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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-KSB [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2003 OR [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number ___________ UNITED COMMUNITY BANKSHARES OF FLORIDA, INC.  Florida
(State or other jurisdiction
of incorporation or organization)
    
    04-3691059
(I.R.S. Employer
Identification No.)
 1411 Edgewater Drive, Suite 200, Orlando, Florida
(Address of principal executive offices)
    
    32804
(Zip Code)
 Issuers telephone number, including area code: (407) 447-0386 Securities
registered pursuant to Section 12(b) of the Act: None  Common Stock, par value $0.01 per share
(Title of Class) Check whether the issuer has (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES [X] NO [  ] Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuers knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X] The issuers revenues for its most recent fiscal year was $14,079,422. Indicate by check mark whether the issuer is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [  ] NO [X] The aggregate market value of the Common Stock of the issuer held by
non-affiliates of the issuer (2,183,943 shares) on February 27, 2004, was
approximately $12.00. As of such date, no organized trading market existed for
the Common Stock of the issuer. The aggregate market value was computed by
reference the last sale of the Common Stock of the issuer at $12.00 per share
on February 27, 2004. For the purposes of this response, directors, officers
and holders of 5% or more of the issuers Common Stock are considered the
affiliates of the issuer at that date. As of February 27, 2004, there were issued and outstanding 3,256,888
shares of the issuers Common Stock.




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TABLE OF CONTENTS

PagePART I
    
    
    
    
    1Item 1.
    
    Description of Business
    
    
    1General
    
    
    1Special Note Regarding Forward-Looking Statements
    
    
    2Critical Accounting Policies
    
    
    2Lending Activities
    
    
    3Deposit Activities
    
    
    4Investments
    
    
    4Correspondent Banking
    
    
    5Data Processing
    
    
    5Effect of Governmental Policies
    
    
    5Interest and Usury
    
    
    6Supervision and Regulation
    
    
    6Competition
    
    
    14Employees
    
    
    14Statistical Profile and Other Financial Data
    
    
    14Item 2.
    
    Description of Properties
    
    
    14Item 3.
    
    Legal Proceedings
    
    
    15Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    15PART II
    
    
    
    
    16Item 5.
    
    Market for Common Equity and Related Stockholder Matters
    
    
    16Dividends
    
    
    16Item 6.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17General
    
    
    19Liquidity and Capital Resources
    
    
    19Results of Operations
    
    
    20Asset/Liability Management
    
    
    25Financial Condition
    
    
    27Impact of Inflation and Changing Prices
    
    
    36Item 7.
    
    Financial Statements
    
    
    37 ii




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PageItem 8.
    
    Changes in and
Disagreements with Accountants on  Accounting and Financial Disclosure
    
    
    37Item 8A.
    
    Controls and Procedures
    
    
    37PART III
    
    
    
    
    38Item 9.
    
    Directors and Executive Officers of the Registrant
    
    
    38Item 10.
    
    Executive Compensation
    
    
    39Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    41Item 12.
    
    Certain Relationships and Related Transactions
    
    
    41Item 13.
    
    Exhibits, List, and Reports on Form 8-K
    
    
    41Item 14.
    
    Principal Accountant Fees and Services
    
    
    43SIGNATURES
    
    
    45EXHIBIT INDEX
    
    
    48Ex-10.4 Shirley Tyler Employment AgreementEx-13.1 Financial StatementsEx-14.1 Code of EthicsEx-21.1 SubsidiariesEx-23.1 Osburn, Henning and Company ConsentEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFOEx-99.1 Audit Pre-Approval Policy
 iii




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PART I 
 Item 1. Description of Business 
 General United Community Bankshares of Florida, Inc. (the Company) was
incorporated under the laws of the State of Florida on April 15, 2002.
The Company is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended (the BHC Act) and owns all of the
voting shares of United Heritage Bank and Community United Bank of
Florida. United Heritage Bank commenced operations in March 2001, and
Community United Bank of Florida commenced operations in August 1999.
Each Bank is a Florida state bank. The accompanying financial information includes the accounts of the
Company and the Banks. All significant intercompany accounts have been
eliminated in consolidation. The assets and liabilities acquired in the
January 13, 2003 purchase of Community United Bank and income and expense
of the Bank from January 13, 2003 through December 31, 2003 are included
in the accompanying information. The financial information provided for
the year ended 2002, includes only the accounts of the Company and United
Heritage Bank. Accordingly, the growth from December 31, 2002 through
December 31, 2003 is due not only to growth of United Heritage Bank but
also to the acquisition of Community Bank. The Company provides a range of consumer and commercial banking
services to individuals, businesses and industries. The basic services
offered by the Company include: demand interest-bearing and
noninterest-bearing accounts, money market deposit accounts, NOW
accounts, time deposits, safe deposit services, credit cards, cash
management, direct deposits, notary services, money orders, night
depository, travelers checks, cashiers checks, domestic collections,
savings bonds, bank drafts, automated teller services, drive-in tellers,
and banking by mail. In addition, the Company primarily makes secured
and unsecured commercial and real estate loans and issues stand-by
letters of credit. The Company provides automated teller machine (ATM)
cards, as a part of the STAR ATM Network, thereby permitting customers to
utilize the convenience of larger ATM networks. In addition to the STAR
ATM Network, the Bank also provides the Presto system for ATM use. In
addition to the foregoing services, the Company provides customers with
extended banking hours. The Company does not have trust powers and,
accordingly, no trust services are provided. The revenues of the Company are primarily derived from interest on,
and fees received in connection with, real estate and other loans, and
from interest and dividends from investment securities and short-term
investments. The principal sources of funds for the Companys lending
activities are its deposits, repayment of loans, and the maturity of
investment securities. The principal expenses of the Company are the
interest paid on deposits, and operating and general administrative
expenses. As is the case with banking institutions generally, the Companys
operations are materially and significantly influenced by general
economic conditions and by related monetary and fiscal




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policies of
financial institution regulatory agencies, including the Board of
Governors of the Federal Reserve System (the Federal Reserve). Deposit
flows and costs of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of
loans, which in turn is affected by the interest rates at which such
financing may be offered and other factors affecting local demand and
availability of funds. The Company faces strong competition in the
attraction of deposits (its primary source of lendable funds) and in the
origination of loans. SeeCompetition. 
 Special Note Regarding Forward-Looking Statements This Annual Report contains certain forward-looking statements which
represent the Companys expectations or beliefs, including, but not
limited to, statements concerning the banking industry and the Companys
operations, performance, financial condition and growth. For this
purpose, any statements contained in this Report that are not statements
of historical fact may be deemed forward-looking statements. Without
limiting the generality of the foregoing, words such as may, will,
expect, believe, anticipate, intend, could, should, can,
estimate, or continue or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks
and uncertainties, certain of which are beyond the Companys control, and
actual results may differ materially depending on a variety of important
factors, including competition, general economic conditions, changes in
interest rates, and changes in the value of real estate and other
collateral securing loans, among other things. 
 Critical Accounting Policies The Companys financial condition and results of operations are
sensitive to accounting measurements and estimates of matters that are
inherently uncertain. When applying accounting policies in areas that are
subjective in nature, the Company must use its best judgment to arrive at
the carrying value of certain assets. The most critical accounting policy
applied is related to the valuation of the loan portfolio. A variety of estimates impact carrying value of the loan portfolio
including the calculation of the allowance for loan losses, valuation of
underlying collateral, the timing of loan charge-offs and the amount and
amortization of loan fees and deferred origination costs. The allowance for loan losses is the most difficult and subjective
judgment. The allowance is established and maintained at a level that
the Company believes is adequate to cover losses resulting from the
inability of borrowers to make required payments on loans. Estimates for
loan losses are arrived at by analyzing risks associated with specific
loans and the loan portfolio, current trends in delinquencies and
charge-offs, the views of
regulators, changes in the size and composition of the loan portfolio and
peer comparisons. The analysis also requires consideration of the
economic climate and direction, change in the interest rate environment,
which may impact a borrowers ability to pay, legislation impacting the
banking industry and economic conditions specific to its service area. 2




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Because the calculation of the allowance for loan losses relies on
estimates and judgments relating to inherently uncertain events, results
may differ from the Companys estimates. The allowance for loan losses is also discussed as part of Results
of Operations and in Note 4 to the consolidated financial statements.
The significant accounting policies are discussed in Note 2 to the
consolidated financial statements. 
 Lending Activities The Company offers a range of lending services, including real
estate, consumer and commercial loans, to individuals and small
businesses and other organizations that are located in or conduct a
substantial portion of their business in the Companys market area. The
Companys consolidated net loans at December 31, 2003 and 2002 were $198
million, or 61% and $80 million or 58%, respectively, of total the
Company consolidated assets. The interest rates charged on loans vary
with the degree of risk, maturity, and amount of the loan, and are
further subject to competitive pressures, money market rates,
availability of funds, and government regulations. The Company has no
foreign loans or loans for highly leveraged transactions. The Companys loans are concentrated in four major areas:
commercial, financial and agricultural, real estate mortgage,
construction and land development, and installment and consumer loans. A
majority of the Companys loans are made on a secured basis. The Companys commercial loan portfolio includes loans to
individuals and small-to-medium sized businesses located primarily in
Orange and Seminole Counties for working capital, equipment purchases,
and various other business purposes. A majority of commercial loans are
secured by real estate, equipment or similar assets, but these loans may
also be made on an unsecured basis. Commercial loans may be made at
variable or fixed rates of interest. Commercial lines of credit are
typically granted on a one-year basis, with loan covenants and monetary
thresholds. Other commercial loans with terms or amortization schedules
of longer than one year will normally carry interest rates which vary
with the prime lending rate and will become payable in full and are
generally refinanced in three to five years. Commercial loans amounted
to approximately 21% of the Companys total loan portfolio as of December
31, 2003, compared to 31% at December 31, 2002. The Companys consumer loan portfolio consists primarily of loans to
individuals for various consumer purposes, but includes some business
purpose loans which are payable on an installment basis. The majority of
these loans are for terms of less than five years and are secured by
liens on various personal assets of the borrowers, but
consumer loans may also be made on an unsecured basis. Consumer loans
are made at fixed and variable interest rates, and are often based on up
to a five-year amortization schedule. For additional information regarding the Companys loan portfolio,
seeManagements Discussion and Analysis of Financial Condition and
Results of Operations  - Financial Condition. 3




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Loan originations are derived from a number of sources. Loan
originations can be attributed to direct solicitation by the Companys
loan officers, existing customers and borrowers, advertising, walk-in
customers. Certain credit risks are inherent in making loans. These include
prepayment risks, risks resulting from uncertainties in the future value
of collateral, risks resulting from changes in economic and industry
conditions, and risks inherent in dealing with individual borrowers. In
particular, longer maturities increase the risk that economic conditions
will change and adversely affect collectibility. The Company attempts to
minimize credit losses through various means. In particular, on larger
credits, the Company generally relies on the cash flow of a debtor as the
source of repayment and secondarily on the value of the underlying
collateral. In addition, the Company attempts to utilize shorter loan
terms in order to reduce the risk of a decline in the value of such
collateral. 
 Deposit Activities Deposits are the major source of the Companys funds for lending and
other investment activities. The Company considers the majority of its
regular savings, demand, NOW and money market deposit accounts to be core
deposits. These accounts comprised approximately 57% and 58% of the
Companys consolidated total deposits at December 31, 2003 and 2002,
respectively. Approximately 43% of the Companys consolidated deposits
at December 31, 2003 were certificates of deposit compared to 42% at
December 31, 2002. Generally, the Company attempts to maintain the rates
paid on its deposits at a competitive level. Time deposits of $100,000
and over made up approximately 27% and 33% of the Companys consolidated
total deposits at December 31, 2003 and 2002, respectively. The majority
of the deposits of the Company are generated from Orange and Seminole
Counties. The Company does not currently accept brokered deposits. For
additional information regarding the Companys deposit accounts, see
Managements Discussion and Analysis of Financial Condition and Results
of Operations  Financial Condition. 
 Investments The Company invests a portion of its assets in U.S. Government
agency obligations, mortgage-backed securities and federal funds sold.
The Companys investments are managed in relation to loan demand and
deposit growth, and are
generally used to provide for the investment of excess funds at minimal
risks while providing liquidity to fund increases in loan demand or to
offset fluctuations in deposits. With respect to the Companys investment portfolio, the Companys
total portfolio may be invested in U.S. Treasury and general obligations
of its agencies because such securities generally represent a minimal
investment risk. In addition to the investment portfolio, the Company
may invest in federal funds sold. Federal funds sold is the excess cash
the Company has available over and above daily cash needs. This money is
invested on an overnight basis with approved correspondent banks. 4




