##### 



Exhibit 13.1 Financial Statements of United Community Bankshares of Florida, Inc. and Subsidiary (Item 7. Financial Statements) INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets
    
    F-2Consolidated Statements of Income
    
    F-3Consolidated Statements of Shareholders Equity
    
    F-4Consolidated Statements of Cash Flows
    
    F-5Notes to Consolidated Financial Statements
    
    F-6




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REPORT OF INDEPENDENT AUDITORS Shareholders
United Community Bankshares of Florida, Inc.
Orlando, Florida We have audited the accompanying consolidated balance sheets of United Community Bankshares of
Florida, Inc. and Subsidiary as of December 31, 2004 and 2003, and the related consolidated
statements of income, shareholders equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of United Community Bankshares of Florida, Inc. and its
Subsidiary as of December 31, 2004 and 2003, and the results of their operations and their cash
flows for the years then ended in conformity with U. S. generally accepted accounting principles. OSBURN, HENNING AND COMPANY Orlando, Florida
February 24, 2005 F-1




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY 
 Consolidated Balance Sheets ($ in thousands, except per share amounts)
 At December 31,2004
    
    
    2003AssetsCash and due from banks
    
    $
    12,283
    
    
    $
    11,008Interest-earning demand deposits in other banks
    
    
    9,857
    
    
    
    9,694Federal funds sold
    
    
    63,831
    
    
    
    39,927Total cash and cash equivalents
    
    
    85,971
    
    
    
    60,629Securities available for sale
    
    
    68,640
    
    
    
    56,386Loans, net of allowance for loan losses of $3,077 and $2,526
    
    
    241,214
    
    
    
    198,480Property and equipment, net
    
    
    6,863
    
    
    
    5,410Net deferred tax asset
    
    
    1,180
    
    
    
    974Goodwill
    
    
    950
    
    
    
    950Core deposit intangible, net
    
    
    267
    
    
    
    333Other assets
    
    
    1,382
    
    
    
    1,162Total assets
    
    $
    406,467
    
    
    $
    324,324Liabilities and Shareholders EquityLiabilities:Deposits:Noninterest-bearing demand deposits
    
    $
    52,472
    
    
    $
    42,348Savings, NOW and money-market deposits
    
    
    166,751
    
    
    
    120,003Time deposits
    
    
    146,419
    
    
    
    124,221Total deposits
    
    
    365,642
    
    
    
    286,572Borrowings
    
    
    6,009
    
    
    
    5,174Other liabilities
    
    
    1,026
    
    
    
    902Total liabilities
    
    
    372,677
    
    
    
    292,648Commitments and contingencies (Notes 6, 11 and 13)Shareholders Equity:Common stock, $.01 par value, 10 million shares authorized,
3,263,406 and 3,256,888 shares issued and outstanding
    
    
    33
    
    
    
    33Additional paid-in capital
    
    
    32,021
    
    
    
    31,970Retained earnings (accumulated deficit)
    
    
    2,003
    
    
    
    (38
    )Accumulated other comprehensive loss
    
    
    (267
    )
    
    
    (289
    )Total shareholders equity
    
    
    33,790
    
    
    
    31,676Total liabilities and shareholders equity
    
    $
    406,467
    
    
    $
    324,324
 See notes to consolidated financial statements. F-2




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY 
 Consolidated Statements of Income (In thousands, except per share amounts)
 Year Ended December 31,2004
    
    
    2003Interest income:Loans
    
    $
    14,202
    
    
    $
    11,653Securities
    
    
    1,633
    
    
    
    1,330Other
    
    
    820
    
    
    
    570Total interest income
    
    
    16,655
    
    
    
    13,553Interest expense:Deposits
    
    
    5,888
    
    
    
    5,583Borrowings
    
    
    25
    
    
    
    6Total interest expense
    
    
    5,913
    
    
    
    5,589Net interest income
    
    
    10,742
    
    
    
    7,964Provision for loan losses
    
    
    617
    
    
    
    784Net interest income after provision for loan losses
    
    
    10,125
    
    
    
    7,180Noninterest income:Service charges and fees on deposit accounts
    
    
    409
    
    
    
    374Gain on sale of other real estate
    
    
    
    
    
    
    28Gain on sale of securities available for sale
    
    
    
    
    
    
    5Other
    
    
    138
    
    
    
    119Total noninterest income
    
    
    547
    
    
    
    526Noninterest expense:Salaries and employee benefits
    
    
    3,505
    
    
    
    3,002Occupancy and equipment
    
    
    1,411
    
    
    
    1,138Other (Note 19)
    
    
    2,430
    
    
    
    2,117Total noninterest expense
    
    
    7,346
    
    
    
    6,257Income before income taxes
    
    
    3,326
    
    
    
    1,449Income taxes
    
    
    1,285
    
    
    
    568Net income
    
    $
    2,041
    
    
    $
    881Earnings per share:Basic
    
    $
    .63
    
    
    $
    .28Diluted
    
    $
    .61
    
    
    $
    .27
 See notes to consolidated financial statements. F-3




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY 
 Consolidated Statements of Shareholders Equity Years Ended December 31, 2004 and 2003
($ in thousands) Retained
    
    
    AccumulatedCommon Stock
    
    
    Additional
    
    
    Earnings
    
    
    Other
    
    
    TotalNumber of
    
    
    Par
    
    
    Paid-In
    
    
    (Accumulated
    
    
    Comprehensive
    
    
    Shareholders Shares
    
    
    Value
    
    
    Capital
    
    
    Deficit)
    
    
    Income (Loss)
    
    
    EquityBalance at December 31, 2002
    
    
    2,000,000
    
    
    $
    20
    
    
    $
    19,980
    
    
    $
    (919
    )
    
