##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10  QSB (Mark One) X
    
    Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
 For the quarterly period ended September 30, 2004 Transition report under Section 13 or 15(d) of the Exchange Act
 For the transition period from to Commission file number 333- UNITED COMMUNITY BANKSHARES OF FLORIDA, INC.   Florida
    
    04-3691059(State or Other Jurisdiction
    
    (I.R.S. Employerof Incorporation or Organization)
    
    (Identification No.
 1411 Edgewater Drive, Suite 100
Orlando, Florida 32804  
    Check whether the issuer: (1) filed all reports required to be filed by
Section 12,13 or 15(d)
Of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was
Required to file such reports), and (2) has been subject to such filing
requirements for the past 90
Days: YES     X     NO State the number of shares outstanding of each of the issuers classes of common equity, as
of the latest practicable date; Common Stock, par value $.01 per share
    
    3,263,406 Shares(class)
    
    Outstanding at November 2, 2004




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. INDEX  
 PART I.FINANCIAL INFORMATIONItem 1.Financial Statements
    
    PageConsolidated Balance Sheets (unaudited) at September 30, 2004
and December 31, 2003
    
    
    2Consolidated Statements of Operations (unaudited) for the
Nine Months ended and three months ended September 30, 2004 and 2003
    
    
    3Consolidated Statements of Changes in Shareholders Equity
(unaudited) for the Nine Months Ended September 30, 2004 and 2003
    
    
    4Consolidated Statements of Cash Flows (unaudited) for the
Nine Months Ended September 30, 2004 and 2003
    
    
    5Notes to Consolidated Financial Statements (unaudited)
    
    
    6-9Item 2.Managements Discussion and Analysis of Financial Condition
And Results of Operations
    
    
    10-14Item 3.Controls and Procedures
    
    
    15PART II.OTHER INFORMATIONItem 4.Submission of Matters to a Vote of Security Holders
    
    
    15Item 6.Exhibits and Reports on Form 8-K
    
    
    15SIGNATURES
    
    
    16Ex-31.1: Section 302 Certification of President and CEOEx-31.2: Section 302 Certification of TreasurerEx-32.1: Section 906 Certification of President and CEOEx-32.2: Section 906 Certification of Treasurer
  1




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##### Table of Contents



PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements 
 UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. Consolidated Balance Sheets
(Unaudited) September 30,
    
    December 31,2004
    
    2003($ in thousands, except share amounts)AssetsCash and due from banks
    
    $
    24,511
    
    
    $
    11,009Interest-bearing demand deposits in other banks
    
    
    9,819
    
    
    
    9,694Federal funds sold
    
    
    35,562
    
    
    
    39,926Total cash and cash equivalents
    
    
    69,892
    
    
    
    60,629Securities available for sale
    
    
    57,328
    
    
    
    56,386Loans, net of allowance for loan losses of $2,952 in 2004 and
$2,526 in 2003
    
    
    232,074
    
    
    
    198,480Premises and equipment, net
    
    
    6,272
    
    
    
    5,410Federal Home Loan Bank stock, at cost
    
    
    
    
    
    
    106Accrued interest receivable
    
    
    1,016
    
    
    
    991Deferred tax assets
    
    
    1,097
    
    
    
    974Other Assets
    
    
    1,509
    
    
    
    1,348Total Assets
    
    $
    369,188
    
    
    $
    324,324Liabilities and Shareholders EquityLiabilities:Noninterest-bearing demand deposits
    
    $
    54,491
    
    
    $
    42,348Savings and NOW deposits
    
    
    34,115
    
    
    
    30,033Money-market deposits
    
    
    121,795
    
    
    
    89,970Time deposits
    
    
    122,723
    
    
    
    124,221Total Deposits
    
    
    333,124
    
    
    
    286,572Other liabilities
    
    
    1,052
    
    
    
    902Other Borrowings
    
    
    1,714
    
    
    
    5,174Total Liabilities
    
    
    335,890
    
    
    
    292,648Shareholders Equity:Preferred stock
    
    
    
    
    
    
    Common stock, $.01 par value; 20 million shares authorized;
    
    
    33
    
    
    
    333,263,406 and 3,256,888 shares issued and outstandingAdditional paid-in capital
    
    
    32,021
    
    
    
    31,970Retained Earnings (deficit)
    
    
    1,412
    
    
    
    (38
    )Accumulated other comprehensive income (loss)
    