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The Company monitors changes in financial markets. In addition to
investments for its portfolio, the Company monitors its daily cash
position to ensure that all available funds earn interest at the earliest
possible date. A portion of the investment account is designated as
secondary reserves and invested in liquid securities that can be readily
converted to cash with minimum risk of market loss. These investments
usually consist of U.S. Treasury obligations, U.S. government agencies
and federal funds. The remainder of the investment account may be placed
in investment securities of different type and longer maturity. Daily
surplus funds are sold in the federal funds market for one business day.
The Company attempts to stagger the maturities of its securities so as to
produce a steady cash-flow in the event the Company needs cash, or
economic conditions change to a more favorable rate environment. 
 Correspondent Banking Correspondent banking involves one bank providing services to
another bank which cannot provide that service for itself from an
economic or practical standpoint. The Company is required to purchase
correspondent services offered by larger banks, including check
collections, purchase of federal funds, security safekeeping, investment
services, coin and currency supplies, overline and liquidity loan
participations and sales of loans to or participation with correspondent
banks. The Company will sell loan participations to correspondent banks
with respect to loans which exceed the Companys lending limit.
Management of the Company has established correspondent relationships
with Independent Bankers Bank of Florida and SunTrust. The Company pays
for such services. 
 Data Processing The Company outsources its data processing to a large bank data
processor which provides a full range of data processing services,
including an automated general ledger, deposit accounting, and
commercial, mortgage and installment lending data processing. 
 Effect of Governmental Policies The earnings and business of the Company are and will be affected by
the policies of various regulatory authorities of the United States,
especially the Federal Reserve.
The Federal Reserve, among other things, regulates the supply of credit
and deals with general economic conditions within the United States. The
instruments of monetary policy employed by the Federal Reserve for these
purposes influence in various ways the overall level of investments,
loans, other extensions of credit and deposits, and the interest rates
paid on liabilities and received on assets. 
 Interest and Usury 5




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The Company is subject to numerous state and federal statutes that
affect the interest rates that may be charged on loans. These laws do
not, under present market conditions, deter the Company from continuing
the process of originating loans. 
 Supervision and Regulation Banks and their holding companies, and many of their affiliates, are
extensively regulated under both federal and state law. The following is
a brief summary of certain statutes, rules, and regulations affecting the
Company and the Banks. This summary is qualified in its entirety by
reference to the particular statutory and regulatory provisions referred
to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the business of the Company and the
Banks. Supervision, regulation, and examination of banks by regulatory
agencies are intended primarily for the protection of depositors, rather
than shareholders. Bank Holding Company Regulation. The Company is a bank holding
company, registered with the Federal Reserve under the BHC Act. As such,
the Company is subject to the supervision, examination and reporting
requirements of the BHC Act and the regulations of the Federal Reserve.
The BHC Act requires that a bank holding company obtain the prior
approval of the Federal Reserve before (i) acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any bank,
(ii) taking any action that causes a bank to become a subsidiary of the
bank holding company, or (iii) merging or consolidating with any other
bank holding company. The BHC Act further provides that the Federal Reserve may not
approve any transaction that would result in a monopoly or would be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any section of the United States,
or the effect of which may be substantially to lessen competition or to
tend to create a monopoly in any section of the country, or that in any
other manner would be in restraint of trade, unless the anticompetitive
effects of the proposed transaction are clearly outweighed by the public
interest in meeting the convenience and needs of the community to be
served. The Federal Reserve is also required to consider the financial
and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience, and needs of the
community to be served. Consideration of financial resources generally
focuses on capital adequacy and consideration of convenience and needs
issues includes the parties performance under the Community Reinvestment
Act of 1977 (the CRA), both of which are discussed below. Banks are subject to the provisions of the CRA. Under the terms of
the CRA, the appropriate federal bank regulatory agency is required, in
connection with its examination of a bank, to assess such banks record
in meeting the credit needs of the community served by that bank,
including low- and moderate-income neighborhoods. The regulatory
agencys assessment of the banks record is made available to the public.
Further, such assessment is required of any bank which has applied to:  
    
    charter a bank,
    
    obtain deposit insurance coverage for a newly chartered institution, 6




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
    
    establish a new branch office that will accept deposits,
    
    relocate an office, or
    
    merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution In the case of a bank holding company applying for approval to
acquire a bank or other bank holding company, the Federal Reserve will
assess the record of each subsidiary bank of the applicant bank holding
company, and such records may be the basis for denying the application. The BHC Act generally prohibits a bank holding company from engaging
in activities other than banking, or managing or controlling banks or
other permissible subsidiaries, and from acquiring or retaining direct or
indirect control of any company engaged in any activities other than
those activities determined by the Federal Reserve to be so closely
related to banking or managing or controlling banks as to be a proper
incident thereto. In determining whether a particular activity is
permissible, the Federal Reserve must consider whether the performance of
such an activity can reasonably be expected to produce benefits to the
public, such as greater convenience, increased competition, or gains in
efficiency that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices. For example, factoring accounts
receivable, acquiring or servicing loans, leasing personal property,
conducting securities brokerage activities, performing certain data
processing services, acting as agent or broker in selling credit life
insurance and certain other types of insurance in connection with credit
transactions, and certain insurance underwriting activities have all been
determined by regulations of the Federal Reserve to be permissible
activities of bank holding companies. Despite prior approval, the
Federal Reserve has the power to order a holding company or its
subsidiaries to terminate any activity or terminate its ownership or
control of any subsidiary, when it has reasonable cause to believe that
continuation of such activity or such ownership or control constitutes a
serious risk to the financial safety, soundness, or stability of any bank
subsidiary of that bank holding company. Gramm-Leach-Bliley Act. Enacted in 1999, The Gramm-Leach-Bliley Act
reforms and modernizes certain areas of financial services regulation.
The law permits the creation of new financial services holding companies
that can offer a full range of financial products under a regulatory
structure based on the principle of functional regulation. The
legislation eliminates the legal barriers to affiliations among banks and
securities firms, insurance companies, and other financial services
companies. The law also provides financial organizations with the
opportunity to structure these new financial affiliations through a
holding company structure or a financial subsidiary. The new law
reserves the role of the Federal Reserve Board as the supervisor for bank
holding companies. At the same time, the law also provides a system of
functional regulation which is designed to utilize the various existing
federal and state regulatory bodies. The law also includes a minimum federal standard of financial
privacy. Financial institutions are required to have written privacy
policies that must be disclosed to customers. The disclosure of a
financial institutions privacy policy must take place at the time a
customer relationship is established and not less than annually during
the continuation of the relationship. The act also 7




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provides for the
functional regulation of bank securities activities. The law repeals the
exemption that banks were afforded from the definition of broker, and
replaces it with a set of limited exemptions that allow the continuation
of some historical activities performed by banks. In addition, the act
amends the securities laws to include banks within the general definition
of dealer. Regarding new bank products, the law provides a procedure for
handling products sold by banks that have securities elements. In the
area of Community Reinvestment Act activities, the law generally requires
that financial institutions address the credit needs of low-to-moderate
income individuals and neighborhoods in the communities in which they
operate. Bank regulators are required to take the Community Reinvestment
Act ratings of a bank or of the bank subsidiaries of a holding company
into account when acting upon certain branch and bank merger and
acquisition applications filed by the institution. Under the law,
financial holding companies and banks that desire to engage in new
financial activities are required to have satisfactory or better
Community Reinvestment Act ratings when they commence the new activity. Recent Legislation to Curtail Corporate Accounting Irregularities.
On July 30, 2002, the Sarbanes-Oxley Act of 2002 (the Sarbanes Act) was
enacted. The Securities and Exchange Commission (the SEC) has
promulgated certain regulations pursuant to the Sarbanes Act and will
continue to propose additional implementing or clarifying regulations as
necessary in furtherance of the Sarbanes Act. The passage of the
Sarbanes Act and the regulations implemented by the SEC subject
publicly-traded companies to additional and more extensive reporting
regulations and disclosure. Compliance with the Sarbanes Act and
corresponding regulations may increase the Companys expenses. Bank Regulation. The Banks are chartered under the laws of the
State of Florida, and their deposits are insured by the Federal
Deposition Insurance Corporation (FDIC) to the extent provided by law.
The Banks are subject to comprehensive regulation, examination and
supervision by the FDIC and the Florida Office of Financial Regulation
(the Florida Department) and to other laws and regulations applicable
to banks. Such regulations include limitations on loans to a single
borrower and to its directors, officers and employees; restrictions on
the opening and closing of branch offices; the maintenance of required
capital and liquidity ratios; the granting of credit under equal and fair
conditions; and the disclosure of the costs and terms of such credit.
The Banks are examined periodically by the FDIC and the Florida
Department, to whom it submits
periodic reports regarding its financial condition and other matters.
The FDIC and the Florida Department have a broad range of powers to
enforce regulations under their jurisdiction, and to take discretionary
actions determined to be for the protection and safety and soundness of
banks, including the institution of cease and desist orders and the
removal of directors and officers. The FDIC and the Florida Department
also have the authority to approve or disapprove mergers,
consolidations, and similar corporate actions. There are various statutory limitations on the ability of the
Company to pay dividends. The FDIC and the Florida Department also have
the general authority to limit the dividend payment by banks if such
payment may be deemed to constitute an unsafe and unsound practice. For
information 8




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on the restrictions on the right of the Banks to pay
dividends to the Company, seePart II - Item 5 Market for the
Registrants Common Equity and Related Stockholder Matters. Under federal law, federally insured banks are subject, with certain
exceptions, to certain restrictions on any extension of credit to their
parent holding companies or other affiliates, on investment in the stock
or other securities of affiliates, and on the taking of such stock or
securities as collateral from any borrower. In addition, banks are
prohibited from engaging in certain tie-in arrangements in connection
with any extension of credit or the providing of any property or service. The Financial Institutions Reform, Recovery and Enforcement Act of
1989 (FIRREA) imposed major regulatory reforms, stronger capital
standards for savings and loan associations and stronger civil and
criminal enforcement provisions. FIRREA also provides that a depository
institution insured by the FDIC can be held liable for any loss incurred
by, or reasonably expected to be incurred by, the FDIC in connection
with:  
    
    the default of a commonly controlled FDIC insured depository institution; or
    
    any assistance provided by the FDIC to a commonly controlled FDIC insured institution in danger of default. The FDIC Improvement Act of 1993 (FDICIA) made a number of reforms
addressing the safety and soundness of deposit insurance funds,
supervision, accounting, and prompt regulatory action, and also
implemented other regulatory improvements. Annual full-scope, on-site
examinations are required of all insured depository institutions. The
cost for conducting an examination of an institution may be assessed to
that institution, with special consideration given to affiliates and any
penalties imposed for failure to provide information requested. Insured
state banks also are precluded from engaging as principal in any type of
activity that is impermissible for a national bank, including activities
relating to insurance and equity investments. The Act also recodified
current law restricting extensions of credit to insiders under the
Federal Reserve Act. Also important in terms of its effect on banks has been the
deregulation of interest rates paid by banks on deposits and the types of
deposit accounts that may be offered by banks. Most regulatory limits on
permissible deposit interest rates and minimum deposit
amounts expired several years ago. The effect of the deregulation of
deposit interest rates generally has been to increase the costs of funds
to banks and to make their costs of funds more sensitive to fluctuations
in money market rates. A result of the pressure on banks interest
margins due to deregulation has been a trend toward expansion of services
offered by banks and an increase in the emphasis placed on fee or
noninterest income. Capital Requirements. The Federal Reserve Board and bank regulatory
agencies require bank holding companies and financial institutions to
maintain capital at adequate levels based on a percentage of assets and
off balance sheet exposures, adjusted for risk weights ranging from 0% to
100%. Under the risk-based standard, capital is classified into two
tiers. Tier 1 capital consists of common shareholders equity, excluding
the unrealized gain (loss) on available-for-sale securities, 9