    $
    387
    
    
    $
    19,468Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    881
    
    
    
    
    
    
    
    881Other
comprehensive income (loss)-
Change in unrealized gain
on securities available
for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (676
    )
    
    
    (676
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205Shares issued in acquisition
    
    
    1,069,388
    
    
    
    11
    
    
    
    9,742
    
    
    
    
    
    
    
    
    
    
    
    9,753Stock offering
    
    
    187,500
    
    
    
    2
    
    
    
    2,248
    
    
    
    
    
    
    
    
    
    
    
    2,250Balance at December 31, 2003
    
    
    3,256,888
    
    
    $
    33
    
    
    $
    31,970
    
    
    $
    (38
    )
    
    $
    (289
    )
    
    $
    31,676Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,041
    
    
    
    
    
    
    
    2,041Other
comprehensive income-
Change in unrealized loss
on securities available
for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    22Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,063Proceeds from stock options
exercised
    
    
    6,518
    
    
    
    
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    51Balance at December 31, 2004
    
    
    3,263,406
    
    
    $
    33
    
    
    $
    32,021
    
    
    $
    2,003
    
    
    $
    (267
    )
    
    $
    33,790
 See notes to consolidated financial statements. F-4




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY 
 Consolidated Statements of Cash Flows (In thousands)
 Year Ended December 31,2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    2,041
    
    
    $
    881Adjustments to reconcile net income to net cash provided by
operating activities:Deferred income tax benefit
    
    
    (218
    )
    
    
    (207
    )Provision for loan losses
    
    
    617
    
    
    
    784Depreciation and amortization
    
    
    533
    
    
    
    450Amortization of core deposit intangible
    
    
    66
    
    
    
    66Net amortization of premiums and discounts on securities
    
    
    654
    
    
    
    1,171Gain on sale of other real estate
    
    
    
    
    
    
    (28
    )Gain on sale of securities available for sale
    
    
    
    
    
    
    (5
    )Net change in year-end balances of:Other assets
    
    
    (195
    )
    
    
    (56
    )Other liabilities
    
    
    123
    
    
    
    (98
    )Net cash provided by operating activities
    
    
    3,621
    
    
    
    2,958Cash flows from investing activities:Purchases of securities available for sale
    
    
    (31,121
    )
    
    
    (55,698
    )Sales of securities available for sale
    
    
    106
    
    
    
    243Maturities and principal collections on securities available for sale
    
    
    18,117
    
    
    
    37,699Net funding of loans
    
    
    (43,351
    )
    
    
    (42,096
    )Cash and cash equivalents acquired in business combination
    
    
    
    
    
    
    25,594Acquisition of property and equipment
    
    
    (1,986
    )
    
    
    (143
    )Proceeds from sale of other real estate
    
    
    
    
    
    
    611Net cash used in investing activities
    
    
    (58,235
    )
    
    
    (33,790
    )Cash flows from financing activities:Net increase in deposits
    
    
    79,070
    
    
    
    60,309Net increase in borrowings
    
    
    835
    
    
    
    4,337Sale of common stock
    
    
    51
    
    
    
    2,250Net cash provided by financing activities
    
    
    79,956
    
    
    
    66,896Net increase in cash and cash equivalents
    
    
    25,342
    
    
    
    36,064Cash and cash equivalents at beginning of year
    
    
    60,629
    
    
    
    24,565Cash and cash equivalents at end of year
    
    $
    85,971
    
    
    $
    60,629Supplemental disclosure of cash flow information:Cash paid for:Interest
    
    $
    5,498
    
    
    $
    5,896Income taxes
    
    $
    1,524
    
    
    $
    620Noncash transaction-Accumulated other comprehensive income (loss), net
change in unrealized gain (loss) on securities
available for sale, net of tax
    
    $
    22
    
    
    $
    (676
    )
 See notes to consolidated financial statements. F-5




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY 
 Notes to Consolidated Financial Statements At December 31, 2004 and 2003 and For the Years Then Ended (1) Organizational Background and Consolidation Policy United Community 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 nine banking offices located
in Orange and Seminole Counties, Florida.
 On January 13, 2003, the Company acquired Community United Bank (CUB) in a purchase
transaction. This purchase was consummated by exchange of 1,069,388 newly-issued shares of
the Companys common stock for 100% of CUBs common shares. The Company paid a premium for
CUB, which amount is more fully discussed in Note 17 to these consolidated financial
statements. During 2004, CUB was merged into the Bank, resulting in a one-bank holding
company structure.
 The accompanying consolidated financial statements include the accounts of the Holding
Company and the Bank. All significant intercompany transactions have been eliminated in
consolidation.
 (2) Summary of Significant Accounting Policies Use of Estimates.In preparing consolidated financial statements in conformity with U.S.
generally accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the date of
the balance sheet and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the determination
of the allowance for loan losses and the valuation of deferred tax assets.
 Cash and Cash Equivalents.For purposes of the consolidated statements of cash flows, cash
and cash equivalents include cash and demand balances due from banks and federal funds
sold, all of which mature within ninety days.
  The Bank is required under Federal Reserve Board regulations to maintain reserves, generally
consisting of cash or noninterest-earning accounts, against its transaction accounts. At
December 31, 2004 and 2003, balances maintained as reserves were approximately $4.6 million
and $793,000, respectively. Securities Available for Sale.Securities which are used for asset/liability, liquidity, and
other funds management purposes are classified as securities available for sale. These
securities have indefinite holding periods and are accounted for on a fair value basis with
net unrealized gains and losses included in other comprehensive income.
 (continued) F-6