    
    (168
    )
    
    
    (289
    )Total Shareholders equity
    
    
    33,298
    
    
    
    31,676Total liabilities and Shareholders equity
    
    $
    369,188
    
    
    $
    324,324
 2




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##### Table of Contents



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC.
Consolidated Statements of Operations
(Unaudited) Nine Months Ended
    
    3rd QuarterSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003($ in thousands, except share amounts)
    
    ($ in thousands, except share amounts)Interest income:Loans
    
    $
    10,343
    
    
    $
    8,452
    
    
    $
    3,640
    
    
    $
    2,980Securities
    
    
    1,161
    
    
    
    951
    
    
    
    429
    
    
    
    287Other interest-earning assets
    
    
    482
    
    
    
    457
    
    
    
    195
    
    
    
    115Total interest income
    
    
    11,986
    
    
    
    9,860
    
    
    
    4,264
    
    
    
    3,382Interest expense:Deposits
    
    
    4,222
    
    
    
    4,245
    
    
    
    1,510
    
    
    
    1,408Other borrowings
    
    
    16
    
    
    
    5
    
    
    
    8
    
    
    
    2Total interest expense
    
    
    4,238
    
    
    
    4,250
    
    
    
    1,518
    
    
    
    1,410Net interest income
    
    
    7,748
    
    
    
    5,610
    
    
    
    2,746
    
    
    
    1,972Provision for loan losses
    
    
    492
    
    
    
    412
    
    
    
    106
    
    
    
    190Net interest income after provision for
loan losses
    
    
    7,256
    
    
    
    5,198
    
    
    
    2,640
    
    
    
    1,782Noninterest income:Service charges and fees
    
    
    383
    
    
    
    377
    
    
    
    139
    
    
    
    128Gain on sale of Other Real Estate
    
    
    5
    
    
    
    28
    
    
    
    
    
    
    
    Gain on sale of securities available for sale
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    Total noninterest income
    
    
    388
    
    
    
    410
    
    
    
    139
    
    
    
    128Noninterest expense:Salaries and employee benefits
    
    
    2,583
    
    
    
    2,211
    
    
    
    952
    
    
    
    752Occupancy expense
    
    
    970
    
    
    
    504
    
    
    
    332
    
    
    
    179Other
    
    
    1,728
    
    
    
    1,899
    
    
    
    545
    
    
    
    585Total noninterest expense
    
    
    5,281
    
    
    
    4,614
    
    
    
    1,829
    
    
    
    1,516Income before income taxes
    
    
    2,363
    
    
    
    994
    
    
    
    950
    
    
    
    394Income taxes
    
    
    913
    
    
    
    381
    
    
    
    366
    
    
    
    136Net income
    
    $
    1,450
    
    
    $
    613
    
    
    $
    584
    
    
    $
    258Basic earnings per share
    
    $
    0.45
    
    
    $
    0.20
    
    
    $
    0.18
    
    
    $
    0.08Diluted earnings per share
    
    $
    0.44
    
    
    $
    0.19
    
    
    $
    0.18
    
    
    $
    0.08Dividends per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC.
Consolidated Statements of Changes in Shareholders Equity
(Unaudited)
(In thousands) AccumulatedAdditional
    
    
    
    
    
    Other
    
    TotalCommon
    
    Paid-in
    
    Retained Earnings
    
    Comprehensive
    
    Shareholders'Stock
    
    Capital
    
    (Deficit)
    
    Income (Loss)
    
    EquityBalance December 31, 2002
    
    $
    20
    
    
    $
    19,980
    
    
    $
    (919
    )
    
    $
    387
    
    
    $
    19,468Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    613
    
    
    
    
    
    
    
    613Net change in unrealized
gain on securities available
for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (803
    )
    
    
    (803
    )Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (190
    )Issuance of common shares in
acquisition
    
    
    11
    
    
    
    9,742
    
    
    
    
    
    
    
    
    
    
    
    9,753Issuance of Common Shares
in Employee/Director Offering
    
    
    2
    
    
    
    2,248
    
    
    
    
    
    
    
    
    
    
    
    2,250Balance September 30, 2003
    
    $
    33
    
    
    $
    31,970
    
    
    $
    (306
    )
    
    $
    (416
    )
    
    $
    31,281Balance December 31, 2003
    
    $
    33
    
    
    $
    31,970
    
    
    $
    (38
    )
    
    $
    (289
    )
    