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minus
certain intangible assets. Tier 2 capital consists of the general
allowance for credit losses except for certain limitations. An
institutions qualifying capital base for purposes of its risk-based
capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The
regulatory minimum requirements are 4% for Tier 1 and 8% for total
risk-based capital. At December 31, 2003, United Heritage Banks Tier 1
and total risk-based capital ratios were 14.42% and 15.47%, respectively,
Community United Bank of Floridas Tier 1 and total risk-based capital
ratios were 10.86% and 12.00%, respectively, and the consolidated
Companys Tier 1 and total risk-based capital ratios were 12.86% and
13.95%, respectively. Bank holding companies and banks are also required to maintain
capital at a minimum level based on total assets, which is known as the
leverage ratio. The minimum requirement for the leverage ratio is 3%,
but all but the highest rated institutions are required to maintain
ratios 100 to 200 basis points above the minimum. At December 31, 2003,
the Companys, United Heritage Banks and Community United Bank of
Floridas leverage ratios were 9.32%, 10.64% and 7.90%, respectively. FDICIA contains prompt corrective action provisions pursuant to
which banks are to be classified into one of five categories based upon
capital adequacy, ranging from well capitalized to critically
undercapitalized and which require (subject to certain exceptions) the
appropriate federal banking agency to take prompt corrective action with
respect to an institution which becomes significantly undercapitalized
or critically undercapitalized. The FDIC has issued regulations to implement the prompt corrective
action provisions of FDICIA. In general, the regulations define the
five capital categories as follows:  
    
    an institution is well capitalized if it has a total risk-based
capital ratio of 10% or greater, has a Tier 1 risk-based capital ratio
of 6% or greater, has a leverage ratio of 5% or greater and is not
subject to any written capital order or directive to meet and maintain
a specific capital level for any capital measures;
    
    an institution is adequately capitalized if it has a total
risk-based capital ratio of 8% or greater, has a Tier 1 risk-based
capital ratio of 4% or greater, and has a leverage ratio of 4% or
greater;
    
    an institution is undercapitalized if it has a total risk-based
capital ratio of less than 8%, has a Tier 1 risk-based capital ratio
that is less than 4% or has a leverage ratio that is less than 4%;
    
    an institution is significantly undercapitalized if it has a total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based
capital ratio that is less than 3% or a leverage ratio that is less
than 3%; and
    
    an institution is critically undercapitalized if its tangible
equity is equal to or less than 2% of its total assets. The FDIC also, after an opportunity for a hearing, has authority to
downgrade an institution from well capitalized to adequately
capitalized or to subject an adequately capitalized or 10




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##### Table of Contents



undercapitalized institution to the supervisory actions applicable to
the next lower category, for supervisory concerns. Generally, FDICIA requires that an undercapitalized institution
must submit an acceptable capital restoration plan to the appropriate
federal banking agency within 45 days after the institution becomes
undercapitalized and the agency must take action on the plan within 60
days. The appropriate federal banking agency may not accept a capital
restoration plan unless, among other requirements, each company having
control of the institution has guaranteed that the institution will
comply with the plan until the institution has been adequately
capitalized on average during each of the three consecutive calendar
quarters and has provided adequate assurances of performance. The
aggregate liability under this provision of all companies having control
of an institution is limited to the lesser of:  
    
    5% of the institutions total assets at the time the institution becomes
undercapitalized or
    
    the amount which is necessary, or would have been necessary, to bring the
institution into compliance with all capital standards applicable to the
institution as of the time the institution fails to comply with the plan
filed pursuant to FDICIA. An undercapitalized institution may not acquire an interest in any
company or any other insured depository institution, establish or acquire
additional branch offices or engage in any new business unless the
appropriate federal banking agency has accepted its capital restoration
plan, the institution is implementing the plan, and the agency determines
that the proposed action is consistent with and will further the
achievement of the plan, or the appropriate Federal banking agency
determines the proposed action will further the purpose of the prompt
corrective action sections of FDICIA. If an institution is critically undercapitalized, it must comply
with the restrictions described above. In addition, the appropriate
Federal banking agency is authorized to restrict the activities of any
critically undercapitalized institution and to prohibit such an
institution, without the appropriate Federal banking agencys prior
written approval, from:  
    
    entering into any material transaction other than in the usual course of business;
    
    engaging in any covered transaction with affiliates (as defined in Section 23A(b) of the Federal Reserve Act);
    
    paying excessive compensation or bonuses; and
    
    paying interest on new or renewed liabilities at a rate that would increase the institutions weighted average costs of
funds to a level significantly exceeding the prevailing rates of interest on insured deposits in the institutions normal
market areas. The prompt corrective action provisions of FDICIA also provide
that in general no institution may make a capital distribution if it
would cause the institution to become undercapitalized. Capital
distributions include cash (but not stock) dividends, stock purchases,
redemptions, and other distributions of capital to the owners of an
institution. 11




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##### Table of Contents



Additionally, FDICIA requires, among other things, that:  
    
    only a well capitalized depository institution may accept brokered
deposits without prior regulatory approval and
    
    the appropriate federal banking agency annually examine all insured
depository institutions, with some exceptions for small, well
capitalized institutions and state-chartered institutions examined by
state regulators. FDICIA also contains a number of consumer banking provisions,
including disclosure requirements and substantive contractual limitations
with respect to deposit accounts. As of December 31, 2003, the Company and the Banks met the capital
requirements of a well capitalized institution. The FDIC has proposed revising its risk-based capital requirements
to ensure that such requirements provide for explicit consideration by
commercial banks of interest rate risk. Under the proposed rule, a
banks interest rate risk exposure would be quantified using either the
measurement system set forth in the proposal or the banks internal model
for measuring such exposure, if such model is determined to be adequate
by the banks examiner. If the dollar amount of a banks interest rate
risk exposure, as measured by either measurement system, exceeds 1% of
the banks total assets, the bank would be required under the proposed
rule to hold additional capital equal to the dollar amount of the excess.
It is anticipated that the regulatory agencies will issue a revised
proposed rule for further public comment. Pending issuance of such
revised proposal, the Companys management cannot determine what effect,
if any, an interest rate risk component would have on the capital of its
subsidiary bank. Enforcement Powers. Congress has provided the federal bank
regulatory agencies with an array of powers to enforce laws, rules,
regulations and orders. Among other things, the agencies may require
that institutions cease and desist from certain activities, may preclude
persons from participating in the affairs of insured depository
institutions, may suspend or remove deposit insurance, and may impose
civil money penalties against institution-affiliated parties for certain
violations. Maximum Legal Interest Rates. Like the laws of many states, Florida
law contains provisions on interest rates that may be charged by banks
and other lenders on certain types of loans. Numerous exceptions exist to
the general interest limitations imposed by Florida law. The relative
importance of these interest limitation laws to the financial operations
of the Banks will vary from time to time, depending on a number of
factors, including conditions in the money markets, the costs and
availability of funds, and prevailing interest rates. Bank Branching. Banks in Florida are permitted to branch state
wide. Such branch banking, however, is subject to prior approval by the
FDIC and the Florida Department. Any such approval would take into
consideration several factors, including the banks level of capital, the
prospects and 12




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##### Table of Contents



economics of the proposed branch office, and other
conditions deemed relevant by the FDIC and the Florida Department for
purposes of determining whether approval should be granted to open a
branch office. Change of Control. Federal law restricts the amount of voting stock
of a bank holding company and a bank that a person may acquire without
the prior approval of banking regulators. The overall effect of such laws
is to make it more difficult to acquire a bank holding company and a bank
by tender offer or similar means than it might be to acquire control of
another type of corporation. Consequently, shareholders of the Company
may be less likely to benefit from the rapid increases in stock prices
that may result from tender offers or similar efforts to acquire control
of other companies. Federal law also imposes restrictions on
acquisitions of stock in a bank holding company and a state bank. Under
the federal Change in Bank Control Act and the regulations thereunder, a
person or group must give advance notice to the Federal Reserve before
acquiring control of any bank holding company. Upon receipt of such
notice, the Federal Reserve may approve or disapprove the acquisition.
The Change in Bank Control Act creates a rebuttable presumption of
control if a member or group acquires a certain percentage or more of a
bank holding companys or state banks voting stock, or if one or more
other control factors set forth in the Act are present. Florida law also
contains comparable provisions requiring persons to obtain Florida
Department approval prior to acquiring indirect control of the state bank
through the acquisition of control of its bank holding company. Interstate Banking. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1996, provides for nationwide interstate
banking and branching. Under the law, interstate acquisitions of banks
or bank holding companies in any state by bank holding companies in any
other state will be permissible one year after enactment. Interstate
branching and consolidation of existing bank subsidiaries in different
states is permissible. Florida has a law that allows out-of-state bank
holding companies (located in states that allow Florida bank holding
companies to acquire banks and bank holding companies in that state) to
acquire Florida banks and Florida bank holding companies. The law
essentially provides for out-of-state entry by acquisition only (and not
by interstate branching) and requires the acquired Florida bank to have
been in existence for at least three years. Effect of Governmental Policies. The earnings and businesses of the
Company and the Banks are affected by the policies of various regulatory
authorities of the United States, especially the Federal Reserve. The
Federal Reserve, among other things, regulates the supply of credit and
deals with general economic conditions within the United States. The
instruments of monetary policy employed by the Federal Reserve for those
purposes influence in various ways the overall level of investments,
loans, other extensions of credit, and deposits, and the interest rates
paid on liabilities and received on assets. 
 Competition The Company encounters strong competition both in making loans and
in attracting deposits. The deregulation of the banking industry and the
widespread enactment of state laws which permit 13




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##### Table of Contents



multi-bank holding
companies as well as an increasing level of interstate banking have
created a highly competitive environment for commercial banking. In one
or more aspects of its business, the Company competes with other
commercial banks, savings and loan associations, credit unions, finance
companies, mutual funds, insurance companies, brokerage and investment
banking companies, and other financial intermediaries. Most of these
competitors, some of which are affiliated with bank holding companies,
have substantially greater resources and lending limits, and may offer
certain services that the Company does not currently provide. In
addition, many of the Companys non-bank competitors are not subject to
the same extensive federal regulations that govern bank holding companies
and federally insured banks. Recent federal and state legislation has
heightened the competitive environment in which financial institutions
must conduct their business, and the potential for competition among
financial institutions of all types has increased significantly. To compete, the Company relies upon specialized services, responsive
handling of customer needs, and personal contacts by its officers,
directors, and staff. Large multi-branch banking competitors tend to
compete primarily by rate and the number and location of branches while
smaller, independent financial institutions tend to compete primarily by
rate and personal service. 
 Employees As of December 31, 2003, the Company and the Banks collectively had
47 full-time employees (including executive officers) and four part-time
employees. The employees are not represented by a collective bargaining
unit. The Company and the Banks consider relations with employees to be
good. 
 Statistical Profile and Other Financial Data Reference is hereby made to the statistical and financial data
contained in the section captioned Managements Discussion and Analysis
of Financial Condition and Results of Operations, for statistical and
financial data providing a review of the Companys business activities. 
 Item 2. Description of Properties The main office of the Company is located at 1411 Edgewater Drive,
Suite 200, Orlando, Florida 32804. The main office of United Heritage
Bank is located at 3378 Edgewater Drive, Orlando, Florida 32804.
Additional offices are located at 100 East Packwood Avenue, Maitland,
Florida 32751; 1211 Orange Avenue, Suite 101, Winter Park, Florida
32789; 21 East Third Street, Apopka, Florida 32703; 3001 West Lake Mary
Boulevard, Lake Mary, Florida 32746; 413 West First Street, Sanford,
Florida 32771; and 162 East SR 434, Longwood, Florida 32750. 
 Item 3. Legal Proceedings The Company and the Banks are periodically parties to or otherwise
involved in legal proceedings arising in the normal course of business,
such as claims to enforce liens, claims involving the making and
servicing of real property loans, and other issues incident to their
respective 14




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##### Table of Contents



businesses. Management does not believe that there is any
pending or threatened proceeding against the Company or the Banks which,
if determined adversely, would have a material adverse effect on the
Companys consolidated financial position. 
 Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the Company security holders
during the fourth quarter of the year ended December 31, 2003. 15




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##### Table of Contents



PART II 
 Item 5. Market for Common Equity and Related Stockholder Matters The shares of the Company Common Stock are not actively traded, and
such trading activity, as it occurs, takes place in privately negotiated
transactions. There is no established public trading market for the shares of the Company Common Stock. Management of the Company is aware
of certain transactions in its shares that have occurred since March 27,
2001 (the day that the shares of the Company Common Stock commenced
trading), although the trading prices of all stock transactions are not
known. The following sets forth the high and low trading prices for
certain trades of the Company Common Stock that occurred in transactions
known to the Company management during 2003 and 2002: 2003
    
    2002High
    
    Low
    
    Shares
    
    High
    
    Low
    
    Shares1st Quarter
    
    $
    12
    
    
    $
    12
    
    
    
    52,000
    
    
    $
    11
    
    
    $
    11
    
    
    
    2,0002nd Quarter
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3rd Quarter
    
    
    13
    
    
    
    13
    
    
    
    639
    
    
    
    
    
    
    
    
    
    
    
    4th Quarter
    
    
    13
    
    
    
    13
    
    
    
    512
    
    
    
    11
    
    
    
    11
    
    
    
