611,040
    
    
    
    
    
    
    
    
    
    
    $
    372,870Interest-bearing liabilities:Savings, NOW and money-market accounts
    
    
    224,364
    
    
    
    1,306
    
    
    
    2.33
    %
    
    
    161,848
    
    
    
    677
    
    
    
    1.67
    %Time deposits
    
    
    234,501
    
    
    
    2,093
    
    
    
    3.57
    %
    
    
    122,353
    
    
    
    833
    
    
    
    2.72
    %Other borrowings (2)
    
    
    5,991
    
    
    
    44
    
    
    
    2.94
    %
    
    
    3,252
    
    
    
    8
    
    
    
    .98
    %Total interest-bearing liabilities
    
    
    464,856
    
    
    
    3,443
    
    
    
    2.96
    %
    
    
    287,453
    
    
    
    1,518
    
    
    
    2.11
    %Noninterest-bearing deposits
    
    
    87,298
    
    
    
    
    
    
    
    
    
    
    
    51,480Noninterest-bearing liabilities
    
    
    3,187
    
    
    
    
    
    
    
    
    
    
    
    1,883Stockholders equity
    
    
    55,699
    
    
    
    
    
    
    
    
    
    
    
    32,054Total liabilities and stockholders equity
    
    $
    611,040
    
    
    
    
    
    
    
    
    
    
    $
    372,870Net interest income
    
    
    
    
    
    $
    4,624
    
    
    
    
    
    
    
    
    
    
    $
    2,746Interest-rate spread (3)
    
    
    
    
    
    
    
    
    
    
    2.64
    %
    
    
    
    
    
    
    
    
    
    
    2.89
    %Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.21
    %
    
    
    
    
    
    
    
    
    
    
    3.22
    %Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    1.24
    
    
    
    
    
    
    
    
    
    
    
    1.19
 
 (1)
    
    Includes interest-earning demand deposits, federal funds sold and Federal Home Loan Bank
stock.(2)
    
    Includes securities sold under agreements to repurchase and federal funds purchased lines of
credit.(3)
    
    Interest-rate spread represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.(4)
    
    Net interest margin is annualized net interest income divided by average interest-earning
assets. 13




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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
  Nine Months Ended September 30,2005
    
    2004Interest
    
    Average
    
    
    
    
    
    Interest
    
    AverageAverage
    
    and
    
    Yield/
    
    Average
    
    and
    
    Yield/Balance
    
    Dividends
    
    Cost
    
    Balance
    
    Dividends
    
    Cost($ in thousands)Interest-earning assets:Loans
    
    $
    279,227
    
    
    $
    14,478
    
    
    
    6.91
    %
    
    $
    214,778
    
    
    $
    10,343
    
    
    
    6.43
    %Securities
    
    
    110,603
    
    
    
    2,996
    
    
    
    3.61
    %
    
    
    52,882
    
    
    
    1,161
    
    
    
    2.93
    %Other (1)
    
    
    107,436
    
    
    
    2,397
    
    
    
    2.97
    %
    
    
    61,423
    
    
    
    482
    
    
    
    1.05
    %Total interest-earning assets
    
    
    497,266
    
    
    
    19,871
    
    
    
    5.33
    %
    
    
    329,083
    
    
    
    11,986
    
    
    
    4.87
    %Noninterest-earning assets
    
    
    32,341
    
    
    
    
    
    
    
    
    
    
    
    24,649Total assets
    
    $
    529,607
    
    
    
    
    
    
    
    
    
    
    $
    353,732Interest-bearing liabilities:Savings, NOW and money-market accounts
    
    
    199,159
    
    
    
    3,176
    
    
    
    2.13
    %
    
    
    146,614
    
    
    
    1,726
    
    
    
    1.57
    %Time deposits
    
    
    199,113
    
    
    
    5,007
    
    
    
    3.35
    %
    
    
    122,703
    
    
    
    2,496
    
    
    
    2.72
    %Other borrowings (2)
    
    
    4,414
    
    
    
    87
    
    
    
    2.63
    %
    
    
    3,210
    
    
    
    16
    
    
    
    .67
    %Total interest-bearing liabilities
    
    
    402,686
    
    
    
    8,270
    
    
    
    2.74
    %
    
    
    272,527
    
    
    
    4,238
    
    
    
    2.08
    %Noninterest-bearing deposits
    
    
    75,238
    
    
    
    
    
    
    
    
    
    
    
    47,556Noninterest-bearing liabilities
    
    
    1,911
    
    
    
    
    
    
    
    
    
    
    