    $
    31,676Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    1,450
    
    
    
    
    
    
    
    1,450Net change in unrealized
loss on securities available
for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121
    
    
    
    121Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,571Issuance of Common Shares
for Employee Options
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    51Balance September 30, 2004
    
    $
    33
    
    
    $
    32,021
    
    
    $
    1,412
    
    
    $
    (168
    )
    
    $
    33,298
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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC.
Consolidated Statements of Cash Flows
(Unaudited) Nine Months EndedSeptember 30,2004
    
    2003($ in thousands)Cash flows from operating activities:Net Income
    
    $
    1,450
    
    
    $
    613Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    425
    
    
    
    368Provision for loan loss
    
    
    492
    
    
    
    412Net amortization of securities available for sale
    
    
    492
    
    
    
    912Deferred income taxes
    
    
    (196
    )
    
    
    Gain on sale of securities available for sale
    
    
    
    
    
    
    (5
    )Changes in balances of:Interest Receivable
    
    
    (25
    )
    
    
    (67
    )Interest Payable
    
    
    (20
    )
    
    
    (316
    )Other accounts  net
    
    
    64
    
    
    
    (172
    )Net cash provided by operating activities
    
    
    2,682
    
    
    
    1,745Cash flows from investing activities:Purchase of securities available for sale
    
    
    (15,994
    )
    
    
    (55,698
    )Sales and calls of securities available for sale
    
    
    106
    
    
    
    4,243Repayment of securities available for sale
    
    
    14,623
    
    
    
    28,018Net increase in loans
    
    
    (34,087
    )
    
    
    (26,080
    )Purchase of premises and equipment
    
    
    (1,210
    )
    
    
    (78
    )Net cash used in investing activities
    
    
    (36,562
    )
    
    
    (49,595
    )Cash flows from financing activities:Net increase in deposits
    
    
    46,552
    
    
    
    53,448Net increase (decrease) in other borrowings
    
    
    (3,460
    )
    
    
    1,126Sale of Common Stock
    
    
    51
    
    
    
    2,250Net cash provided by financing activities
    
    
    43,143
    
    
    
    56,824Net increase in cash and cash equivalents
    
    
    9,263
    
    
    
    8,974Cash and cash equivalents at beginning of period
    
    
    60,629
    
    
    
    24,566Cash and cash equivalents acquired in acquisition
    
    $
    
    
    
    
    25,593Cash and cash equivalents at end of period
    
    $
    69,892
    
    
    $
    59,133Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    4,258
    
    
    $
    4,566Cash paid during the period for income tax
    
    $
    1,214
    
    
    $
    536
 5




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. Notes to Consolidated Financial Statements (unaudited)  (1)
    
    Description of Business and Consolidation PolicyUnited Community Bankshares of Florida, Inc. (the Holding Company) was
incorporated as a
Florida Corporation on April 15, 2002. On January 13, 2003, the Holding
Company acquired
100% of the outstanding shares of United Heritage Bank and Community United
Bank (the
Banks) (collectively, the Company) pursuant to approval by the Federal
Reserve to acquire the
Banks through an exchange of Holding Company common shares for the
outstanding shares in
the Banks. On March 26, 2004, Community United Bank was merged into
United Heritage Bank, changing the holding company status from that of a
multi-bank holding company to a one-bank holding company.The Holding Companys principal business is the ownership and operation of
the Bank. The Bank
is incorporated under the laws of the State of Florida and is a Florida
banking corporation. The
Bank provides a range of community banking services to businesses and
individuals through
its seven banking offices throughout Central Florida. The Banks deposits
are insured by the
FDIC to the extent provided by law.The accompanying consolidated financial statements include the accounts of
the
Holding Company and the Bank. All significant intercompany accounts have
been eliminated in
consolidation.(2)
    
    Basis of PresentationThe accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and Item 310 (b) of
Regulation S-B of the Securities and Exchange Commission. 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 nine month period ending September 30, 2004 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2004.The preparation of financial statements in conformity with generally
accepted accounting principles requires that we make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of income and expense during the reporting periods. Such
estimates are subject to change in the future as additional information becomes
available or previously existing circumstances are modified.These financial statements should be read in conjunction with the
financial statements and notes thereto included in our Annual Report on Form
10-KSB for the year ended December 31, 2003. 6




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. Notes to Consolidated Financial Statements (unaudited), Continued  (3)
    