    10,000
 The Company had approximately 700 shareholders of record as of
December 31, 2003. 
 Dividends The Company has not paid any cash dividends in the past. The
Company intends that, for the foreseeable future, it will retain earnings
to finance continued growth rather than pay cash dividends on the Company
Common Stock. If at any time the Companys Board determines to pay
dividends on the Company Common Stock, the timing and the extent to which
dividends are paid by the Company will be determined by such Board in
light of then-existing circumstances, including the Companys rate of
growth, profitability, financial condition, existing and anticipated
capital requirements, the amount of funds legally available for the
payment of cash dividends, regulatory constraints and such other factors
as the Board determines relevant. The source of funds for payment of
dividends by the Company will be dividends received from the Banks.
Payments by the Banks to the Company are limited by law and regulations
of the bank regulatory authorities. There are various statutory and
contractual limitations on the ability of the Banks to pay dividends to
the Company. The FDIC and the Florida Department also have the general
authority to limit the dividends paid by banks if such payment may be
deemed to constitute an unsafe and unsound practice. Under Florida law,
after making provisions for a reasonably anticipated future losses on
loans and other assets, the board of directors of a bank may declare a
dividend of so much of the banks aggregate net profits for the current
year combined with its retained earnings (if any) for
the preceding two years as the board deems appropriate and, with the
approval of the Florida Department, may declare a dividend from retained
earnings for prior years. No dividends may be paid at a time when a
banks net earnings from the preceding two years is a loss or which would
cause the capital accounts of the bank 16




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##### Table of Contents



to fall below the minimum amount
required by law, regulation, order or any written agreement with the
Florida Department or a federal regulatory agency. Florida law applicable to companies (including the Company) provides
that dividends may be declared and paid only if, after giving it effect,
(i) the company is able to pay its debts as they become due in the usual
course of business, and (ii) the companys total assets would be greater
than the sum of its total liabilities plus the amount that would be
needed if the company were to be dissolved at the time of the dividend to
satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the dividend. During June 2003, the Company closed the sale of 187,500 shares of
its Common Stock at a price of $12.00 per share (or $2,250,000 in the
aggregate) pursuant to the Companys Stock Purchase Plan. The shares
were purchased by directors and employees of the Companys two subsidiary
banks. No underwriter was involved in the transaction. The shares were
sold in reliance upon the exemption under Regulation 701 issued under the
Securities Act of 1933, which provides an exemption from the registration
requirements of that Act for offers and sales of securities under a
compensatory benefit plan for participation by employees and directors of
the issuer and its subsidiaries. 
 Item 6. Managements Discussion and Analysis of Financial Condition and
Results of Operations Managements discussion and analysis of operations and related
financial data are presented herein to assist investors in understanding
the financial condition of the Company at, and results of operations of
the Company for the years ended, December 31, 2003 and 2002. This
discussion should be read in conjunction with the consolidated financial
statements and related footnotes of the Company presented elsewhere
herein. 17




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##### Table of Contents



Selected Financial Data (dollars in thousands except per share data) At or For the Years Ended December 312003
    
    2002Interest income
    
    $
    13,554
    
    
    $
    5,762Interest expense
    
    
    5,590
    
    
    
    2,321Net interest income before provision for loan losses
    
    
    7,964
    
    
    
    3,441Provision for loan losses
    
    
    784
    
    
    
    542Net interest income after provision
    
    
    7,180
    
    
    
    2,899Noninterest income
    
    
    526
    
    
    
    270Noninterest expenses
    
    
    6,258
    
    
    
    3,301Gain on sale of other real estate owned
    
    
    28
    
    
    
    -0-Gain on sale of securities
    
    
    5
    
    
    
    33Income (loss) before income taxes
    
    
    1,449
    
    
    
    (131
    )Income tax
    
    
    568
    
    
    
    2Net income (loss)
    
    
    881
    
    
    
    (133
    )Per share data:Basic earnings per share
    
    
    .28
    
    
    
    (.07
    )Cash dividends declared
    
    
    -0-
    
    
    
    -0-Book value at end of period
    
    
    9.73
    
    
    
    9.73Common shares outstanding at end of period
    
    
    3,256,888
    
    
    
    2,000,000Weighted average common shares outstanding
during period
    
    
    3,170,513
    
    
    
    2,000,000Total assets at end of period
    
    
    324,324
    
    
    
    138,645Cash and cash equivalents
    
    
    60,629
    
    
    
    24,565Investment securities
    
    
    56,386
    
    
    
    29,302Loans, net
    
    
    198,480
    
    
    
    80,162Deposits
    
    
    286,572
    
    
    
    118,114Securities sold under agreements to repurchase
    
    
    5,174
    
    
    
    837Stockholders equity
    
    
    31,676
    
    
    
    19,468Total loans before allowance for loan losses
    
    
    201,006
    
    
    
    81,176Allowance for loan losses
    
    
    2,526
    
    
    
    1,014Nonperforming loans
    
    
    491
    
    
    
    Allowance for loan losses as a percentage
of period-end total loans
    
    
    1.26
    %
    
    
    1.25
    %Allowance for loan losses as a percentage
of nonperforming loans
    
    
    514.46
    %
    
    
    n/aTotal nonperforming loans as a percentage
of total loans
    
    
    0.24
    %
    
    
    n/aTotal nonperforming loans as a percentage
of total assets
    
    
    0.15
    %
    
    
    n/aTotal nonperforming loans and real estate
owned as a percentage of total assets
    
    
    0.15
    %
    
    
    n/a
 18




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##### Table of Contents



General The Companys principal asset is its ownership of the Banks.
Accordingly, the Companys results of operations are primarily dependent
upon the results of operations of the Banks. The Company conducts
commercial banking business consisting of attracting deposits from the
general public and applying those funds to the origination of commercial,
consumer and real estate loans (including commercial loans collateralized
by real estate). The Companys profitability depends primarily on net
interest income, which is the difference between interest income
generated from interest-earning assets (i.e., loans and investments) less
the interest expense incurred on interest-bearing liabilities (i.e.,
customer deposits and borrowed funds). Net interest income is affected
by the relative amounts of interest-earning assets and interest-bearing
liabilities, and the interest rate earned and paid on these balances.
Net interest income is dependent upon the Companys interest-rate spread
which is the difference between the average yield earned on its
interest-earning assets and the average rate paid on its interest-bearing
liabilities. When interest-earning assets approximate or exceed
interest-bearing liabilities, any positive interest rate spread will
generate net interest income. The interest rate spread is impacted by
interest rates, deposit flows, and loan demand. Additionally, and to a
lesser extent, the Companys profitability is affected by such factors as
the level of noninterest income and expenses, the provision for loan
losses, and the effective tax rate. Noninterest income consists primarily
of service charges and fees. Noninterest expense consists of salaries
and employee benefits, occupancy expenses, deposit insurance premiums
paid to the FDIC, and other operating expenses. 
 Liquidity and Capital Resources The Banks are required to maintain a liquidity reserve of at least
3% of its net transaction deposit accounts under $45.4 million. Where
net transaction deposit accounts exceed $45.4 million, the reserve
requirements are $1,164,000 plus 10% of the amount over $45.4 million.
The liquidity reserve may consist of cash on hand, cash on demand deposit
with other correspondent banks, and other investments and short-term
marketable securities as determined by the rules of the bank regulatory
agencies, such as federal funds sold and United States securities or
securities guaranteed by the United States. As of December 31, 2003 and
2002, United Heritage Bank had liquidity ratios of 24.45% and 31.57%,
respectively and Community United Bank of Florida had liquidity ratios of
26.25% and 24.00%, respectively. The Companys principal sources of funds are those generated by the
Banks, including net increases in deposits, principal and interest
payments on loans, and proceeds from maturities of investment securities. The Company uses its capital resources principally to fund existing
and continuing loan commitments and to purchase investment securities.
Commitments to extend credit, which amounted to $51.7 million at December
31, 2003 and $22.4 million at December 31, 2002, represent legally
binding agreements to lend to customers with fixed expiration dates or
other termination clauses. Since many commitments are
expected to expire without being funded, committed amounts do not 19




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##### Table of Contents



necessarily represent future liquidity requirements. In addition,
scheduled maturities of certificates of deposit during the 12 months
following December 31, 2003 and 2002 totaled $91 million and $22 million,
respectively. Management believes that the Company has adequate
resources to fund all its commitments, that substantially all of its
existing commitments will be funded within 12 months and, if so desired,
that the Company can adjust the rates and terms on certificates of
deposit and other deposit accounts to retain deposits in a changing
interest rate environment. In accordance with risk capital guidelines issued by the FDIC and
Federal Reserve, the Banks and the Company are required to maintain a
minimum standard of total capital to risk-weighted assets of 8.0%.
Additionally, regulatory agencies require banks and holding companies to
maintain a minimum leverage-capital ratio of Tier 1 capital (as defined)
to average assets. The leverage-capital ratio ranges from 3.0% to 5.0%
based on the banks and bank holding companys rating under the
regulatory rating system. The following table summarizes the regulatory capital levels and
ratios for the Banks and the Company: Actual RatiosCommunityUnited
    
    UnitedBank of
    
    Heritage
    
    
    
    
    
    RegulatoryFlorida
    
    Bank
    
    The Company
    
    RequirementAt December 31, 2003Total capital to risk-weighted assets
    
    
    12.0
    %
    
    
    15.5
    %
    
    
    13.9
    %
    
    
    10.0
    %Tier I capital to risk-weighted assets
    
    
    10.9
    %
    
    
    14.4
    %
    
    
    12.9
    %
    
    
    6.0
    %Tier I capital to average assets -
leverage assets
    
    
    7.9
    %
    
    
    10.6
    %
    
    
    9.3
    %
    
    
    5.0
    %At December 31, 2002Total capital to risk-weighted assets
    
    
    10.6
    %
    
    
    20.5
    %
    
    
    20.5
    %
    
    
    10.0
    %Tier I capital to risk-weighted assets
    
    
    9.5
    %
    
    
    19.5
    %
    
    
    19.5
    %
    
    
    6.0
    %Tier I capital to average assets -
leverage assets
    
    
    7.1
    %
    
    
    14.6
    %
    
    
    14.6
    %
    
    
    5.0
    %
 
 Results of Operations Net interest income before provision for loan losses, which constitutes
the principal source of income for the Company, represents the difference
between interest income on interest-earning assets and interest expense
on interest-bearing liabilities. The principal interest-earning assets
are investment securities and loans made to businesses and individuals.
Interest-bearing liabilities primarily consist of time deposits,
interest-bearing checking accounts (NOW accounts), retail savings
deposits and money market accounts. Funds attracted by these
interest-bearing liabilities are invested in interest-earning assets.
Accordingly, net interest income depends upon the volume of average
interest-earning assets and average interest-bearing liabilities and the
interest rates earned or paid on them. 20




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##### Table of Contents



Net interest income before provision for loan losses was approximately
$7,963,565 for the year ended December 31, 2003, compared to $3,441,575
for 2002. The following table shows selected ratios for the periods ended or at the
dates indicated: For the Years ended December 312003
    
    2002Average equity as a percentage of average assets
    
    
    10.34
    %
    
    
    17.34
    %Equity to total assets at end of period
    
    
    9.77
    %
    
    
    14.04
    %Return on average assets
    
    
    .29
    %
    
    
    (.07
    )%Return on average equity
    
    
    2.85
    %
    
    
    (.46
    )%Noninterest expense to average assets
    
    
    2.09
    %
    
    
    2.41
    %Nonperforming loans and foreclosed
real estate as a percent of Total Assets
    
    
    0.15
    %
    
    
    0.00
    %
 The rates and yields at the dates indicated were as follows: For the Years ended December 312003
    
    2002Loans
    
    
    6.77
    %
    
    
    7.13
    %Investment securities
    
    
    2.39
    %
    
    
    4.51
    %Other interest-earning assets
    
    
    1.10
    %
    
    
    1.70
    %All interest-earning assets
    
    
    4.85
    %
    
    
    5.56
    %Money market deposits
    
    
    1.93
    %
    
    
    2.62
    %Savings and NOW accounts
    
    
    .77
    %
    
    
    .68
    %Time deposits
    
    
    3.14
    %
    
    
    3.74
    %All interest-bearing liabilities
    
    
    2.39
    %
    
    
    2.98
    %Interest-rate spread
    
    
    2.46
    %
    
    
    2.58
    %
 The following table sets forth, for the periods indicated,
information regarding (i) the total dollar amount of interest and
dividend income of the Company from interest-earning assets and the
resultant average yield; (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost; (iii) net
interest/dividend income; (iv) interest-rate spread; and (v) net interest
margin. Average balances were based on average daily balances. 21




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##### Table of Contents



Year Ended December 312003
    
    2002Average
    
    Interest and
    
    Average
    
    Average
    
    Interest and
    
    AverageBalance
    
    Dividends
    
    Yield/Rate
    
    Balance
    
    Dividends
    
    Yield/Rate(dollars in thousands)
    
    (dollars in thousands)Interest-earning assets:Loans
    
    $
    172,178
    
    
    $
    11,654
    
    
    
    6.77
    %
    
    $
    59,126
    
    
    $
    4,216
    
    
    
    7.13
    %Securities
    
    
    55,684
    
    
    
    1,330
    
    
    
    2.39
    %
    
    
    28,088
    
    
    
    1,267
    
    
    
