SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
( x ) Quarterly Report Pursuant to Section 13 or 15 (2) of the Securities
Exchange Act of 1934
( ) Transition Report Pursuant to Section 13 or 15 (2) of the Securities
Exchange Act of 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
Commission File Number 0-14549
UNITED SECURITY BANCSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
Alabama 63-0843362
(State of Other Jurisdiction of (I R S Employer Identification
Incorporation of Organization) Number)
131 West Front Street (334) 636-5424
Post Office Box 249 (Registrant's Telephone
Thomasville, AL 36784 Number Including Area
(Address and Zip Code of Code)
Principal Executive Offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes (x). No ( ).
Shares of common stock ($.01 par value) outstanding as of September 30, 1995:
2,137,960.
Total Number of Pages: 14
Exhibit Index at Page:
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UNITED SECURITY BANCSHARES, INC AND SUBSIDIARY
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Condition at September 30, 1995
(Unaudited), and December 31, 1994 4
Consolidated Statements of Income (Unaudited) for the
Nine Months Ended September 30, 1995 and 1994 5
Consolidated Statements of Income (Unaudited) for the
Three Months Ended September 30, 1995 and 1994 6
Consolidated Statements of Cash Flows (Unaudited) for
the Nine Months Ended September 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE PAGE
Signatures 14
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PART I.
FINANCIAL INFORMATION
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<TABLE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
September 30, December 31,
ASSETS 1995 1994
<S> <C> <C>
Cash and due from banks $ 6,278,987 $ 7,190,823
TOTAL CASH AND CASH EQUIVALENTS 6,278,987 7,190,823
Investment securities (market value at
December 31, 1994, $21,594,206) 0 22,126,539
Investment securities available for sale 127,809,330 90,587,661
Loans 58,028,433 58,061,776
Less: Unearned interest on loans (524,282) (556,356)
Less: Allowance for possible loan losses (795,134) (772,000)
NET LOANS 56,709,017 56,733,420
Premises and equipment 3,657,336 3,876,828
Accrued interest receivable 1,881,918 1,853,986
Other assets 2,680,739 4,071,778
TOTAL ASSETS $199,017,327 $186,441,035
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand - non-interest bearing $ 22,603,125 $ 23,491,541
Demand - interest bearing 22,793,459 26,582,602
Savings 15,732,484 14,323,733
Time 83,877,000 77,886,065
TOTAL DEPOSITS 145,006,068 142,283,941
Federal funds purchased 3,525,000 7,400,000
Securities sold under repurchase agreements 40,233 220,614
U.S. Treasury tax and loan 1,132,559 531,474
Other borrowings 22,000,000 9,500,000
Dividend payable 235,176 224,486
Accrued interest payable 939,773 800,647
Other liabilities 1,190,792 911,224
Current portion long-term debt 83,333 5,083,333
Long-term debt 701,389 763,889
TOTAL LIABILITIES 174,854,323 167,719,608
SHAREHOLDERS' EQUITY
Common stock, par value per share, $.01 - in 1995,
$.25 - in 1994
authorized, 2,400,000-in 1995, 600,000-in 1994
issued, 2,202,060-in 1995, 550,515-in 1994 22,021 137,628
Surplus 5,761,552 5,645,945
Net unrealized gain (loss) on
available for sale securities 295,732 (3,217,137)
Retained earnings 18,338,119 16,409,411
Less: Treasury stock - 64,100 shares in 1995
and 16,025 shares in 1994, at cost (254,420) (254,420)
TOTAL SHAREHOLDERS' EQUITY 24,163,004 18,721,427
$199,017,327 $186,441,035
See notes to consolidated financial statements.