    LoansLoans at September 30, 2004 and December 31, 2003 are summarized as follows: September 30,
    
    December 31,2004
    
    2003(In thousands)Commercial
    
    $
    41,653
    
    
    $
    42,279Real Estate
    
    
    129,557
    
    
    
    119,539Construction and Land Development
    
    
    58,446
    
    
    
    31,934Installment and Consumer
    
    
    5,370
    
    
    
    6,754$
    235,026
    
    
    $
    201,006
  The related allowance for loan losses amounted to $2,951,592 and
$2,526,018 at September 30, 2004 and December 31, 2003, respectively.Changes in the allowance during the nine months ending September 30, 2004
and 2003 were as follows: Nine Month Period EndingSeptember 30,
    
    September 30,2004
    
    2003(In thousands)Balance beginning of period
    
    $
    2,526
    
    
    $
    1,902Provision for possible loan losses
    
    
    492
    
    
    
    412Net charge-offs
    
    
    (66
    )
    
    
    (143
    )Balance end of period
    
    $
    2,952
    
    
    $
    2,171
  At September 30, 2004, the above loans included mortgage loans with
balances of $361,770 on which the accrual of interest had been discontinued.
Management believes that any losses on these loans will be minimal and that
such losses have been fully considered in the Banks allowance for loan losses
at September 30, 2004.(4)
    
    Securities Available for SaleThe Banks investment securities portfolio consists entirely of securities
available for sale. These securities are carried at their estimated fair
value, as adjusted through the equity section at each month-end.As of September 30, 2004, the amortized cost and estimated fair values
were as follows: Available for SaleAmortized
    
    EstimatedCost
    
    Fair Value(In Thousands)U.S. Government Agencies
    
    $
    3,546
    
    
    $
    3,542Mortgage  Backed & CMOs
    
    
    54,051
    
    
    
    53,786$
    57,597
    
    
    $
    57,328
 7




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. Notes to Consolidated Financial Statements (unaudited), Continued  (4)
    
    Securities Available for Sale (continued)The mortgage-backed securities typically have stated maturities ranging
from 15 to 29 years. For the Bank, however, investments in these instruments
are normally limited to those pools having expected average lives not in excess
of 6 years. At September 30, 2004, the expected average life of these
investments is 5.4 years.Certain of the Banks investment securities are pledged as collateral
under the Banks repurchase agreements. These borrowings amounted to
approximately $1.7 million at September 30, 2004.(5)
    
    Earnings per ShareBasic earnings per share have been computed on the basis of the weighted
average
number of shares of common stock outstanding during the periods.
Additional shares issuable under the stock option plans (using the
treasury stock method) have been added to the weighted average shares for
purposes of computing diluted earnings per share, as follows: Nine months endingSeptember 2004
    
    September 2003Weighted average shares outstanding
    
    
    3,257,10
    
    
    
    23,133,849Additional shares issuable under the stock option plans
    
    
    36,312
    
    
    
    32,347Weighted average shares for diluted purposes
    
    
    3,293,41
    
    
    
    43,166,196
 Three months endingSeptember 2004
    
    September 2003Weighted average shares outstanding
    
    
    3,257,526
    
    
    
    3,256,888Additional shares issuable under the stock option plans
    
    
    36,312
    
    
    
    32,347Weighted average shares for diluted purposes
    
    
    3,293,414
    
    
    
    3,289,235
  (6)
    
    Stock OptionsThe Company has two stock option plans which permit the granting of stock
options to its directors and to its employees. Options outstanding at
September 30, 2004 and December 31, 2003, and the activity for the nine months
ending September 30, 2004, are as follows: Employee Plan
    
    Director PlanNumber Per Share
    
    Number Per ShareBalance as of December 31, 2003
    
    
    194,080
    
    
    $
    9.61
    
    
    
    141,912
    
    
    $
    12.00Options granted
    
    
    14,500
    
    
    $
    12.00
    
    
    
    141,912
    
    
    
    Options exercised
    
    
    (6,518
    )
    
    
    7.82
    
    
    
    
    
    
    
    Balance as of September 30, 2004
    
    
    202,062
    
    
    $
    9.84
    
    
    
    283,824
    
    
    $
    12.00
  As permitted by applicable accounting principles, management has elected
to disclose rather than to actually record the estimated compensatory effect of
stock options granted to employees and to directors. The pro forma effect of
these options has been estimated by use of the Black-Sholes option pricing
model, assuming no volatility or dividends, and an average life equal generally
to the 10 year term. 8