    4.51
    %Other interest-earning
assets (1)
    
    
    51,803
    
    
    
    570
    
    
    
    1.10
    %
    
    
    16,458
    
    
    
    279
    
    
    
    1.70
    %Total
interest-earning
assets
    
    $
    279,665
    
    
    $
    13,554
    
    
    
    4.85
    %
    
    $
    103,672
    
    
    $
    5,762
    
    
    
    5.56
    %Noninterest-earning assets
    
    
    19,131
    
    
    
    
    
    
    
    
    
    
    
    7,065Total assets
    
    $
    298,796
    
    
    
    
    
    
    
    
    
    
    $
    110,737Interest-bearing liabilities:Savings, NOW, money market
deposit accounts
    
    $
    117,697
    
    
    $
    1,982
    
    
    
    1.68
    %
    
    $
    41,762
    
    
    $
    1,008
    
    
    
    2.41
    %Time deposits
    
    
    114,818
    
    
    
    3,600
    
    
    
    3.14
    %
    
    
    34,640
    
    
    
    1,297
    
    
    
    3.74
    %Other interest-bearing
liabilities (2)
    
    
    1,524
    
    
    
    8
    
    
    
    0.52
    %
    
    
    1,459
    
    
    
    16
    
    
    
    1.10
    %Total
interest-bearing
liabilities
    
    $
    234,039
    
    
    $
    5,590
    
    
    
    2.39
    %
    
    $
    77,861
    
    
    $
    2,321
    
    
    
    2.98
    %Noninterest-bearing deposits
    
    
    33,285
    
    
    
    
    
    
    
    
    
    
    
    13,389Noninterest-bearing
liabilities
    
    
    583
    
    
    
    
    
    
    
    
    
    
    
    287Stockholders equity
    
    
    30,889
    
    
    
    
    
    
    
    
    
    
    
    19,200Total liabilities and
stockholders equity
    
    $
    298,796
    
    
    
    
    
    
    
    
    
    
    $
    110,737Net interest incomeInterest-rate spread (3)
    
    
    
    
    
    $
    7,964
    
    
    
    2.46
    %
    
    
    
    
    
    $
    3,441
    
    
    
    2.58
    %Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    2.85
    %
    
    
    
    
    
    
    
    
    
    
    3.32
    %Ratio of average
interest-earning assets to
average interest-bearing
liabilities
    
    
    1.19
    
    
    
    
    
    
    
    
    
    
    
    1.33
   (1)
    
    Includes Federal Home Loan Bank stock, Federal Funds sold
and interest-bearing deposits.(2)
    
    Includes securities sold under agreement to repurchase
and notes payable(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. The following table sets forth certain information regarding
changes in interest income and interest expense for the periods
indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes
attributable to (1) changes in rate (change in rate multiplied by
prior volume); (2) changes in volume (change in volume multiplied by
prior rate) and (3) changes in rate-volume (change in rate
multiplied by change in volume). 22




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##### Table of Contents



Year Ended December 31, 2003 vs. 2002Increase (Decrease) Due toRate/Rate
    
    Volume
    
    Volume
    
    Total(dollars in thousands)Interest-earning assets:Loans
    
    $
    (216
    )
    
    $
    8,061
    
    
    $
    (407
    )
    
    $
    7,438Investment securities
    
    
    (596
    )
    
    
    1,244
    
    
    
    (585
    )
    
    
    63Other interest-earning assets
    
    
    (95
    )
    
    
    596
    
    
    
    (210
    )
    
    
    291Total
    
    
    (907
    )
    
    
    9,901
    
    
    
    (1,202
    )
    
    
    7,792Interest-bearing liabilities:Deposits:Money market deposits
    
    
    (302
    )
    
    
    1,830
    
    
    
    (554
    )
    
    
    974Savings and NOW deposits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Time deposits
    
    
    (215
    )
    
    
    2,999
    
    
    
    (481
    )
    
    
    2,303Other
    
    
    102
    
    
    
    (72
    )
    
    
    (38
    )
    
    
    (8
    )Total
    
    
    (415
    )
    
    
    4,757
    
    
    
    (1,073
    )
    
    
    3,269Net change in net interest income
    
    $
    (492
    )
    
    $
    5,144
    
    
    $
    ( 129
    )
    
    $
    4,523
 General Net income for the year ended December 31, 2003 was $881,485 or
$.28 basic earnings per share compared to a net loss of $133,306 or
$.07 per share for the comparable period in 2002. The increase in
the Companys net income was primarily due to an increase in net
interest income, partially offset by an increase in noninterest
expenses. Interest Income and Expense Interest income increased to $13,553,055 for the year ended
December 31, 2003 from $5,762,189 for the year ended December 31,
2002. Interest income on loans increased to $11,653,513 primarily
due to an increase in the average loan portfolio balance from $59
million for the year ended December 31, 2002 to $172 million for
2003 which was partially offset by a decrease in the average yield
from 7.13% to 6.77%. Interest income on securities increased only
slightly to $1,329,792 in 2003 from $1,267,267 in 2002 primarily due
to a decrease in the average yield from 4.51% to 2.39%, despite the
total outstandings increasing from $29,302,153 in 2002 to
$56,386,133. An increase in mortgage-backed principal paydowns also
contributed to the decrease in interest income for 2003. Interest income on other interest-earning assets increased to
$569,750 in 2003 from $279,335 in 2002 primarily due to a increase
in the average balance to $52 million in 2003 from $16 million in
2002 and a decrease in the average yield to 1.10% in 2003 from 1.70%
in 2002. 23




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##### Table of Contents



Interest expense on interest bearing liabilities was $5,589,490
for the year ended December 31, 2003 compared to $2,320,614 for
2002. Interest expense increased due to an increase in average
interest bearing liabilities from $78 million in 2002 to $234
million in 2003, partially offset by a decrease in the average rate
paid from 2.98% in 2002 to 2.39% in 2003. Provision for Loan Losses The provision for loan losses is charged to operations to
increase the total allowance to a level deemed appropriate by
management and is based upon the volume and type of lending
conducted by the Company, industry standards, the amount of
nonperforming loans and 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 Company
recorded a provision for loan losses for the year ended December 31,
2003 of $783,865 compared to $542,764 in 2002. The allowance for
loan losses was $2,526,018 at December 31, 2003. Management
believes the allowance was adequate at December 31, 2003. Noninterest Income Noninterest income increased to $526,387 for the year ended
December 31, 2003 compared to $270,842 for the year ended December
31, 2002. The increase was primarily due to a $211,016 increase in
service charges and fees. Noninterest Expense Noninterest expense was $6,256,725 for the year ended December
31, 2003 compared to $3,300,920 for the year ended December 31,
2002. This increase of $2,955,805 includes approximately $2.3
million in salary, occupancy and equipment expense and other
operating expenses associated with the acquisition of Community
United Bank on January 13, 2003. The remaining increase is due to
the normal costs associated with the growth of the bank from 2002 to
2003. Income Tax Benefit The income tax expense for the year ended December 31, 2003 was
$567,877 (an effective rate of 39%, including state income taxes)
compared to approximately $2,039 for 2002 (an effective rate of 2%)
for the 2002 period. The effective tax rate in 2002 has been
impacted by state income tax, a rate differential in the actual tax
rate compared to the expected tax rate of deferred taxes associated
with use of the net operating loss in 2002, and the establishment of
a small valuation allowance. 
 Asset/Liability Management 24




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##### Table of Contents



A principal objective of the Companys asset/liability
management strategy is to minimize its exposure to changes in
interest rates by matching the maturity and repricing horizons of
interest-earning assets and interest-bearing liabilities. This
strategy is overseen in part through the direction of the Asset and
Liability Committee which establishes policies and monitors results
to control interest rate sensitivity. Management evaluates interest rate risk and then formulates
guidelines regarding asset generation and repricing, funding sources
and pricing, and off-balance sheet commitments in order to maintain
interest rate risk within target levels for the appropriate level of
risk which are determined by the Committee. The Committee uses
internally generated reports to measure the Banks interest rate
sensitivity. From these reports, the Committee can estimate the net
earnings effect of various interest rate scenarios. As a part of the Companys interest rate risk management
policy, the Committee examines the extent to which its assets and
liabilities are interest rate sensitive and monitors the banks
interest rate sensitivity gap. An asset or liability is considered
to be interest rate sensitive if it will reprice or mature within
the time period analyzed, usually one year or less. The interest
rate sensitivity gap is the difference between interest-earning
assets and interest-bearing liabilities scheduled to mature or
reprice within such time period. A gap is considered positive when
the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities. A gap is considered negative
when the amount of interest rate sensitive liabilities exceeds
interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest
income, while a positive gap would tend to result in an increase in
net interest income. During a period of falling interest rates, a
negative gap would tend to result in an increase in net interest
income, while a positive gap would tend to adversely affect net
interest income. If the repricing of each banks assets and
liabilities were equally flexible and moved concurrently, the impact
of any increase or decrease in interest rates on net interest income
would be minimal. A simple interest rate gap analysis by itself may not be an
accurate indicator of how net interest income will be affected by
changes in interest rates. Accordingly, the Committee also
evaluates how the repayment of particular assets and liabilities is
impacted by changes in interest rates. Income associated with
interest-earning assets and costs associated with interest-bearing
liabilities may not be affected uniformly by changes in interest
rates. In addition, the magnitude and duration of changes in
interest rates may have a significant impact on net interest income.
For example, although certain assets and liabilities may have
similar maturities or period of repricing, they may react in
different degrees to changes in market interest rates. Interest
rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest
rates on other types may lag behind changes in general market rates.
In addition, certain assets, such as adjustable rate mortgage
loans, have features (generally referred to as interest rate caps)
which limit changes in interest rates on a short-term basis and over
the life of the asset. In the event of a change in interest rates,
prepayment (on loans) and early withdrawal (of deposit accounts)
levels also could deviate significantly from those assumed in
calculating the interest rate gap. The ability of many borrowers to
service their debts also may decrease in the event of an interest
rate increase. 25




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##### Table of Contents



Managements strategy is to maintain a balanced interest rate
risk position to protect its net interest margin from market
fluctuations. Principal among the Companys asset/liability management
strategies has been the emphasis on managing its interest rate
sensitive liabilities in a manner designed to attempt to reduce the
Companys exposure during periods of fluctuating interest rates.
Management believes that the type and amount of the Companys
interest rate sensitive liabilities may reduce the potential impact
that a rise in interest rates might have on the Companys net
interest income. The Company seeks to maintain a core deposit base
by providing quality services to its customers without significantly
increasing its cost of funds or operating expenses. The Companys
demand, money market, savings, and NOW deposit accounts approximated
57% and 58% of total deposits at December 31, 2003 and 2002,
respectively. These accounts bore a weighted average cost of
deposits of 1.3% and 1.8% during the years ended December 31, 2003
and 2002, respectively. Management anticipates that these accounts
will continue to comprise a significant portion of the Companys
total deposit base. The Company also maintains a portfolio of
liquid assets in order to reduce its overall exposure to changes in
market interest rates. At December 31, 2003 and 2002, approximately
19% and 18%, respectively, of the Companys total assets consisted
of cash and due from banks, interest bearing deposits with banks,
and federal funds sold. In addition, at December 31, 2003 and 2002,
the Companys liquidity ratio was approximately 40% and 45%,
respectively. The Company also maintains a floor, or minimum
rate, on certain of its floating or prime based loans. These floors
allow the Company to continue to earn a higher rate when the
floating rate falls below the established floor rate. 26




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##### Table of Contents



The following table sets forth certain information relating to
the Companys interest-earning assets and interest-bearing
liabilities at December 31, 2003 that are estimated to mature or are
scheduled to reprice within the period shown: Under
    
    3 to 12
    
    
    
    
    
    Over3 Months
    
    Months
    
    1-5 Years
    
    5 Years
    
    Totals(dollars in thousands)Interest bearing deposits with banks
    
    $
    9,694
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,694Federal funds sold
    
    
    39,927
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,927Loans (1)
    
    
    99,256
    
    
    
    15,166
    
    
    
    38,459
    
    
    
    48,472
    
    
    
    201,353Securities (2)
    
    
    2,586
    
    
    
    7,761
    
    
    
    38,962
    
    
    
    7,540
    
    
    
    56,849Total rate-sensitive assets (earning assets)
    
    $
    151,463
    
    
    $
    22,927
    
    
    $
    77,421
    
    
    $
    56,012
    
    
    $
    307,823Money market (2)
    
    $
    89,971
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    89,971Savings and NOW deposits (2)
    
    
    
    
    
    
    
    
    
    
    30,032
    
    
    
    
    
    
    
    30,032Certificates of deposit (2)
    
    
    20,605
    
    
    
    70,700
    
    
    
    32,880
    
    
    
    36
    
    
    
    124,221Other borrowings
    
    
    5,174
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,174Total rate-sensitive liabilities
    
    $
    115,750
    
    
    $
    70,700.
    