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UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine months ended September 30,
1995 1994
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans $ 4,108,213 $ 3,550,222
Interest on investment securities:
Taxable 352,650 629,285
Tax-exempt 475,504 614,665
Dividends 5,000 0
833,154 1,243,950
Interest on investment securities
available for sale
Taxable 6,683,509 5,131,507
Tax-exempt 229,010 0
Interest on trading securities 13,177 40,798
Interest on federal funds sold 33,475 9,331
Interest on rate swaps 36,542 190,061
TOTAL INTEREST INCOME 11,937,080 10,165,869
INTEREST EXPENSE
Interest on deposits 4,102,345 3,387,709
Interest on short-term borrowings 853,373 298,197
Interest on long-term debt 218,034 226,787
TOTAL INTEREST EXPENSE 5,173,752 3,912,693
Net interest income 6,763,328 6,253,176
Provision for possible loan losses 0 13,000
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 6,763,328 6,240,176
NON-INTEREST INCOME
Service and penalty charges on deposit accounts 611,830 601,315
Credit life insurance commissions 19,772 30,190
Other income 104,189 85,834
Securities gains (losses):
Investment securities (160,992) 132,537
Trading securities 17,840 (107,125)
Options 167,488 89,718
TOTAL NON-INTEREST INCOME 760,127 832,469
NON-INTEREST EXPENSES
Salaries 1,766,678 1,732,034
Employee benefits 265,485 268,359
Occupancy expense 238,711 244,398
Furniture and equipment expense 476,922 453,545
Stationery and operating supplies 100,516 100,440
Telephone expense 118,303 128,085
FDIC assessment 175,770 223,933
Other expenses 752,835 713,124
TOTAL NON-INTEREST EXPENSES 3,895,220 3,863,918
Income before income taxes 3,628,235 3,208,727
Applicable income taxes 994,000 845,000
NET INCOME $ 2,634,235 $ 2,363,727
Average number of shares outstanding 2,137,960 2,137,960
Net income per share $ 1.23 $ 1.11
See notes to consolidated financial statements.
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<TABLE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended September 30,
1995 1994
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans $1,416,147 $1,271,784
Interest on investment securities:
Taxable 0 237,287
Tax-exempt 0 209,766
0 447,053
Interest on investment securities
available for sale
Taxable 2,331,139 1,846,169
Tax-exempt 229,010 0
Interest on trading securities 7,093 12,732
Interest on federal funds sold 17,708 1,355
Interest on rate swaps 21,926 70,766
TOTAL INTEREST INCOME 4,023,023 3,649,859
INTEREST EXPENSE
Interest on deposits 1,451,183 1,178,988
Interest on short-term borrowings 349,668 156,568
Interest on long-term debt 42,027 72,320
TOTAL INTEREST EXPENSE 1,842,878 1,407,876
Net interest income 2,180,145 2,241,983
Provision for possible loan losses 0 0
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 2,180,145 2,241,983
NON-INTEREST INCOME
Service and penalty charges on deposit
accounts 205,524 204,865
Credit life insurance commissions 7,280 6,747
Other income 25,753 21,184
Securities gains (losses):
Investment securities (6,860) (78,075)
Trading securities 8,281 53,969
Options 6,481 (24,407)
TOTAL NON-INTEREST INCOME 246,459 184,283
NON-INTEREST EXPENSES
Salaries 577,241 594,459
Employee benefits 91,537 86,430
Occupancy expense 81,353 80,507
Furniture and equipment expense 162,762 152,606
Stationery and operating supplies 30,041 34,157
Telephone expense 41,813 42,948
FDIC assessment 17,632 76,350
Other expenses 249,459 248,969
TOTAL NON-INTEREST EXPENSES 1,251,838 1,316,426
Income before income taxes 1,174,766 1,109,840
Applicable income taxes 306,000 295,000
NET INCOME $ 868,766 $ 814,840
Average number of shares outstanding 2,137,960 2,137,960
Net income per share $ .41 $ .38
See notes to consolidated financial statements.