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. Notes to Consolidated Financial Statements (unaudited), Continued  (6)
    
    Stock Options (continued)Had the effect of the above options been recorded, the estimated effect
on compensation and income would have been as follows: Nine months ending
    
    Three months endingSeptember
    
    September2004
    
    2003
    
    2004
    
    2003($in thousands, except share amounts)Compensation as recorded
    
    $
    2,583
    
    
    $
    2,211
    
    
    $
    952
    
    
    $
    752Pro forma effect of options
    
    
    450
    
    
    
    43
    
    
    
    150
    
    
    
    14Pro forma compensation
    
    $
    3,033
    
    
    $
    2,254
    
    
    $
    1,102
    
    
    $
    766Net Income as reported
    
    $
    1,450
    
    
    $
    613
    
    
    $
    584
    
    
    $
    258Pro forma effect of options
    
    
    (450
    )
    
    
    (43
    )
    
    
    (150
    )
    
    
    (14
    )Pro forma net income
    
    $
    1,000
    
    
    $
    570
    
    
    $
    434
    
    
    $
    244Basic earnings per share
    
    $
    .45
    
    
    $
    .20
    
    
    $
    .18
    
    
    $
    .08Pro forma effect of options
    
    
    (.14
    )
    
    
    (.02
    )
    
    
    (.05
    )
    
    
    (.01
    )Pro forma basic EPS
    
    $
    .31
    
    
    $
    .18
    
    
    $
    .13
    
    
    $
    .07Diluted earnings per share
    
    $
    .44
    
    
    $
    .18
    
    
    $
    .18
    
    
    
    $.08Pro forma effect of options
    
    
    (.14
    )
    
    
    
    
    
    
    (.05
    )
    
    
    (.01
    )Pro forma diluted EPS
    
    $
    .30
    
    
    $
    .18
    
    
    $
    .13
    
    
    $
    .07
 The Financial Accounting Standards Board is currently considering
requiring the expensing of stock options, deleting the current alternative of
disclosure rather than recordation. The expected effective date of this
requirement for the Bank is 2006. Based on existing stock options outstanding,
the implementation of the new standard is not expected to have a significant
impact on the Banks earnings in 2006 and the subsequent years... However, the
new standard may cause the Bank, and other companies, to evaluate and implement
other methods of rewarding and retaining key personnel in future periods. 9




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policy The accounting and financial reporting policies of Bank and the Holding Company
conform to accounting principles generally accepted in the United States of
America and to general practices within the banking industry. The Company has
determined that its policy regarding the determination of its allowance for
loan losses is a critical accounting policy in that it requires significant
judgments and involves complex estimates and the application of the policy has
a significant impact on the Companys financial statements. The allowance for loan losses is an estimate of the losses that may be
sustained in the Banks portfolio. The allowance has two basic components: (1)
specific loss estimates for individually classified and impaired loans, and
(2) general loss estimates on loans for which no impairment has been identified
and large groups of smaller balance homogeneous loans. Specific loss estimates
on individual loans include subjective evaluations related to secondary sources
of repayment for the loan which are principally collateral liquidation. The
general loss allocations use historical loss ratio experience which may not be
indicative of the actual losses present in the loan portfolio at a given point
in time. While the basic methodology of the Banks loan loss allowance estimation
process has not changed, management continuously re-evaluates the use of
historical loss factors, national and local economic trends, credit
concentrations and other relevant factors in determining the adequacy of the
allowance for loan loss. The estimation process associated with the allowance for loan losses can have
significant effects in the estimated loan loss expense of a given period.
Generally, the allowance for loan losses increases as the outstanding balance
of loans increase or the level of classified or impaired loans increases.
Loans or portions of loans that are deemed uncollectible are charged against
and reduce the allowance. Financial Condition Management continuously monitors the financial condition of the Bank and the
Holding Company in order to maintain sufficient capital to support their
respective operations. Significant items affecting the Companys financial
condition are discussed below. Asset Quality A major key to long-term earnings growth is the maintenance of a high-quality
loan portfolio. The Companys directive in this regard is carried out through
its policies and procedures for extending credit to the Banks customers. The
goal of these policies and procedures is to provide a sound basis for new
credit extensions and an early recognition of problem assets to allow the most
flexibility in their timely disposition. Management has identified $361,770 or .16% of the total loan portfolio as
non-performing assets at
September 30, 2004. Additional reserves of $8,897 have been allocated for the
non-performing loans. While management does not anticipate any significant
losses on these non-performing loans, there can be no assurance losses in
excess of the specific allowance will not occur. Additions to the allowance
for loan losses are made periodically to maintain the allowance at an
appropriate level based upon managements analysis of potential risk in the
loan portfolio. The amount of the loan loss provision will generally be
determined by an evaluation of the level of loans outstanding, the level of
non-performing loans, historical loan loss experience, delinquency trends, the
amount of actual losses charged to the reserve in a given period, and
assessment of present and anticipated economic conditions. 10