    
    $
    62,912
    
    
    $
    36
    
    
    $
    249,398Gap (repricing differences)
    
    $
    35,713
    
    
    
    ($47,773
    )
    
    $
    14,509
    
    
    $
    55,976
    
    
    $
    58,425Cumulative Gap
    
    $
    35,713
    
    
    
    ($12,060
    )
    
    $
    2,449
    
    
    $
    58,425Cumulative GAP/total assets
    
    
    .11
    
    
    
    (.04
    )
    
    
    .01
    
    
    
    .18Cumulative GAP/total earning assets
    
    
    .12
    
    
    
    (.04
    )
    
    
    .01
    
    
    
    .19Total Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    324,324Total earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    307,823
   (1)
    
    In preparing the table above, adjustable-rate loans were
included in the period in which the interest rates are next
scheduled to adjust rather than in the period in which the
loans mature. Fixed-rate loans were scheduled according to
their contractual maturities.(2)
    
    Excludes noninterest-bearing deposit accounts. Money
market deposits were regarded as maturing immediately. NOW and
savings deposits were regarded as maturing in 1-5 years. All
other time deposits were scheduled through the maturity dates.
Securities were scheduled based on their remaining maturity or
repricing frequency. Mortgage-backed securities are scheduled
over five years. Securities include Federal Home Loan Bank. 
 Financial Condition Lending Activities A significant source of income for the Company is the interest
earned on loans. At December 31, 2003, the Companys total assets
were $324,324,023 and its net loans were $198,479,669 or 61% of
total assets. At December 31, 2002, the Companys total assets were
$138,647,253 and its net loans were $80,161,988 or 58% of total
assets. 27




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##### Table of Contents



The Banks primary market area consists of Orange and Seminole
Counties, Florida offer recreational facilities, cultural events,
resorts, commercial office parks, residential developments, major
transportation routes, shopping centers, and entertainment areas.
Business and entertainment service industries, retail trade,
government, construction, real estate, finance/insurance, health
care and transportation/communication/utility form the basis for the
areas business economy. Although not important as it once was,
agricultural remains a part of the areas industry, with citrus
crops, nurseries and vegetables making up the bulk of the
agriculture business. There is no assurance that the Companys market area will
continue to experience economic growth. Adverse conditions in any
one or more of the industries operating in such markets or slow-down
in general economic conditions could have an adverse effect on the
Company. Lending activities are conducted pursuant to a written policy
which has been adopted by the Company. Each loan officer has
defined lending authority beyond which loans, depending upon their
type and size, must be reviewed and approved by a loan committee
comprised of certain directors of the Banks. The following table sets forth information concerning the
Companys loan portfolio by type of loan at the dates indicated: At December 312003
    
    2002Amount
    
    % of Total
    
    Amount
    
    % of Total(dollars in thousands)Commercial, financial
and agricultural
    
    $
    42,779
    
    
    
    21
    %
    
    $
    25,294
    
    
    
    31
    %Real estate mortgage
    
    
    119,887
    
    
    
    60
    %
    
    
    38,228
    
    
    
    47
    %Construction and land
development
    
    
    31,934
    
    
    
    16
    %
    
    
    15,531
    
    
    
    19
    %Installment and
consumer lines
    
    
    6,753
    
    
    
    3
    %
    
    
    2,153
    
    
    
    3
    %Total loans
    
    $
    201,353
    
    
    
    100
    %
    
    $
    81,206
    
    
    
    100
    %Less: Allowance for
loan losses
    
    
    (2,526
    )
    
    
    
    
    
    
    (1,014
    )Less: Net deferred fees
    
    
    (347
    )
    
    
    
    
    
    
    (30
    )Loans, net
    
    $
    198,480
    
    
    
    
    
    
    $
    80,162
 28




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##### Table of Contents



The following table reflects the contractual principal
repayments by period of the Companys loan portfolio at December 31,
2003: 1 Year
    
    1 Through
    
    Afteror Less
    
    5 Years
    
    5 Years
    
    Total(dollars in thousands)Commercial, financial and agricultural
    
    $
    23,100
    
    
    $
    19,419
    
    
    $
    260
    
    
    $
    42,779Real estate and mortgage
    
    
    22,021
    
    
    
    35,253
    
    
    
    62,613
    
    
    
    119,887Construction and land development
    
    
    9,637
    
    
    
    14,649
    
    
    
    7,648
    
    
    
    31,934Installment and consumer lines
    
    
    4,087
    
    
    
    2,653
    
    
    
    13
    
    
    
    6,753Total loans
    
    $
    58,845
    
    
    $
    71,974
    
    
    $
    70,534
    
    
    $
    201,353Loans with maturities over one year:Fixed rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    123,673Variable rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,835Total maturities greater than one year
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    142,508
 Asset Quality Management seeks to maintain a high quality of assets through
conservative underwriting and sound lending practices. The majority
of the loans in the Companys loan portfolio are collateralized by
commercial real estate mortgages. The level of delinquent loans and
real estate owned also is relevant to the credit quality of a loan
portfolio. As of December 31, 2003 the Banks had $491,068 of
nonperforming assets. At December 31 2002, there were no
nonperforming assets. In an effort to maintain the quality of the loan portfolio,
management seeks to minimize higher risk types of lending. In view
of the relative significance of real estate related loans, a
downturn in the value of the real estate could have an adverse
impact on the Companys profitability. However, as part of its loan
portfolio management strategy, the Company generally limits its
loans to a maximum of 80% of the value of the underlying real estate
as determined by appraisal. In addition, knowledgeable members of
management make physical inspections of properties being considered
for mortgage loans. Commercial loans also entail risks since repayment is usually
dependent upon the successful operation of the commercial
enterprise. They also are subject to adverse conditions in the
economy. Commercial loans are generally riskier than mortgage loans
because they are typically underwritten on the basis of the ability
to repay from the cash flow of a business rather than on the ability
of the borrower or guarantor to repay. Further, the collateral
underlying a commercial loan may depreciate over time, cannot be
appraised with as much precision as real estate, and may fluctuate
in value based on the success of the business. The repayment of consumer installment loans and other loans to
individuals is closely linked to the economic conditions of the
communities in which the Company operates (seeManagements
Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition - Lending Activities). For the
most part, these local economies enjoy
diverse labor forces. The 29




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##### Table of Contents



majority of these consumer installment
loans are secured by collateral which limits, to a degree, any loss
the Company would suffer upon default. Loan concentrations are defined as amounts loaned to a number
of borrowers engaged in similar activities which would cause them to
be similarly impacted by economic or other conditions. the Company,
on a routine basis, monitors these concentrations in order to
consider adjustments in its lending practices to reflect economic
conditions, loan to deposit ratios, and industry trends.
Concentrations of loans in the following categories constituted the
total loan portfolio as of December 31, 2003: Commercial, financial and agricultural
    
    
    21
    %Real estate - mortgage
    
    
    60
    %Construction and land development
    
    
    16
    %Installment and consumer lines
    
    
    3
    %100
    %
 The Loan Committee of the Banks concentrates its efforts and
resources, and that of its senior management and lending officers,
on loan review and underwriting procedures. Internal controls
include ongoing reviews of loans made to monitor documentation and
the existence and valuations of collateral. In addition, management
of the Company has established a review process with the objective
of identifying, evaluating, and initiating necessary corrective
action for marginal loans. The goal of the loan review process is
to address classified and nonperforming loans as early as possible. Classification of Assets Generally, interest on loans accrues and is credited to income
based upon the principal balance outstanding. It is managements
policy to discontinue the accrual of interest income and classify a
loan as nonaccrual when principal or interest is past due 90 days or
more and the loan is not adequately collateralized, or when in the
opinion of management, principal or interest is not likely to be
paid in accordance with the terms of the obligation. Consumer
installment loans are generally charged-off after 90 days of
delinquency unless adequately collateralized and in the process of
collection. Loans are not returned to accrual status until
principal and interest payments are brought current and future
payments appear reasonably certain. Interest accrued and unpaid at
the time a loan is placed on nonaccrual status is charged against
interest income. Subsequent payments received are applied to the
outstanding principal balance. Real estate acquired by the Company as a result of foreclosure
or by deed in lieu of foreclosure is classified as foreclosed real
estate. Foreclosed real estate is recorded at the lower of cost or
fair value less estimated selling costs, and the estimated loss, if
any, is charged to the allowance for loan losses at the time it is
transferred to foreclosed real estate. Further allowances for
losses in foreclosed real estate are recorded at the time management
believes additional deterioration in value has occurred. 30




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##### Table of Contents



Management has adopted SFAS No. 114, which considers a loan to
be impaired if it is probable that the Company will be unable to
collect all amounts due under the contractual terms of the loan
agreement. If a loan is considered impaired, its value generally
should be measured
based on the present value of expected cash flows discounted at the
loans effective interest rate. As a practical expedient, however,
the loans value may be based on:  
    
    the loans market price; or
    
    the fair value of the loans collateral, less discounted estimated
costs to sell, if the collateral is expected to be the sole source of
repayment. If the value of the loan is less than the recorded investment in the
loan, a loss is recognized by recording a valuation allowance and a
corresponding increase to the provision for loan losses charged to
operating expenses. Situations may occur where:  
    
    The Company receives physical possession of a debtors assets
regardless of whether formal foreclosure proceedings have been
initiated or completed; or
    
    the debtor has effectively surrendered control of the underlying
collateral in contemplation of foreclosure. These situations are referred to as in-substance foreclosures.
SFAS No. 114 recognizes the practical problems of accounting for the
operation of an asset the creditor does not possess, and states that
a loan for which foreclosure is probable should continue to be
accounted for as a loan. At December 31, 2003, loans of $376,197 were considered by
management to be impaired. There is an allowance for possible
losses on impaired loans of $97,000 relating to these loans, which
allowance is included in the overall allowance for loan losses. There was $491,068 in nonaccrual loans or loans over 90 days
delinquent at December 31, 2003 and none in 2002. There was no
foreclosed real estate at December 31, 2003 or 2002. Allowance for Credit Losses In originating loans, the Company recognizes that credit losses will
be experienced and that the risk of loss will vary with, among other
things, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a
collateralized loan, the quality of the collateral for the loan as
well as general economic conditions. It is managements policy to
attempt to maintain an adequate allowance for loan losses based on,
among other things, the Companys historical loan loss experience,
evaluation of economic conditions and regular reviews of any
delinquencies and loan portfolio quality. Specific allowances are
provided for individual loans when ultimate collection is considered
questionable by management after reviewing the current status of
loans which are contractually past due and considering the net
realizable value of the collateral for 31




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##### Table of Contents



the loan. Management
recognizes the greater inherent risks in connection with commercial
and consumer lending. SeeManagements Discussion and Analysis of
Financial Condition and Results of Operations  Provision for Credit
Losses. Management continues to actively monitor the Companys asset quality
and to charge-off loans against the allowance for loan losses when
appropriate or to provide specific loss allowances when necessary.
Although management believes it uses the best information available
to make determinations with respect to the allowance for loan
losses, future adjustments may be necessary if economic conditions
differ from the economic conditions in the assumptions used in
making the initial determinations. The Companys allowance for loan
losses at December 31, 2003 and 2002 was $2,256,018 and $1,014,167,
respectively. Management believes that the allowance for loan
losses was adequate at December 31, 2003. The following table sets forth information with respect to activity
in the Companys allowance for loan losses during the periods
indicated: For the Year Ended December 31(dollars in thousands)2003
    
    2002Allowance at beginning of period
    
    $
    1,014
    
    
    $
    492Charge-offs:Commercial
    
    
    (139
    )
    
    
    (21
    )Commercial real estate
    
    
    (16
    )
    
    
    Consumer
    
    
    (5
    )
    
    
    Total charge-offs
    
    
    (160
    )
    
    
    (21
    )Recoveries:Commercial
    
    
    1
    
    
    
    Total recoveries
    
    
    1
    
    
    
    Provision for loan losses charged to operations
    
    
    784
    
    
    
    543Acquired in purchase transaction
    
    
    887
    
    
    
    Allowance at end of period
    
    $
    2,526
    
    
    $
    1,014Ratio of net charges-offs during the
period to average loans outstanding during the
period
    
    
    .09
    %
    
    
    .04
    %Allowance for loan losses as a percentage
of nonperforming loans
    
    
    514
    %
    
    
    N/A
 The Company classifies its loan portfolio for internal purposes as
residential mortgage loans, installment loans and commercial loans.
The Company prepares its quarterly computation of allowance for
losses in this manner. The following table presents information
regarding the Companys total allowance for loan losses as well as
the allocation of such amounts to the various categories of loans
(dollars in thousands): 32




---



##### Table of Contents



At December 312003
    
    2002% of Loans to
    
    
    