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UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended September 30,
1995 1994
Cash flows from operating activities:
<S> <C> <C>
Net income $ 2,634,235 $ 2,363,727
Adjustments to reconcile net income to net
cash provided by operating
Depreciation 307,055 313,891
Provision for possible loan losses 0 13,000
Amortization of intangible assets 363,361 141,970
Investment securities (gains)losses 160,992 (132,537)
Loss on sale of other real estate 15,501 7,751
Net securities premium amortization 536,134 1,036,411
Net decrease in trading securities 0 1,980,000
(Increase) decrease in:
Interest receivable (27,932) (96,175)
Other assets (957,605) (443,859)
Increase (decrease) in:
Interest payable 139,126 204,887
Other liabilities 102,129 (462,832)
Net cash provided by operating activities 3,272,996 4,926,234
Cash flows from investing activities:
Proceeds from maturities/calls of
investment securities 506,931 5,163,442
Purchases of investment securities (1,397,040) (1,941,061)
Proceeds from sales of investment
securities available for sale 33,636,845 29,671,739
Proceeds from maturities, calls and
prepayments of investment securities
available for sale 1,710,978 11,860,720
Purchases of investment securities
available for sale (44,629,379) (57,859,149)
Net decrease (increase) in loans 24,403 (3,458,120)
Purchase of premises and equipment (87,563) (205,922)
Proceeds from sale of other real estate 39,500 82,964
Net cash used in investing activities (10,195,325) (16,685,387)
Cash flows from financing activities:
Net (decrease) increase in demand and
savings deposits (3,268,808) 6,164,192
Net increase in time deposits 5,990,935 4,064,115
Net increase in short-term borrowings 9,045,704 3,953,676
Repayments of long-term debt (5,062,500) (62,500)
Dividends paid (694,838) (643,332)
Acquisition of treasury stock 0 (4,862)
Sale of treasury stock 0 5,092
Net cash provided by financing activities 6,010,493 13,476,381
Net increase (decrease) in cash and cash
equivalents ($911,836) $ 1,717,228
Cash and cash equivalents, beginning of
period 7,190,823 5,043,695
Cash and cash equivalents, end of period $ 6,278,987 $ 6,760,923
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 5,035,073 $ 3,690,467
Income taxes $ 1,028,486 $ 905,801
Supplemental schedule of noncash investing
and financing activities:
Dividends declared but unpaid $ 235,176 $ 224,486
Securities transferred from held to
maturity to available for sale $23,073,766 $ 6,028,482
See notes to consolidated financial statements.
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UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A - General
The consolidated financial statements include the accounts of United Security
Bancshares, Inc. (Bancshares) and its subsidiary. All significant intercompany
accounts have been eliminated.
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for a fair presentation of results
for such periods. Such adjustments are of a normal, recurring nature. The
results of operation for any interim period are not necessarily indicative of
results for the full year. These financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
Annual Report for the year ended December 31, 1994, of United Security
Bancshares, Inc. and subsidiary.
Note B - Securities Transfer
In July, the Bank reclassified all of their investment securities held to
maturity to available for sale. This transfer was made at market value in
accordance with SFAS 115. The transfer was made by management to allow more
flexibility in managing the portfolio, and all subsequent purchases will be
classified as either available for sale or trading account securities.
Note C - New Accounting Standard
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan", as
amended by Statement of Financial Accounting Standards No. 118, " Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures"
(Statement 114). The statement requires that certain impaired loans be measured
at the present value of expected future cash flows discounted at the loan's
effective interest rate or at the loan's observable market price, or the fair
value of the collateral if the loan is collateral dependent. The Bank has no
loans considered to be impaired as defined by these standards; therefore, the
adoption of these standards resulted in no material impact on the Company's
financial condition or results of operations.
Note D - Stock Split
At the Company's annual meeting on April 25, 1995, the shareholders ratified a
change in the par value of the Company's stock from $.25 to $.01 per share.
Additionally, the shareholders also approved an increase in the number of
authorized shares from 600,000 shares to 2,400,000 shares in order for the
Company to effect a four-for-one split of its stock payable to shareholders of
record on that date. All references in the accompanying financial statements
to the number of common shares and per share amounts for 1994 have been restated
to reflect the stock split.