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##### Table of Contents



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity The Companys primary sources of cash during the nine months ended September
30, 2004 were from net deposit inflows of $46,552,000 and $14,623,000 in
principal and interest payments on mortgage-backed securities. Cash was
primarily used to originate loans, net of principal repayments, totaling
$34,087,000 and to increase liquidity reserves by $9,263,000. At September 30,
2004, the Company had unused commitments with an original maturity exceeding
one year of $23,773,000. At September 30, 2004, the Bank exceeded its
regulatory liquidity requirements. Capital Resources The Company is required to maintain certain consolidated regulatory capital
ratios. The following is a summary at September 30, 2004, December 31,2003 and
September 30, 2003 of the consolidated regulatory capital requirements for the
entities to remain well capitalized, compared to actual capital on a percentage
basis: RegulatoryRequirement forSeptember
    
    December
    
    September
    
    Well capitalized2004
    
    2003
    
    2003
    
    EntitiesConsolidatedTotal capital to risk-weighted assets
    
    
    12.50
    %
    
    
    13.95
    %
    
    
    14.64
    %
    
    
    10.00
    %Tier 1 capital to risk-weighted assets
    
    
    11.42
    %
    
    
    12.86
    %
    
    
    13.63
    %
    
    
    6.00
    %Tier 1 capital to total assets  leverage ratio
    
    
    8.41
    %
    
    
    9.32
    %
    
    
    9.54
    %
    
    
    5.00
    %
 Selected Ratios The following ratios are presented for the dates and periods indicated: Nine Months Ended
    
    Year Ended
    
    Nine Months EndedSeptember
    
    December
    
    September30, 2004
    
    31, 2003
    
    30, 2003Average equity as a percentage of Average Assets
    
    
    8.95
    %
    
    
    10.34
    %
    
    
    10.35
    %Equity to total assets at end of period
    
    
    9.02
    %
    
    
    9.77
    %
    
    
    9.97
    %Return on average assets (1)
    
    
    0.55
    %
    
    
    0.29
    %
    
    
    0.28
    %Return on average equity (1)
    
    
    6.12
    %
    
    
    2.85
    %
    
    
    2.71
    %Nonperforming loans and foreclosed real estate as
    
    
    0.10
    %
    
    
    0.15
    %
    
    
    0.23
    %a percentage of total assets at end of period
 (1) Annualized for the nine months ended September 30. 11