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (2) Summary of Significant Accounting Policies, Continued Securities Available for Sale, Continued.Declines in the fair value of securities available
for sale that are deemed to be other-than-temporary are reflected in income as realized
losses. In estimating other-than-temporary impairment losses, management considers (1) the
length of time and the extent to which the fair value has been less than cost, (2) the
financial condition and near-term prospects of the issuer, and (3) the intent and ability
of the Company to retain its investment in the issuer for period of time sufficient to
allow for any anticipated recovery in fair value.
  Amortization and accretion of premiums and discounts are recognized as adjustments to
interest income. Realized gains and losses are recognized using the specific identification
method. Loans.Loans that management has the intent and the Company has the ability to hold for the
foreseeable future or until maturity or pay-off are reported at their outstanding principal
balance adjusted for any charge-offs, the allowance for loan losses, and any deferred fees
or costs on originated loans.
  Loan origination fees are deferred and certain direct origination costs are capitalized.
Both are recognized as an adjustment of the yield of the related loan.  The accrual of interest on loans is discontinued at the time the loan is ninety days
delinquent unless the loan is well collateralized and in process of collection. In all
cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of
principal or interest is considered doubtful.  Interest receivable on loans that are placed on nonaccrual or charged-off is reversed
against interest income. Interest collected subsequently on these loans is accounted for on
the cash basis or cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured. Allowance for Loan Losses.The allowance for loan losses is established as losses are estimated
to have occurred through a provision for loan losses charged to earnings. Loan losses are
charged against the allowance when management believes the uncollectibility of a loan
balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
  The allowance for loan losses is evaluated on a regular basis by management and is based
upon managements periodic review of the collectibility of the loans in light of historical
experience, the nature and volume of the loan portfolio, adverse situations that may affect
the borrowers ability to repay, estimated value of any underlying collateral and prevailing
economic conditions. This evaluation is inherently subjective as it requires estimates that
are susceptible to significant revision as more information becomes available. (continued) F-7




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (2) Summary of Significant Accounting Policies, Continued Allowance for Loan Losses, Continued.A loan is considered impaired when, based on current
information and events, it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the contractual terms of
the loan agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled principal and
interest payments when due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrowers prior payment record, and
the amount of the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and commercial real estate loans by either
the present value of expected future cash flows discounted at the loans effective interest
rate, the loans obtainable market price, or the fair value of the collateral if the loan
is collateral dependent.
  Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Company does not separately identify individual consumer and residential
real estate loans for impairment disclosures. Property and Equipment.Property and equipment are stated at cost, less accumulated depreciation
and amortization computed on the straight-line and accelerated methods over the estimated
useful lives of the assets. These lives are summarized as follows:
 Asset
    
    Estimated LivesBuildings
    
    40 yearsLand improvements
    
    15 yearsLeasehold improvements
    
    5-15 yearsFurniture and equipment
    
    5-10 years
  Maintenance and repairs are charged to income, and improvements and additions are
capitalized. (continued) F-8




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (2) Summary of Significant Accounting Policies, Continued Goodwill and Other Intangible Assets.Intangible assets consist of purchased core deposits and
goodwill. The core deposit intangible is being amortized over its estimated duration of
six years on a straight-line basis. Goodwill is not being amortized, but is carried at its
cost. The Company reviews intangible assets for possible impairment whenever events or
circumstances indicate that carrying amounts may not be recoverable.
 Income Taxes.The Company uses the liability method for accounting for deferred income taxes.
This method requires the recognition of deferred tax assets and liabilities for the future
tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
  The Company and the Bank file consolidated federal and state income tax returns. Tax is
allocated among the entities on a separate entity basis. Transfer of Financial Assets.Transfers of financial assets are accounted for as sales when
control over the assets has been surrendered. Control over transferred assets is deemed to
be surrendered when (1) the assets have been isolated from the Company, (2) the transferee
obtains the right (free of conditions that constrain it from taking advantage of that
right) to pledge or exchange the transferred assets, and (3) the Company does not maintain
effective control over the transferred assets through an agreement to repurchase them
before their maturity.
 (continued) F-9




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (2) Summary of Significant Accounting Policies, Continued Stock Compensation Plans.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).
 Year Ended December 31,2004
    
    
    2003Net income, as reported
    
    $
    2,041
    
    
    $
    881Deduct: Total stock-based employee compensation
determined under the fair value based method for all
awards, net of related tax effect
    
    
    (600
    )
    
    
    (532
    )Proforma net income
    
    $
    1,441
    
    
    $
    349Basic income per share, as reported
    
    $
    .63
    
    
    $
    .28Proforma basic income per share
    
    $
    .44
    
    
    $
    .11Diluted income per share, as reported
    
    $
    .61
    
    
    $
    .27Proforma diluted income per share
    
    $
    .43
    
    
    $
    .11
  In order to calculate the fair value of the options granted using the Black-Scholes
model, it was assumed that the average risk-free interest rate for 2004 was 4.27%, there
would be no dividends paid, the expected life of the options was ten years and stock
volatility was zero due to the lack of an active market for the stock. For purposes of pro
forma disclosures, the estimated fair value is included in expense during the vesting
period. Year Ended December 31,2004
    
    
    2003Weighted-average grant-date fair value per option of options
issued during the year
    
    $
    4.12
    
    
    $
    3.36
 (continued) F-10




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UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (2) Summary of Significant Accounting Policies, Continued 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.
 Year Ended December 31,2004
    
    
    2003Weighted-average common shares outstanding
    
    
    3,258,687
    
    
    
    3,170,513Dilutive shares issuable under stock option plans
    
    
    101,037
    
    
    
    61,458Weighted-average common shares on a diluted basis
    
    
    3,359,724
    
    
    