    1,977Stockholders equity
    
    
    49,772
    
    
    
    
    
    
    
    
    
    
    
    31,672Total liabilities and stockholders equity
    
    $
    529,607
    
    
    
    
    
    
    
    
    
    
    $
    353,732Net interest income
    
    
    
    
    
    $
    11,601
    
    
    
    
    
    
    
    
    
    
    $
    7,748Interest-rate spread (3)
    
    
    
    
    
    
    
    
    
    
    2.59
    %
    
    
    
    
    
    
    
    
    
    
    2.79
    %Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.11
    %
    
    
    
    
    
    
    
    
    
    
    3.14
    %Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    1.23
    
    
    
    
    
    
    
    
    
    
    
    1.21
 
 (1)
    
    Includes interest-earning demand deposits, federal funds sold and Federal Home Loan Bank
stock.(2)
    
    Includes securities sold under agreements to repurchase and federal funds purchased lines of
credit.(3)
    
    Interest-rate spread represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.(4)
    
    Net interest margin is annualized net interest income divided by average interest-earning
assets. 14




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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 Comparison of the Three-Month Periods Ended September 30, 2005 and 2004
 General Operating Results.
 Interest Income.
 Interest Expense.
 Provision for Loan Losses.
 Noninterest Income.
 Noninterest Expense.
 Income Taxes.
 15




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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 Comparison of the Nine-Month Periods Ended September 30, 2005 and 2004
 General Operating Results.Net income for the nine-month period ended September 30, 2005 was $1.9
million, or $.43 per basic and $.42 per diluted share, compared to $1.5 million, or $.45 per
basic and $.44 per diluted share, for the comparable period in 2004. The increase in net
income resulted primarily from an increase in net interest income, partially offset by an
increase in noninterest expense. While earnings increased, earnings per share was impacted by
additional capital raised as mentioned on page 12.Interest Income.Interest income increased $7.9 million or 65.8% to $19.9 million for the
nine-month period ended September 30, 2005, when compared to the nine-month period ended
September 30, 2004. The increase was due to an increase in the average balance of
interest-earning assets from $329.1 million for the nine months ended September 30, 2004 to
$497.3 million for the nine months ended September 30, 2005 and an increase in the
weighted-average yield from 4.87% during the 2004 period to 5.33% during the 2005 period.Interest Expense.Interest expense increased $4.0 million or 95.1%, from $4.2 million for the
nine-month period ended September 30, 2004 to $8.3 million for the nine-month period ended
September 30, 2005. The increase was primarily due to an increase in the average cost of
interest-bearing liabilities from 2.08% for the nine months ended September 30, 2004 to 2.74%
or the comparable 2005 period and an increase of $130.2 million or 47.8% in average
interest-bearing liabilities outstanding. Average interest-bearing deposits increased from
$269.3 million outstanding during the nine months ended September 30, 2004 to $398.3 million
outstanding during the comparable period for 2005. Average borrowings increased from $3.2
million during the nine months ended September 30, 2004 to $4.4 million for the comparable
2005 period.Provision for Loan Losses.The provision for loan losses is charged to income to increase the
total loan loss allowance to a level deemed appropriate by management. The provision is based
upon the volume and type of lending conducted by the Company, the Companys charge-off
experience, industry standards, the amount of nonperforming loans, general economic
conditions, particularly as they relate to the Companys market area, and other factors
related to the collectibility of the Companys loan portfolio. The Company recorded provisions
for loan losses for the nine-month periods ended September 30, 2005 and 2004 of $1.2 million
and $492,000, respectively. Net loans charged off for the nine-month periods ended September
30, 2005 and 2004 were $37,000 and $66,000, respectively. The increase is primarily due to the
increase in the loan portfolio balance. Management believes that the allowance for loan
losses, which was $4.2 million or 1.26% of gross loans at September 30, 2005 is adequate.Noninterest Income.Noninterest income increased $192,000 or 49.5% from $388,000 during the 2004
period to $580,000 during the 2005 period. The increase was primarily due to a $111,000
increase in service charges and fees on deposit accounts and fees collected on residential
mortgage referrals.Noninterest Expense.Noninterest expense increased by $2.7 million or 51.6% from $5.3 million for
the nine-month period ended September 30, 2004 to $8.0 million for the nine-month period ended
September 30, 2005. The increase was primarily due to increases of $1.6 million in salaries
and employee benefits and $610,000 in occupancy and equipment expense all related to the
overall growth of the Company.Income Taxes.Income taxes were $1.1 million for the nine-month period ended September 30, 2005
(an effective tax rate of 37.6%) and $913,000 (an effective tax rate of 38.6%) for the
corresponding period in 2004. The effective rate considers tax exempt securities income in the
2005 period, and state income tax of 5.5% in both periods.
 16