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##### Table of Contents



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC.  Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued) Results of Operations General. Net income for the nine months ended September 30, 2004
was $1,450,000 or $.45 per share compared to $613,000 or $.20 per share
for the nine months ended September 30, 2003. The increase in the
Companys earnings was primarily due to an increase in net interest
income, partially offset by an increase in noninterest expenses and the
loan loss provision. The results of operations for the nine months ended
September 30, 2004 are not necessarily indicative of the results to be
expected for the year ending December 31, 2004. Net income for the 3rd
quarter improved over the 2nd quarter of 2004 by $117,000 and improved by
$326,000 over the same period last year. The merger of Community United Bank on March 26, 2004 into United
Heritage Bank accounted for nonrecurring expenses of approximately
$123,000 in conversion and other merger related costs during the first
quarter of 2004. Other expenses also increased for the quarter ending
September 30, 2004 due to the normal growth of the Bank. Interest Income and Expense. Interest income increased by
$2,126,000, from $9,860,000 for the nine months ended September 30, 2003
to $11,986,000 for the nine months ended September 30, 2004. Interest
income on loans increased $1,891,000 primarily due to an increase in the
average loan portfolio balance from $166 million for the nine months
ended September 30, 2003 to $215 million for the comparable period in
2004. This was partially offset by a decrease in the weighted-average
yield on loans from 6.82% in 2003 to 6.43% in 2004. Interest on
securities increased $210,000 primarily due to an increase in the
weighted average yield from 2.33 % in 2003 to 2.93% in 2004. Interest
income on other interest-earning assets increased $25,000 due to a
substantial increase in average other earning assets from $53,310,000 in
2003 to $61,423,000 in 2004. This was partially offset by a decrease in
the weighted average yield from 1.15% in 2003 to 1.05% in 2004. Interest expense on interest-bearing liabilities decreased to $4,238,000
for the nine months ended September 30, 2004 from $4,250,000 for the nine
months ended September 30, 2003. Interest expense on interest-bearing
liabilities decreased due to a decrease in the weighted average rate paid
from 2.47% in 2003 to 2.08% in 2004, partially offset by an increase in
average interest-bearing liabilities of $42,907,000. Net interest income for the nine months ended September 30, 2004
increased $2,138,000 over the same period ended September 30, 2003. Net
interest income for the quarter ending September 30, 2004 increased
$774,000 over the same quarter in 2003. This increase, offset by a
$313,000 increase in non-interest expenses during the third quarter of
2004 compared to 2003, was the largest contributor to the $566,000
increase in pre-tax income for the third quarter 2004. The following table sets forth, for the periods indicated, information
regarding (I) the total dollar amount of interest income for the Company
from interest-earning assets and the resultant average yields; (II) the
total dollar amount of interest expense on interest-bearing liabilities
and the resultant average cost; (III) net interest income; (V) net
interest margin. 12




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##### Table of Contents



Nine Months Ended September 30,Results of Operations (Continued)
    
    2004
    
    2003Interest
    
    Average
    
    
    
    
    
    Interest
    
    AverageAverage
    
    and
    
    Yield/
    
    Average
    
    and
    
    Yield/Balance
    
    Dividends
    
    Rate
    
    Balance
    
    Dividends
    
    Rate(in thousands)
    
    
    
    
    
    (in thousands)Interest-earning assets;Loans
    
    $
    214,778
    
    
    
    10,343
    
    
    
    6.43
    %
    
    $
    165,795
    
    
    
    8,452
    
    
    
    6.82
    %Securities
    
    
    52,882
    
    
    
    1,161
    
    
    
    2.93
    %
    
    
    54,484
    
    
    
    951
    
    
    
    2.33
    %Other interest-earning assets (1)
    
    
    61,423
    
    
    
    482
    
    
    
    1.05
    %
    
    
    53,310
    
    
    
    457
    
    
    
    1.15
    %Total interest-earning assets
    
    
    329,083
    
    
    
    11,986
    
    
    
    4.87
    %
    
    
    273,589
    
    
    
    9,860
    
    
    
    4.82
    %Noninterest-earning assets
    
    
    24,649
    
    
    
    
    
    
    
    
    
    
    
    18,605Total Assets
    
    $
    353,732
    
    
    
    
    
    
    
    
    
    
    $
    292,194Interest-bearing liabilities:Savings, NOW, money market
deposit accounts
    
    
    146,614
    
    
    
    1,726
    
    
    
    1.57
    %
    
    
    116,145
    
    
    
    1,444
    
    
    
    1.66
    %Time deposits
    
    
    122,703
    
    
    
    2,496
    
    
    
    2.72
    %
    
    
    112,037
    
    
    
    2,801
    
    
    
    3.34
    %Other interest-bearing liabilities (2)
    
    
    3,210
    
    
    
    16
    
    
    
    0.67
    %
    
    
    1,438
    
    
    
    5
    
    
    
    0.46
    %Total interest-bearing liabilities
    
    
    272,527
    
    
    
    4,238
    
    
    
    2.08
    %
    
    
    229,620
    
    
    
    4,250
    
    
    
    2.47
    %Noninterest-bearing deposits
    
    
    47,556
    
    
    
    
    
    
    
    
    
    
    
    31,396Noninterest-bearing liabilities
    
    
    1,977
    
    
    
    
    
    
    
    
    
    
    
    948Shareholders equity
    
    
    31,672
    
    
    
    
    
    
    
    
    
    
    
    30,230Total liabilities and
shareholders equity
    
    $
    353,732
    
    
    
    
    
    
    
    
    
    
    $
    292,194Net interest income
    
    
    
    
    
    $
    7,748
    
    
    
    
    
    
    
    
    
    
    $
    5,610Interest-rate spread (3)
    