    3,231,971
 Off-Balance Sheet Credit-Related Instruments.In the ordinary course of business, the Company
has entered into off-balance-sheet financial instruments consisting of commitments to
extend credit, unused lines of credit, standby letters of credit and undisbursed
construction loans in process. Such financial instruments are recorded in the consolidated
financial statements when they are funded.
 Comprehensive Income.Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net income. Although certain changes in assets
and liabilities, such as unrealized gains and losses on available-for-sale securities, are
reported as a separate component of the equity section of the consolidated balance sheet,
such items, along with net income, are components of comprehensive income. The components
of other comprehensive income (loss) and related tax effects are as follows (in thousands):
 Year Ended December 31,2004
    
    
    2003Unrealized holding gains (losses) on available for sale securities
    
    $
    35
    
    
    $
    (1,079
    )Reclassification adjustment for gains realized in earnings
    
    
    
    
    
    
    (5
    )Net change in unrealized loss
    
    
    35
    
    
    
    (1,084
    )Income taxes (benefit)
    
    
    13
    
    
    
    (408
    )Net amount
    
    $
    22
    
    
    $
    (676
    )
 (continued) F-11




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##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (2) Summary of Significant Accounting Policies, Continued Recent Pronouncements.In December 2004, the Financial Accounting Standards Board (FASB)
issued SFAS No. 123 (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 2006 consolidated
financial statements.
  In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets-an
Amendment to APB opinion No. 29 This Statement addresses the measurement of exchanges of
nonmonetary assets. The Statement is effective for fiscal periods beginning after June 15,
2005. Management believes this Statement will not have a material effect on the Companys
consolidated financial statements.  In December 2003, the American Institute of Certified Public Accountants issued Statement of
Position 03-3, Accounting for Certain Loans and Debt Securities Acquired in a Transfer
(SOP 03-3). SOP 03-3 addresses accounting for differences between contractual cash flows
expected to be collected and an investors initial investment in loans or debt securities
acquired in a transfer if those differences are attributable, at least in part, to credit
quality. SOP 03-3 also prohibits carrying over or creation of valuation allowances in the
initial accounting of all loans acquired in a transfer that are within the scope of SOP
03-3. The prohibition of the valuation allowance carryover applies to the purchase of an
individual loan, a pool of loans, a group of loans, and loans acquired in a purchase
business combination. SOP 03-3 is effective for loans acquired in fiscal years beginning
after December 15, 2004. The Company does not anticipate that the adoption of SOP 03-3 will
have a material impact on its financial condition or result of operations.  In March 2004, the Emerging Issues Task Force reached a consensus on Issue 03-1, Meaning of
Other Than Temporary Impairment (Issue 03-1). The Task Force reached a consensus on an
other-than-temporary impairment model for debt and equity securities accounted for under
Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities and cost method investments, and required certain additional
financial statement disclosures. The implementation of the Other-Than-Temporary Impairment
component of this consensus has been postponed. Management cannot determine the effect of
the adoption of this guidance on the Companys financial condition or results of operations. Reclassification.Certain accounts and captions as presented in the 2003 financial statements
have been reclassified to conform to the classifications in the 2004 consolidated financial
statements.
 (continued) F-12




---



##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (3) Securities Available for Sale All securities have been classified as available for sale by management. The carrying
amounts of securities available for sale and their approximate fair values are as follows
(in thousands):
 Gross
    
    
    Gross
    
    
    ApproximateAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueAt December 31, 2004:U.S. Agency securities
    
    $
    3,518
    
    
    $
    1
    
    
    $
    (7
    )
    
    $
    3,512Mortgage-backed securities
    
    
    65,550
    
    
    
    189
    
    
    
    (611
    )
    
    
    65,128$
    69,068
    
    
    $
    190
    
    
    $
    (618
    )
    
    $
    68,640At December 31, 2003:U.S. Agency securities
    
    $
    500
    
    
    $
    
    
    
    $
    (7
    )
    
    $
    493Mortgage-backed securities
    
    
    56,218
    
    
    
    221
    
    
    
    (677
    )
    
    
    55,762Equity securities
    
    
    131
    
    
    
    
    
    
    
    
    
    
    
    131$
    56,849
    
    
    $
    221
    
    
    $
    (684
    )
    
    $
    56,386
 The following summarizes sales of securities available for sale (in thousands): Year Ended December 31,2004
    
    
    2003Proceeds from sale of securities available for sale
    
    $
    106
    
    
    $
    243Gross gains from sale of securities
    
    $
    
    
    
    $
    5
 As of December 31, 2004 and 2003, securities with a carrying value of approximately $24.3
million and $31.2 million, respectively, were pledged as collateral for repurchase
agreements with customers and to the State of Florida for public deposits.
 Scheduled maturities of securities available for sale at December 31, 2004 are as follows (in
thousands):
 ApproximateAmortized
    
    
    FairCost
    
    
    ValueDue after one year through five years
    
    $
    500
    
    
    $
    493Due after five years through ten years
    
    
    3,018
    
    
    
    3,019Mortgage-backed securities
    
    
    65,550
    
    
    
    65,128$
    69,068
    
    
    $
    68,640
 Expected maturities may differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without prepayment penalties.
 (continued) F-13




---



##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (3) Securities Available for Sale, Continued Information pertaining to securities with gross unrealized losses at December 31, 2004,
aggregated by investment category and length of time that individual securities have been
in a continuous loss position, follows (in thousands):
  Information pertaining to securities with gross unrealized losses at December 31, 2004,
aggregated by investment category and length of time that individual securities have been
in a continuous loss position, follows (in thousands): Less Than Twelve Months
    
    
    Over Twelve MonthsGross
    
    
    Approximate
    
    
    Gross
    
    
    ApproximateUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueDebt securities:U.S. Agency securities
    
    $
    
    
    
    $
    
    
    
    $
    (7
    )
    