    
    
    % of Loans toAmount
    
    Total Loans
    
    Amount
    
    Total Loans(dollars in thousands)Commercial, financial and agricultural
    
    $
    535
    
    
    
    21
    %
    
    $
    316
    
    
    
    31
    %Real estate mortgage
    
    
    1,508
    
    
    
    60
    %
    
    
    477
    
    
    
    47
    %Construction and land development
    
    
    399
    
    
    
    16
    %
    
    
    194
    
    
    
    19
    %Installment and consumer lines
    
    
    84
    
    
    
    3
    %
    
    
    27
    
    
    
    3
    %Total allowance for loan losses
    
    $
    2,526
    
    
    
    100
    %
    
    $
    1,014
    
    
    
    100
    %
 The allowance for loan losses represented 1.25% of the total loans
outstanding as of December 31, 2003 and December 31, 2002. Investment Securities The Companys investment securities portfolio at December 31, 2003
and 2002, consisted of United States Government agency obligations
and mortgage-backed securities. The following table sets forth the
fair market value of the Companys investment portfolio at the dates
indicated: At December 31(dollars in thousands)2003
    
    2002Investment securities:Available-for-sale:U.S. Government agency obligations
    
    $
    493
    
    
    $
    Mortgage-backed securities
    
    
    55,762
    
    
    
    29,302Equity securities
    
    
    131Total
    
    $
    56,386
    
    
    $
    29,302
 33




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##### Table of Contents



The following table sets forth, by maturity distribution, certain
information pertaining to the investment securities portfolio as
follows: After One Year
    
    After Five YearsOne Year or Less
    
    to Five Years
    
    to Ten Years
    
    After Ten Years
    
    TotalAmortized
    
    Average
    
    Amortized
    
    Average
    
    Amortized
    
    Average
    
    Amortized
    
    Average
    
    Amortized
    
    AverageCost
    
    Yield
    
    Cost
    
    Yield
    
    Cost
    
    Yield
    
    Cost
    
    Yield
    
    Cost
    
    Yield(dollars in thousands)December 31, 2003:U.S. Government
agency securities
    
    $
    500
    
    
    
    3.1
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    500
    
    
    
    3.1
    %Mortgage-backed
securities
    
    
    
    
    
    
    
    %
    
    
    27,119
    
    
    
    3.3
    %
    
    
    19,682
    
    
    
    3.5
    %
    
    
    9,416
    
    
    
    3.9
    %
    
    
    56,217
    
    
    
    3.9
    %$
    500
    
    
    
    3.1
    %
    
    $
    27,119
    
    
    
    3.3
    %
    
    $
    19,682
    
    
    
    3.5
    %
    
    $
    9,416
    
    
    
    3.9
    %
    
    $
    56,717
    
    
    
    3.9
    %December 31, 2002:U.S. Government
agency securities
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %Mortgage-backed
securities
    
    
    
    
    
    
    
    %
    
    
    12,011
    
    
    
    4.2
    %
    
    
    10,629
    
    
    
    4.9
    %
    
    
    6,041
    
    
    
    5.4
    %
    
    
    28,681
    
    
    
    4.7
    %$
    
    
    
    
    %
    
    
    $
    12,011
    
    
    
    4.2
    %
    
    $
    10,629
    
    
    
    4.9
    %
    
    $
    6,041
    
    
    
    5.4
    %
    
    $
    28,681
    
    
    
    4.7
    %
 Deposit Activities Deposits are the major source of the Companys funds for lending and
other investment purposes. Deposits are attracted principally from
within the Companys primary market area through the offering of a
broad variety of deposit instruments including checking accounts,
money market accounts, regular savings accounts, term certificate
accounts (including jumbo certificates in denominations of
$100,000 or more) and retirement savings plans. Maturity terms, service fees and withdrawal penalties are
established by the Company on a periodic basis. The determination
of rates and terms is predicated on funds acquisition and liquidity
requirements, rates paid by competitors, growth goals and federal
regulations. FDIC regulations limit the ability of certain insured depository
institutions to accept, renew, or rollover deposits by offering
rates of interest which are significantly higher than the prevailing
rates of interest on deposits offered by other insured depository
institutions having the same type of charter in such depository
institutions normal market area. Under these regulations, well
capitalized depository institutions may accept, renew, or rollover
deposits at such rates without restriction, adequately capitalized
depository institutions may accept, renew or rollover deposits at
such rates with a waiver from the FDIC (subject to certain
restrictions on payments of rates), and undercapitalized
depository institutions may not accept, renew or rollover deposits
at such rates. The regulations contemplate that the definitions of
well capitalized, adequately capitalized and undercapitalized
will be the same as the definitions adopted by the agencies to
implement the prompt corrective action provisions of applicable law.
SeeBusiness - Supervision and Regulation  Capital
Requirements. As of December 31, 2003, the Banks met the
definition of a well capitalized depository institution. 34




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##### Table of Contents



35




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##### Table of Contents



The following table shows the distribution of, and certain other
information relating to, the Companys
deposit accounts by type: December 312003
    
    2002% of
    
    
    
    
    
    % ofAmount
    
    Deposit
    
    Amount
    
    Deposit(dollars in thousands)Noninterest-bearing demand deposits
    
    $
    42,348
    
    
    
    15
    %
    
    $
    16,130
    
    
    
    14
    %Savings and NOW deposits
    
    
    30,033
    
    
    
    11
    %
    
    
    6,238
    
    
    
    5
    %Money market deposits
    
    
    89,970
    
    
    
    31
    %
    
    
    45,860
    
    
    
    39
    %Subtotal
    
    
    162,351
    
    
    
    57
    %
    
    
    68,228
    
    
    
    58
    %Certificates of deposit:2.00% - 2.99%
    
    
    2,301
    
    
    
    1
    %
    
    
    4,155
    
    
    
    3
    %3.00% - 3.99%
    
    
    87,250
    
    
    
    30
    %
    
    
    2,555
    
    
    
    2
    %4.00% - 4.99%
    
    
    33,233
    
    
    
    11
    %
    
    
    35,271
    
    
    
    30
    %5.00% - 5.99%
    
    
    1,437
    
    
    
    1
    %
    
    
    7,907
    
    
    
    7
    %6.00% - 6.99%
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %7.00% - 7.99%
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %Total certificates of deposit(1)
    
    
    124,221
    
    
    
    43
    %
    
    
    49,886
    
    
    
    42
    %Total deposits
    
    $
    286,572
    
    
    
    100
    %
    
    $
    118,114
    
    
    
    100
    %
    (1) Including individual retirement accounts (IRAs) at December 31,
2003 of $6,998,101 and $1,301,712 at December 31, 2002. The following tables show the average amount outstanding and the
average rate paid on each of the following deposit account
categories during the periods indicated: Years ended December 312003
    
    2002Average
    
    Average
    
    Average
    
    AverageBalance
    
    Rate
    
    Balance
    
    Rate(dollars in thousands)Money market deposits
    
    $
    96,884
    
    
    
    1.86
    %
    
    $
    37,618
    
    
    
    2.59
    %Savings and NOW deposits
    
    
    20,813
    
    
    
    1.02
    %
    
    
    4,144
    
    
    
    .59
    %Time deposits
    
    
    114,818
    
    
    
    3.14
    %
    
    
    34,640
    
    
    
    3.74
    %Total deposits
    
    $
    232,515
    
    
    
    2.42
    %
    
    $
    76,402
    
    
    
    3.02
    %
 The Company does not have a concentration of deposits from any one
source, the loss of which would have a material adverse effect on
the Company. Management believes that substantially all of the
Companys depositors are residents in its primary market area. The
Company currently 36




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##### Table of Contents



does not accept brokered deposits. As shown in
the tables below, a significant amount of the Companys certificates
of deposit will mature during the year ending December 31, 2003.
The high volume of maturities during this period is primarily due to
customer demand for certificates of deposit having original
maturities of 12 months or less. Based upon current and anticipated
levels of interest rates and past practice, the Company management
anticipates that substantially all of the Companys certificates of
deposit maturing during this time period will be renewed or replaced
by certificates of deposit issued to other customers at competitive
market rates, which may be higher or lower than the rates currently
being paid. Consequently, the Company
management does not believe that the maturity of the Companys
certificates of deposit during the year ending December 31, 2003,
will have a material adverse effect on the Companys liquidity.
However, if the Company is required to pay substantially higher
rates to obtain the renewal of these or other certificates of
deposit or alternative sources of funds, the higher net interest
expense could have a material adverse effect on the Companys net
earnings. The following tables present by various interest rate categories the
amounts of certificates of deposit at December 31, 2003 which
mature during the period indicated: Due
    
    Due
    
    Due
    
    DueUnder Three
    
    3 Months to
    
    1 Year to
    
    OverMonths
    
    12 Months
    
    3 Years
    
    3 Years
    
    Total(dollars in thousands)At December 31, 2003:1.00% - 1.99%
    
    $
    1,670
    
    
    $
    475
    
    
    $
    156
    
    
    $
    
    
    
    $
    2,3012.00% - 2.99%
    
    
    4,981
    
    
    
    68,678
    
    
    
    13,591
    
    
    
    
    
    
    
    87,2503.00% - 3.99%
    
    
    7,855
    
    
    
    7,564
    
    
    
    17,778
    
    
    
    36
    
    
    
    33,2334.00% - 4.99%
    
    
    
    
    
    
    
    
    
    
    403
    
    
    
    1,034
    
    
    
    1,4375.00% - 5.99%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total certificates of deposit
    
    $
    14,506
    
    
    $
    76,717
    
    
    $
    31,928
    
    
    $
    1,070
    
    
    $
    124,221
 Jumbo certificates ($100,000 and over) mature as follows: At December 31(dollars in thousands)2003
    
    2002Due in three months or less
    
    $
    11,023
    
    
    $
    4,674Due from three months to one year
    
    
    47,229
    
    
    
    11,653Due from twelve months to five years
    
    
    18,347
    
    
    
    22,101$
    76,599
    
    
    $
    38,428
 37




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##### Table of Contents



Impact of Inflation and Changing Prices The financial statements and related financial data concerning the
Company presented in this Proxy Statement have been prepared in
accordance with accounting principles generally accepted in the
United States of America, which require the measurement of financial
position and operating results in terms of historical dollars
without considering changes in the relative purchasing power of
money over time due to inflation. The primary impact of inflation
on the operations of the Company is reflected in increased operating
costs. Unlike most industrial companies, virtually all of the
assets and liabilities of a financial institution are monetary in
nature. As a result, changes in interest rates have a more
significant impact on the performance of a financial institution
than do the effects of changes in the general rate of inflation and
changes in prices. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and
services. 
 Item 7. Financial Statements The financial statements of the Company as of and for the years
ended December 31, 2003 and 2002 are set forth in this Form
10-KSB as Exhibit 13.1. 
 Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure Not applicable. 
 Item 8A. Controls and Procedures  (a)
    
    Evaluation of disclosure controls and procedures. The
Company maintains controls and procedures designed to ensure
that information required to be disclosed in the reports that
the Company files or submits under the Securities Exchange Act
of 1934 is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the
Securities and Exchange Commission. Based upon their
evaluation of those controls and procedures performed within 90
days of the filing date of this report, the Chief Executive and
Chief Financial officers of the Company concluded that the
Companys disclosure controls and procedures were adequate.(b)
    
    Changes in internal controls. The Company made no
significant changes in its internal controls or in other
factors that could significantly affect these controls
subsequent to the date of the evaluation of those controls by
the Chief Executive and Chief Financial officers. 38




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##### Table of Contents



PART III 
 Item 9. Directors and Executive Officers of the Registrant The following table sets forth the name of each director of the
Company, a description of his position and offices with the
Company other than as a director, if any; a brief description of
his principal occupation and business experience during at least
the last five years; and certain other information including the
directors age and the number of shares of Common Stock
beneficially owned by the director on February 27, 2004. These
individuals also serve as the sole executive officers of the
Company. The Company has a Code of Ethics that applies to its
principal executive officer and principal financial officer (who
is also its principal accounting officer), a copy of which is
included with this Form 10-KSB as Exhibit 14.1. Amount, Percentageand Nature ofBeneficial OwnershipName and age of Individual
    
    Information about Director
    
    of Common Stock (a)J. Michael Hattaway
    
    Mr. Hattaway serves as
Vice Chairman of the
Board. He previously
founded and served as
Chairman of the Board of
First Seminole Bank. Mr.
Hattaway is a lifelong
real estate developer and
operates his own
multi-faceted real estate
company. He is 59 years
old.
    
    79,100
(2.4%)James E. Hewitt
    
    Mr. Hewitt serves as
Chairman of the Board of
the Company. He is also
an executive officer.
Mr. Hewitt previously
served as Chairman of the
Board of a regional bank
with operations
headquartered in Orlando,
Florida and was Chairman
of the Board and founder
of United American Bank
of Central Florida. He
was also the founder and
until November 1991, a
principal owner of the
Orlando Magic NBA
franchise. Mr. Hewitt is
62 years old.
    