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Note E - Contingencies
The Company is a defendant in two related lawsuits claiming unspecified damages
filed by two customers alleging fraud and misrepresentation over a $1.6 million
loan commitment. The cases are just in the discovery stages and have not
progressed sufficiently to determine the likelihood of unfavorable outcomes or
appraisal of damages, if any. Management believes the outcome of the litigation
will not have a material adverse effect on the financial position of the
Company.
The Company is also involved in other litigation arising in the normal course
of business which is not expected to have a material effect on the financial
position of the Company.
Note F - Reclassifications
Certain balances in the prior year have been reclassified to conform with the
presentation adopted in the current year.
Note G - Accounting Pronouncements
The Company has not yet adopted the provisions of SFAS 107, 121, or 122 but does
not expect these statements to significantly impact the financial position of
the Company.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
COMPARING THE NINE MONTHS ENDED SEPTEMBER 30, 1995, TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1994:
Net income grew $270,508 (11.44%) increasing net income per share to $1.23 from
$1.11. The increase is primarily due to a net interest income increase of
$523,152 coupled with a decrease in total non-interest income of $72,342 and an
increase in total non-interest expense of $31,302 in the first nine months of
1995 when compared to the same period in 1994.
Total interest income in the first nine months of 1995 improved over the first
nine months of 1994. Total interest income increased $1,771,211 or 17.4% due
mainly to interest earning assets increasing $15,070,727 or 8.9% in 1994. This
increase in earning assets is exclusive to investment securities since loans
remained flat. (Footnote B of the Financial Statement notes that United
Security reclassified all investment securities held to maturity to available
for sale to allow more flexibility in managing the investment portfolio.) Loan
volume remained flat while loan interest income increased $557,991 or 15.7%,
reflecting the increased rate environment that existed between the two periods.
Total interest expense increased $1,261,059 or 32.2% in the first nine months
of 1995 compared to the same period in 1994. Interest on deposits increased
$714,636 or 21.09% to $4,102,345 while deposits increased by $2,722,127 during
the first nine months of 1995, which further reflects the rising interest rate
environment during 1995.
Interest expense on short-term borrowings increased $555,176 during the first
nine months of 1995 compared to the same period in 1994. These borrowings
consist of Federal Funds purchased, U. S. Treasury demand notes in the Treasury,
Tax and Loan Accounts, securities sold under repurchase agreements, and other
borrowings. These borrowings are classified "Other Borrowings" on the Statement
of Conditions and are used to support short-term funding needs including
arbitrage when advantageous to the Bank.
Total non-interest income declined $72,342 or 8.7% in the first nine months of
1995, compared to the same period in 1994. This decline is attributed to the
losses taken in investment securities due mainly to economic and market
conditions and repositioning opportunities brought about by interest rate
changes.
Total non-interest expense increased $31,302 or .8%. These non-interest
expenses were held to a minimal increase due mostly to the FDIC assessment
rebate realized in the third quarter of 1995.
COMPARING THE THIRD QUARTER ENDED SEPTEMBER 30, 1995, TO THE THIRD QUARTER ENDED
SEPTEMBER 30, 1994:
Total interest income increased $373,164 or 10.22% due mainly to interest rate
increases and a volume increase in investments. Total interest expense also had
an increase of $435,002 or 30.90% due to an increase in short-term borrowing and
deposits, as well as increases in the interest rate environment in the third
quarter of 1995 as compared to the same period of 1994.
Non-interest income increased by $62,176 or 33.74% due to a reduction in losses
realized in investment securities transactions and a slight gain in option
transactions compared to a loss during the same period of 1994. The net gain
in securities transactions was mainly due to economic and market conditions and
repositioning opportunities brought about by interest rate changes.