    $
    493Mortgage-backed securities
    
    
    (230
    )
    
    
    28,096
    
    
    
    (381
    )
    
    
    14,885Total debt securities
    
    $
    (230
    )
    
    $
    28,096
    
    
    $
    (388
    )
    
    $
    15,378
 At December 31, 2004, the Company has 24 debt securities with unrealized losses.
Management believes these unrealized losses relate to changes in interest rates.
Management also believes the Company has the ability to hold these securities until
maturity, or for the foreseeable future and therefore no declines are deemed to be other
than temporary.
 (4) Loans  The components of loans are summarized as follows (in thousands): At December 31,2004
    
    
    2003Real estate  mortgage
    
    $
    133,257
    
    
    $
    119,887Construction and land development
    
    
    60,675
    
    
    
    31,934Commercial, financial and agricultural
    
    
    44,720
    
    
    
    42,779Installment and consumer lines
    
    
    5,998
    
    
    
    6,754Total loans
    
    
    244,650
    
    
    
    201,354Allowance for loan losses
    
    
    (3,077
    )
    
    
    (2,526
    )Deferred loan fees, net
    
    
    (359
    )
    
    
    (348
    )Loans, net
    
    $
    241,214
    
    
    $
    198,480
 (continued) F-14




---



##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (4) Loans, Continued  An analysis of the changes in the allowance for loan losses follows (in thousands): Year Ended December 31,2004
    
    
    2003Balance at beginning of year
    
    $
    2,526
    
    
    $
    1,014Provision for loan losses
    
    
    617
    
    
    
    784Acquired in purchase transaction
    
    
    
    
    
    
    887Loan charge-offs, net of recoveries
    
    
    (66
    )
    
    
    (159
    )Balance at end of year
    
    $
    3,077
    
    
    $
    2,526
 The following summarizes impaired loans (in thousands): At December 31,2004
    
    
    2003Impaired loans with a valuation allowance
    
    $
    83
    
    
    $
    376Impaired loans without a valuation allowance
    
    
    
    
    
    
    Less  valuation allowance on impaired loans
    
    
    (5
    )
    
    
    (97
    )Total net impaired loans
    
    $
    78
    
    
    $
    279
 The average net investment in impaired loans and interest income recognized and received on
impaired loans (in thousands):
 Year Ended December 31,2004
    
    
    2003Average net investment in impaired loans
    
    $
    349
    
    
    $
    376Interest income recognized on impaired loans
    
    $
    3
    
    
    $
    Interest income received on impaired loans
    
    $
    3
    
    
    $
    
 Nonaccrual and accruing loans past due 90 days or more follows (in thousands): At December 31,2004
    
    
    2003Nonaccrual loans
    
    $
    50
    
    
    $
    491Accruing loans past due 90 days or more
    
    
    44
    
    
    
    Total
    
    $
    94
    
    
    $
    491
 (continued) F-15




---



##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (5) Property and Equipment The components of property and equipment, and the aggregate related accumulated
depreciation and amortization are as follows (in thousands)
 At December 31,2004
    
    
    2003Land
    
    $
    994
    
    
    $
    994Buildings
    
    
    3,416
    
    
    
    3,072Land improvements
    
    
    157
    
    
    
    157Leasehold improvements
    
    
    1,054
    
    
    
    713Furniture and equipment
    
    
    1,887
    
    
    
    1,316Construction in process
    
    
    770
    
    
    
    718,278
    
    
    
    6,323Less accumulated depreciation and amortization
    
    
    (1,415
    )
    
    
    (913
    )$
    6,863
    
    
    $
    5,410
 Depreciation and amortization expense charged to income was approximately $533,000 and $450,000
in 2004 and 2003, respectively.
 (6) Operating Leases The Bank leases certain of its facilities and equipment under non-cancellable operating
leases. These leases require monthly rent payments and common area maintenance charges and
contain escalation clauses and renewal options. Amounts due under these leases for the
next five years after 2004 are as follows (in thousands):
 2005
    
    $
    6042006
    
    $
    6092007
    
    $
    6342008
    
    $
    6432009
    
    $
    679
 The total charge to 2004 and 2003 income under these leases was approximately $377,000 and
$305,000, respectively.
 (continued) F-16




---



##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (7) Deposits The aggregate amount of time deposits with a minimum denomination of $100,000 is $93.7
million and $76.6 million at December 31, 2004 and 2003, respectively. At December 31,
2004, the scheduled maturities of time deposits are as follows (in thousands):
 Maturing during theYear Ending December 31,
    
    Amount2005
    
    $
    66,3832006
    
    
    54,1632007
    
    
    22,7602008
    
    
    7072009
    
    
    2,406$
    146,419
 (8) Borrowings The Bank has sold securities to certain of its customers under agreements to repurchase.
These borrowings are collateralized by those securities discussed in Note 3 to these
consolidated financial statements. The following summarizes these borrowings ($ in
thousands):
 At or For the Year EndedDecember 31,2004
    
    
    2003Balance at year-end
    
    $
    2,009
    
    
    $
    5,174Average balance during the year
    
    $
    3,019
    
    
    $
    1,489Interest expense during the year
    
    $
    25
    
    
    $
    7Average interest rate during the year
    
    
    .83
    %
    
    
    .45
    %
 The Company also has unsecured federal funds purchased lines of credit with correspondent
banks under which the Company could borrow up to $14.0 million. These lines are used for
liquidity needs and generally are repaid within seven to fourteen days. At December 31,
2004, the Company had $4.0 million outstanding at a rate of 2.63%. The Company did not
have any borrowings outstanding under these agreements at December 31, 2003.
 (continued) F-17




---



##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (9) Income Taxes The components of income taxes are as follows (in thousands): 2004
    