    108,999
(3.3%)David G. Powers
    
    Mr. Powers serves as a
director of the Company
and is also President and
Chief Executive Officer.
He has 30 years of local
banking experience and
previously served as
President and Chief
Executive Officer of a
regional bank
headquartered in Orlando,
Florida. Mr. Powers is
47 years old.
    
    27,024
(.8%)
 39




---



##### Table of Contents



Amount, Percentageand Nature ofBeneficial OwnershipName and age of Individual
    
    Information about Director
    
    of Common Stock (a)Shirley L. Tyler
    
    Ms. Tyler serves as Chief
Financial Officer,
Secretary and Treasurer
of the Company. She has
over 30 years of banking
experience and previously
served as the Senior
Operations Officer for a
regional bank
headquartered in Orlando,
Florida. Ms. Tyler is 49
years old.
    
    11,250
(.3%)
  (a)
    
    Information relating to beneficial ownership of Company Common
Stock by directors is based upon information furnished by each
person using beneficial ownership concepts set forth in rules of
the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended. Under such rules, a person is deemed to be
a beneficial owner of a security if that person has or shares
voting power, which includes the power to vote or direct the
voting of such security, or investment power, which includes the
power to dispose of or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any security of
which that person has a right to acquire beneficial ownership within
60 days. Under such rules, more than one person may be deemed to be
a beneficial owner of the same securities, and a person may be
deemed to be a beneficial owner of securities as to which he or she
may disclaim any beneficial interest. Accordingly, nominees and
directors continuing in office are named as beneficial owners of shares as to which they may disclaim any beneficial interest.
Except as otherwise indicated in the notes to this table, directors
possessed sole voting and investment power as to all shares of
Company Common Stock set forth opposite their names. 
 Item 10. Executive Compensation The following table sets forth all cash compensation for the
Companys Chairman, its President and Chief Executive Officer and
its Treasurer for services to the Company and its subsidiaries in
2003: 40




---



##### Table of Contents



SUMMARY COMPENSATION TABLE Long Term CompensationAnnual Compensation
    
    Awards
    
    PayoutsNameand
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    RestrictedPrincipal
    
    
    
    
    
    
    
    
    
    
    
    Annual
    
    Stock
    
    Options/
    
    LTIP
    
    All OtherPosition
    
    Year
    
    Salary
    
    Bonus
    
    Compensation (1)
    
    Award(s)
    
    SARs
    
    Payouts
    
    Compensation (2)James L. Hewitt
    
    
    2003
    
    
    $
    100,000
    
    
    $
    -0-
    
    
    $
    9,356
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    12,000Chairman of the
    
    
    2002
    
    
    $
    101,855
    
    
    $
    -0-
    
    
    $
    9,360
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    6,000Board of the
Company
    
    
    2001
    
    
    $
    75,000
    
    
    $
    -0-
    
    
    $
    7,800
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    4,500David G. Powers
    
    
    2003
    
    
    $
    221,948
    
    
    $
    -0-
    
    
    $
    9,360
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    6,000President and Chief
    
    
    2002
    
    
    $
    209,547
    
    
    $
    -0-
    
    
    $
    9,360
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    -0-Executive Officer
of the Company
and President and
Chief Executive
Officer of United
Heritage
Bank
    
    
    2001
    
    
    $
    204,380
    
    
    $
    -0-
    
    
    $
    7,800
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    -0-Shirley L. Tyler
    
    
    2003
    
    
    $
    93,115
    
    
    $
    -0-
    
    
    $
    9,360
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    -0-Treasurer of the
    
    
    2002
    
    
    $
    85,688
    
    
    $
    -0-
    
    
    $
    9,360
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    -0-Company
    
    
    2001
    
    
    $
    82,331
    
    
    $
    -0-
    
    
    $
    7,800
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    -0-
    (1)
    
    Represents amounts paid by the Company for automobile allowance.  (2)
    
    Company board fees. Stock Option Plans. The Company has a stock option plan for
officers and employees (the Employee Plan) and a stock option plan
for directors (the Director Plan). The Employee Plan authorizes
the issuance of options for 332,284 shares to officers and employees
of the Companys subsidiaries and the Director Plan authorizes the
issuance of options for 283,824 shares to the Directors of the
Companys subsidiaries. As of December 31, 2003, options
exercisable for an aggregate of 141,912 shares of Company Common
Stock were outstanding under the Director Plan and held by directors
at a weighted average exercise price of $12 per share, and options
exercisable for an aggregate of 194,080 shares of Company Common
Stock were outstanding under the Employee Plan and held by certain
officers and employees at a weighted average exercise price of $9.61
per share. Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values Number ofSecurities
    
    Value ofUnderlying
    
    UnexercisedShares
    
    
    
    
    
    Unexercised
    
    in-the-MoneyAcquired
    
    
    
    
    
    Options/SARs
    
    Options/SARson
    
    Value
    
    at FY-End (#)
    
    at FY-End($)Exercise
    
    Realized
    
    Exercisable/
    
    Exercisable/Name
    
    (#)
    
    ($)
    
    Unexercisable
    
    UnexercisableDavid G. Powers
    
    
    
    
    
    
    
    
    
    
    27,000/-0-
    
    
    $
    54,000/$-0-Shirley L. Tyler
    
    
    
    
    
    
    
    
    
    
    20,000/-0-
    
    
    $
    40,000/$-0-
 41




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Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters For information regarding the ownership of Common Stock by the
Companys directors and executive officers, seeItem 9 above. The
Company has only two compensation plans under which shares of its
Common Stock are issuable. These two plans are its Officers and
Employees Stock Option Plan and its Directors Stock Option Plan,
each of which was previously approved by the Company shareholders.
The following sets forth certain information regarding those two
plans: Equity Compensation Plan Information Number ofsecuritiesremainingavailable forfuture issuanceunder equityNumber of securities to
    
    Weighted-average
    
    compensationbe issued upon exercise
    
    exercise price of
    
    plans (excludingof outstanding options,
    
    outstanding options,
    
    securities reflectedwarrants and rights (a)
    
    warrants and rights (b)
    
    in column (a)) (b)Equity compensation
plans approved by
security holders
    
    
    335,992
    
    
    $
    10.62
    
    
    
    280,116Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    335,992
    
    
    $
    10.62
    
    
    
    280,116
 
 Item 12. Certain Relationships and Related Transactions The Companys subsidiary banks have outstanding loans to certain
of their directors, executive officers, their associates and
members of the immediate families of such directors and executive
officers. These loans were made in the ordinary course of
business, were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time
for comparable transactions with persons not affiliated with the
banks and did not involve more than the normal risk of
collectibility or present other unfavorable features. 
 Item 13. Exhibits, List, and Reports on Form 8-K  (a)
    
    The following documents are filed as part of this report: 42




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##### Table of Contents



1.
    
    Financial StatementsReport of Independent AuditorsConsolidated Balance Sheets as of December 31, 2003 and 2002Consolidated Statements of Operations for the years ended
December 31, 2003 and 2002Consolidated Statements of Cash Flows for the years ended
December 31, 2003 and 2002Consolidated Statements of Shareholders Equity for the years
ended December 31, 2003 and 2002Notes to Consolidated Financial Statements2.
    
    Financial Statement SchedulesAll schedules have been omitted as the required
information is either inapplicable or included in the
Notes to Consolidated Financial Statements.3.
    
    Exhibits  3.1
    
    - Articles of Incorporation of United Community Bankshares of Florida, Inc. **3.2
    
    - Bylaws of United Community Bankshares of Florida, Inc. **4.1
    
    - Specimen Stock Certificate of United Community Bankshares
of Florida, Inc. **10.1
    
    - Employment Agreement, dated as of March 15, 2001, between United Heritage Bank and
David G. Powers */**10.2
    
    - United Community Bankshares of Florida, Inc. Directors Stock Option Plan */**10.3
    
    - United Community Bankshares of Florida, Inc.s Officers and Employees Stock Option
Plan */**10.4
    
    - Employment Agreement, dated as of March 15, 2001, between United Heritage Bank and
Shirley L. Tyler *13.1
    
    - Financial Statements of United Community Bankshares of Florida, Inc. and Subsidiaries 43




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##### Table of Contents



14.1
    
    - Code of Ethics21.1
    
    - List of Subsidiaries of United Community Bankshares of Florida, Inc.23.1
    
    - Consent of Osburn, Henning and Company31.1
    
    - Certification of President and Chief Executive Officer
under §302 of the
Sarbanes-Oxley Act of 200231.2
    
    - Certification of Chief Financial Officer under §302 of the Sarbanes-Oxley Act of 200232.1
    
    - Certification of President and Chief Executive Officer under §906 of the
Sarbanes-Oxley Act of 200232.2
    
    - Certification of Chief Financial Officer under §906 of the Sarbanes-Oxley Act of 200299.1
    
    - Audit Pre-Approval Policy _______________  *
    
    Represents a management contract or compensatory plan or
arrangement required to be filed as an exhibit.  **
    
    Incorporated by reference to the corresponding exhibit number in
the Companys Form 10-QSB filed for the quarter ended March 31,
2003.  (b)
    
    Reports on Form 8-K No Current Reports on Form 8-K were filed by the Company during
the last fiscal quarter covered by this report. 
 Item 14. Principal Accountant Fees and Services Fees Paid to the Independent Auditor The following sets forth information on the fees paid by the
Company to Osburn, Henning and Company, for and during 2002 and
2003. 2002
    
    2003Audit Fees
    
    $
    21,500
    
    
    $
    57,075Audit-Related Fees
    
    
    1,685
    
    
    
    4,005Tax Fees
    
    
    2,000
    
    
    
    9,505Subtotal
    
    
    25,185
    
    
    
    70,585All Other Fees
    
    
    
    
    
    
    Total Fees
    
    $
    25,185
    
    
    $
    70,585
 44




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##### Table of Contents



Services Provided by Osburn, Henning and Company All services rendered by Osburn, Henning and Company are permissible
under applicable laws and regulations, and are pre-approved by the
Audit Committee, whose pre-approval policy is attached as Exhibit
99.1. Pursuant to new rules of the SEC, the fees paid to Osburn,
Henning and Company for services are disclosed in the table above
under the categories listed below.  1)
    
    Audit Fees  These are fees for professional services
performed for the audit of the Companys annual financial
statements and review of financial statements included in the
Companys 10-QSB and 10-KSB filings, and services that are
normally provided in connection with statutory and regulatory
filings or engagements.2)
    
    Audit-Related Fees  These are fees for assurance and
related services performed that are reasonably related to the
performance of the audit or review of the Companys financial
statements. This includes consulting on financial
accounting/reporting standards and filings with the Federal
Reserve.3)
    
    Tax Fees  These are fees for professional services
performed by Osburn, Henning and Company with respect to tax
compliance, tax advice and tax planning. This includes
preparation of original and amended tax returns for the Company
and its subsidiaries, estimated tax payment planning; tax
research; and tax work stemming from Audit-Related items.4)
    
    All Other Fees  These would be fees for other
permissible work performed by Osburn, Henning and Company that
does not meet the above category descriptions. No work of this
nature was performed. These services are actively monitored (both spending level and work
content) by the Audit Committee to maintain the appropriate
objectivity and independence in the core work of Osburn, Henning and
Company, which is the audit of the Companys consolidated financial
statements. 45




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this
report to be duly signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Orlando, State of Florida, on the
25th day of March, 2004. UNITED COMMUNITY BANKSHARES
OF FLORIDA, INC./s/
David G. PowersPresident and Chief Executive Officer /s/ Shirley L. TylerTreasurer(Principal financial officer and principal
accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on March 25, 2004. Signature
    
    Title/s/
    
    James L. Hewitt
    
    DirectorJames L. Hewitt/s/
    
    David G. Powers
    
    DirectorDavid G. Powers/s/
    
    J. Michael Hattaway
    
    DirectorJ. Michael Hattaway




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##### Table of Contents



United Community Bankshares of Florida, Inc.
Form 10-KSB
For Fiscal Year Ending December 31, 2003 
 EXHIBIT INDEX ExhibitNo.
    
    Exhibit10.4
    
    Employment Agreement, dated as of
March 15,
2001, between United Heritage Bank and Shirley L. Tyler13.1
    
    Financial Statements of United Community
Bankshares of Florida, Inc. and Subsidiaries14.1
    
    Code of Ethics21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of Osburn, Henning and Company31.1
    
    Certification of President and Chief Executive Officer
under §302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer
under §302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of President and
Chief Executive Officer under §906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial
Officer under §906 of the
Sarbanes-Oxley Act of 200299.1
    
    Audit Pre-Approval Policy