<PAGE>
Non-interest expenses declined by $64,588 or 4.91%. Most of this improvement
can be attributed to the reduced FDIC premium assessment during the third
quarter of 1995. Salaries were reduced by $17,218 due to the Bank's ability to
operate efficiently with a slightly reduced staff.
Income before taxes for the third quarter of 1995 improved over the third
quarter of 1994 by $64,926 or 5.85%, while net income after taxes realized an
increase of $53,926 or 6.62%.
COMPARING THE ENDING FIGURES SEPTEMBER 30, 1995, TO ENDING FIGURES DECEMBER 31,
1994:
Total assets increased $12,576,292 or 6.75% to $199,017,327. Net loans remained
even at $56,709,017, while investment securities increased by $15,095,130 or
13.4% to $127,809,330.
During the third quarter, the Bank reclassified all of the investment securities
held to maturity to available for sale. This transfer was made at market value
in accordance with SFAS 115. The transfer was made to allow more flexibility
in managing the portfolio, and all subsequent purchases will be classified as
either available-for-sale or trading-account securities.
Deposits continue to show some growth by increasing $2,722,127 or 1.9% to
$145,006,068 in the first nine months of 1995. The deposit growth is being
realized in the areas of savings and time deposits while demand deposits
declined. This shift in deposit mix reveals the depositors' desire for the
stability of the higher rate offered by the time deposit. However, this shift
from demand deposit to the higher interest time deposits reduces the Bank's
interest margin.
Other borrowings increased $12,500,000 during the first nine months of 1995 and
consist of short-term loans from the Federal Home Loan Bank. These funds are
used for investment opportunities, and its growth is partly off-set by a
reduction in Federal Funds purchased and the payout of $5,000,000 in long-term
debt. Therefore, the total liability increase of $7,134,715 or 4.25% is a
result of increased deposits and short-term borrowings.
Total shareholders' equity increased $5,441,577 or 29.07% from December 31,
1994, to September 30, 1995. This increase is due to a $1,928,708 or a 11.75%
increase in retained earnings, and the $295,732 net unrealized gain on
available-for-sale securities resulted in an overall improvement in available
for sale securities of $3,512,869 during the first nine months of 1995.
Management is not aware of any current recommendations by the regulatory
authorities which would have any adverse effect on the liquidity, capital
resources, or operation of the Bank.
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PART II
OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 is filed with this report.
(b) No reports on Form 8-K were filed for the quarter ended 9-30-95.
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SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED SECURITY BANCSHARES, INC.
DATE: November 10, 1995
BY:
Larry M. Sellers
Its Vice-President, Secretary, and Treasurer
(Duly Authorized Officer and Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
See Notes to Consolidated Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 6,278,987
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 127,809,330
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 57,504,151
<ALLOWANCE> 795,134
<TOTAL-ASSETS> 199,017,327
<DEPOSITS> 145,006,068
<SHORT-TERM> 26,781,125
<LIABILITIES-OTHER> 2,365,741
<LONG-TERM> 701,389
<COMMON> 22,021
0
0
<OTHER-SE> 24,140,983
<TOTAL-LIABILITIES-AND-EQUITY> 199,017,327
<INTEREST-LOAN> 4,108,213
<INTEREST-INVEST> 7,828,867
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,937,080
<INTEREST-DEPOSIT> 4,102,345
<INTEREST-EXPENSE> 5,173,752
<INTEREST-INCOME-NET> 6,763,328
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (143,152)
<EXPENSE-OTHER> 3,895,220
<INCOME-PRETAX> 3,628,235
<INCOME-PRE-EXTRAORDINARY> 2,634,235
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,634,235
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
<YIELD-ACTUAL> 4.98
<LOANS-NON> 179,213
<LOANS-PAST> 169,659
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,496,432
<ALLOWANCE-OPEN> 772,000
<CHARGE-OFFS> 37,587
<RECOVERIES> 60,721
<ALLOWANCE-CLOSE> 795,134
<ALLOWANCE-DOMESTIC> 795,134
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