    
    2003Current
    
    
    Deferred
    
    
    Total
    
    
    Current
    
    
    Deferred
    
    
    TotalFederal
    
    $
    1,284
    
    
    $
    (187
    )
    
    $
    1,097
    
    
    $
    663
    
    
    $
    (177
    )
    
    $
    486State
    
    
    219
    
    
    
    (31
    )
    
    
    188
    
    
    
    112
    
    
    
    (30
    )
    
    
    82$
    1,503
    
    
    $
    (218
    )
    
    $
    1,285
    
    
    $
    775
    
    
    $
    (207
    )
    
    $
    568
 Deferred taxes represent the deferred tax effect attributable to the change in the cumulative
differences between the book and tax bases of the Companys assets and liabilities from the
prior year.
 The more significant temporary differences and the related deferred tax amounts are as
follows (in thousands):
 At December 31,2004
    
    
    2003Loan loss reserve
    
    $
    1,035
    
    
    $
    817Preopening and organizational costs
    
    
    88
    
    
    
    159Unrealized loss on securities available for sale
    
    
    162
    
    
    
    174Property and equipment basis difference
    
    
    (5
    )
    
    
    (51
    )Core deposit intangible
    
    
    (100
    )
    
    
    (125
    )Net deferred tax asset
    
    $
    1,180
    
    
    $
    974
 A reconciliation of the income tax expected at the 34% Federal income tax rate and the
actual income tax follows ($ in thousands):
 Year Ended December 31,2004
    
    
    2003Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentComputed expected income tax expense
    
    $
    1,131
    
    
    
    34.0
    %
    
    $
    493
    
    
    
    34.0
    %State income taxes, net of federal income
tax
    
    
    124
    
    
    
    3.6
    
    
    
    51
    
    
    
    3.5Valuation allowance
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    (1.1
    )Other
    
    
    30
    
    
    
    1.0
    
    
    
    40
    
    
    
    2.8$
    1,285
    
    
    
    38.6
    %
    
    $
    568
    
    
    
    39.2
    %
 (continued) F-18




---



##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (10) Related Party Transactions In the ordinary course of business, the Company has granted loans to principal officers
and directors and their affiliates. The amount outstanding under these loans was
approximately $13.1 million at December 31, 2003. During 2004, there were additional
advances of approximately $8.0 million, with principal reductions of approximately
$800,000, resulting in outstanding balances at December 31, 2004 of approximately $20.3
million.
 (11) Off-Balance Sheet Activities The Company is a party to credit-related financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, unused lines of credit, standby
letters of credit and undisbursed construction loans in process.These financial instruments may involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the consolidated balance sheets.
The contract amounts of these instruments reflect the extent of involvement the Company has
in these financial instruments. The Companys exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments as it does
for on-balance sheet instruments.Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since some
of the commitments are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company evaluates each
customers credit worthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on managements credit
evaluation of the counterparty.Standby letters of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. These letters of credit are primarily issued
to support third-party borrowing arrangements and generally have expiration dates within
one year of issuance. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loans to customers. The Company generally holds
collateral supporting these commitments.
 (continued) F-19




---



##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (11) Off-Balance Sheet Activities, Continued Commitments to extend credit and standby letters of credit typically result in loans with a
market interest rate when funded. A summary of the contractual amounts of the Companys
financial instruments with off-balance sheet risk follows (in thousands):
 At December 31,2004
    
    
    2003Commitments to extend credit, including
unused lines of credit
    
    $
    39,638
    
    
    $
    30,378Standby letters of credit
    
    $
    2,530
    
    
    $
    1,851Undisbursed construction loans in process
    
    $
    21,629
    
    
    $
    27,909
 The contractual amounts of credit-related financial instruments such as commitments to
extend credit, unused lines of credit, standby letters of credit and undisbursed
construction loans in process represent the amounts of potential accounting loss should the
contract be fully drawn upon, the customer default and the value of any existing collateral
become worthless.
 (12) Significant Group Concentration of Credit Risk The Company grants real estate, commercial and consumer loans to customers primarily in
the State of Florida with the majority of such loans in the Orange and Seminole Counties
area. Therefore, the Companys exposure to credit risk is significantly affected by
changes in the economy of the Orange and Seminole Counties area.
 (13) Legal Contingencies Various legal claims arise from time to time in the normal course of business which, in the
opinion of management, had no material effect on the Companys consolidated financial
statements as of December 31, 2004.
 (14) Dividend Restrictions Since the Company depends upon the Bank for cash flow, the Companys ability to pay
dividends is dependent upon the Banks cash and capital positions. The payment of
dividends is subject to various restrictions set forth in the State Banking Code. Such
restrictions generally limit dividends to an amount not exceeding net income for the
current and two preceding years, less any dividends paid during that period.
 (continued) F-20




---



##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (15) Stock Option Plans The Company has stock option plans permitting the granting of stock options for up to
616,108 shares of the Companys common stock to selected officers, employees and directors
of the Company.
 At December 31, 2002, options for 140,500 shares were outstanding at an exercise price of
$10.00 per share. Of these options, 47,000 shares were immediately exercisable upon grant,
while all others vest 20% in each of the 2nd through the 6th year after grant. Before the
acquisition discussed in Note 17, officers and employees of CUB held options for 31,400
shares of CUB common stock at an exercise price of $10.00 per share under a plan approved by
CUB shareholders in 1999. In connection with the acquisition, these options, adjusted for
the exchange ratio, were exchanged for options to acquire 43,580 shares of the Companys
common stock. These options have an exercise price of $7.82 per share, vest over a ten year
period, and contain a provision that any future change of control will cause any unvested
options to vest immediately. Activity in the plans follows: Year Ended
    