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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market risk is the risk of loss from adverse changes in market prices and rates. The Companys
market risk arises primarily from interest-rate risk inherent in its lending, investment and
deposit taking activities. The Company has little or no risk related to trading accounts,
commodities or foreign exchange.Management actively monitors and manages its interest rate risk exposure. The primary objective
in managing interest-rate risk is to limit, within established guidelines, the adverse impact of
changes in interest rates on the Companys net interest income and capital, while adjusting the
Companys asset-liability structure to obtain the maximum yield-cost spread on that structure.
Management relies primarily on its asset-liability structure to control interest rate risk.
However, a sudden and substantial increase in interest rates could adversely impact the Companys
earnings, to the extent that the interest rates borne by assets and liabilities do not change at
the same speed, to the same extent, or on the same basis. There has been no significant change
in the Companys market risk exposure since December 31, 2004 or June 30, 2005.
 
 Item 4. Controls and Procedures
 a.
    
    Evaluation of disclosure controls and procedures. The Company maintains
controls and procedures designed to ensure that information required to be disclosed in the
reports that the Company files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in the rules
and forms of the Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this report, the
Chief Executive and Chief Financial officers of the Company concluded that the Companys
disclosure controls and procedures were adequate.b.
    
    Changes in internal controls. The Company made no significant changes in its
internal controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation of those controls by the Chief Executive and Chief
Financial officers.
 17




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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 
 Part II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 There are no material pending legal proceeding to which United Heritage Bankshares of Florida,
Inc. or any of its subsidiaries is a party or to which any of their property is subject.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Not applicable.
 
 Item 3. Defaults upon Senior Securities
 Not applicable
 
 Item 4. Submission of Matters to a Vote of Security Holders
 Not applicable
 
 Item 5. Other Information
 Not applicable
 18




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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 
 Item 6. Exhibits
 (a)
    
    The following exhibits are filed as part of this report.
 3.1
    
    
    
    Articles of Incorporation of United Community Bankshares of
Florida, Inc. **3.2
    
    
    
    Bylaws of United Community Bankshares of Florida, Inc. ****4.1
    
    
    
    Specimen Stock Certificate of United Community Bankshares of
Florida, Inc. **10.1
    
    
    
    Employment Agreement, dated as of March 15, 2004, between
United Heritage Bank and David G. Powers ***10.2
    
    
    
    United Community Bankshares of Florida, Inc. Directors
Stock Option Plan *10.3
    
    
    
    United Community Bankshares of Florida, Inc.s Officers and
Employees Stock Option Plan *10.4
    
    
    
    Employment Agreement, dated as of March 15, 2004, between
United Heritage Bank and Shirley L. Tyler ***10.5
    
    
    
    Amendment to United Community Bankshares of Florida, Inc.
Directors Stock Option Plan *****10.6
    
    
    
    Amendment to United Community Bankshares of Florida, Inc.
Officers and Employees Stock Option Plan *****14.1
    
    
    
    Code of Ethics *31.1
    
    
    
    Certification of Chief Executive Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act31.2
    
    
    
    Certification of Chief Financial Officer required by Rule
13a-14(a)/15d-14(a) under the Exchange Act32.1
    
    
    
    Certification of Chief Executive Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    Certification of Chief Financial Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 *
    
    Incorporated by reference to the corresponding exhibit number in the Companys Form 10-KSB
filed for the year ended December 31, 2003.**
    
    Incorporated by reference to the corresponding exhibit number in the Companys Form 10-QSB
filed for the quarter ended March 31, 2003.***
    
    Incorporated by reference to the corresponding exhibit number in the Companys Form 10-QSB
filed for the quarter ended March 31, 2004.****
    
    Incorporated by reference to the corresponding exhibit number in the Companys Form 10-QSB
filed for the quarter ended September 30, 2004.*****
    
    Incorporated by reference to the corresponding exhibit number in the Companys Form 10-Q
filed for the quarter ended March 31, 2005. 19




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##### Table of Contents



UNITED HERITAGE BANKSHARES OF FLORIDA, INC.
 
 SIGNATURES
   United Heritage Bankshares of Florida, Inc.By:
    /s/ David G. PowersName:
    David G. Powers, President andChief Executive OfficerBy:
    /s/ Shirley L. TylerName:
    Shirley L. Tyler, Executive VicePresident and Treasurer 20