    
    
    
    
    
    
    
    
    
    2.79
    %
    
    
    
    
    
    
    
    
    
    
    2.35
    %Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.14
    %
    
    
    
    
    
    
    
    
    
    
    2.74
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    1.21
    
    
    
    
    
    
    
    
    
    
    
    1.19
  (1)
    
    Includes Federal Funds sold and interest-bearing deposits in other banks.(2)
    
    Includes securities sold under agreements to repurchase.(3)
    
    Interest-rate spread represents the difference between the average yield on interest-earning assets and
the average rate of interest-bearing liabilities.(4)
    
    Net interest margin is net interest income divided by average interest-earning assets. 13




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##### Table of Contents



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued) Results of Operations (Continued) Provision for Loan Losses.The provision for loan losses is charged
to operations to bring the total allowance to a level deemed appropriate
by management based upon historical experience, the volume and type of
lending conducted by the Company, industry standards, the amount of
nonperforming loans, general economic conditions, particularly as they
relate to the Companys market areas, and other factors related to the
collectibility of the Companys loan portfolio. The amount charged to
expense for the nine months ending September 30, 2004 was $492,000,
compared to $412,000 for the same period in 2003. This increase is
primarily attributable to an increase in the rate of loan growth during
the period in 2004 compared to 2003. Loan growth was approximately $36
million during the period in 2004, compared to only $24 million during
the 2003 period. The amount charged to expense for the quarter ending September 30, 2004
was $106,000, compared to $190,000 during the quarter ending September
30, 2003. This decrease is primarily attributable to a decrease in the
rate of loan growth during the third quarter 2004, with net loans growing
approximately $8 million during the third quarter 2004, compared to
almost $15 million during the third quarter 2003. Management believes the approximate $2.9 million balance in the allowance
for loan losses at September 30, 2004 is adequate. Noninterest Income.Noninterest income was $388,000 for the first
nine months of 2004 compared to $410,000 for the comparable period in
2003. The decrease of $33,000 from 2003 to 2004 relates primarily to a
gain on the sale of other real estate of $28,000 during the first quarter
of 2003. Noninterest Expenses.Noninterest expenses increased $667,000
during the nine month period ended September 30, 2004 from $4,614,000 to
$5,281,000. Approximately 18% of this increase is attributable to
expenses associated with the conversion of systems in connection with the
merger of the two banks. The balance of this increase is associated with
the normal growth of the Bank, particularly in the area of occupancy
expenses as the bank expands its branching network. Provision for Income Taxes.The income tax expense for the nine
months ended September 30, 2004 was $913,000 compared to a $381,000 tax
expense for the comparable 2003 period, or an increase of $532,000. The
Company uses the liability method for accounting for deferred income
taxes. The difference in the actual income tax rates and those which
might be expected by applying the federal statutory rate of 34% to income
before income taxes is attributable primarily to state income taxes and,
to a lesser extent, expenses recorded for financial reporting purposes
that are not deductible for income tax purposes. 14




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##### Table of Contents



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. 
 Item 3. 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, the President and
Chief Executive officer and the Treasurer of the Company concluded that
the Companys disclosure controls and procedures are adequate as of
September 30, 2004. 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 President and
Chief Executive officer and the Treasurer. 
 PART II. OTHER INFORMATION 
 Item 4. Submission of Matters to a Vote of Security Holders None 
 Item 6. Exhibits and Reports on Form 8-K (a)      Exhibits Exhibit No.
    
    Description of Exhibit
  31.1
    
    Certification of President and Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Treasurer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of President and Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Treasurer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  (b)
    
    Reports onForm 8-K.There were no reports on Form 8-K filed
during the three months ended September 30, 2004. 15




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##### Table of Contents



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. 
 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized. UNITED COMMUNITY
BANKSHARES OF FLORIDA, INC.(Registrant)Date:
    
    November 2, 2004
    
    By:
    
    /s/ David G. Powers
David G. Powers, President and Chief
Executive OfficerDate:
    
    November 2, 2004
    
    By:
    
    /s/ Shirley L. Tyler
Shirley L. Tyler, Treasurer
 16




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##### Table of Contents



United Community Bankshares of Florida, Inc.
Form 10-QSB
For Period Ending September 30, 2004
EXHIBIT INDEX ExhibitNo.
    
    Exhibit31.1
    
    Certification of President & Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Treasurer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of President & Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Treasurer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 17