    
    Year EndedDecember 31, 2004
    
    
    December 31, 2003Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    PriceBalance at January 1
    
    
    335,992
    
    
    $
    10.62
    
    
    
    140,500
    
    
    $
    10.00Granted
    
    
    217,242
    
    
    $
    12.53
    
    
    
    10,000
    
    
    $
    12.00Issued to former employees of CUB
    
    
    
    
    
    $
    
    
    
    
    43,580
    
    
    $
    7.82Issued to former directors of CUB
    
    
    
    
    
    $
    
    
    
    
    141,912
    
    
    $
    12.00Exercised
    
    
    (6,518
    )
    
    $
    7.82
    
    
    
    
    
    
    
    Balance at December 31
    
    
    546,716
    
    
    $
    11.41
    
    
    
    335,992
    
    
    $
    10.62
 At December 31, 2004, 62,874 options remain available for future grant under the plans.
All 283,824 of the outstanding directors options and 91,062 of the outstanding officer and
employee options are exercisable at December 31, 2004. The weighted average remaining contractual life of all outstanding options at both December
31, 2004 and 2003 is approximately eight years. (continued) F-21




---



##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (16) Regulatory Matters 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.
 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 December 31, 2004, 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 December 31, 2004 and 2003, and the minimum required amounts and
percentages ($ in thousands). MinimumTo Be WellCapitalized UnderMinimum Capital
    
    
    Prompt CorrectiveActual
    
    
    Requirement
    
    
    Action Provisions}Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %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
    %
 (continued) F-22




---



##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (16) Regulatory Matters, Continued MinimumTo Be WellCapitalized UnderMinimum Capital
    
    
    Prompt CorrectiveActual
    
    
    Requirement
    
    
    Action ProvisionsAmount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %As of December 31, 2003:Total capital to Risk-
Weighted assets:Consolidated
    
    $
    32,234
    
    
    
    13.95
    %
    
    $
    18,486
    
    
    
    8.00
    %
    
    $
    23,108
    
    
    
    10.00
    %Bank
    
    $
    20,163
    
    
    
    15.47
    %
    
    $
    10,427
    
    
    
    8.00
    %
    
    $
    13,034
    
    
    
    10.00
    %CUB
    
    $
    12,204
    
    
    
    12.00
    %
    
    $
    8,135
    
    
    
    8.00
    %
    
    $
    10,168
    
    
    
    10.00
    %Tier I Capital to Risk-
Weighted Assets:Consolidated
    
    $
    29,708
    
    
    
    12.86
    %
    
    $
    9,243
    
    
    
    4.00
    %
    
    $
    13,865
    
    
    
    6.00
    %Bank
    
    $
    18,799
    
    
    
    14.42
    %
    
    $
    5,213
    
    
    
    4.00
    %
    
    $
    7,820
    
    
    
    6.00
    %CUB
    
    $
    11,042
    
    
    
    10.86
    %
    
    $
    4,067
    
    
    
    4.00
    %
    
    $
    6,101
    
    
    
    6.00
    %Tier I Capital
to Average Assets:Consolidated
    
    $
    29,708
    
    
    
    9.32
    %
    
    $
    12,744
    
    
    
    4.00
    %
    
    $
    15,930
    
    
    
    5.00
    %Bank
    
    $
    18,799
    
    
    
    10.64
    %
    
    $
    7,068
    
    
    
    4.00
    %
    
    $
    8,835
    
    
    
    5.00
    %CUB
    
    $
    11,042
    
    
    
    7.90
    %
    
    $
    5,590
    
    
    
    4.00
    %
    
    $
    6,987
    
    
    
    5.00
    %
 (17) Bank Acquisition On January 13, 2003 the Company acquired CUB in a stock for stock exchange. The Company
issued shares of common stock valued at approximately $9,753,000 based on an independent
valuation firms fairness opinion, to acquire 100% of CUBs 836,740 common voting shares.
This business combination was accounted for as a purchase transaction. The allocation of
the purchase price (new shares issued) to CUBs recorded assets and liabilities at the date
of acquisition follows (in thousands):
 Cash equivalents
    
    $
    30,743Investments
    
    
    11,689Net loans
    
    
    77,676Goodwill
    
    
    950Core deposit intangible
    
    
    400Other assets
    
    
    2,515Total assets
    
    
    123,973Deposits
    
    
    (113,296
    )Other liabilities
    
    
    (924
    )Total liabilities
    
    
    (114,220
    )Fair value of common stock issued
    
    $
    9,753
 (continued) F-23




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##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (17) Bank Acquisition, Continued For the year ended December 31, 2003, CUB reported net income of $823,000. For the period
January 1, 2003 through the acquisition date of January 13, 2003 CUBs net income was
$34,000. This amount is considered insignificant to disclose the proforma effects to
income as if CUB was acquired as of the beginning of the periods presented. The difference
of $789,000 is included in the accompanying 2003 consolidated statement of income.
 As part of the establishment of CUBs fair value at January 13, 2003, it was determined that
the Company paid $1,200,000 more than the fair value of CUBs tangible net assets. This
premium has been allocated $400,000 to a core deposit intangible (CDI) and $800,000 to
goodwill. As a part of the acquisition, goodwill was further increased by $150,000 for the tax effect
of the CDI, bringing goodwill to $950,000 and creating a deferred tax liability of $150,000.
The carrying amounts of the CDI and related deferred tax liability at December 31, 2004 are
$267,000 and $100,000, respectively. The carrying amounts of these accounts at December 31,
2003 are $333,000 and $125,000, respectively. The deferred tax liability has been netted
against the deferred tax asset on the accompanying consolidated balance sheets. (18) Fair Value of Financial Instruments The fair value of a financial instrument is the current amount that would be exchanged
between willing parties, other than in a forced liquidation. Fair value is best determined
based upon quoted market prices. However, in many instances, there are no quoted market
prices for the Companys various financial instruments. In cases where quoted market
prices are not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Accordingly, the fair
value estimates may not be realized in an immediate settlement of the instrument. SFAS 107
excludes certain financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented may not necessarily
represent the underlying fair value of the Company. The following methods and assumptions
were used by the Company in estimating fair values of financial instruments:
 Cash and Cash Equivalents.The carrying amounts of cash and cash equivalents
approximate their fair value. Securities Available for Sale.Fair values for securities are based on quoted market
prices, where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments. Loans.For variable-rate loans that reprice frequently and have no significant change
in credit risk, fair values are based on carrying values. Fair values for certain
fixed-rate mortgage (e.g. one-to-four family residential), commercial real estate and
commercial loans are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar credit
quality. (continued) F-24




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##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (18) Fair Value of Financial Instruments, Continued Deposits.The fair values disclosed for demand deposits, savings, money-market and NOW
accounts are, by definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). Fair values for fixed-rate time deposits are
estimated using a discounted cash flow calculation that applies interest rates currently
being offered on time deposits to a schedule of aggregated expected monthly maturities
of time deposits. Borrowings.The carrying amounts of borrowings under customer repurchase agreements and
unsecured federal funds purchased lines of credit approximate their fair values. Off-Balance Sheet Instruments.Fair values for off-balance sheet lending commitments
are based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties credit standing. The estimated fair values of the Companys financial instruments are as follows (in
thousands): At December 31, 2004
    
    
    At December 31, 2003Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    85,971
    
    
    $
    85,971
    
    
    $
    60,629
    
    
    $
    60,629Securities available for sale
    
    
    68,640
    
    
    
    68,640
    
    
    
    56,386
    
    
    
    56,386Net loans
    
    
    241,185
    
    
    
    240,403
    
    
    
    198,480
    
    
    
    200,509Financial liabilities:Demand and savings deposits
    
    
    219,223
    
    
    
    219,223
    
    
    
    162,351
    
    
    
    162,351Time deposits
    
    
    146,419
    
    
    
    148,473
    
    
    
    124,221
    
    
    
    124,310Borrowings
    
    
    6,009
    
    
    
    6,009
    
    
    
    5,174
    
    
    
    5,174Off-balance sheet instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Nonfinancial instruments typically not recognized in the consolidated financial statements
nevertheless may have value but are not included in the above disclosures. These include,
among other items, the estimated earnings power of core deposit accounts, the earnings
potential of loan servicing rights, customer goodwill, and similar items.
 (continued) F-25




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##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (19) Other Noninterest Expense The components of other noninterest expense were as follows (in thousands): Year Ended December 31,2004
    
    
    2003Data processing
    
    $
    566
    
    
    $
    494Professional fees
    
    
    233
    
    
    
    315Marketing and business development
    
    
    369
    
    
    
    192Telephone
    
    
    169
    
    
    
    153Other
    
    
    1,093
    
    
    
    963$
    2,430
    
    
    $
    2,117
 (20) Holding Company-Only Condensed Financial Statements The condensed financial statements of the Holding Company are as follows (in thousands): Condensed Balance Sheets At December 31,2004
    
    
    2003Cash
    
    $
    218
    
    
    $
    379Investment in bank subsidiary
    
    
    32,320
    
    
    
    30,135Goodwill
    
    
    950
    
    
    
    950Core deposit intangible, net
    
    
    267
    
    
    
    333Other assets
    
    
    97
    
    
    
    84Total assets
    
    $
    33,852
    
    
    $
    31,881Taxes payable
    
    $
    
    
    
    $
    130Net deferred tax liability
    
    
    62
    
    
    
    75Shareholders equity
    
    
    33,790
    
    
    
    31,676Total liabilities and shareholders equity
    
    $
    33,852
    
    
    $
    31,881
 (continued) F-26




---



##### 



UNITED COMMUNITY BANKSHARES OF FLORIDA, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements, Continued (20) Holding Company-Only Condensed Financial Statements, Continued Condensed Statements of Income Year Ended December 31,2004
    
    
    2003Professional fees
    
    $
    86
    
    
    $
    186Amortization of core deposit intangible
    
    
    66
    
    
    
    66Other expenses
    
    
    44
    
    
    
    28Total expenses
    
    
    196
    
    
    
    280Income tax benefit
    
    
    (74
    )
    
    
    (114
    )Loss before equity in Banks earnings
    
    
    (122
    )
    
    
    (166
    )Equity in Banks earnings
    
    
    2,163
    
    
    
    1,047Net income
    
    $
    2,041
    
    
    $
    881
 Condensed Statements of Cash Flows Year Ended December 31,2004
    
    
    2003Cash flows from operating activities:Loss before equity in Banks earnings
    
    $
    (122
    )
    
    $
    (166
    )Deferred income tax benefit
    
    
    (13
    )
    
    
    (114
    )Amortization of core deposit intangible
    
    
    66
    
    
    
    66Change in other assets
    
    
    (13
    )
    
    
    (84
    )Change in taxes payable
    
    
    (130
    )
    
    
    130Other, net
    
    
    
    
    
    
    (4
    )Net cash used in operating activities
    
    
    (212
    )
    
    
    (172
    )Cash flows from investment activity-
Additional investment in Bank
    
    
    
    
    
    
    (1,700
    )Cash flow from financing activity-
Sale of common stock
    
    
    51
    
    
    
    2,250Net (decrease) increase in cash
    
    
    (161
    )
    
    
    378Cash balance at beginning of year
    
    
    379
    
    
    
    1Cash balance at end of year
    
    $
    218
    
    
    $
    379
 F-27