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 JUNE 30, 1996
Commission File Number 0-14549
UNITED SECURITY BANCSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
Alabama 63-0843362
(State or Other Jurisdiction of (I R S Employer Identification
Incorporation or 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 June 30, 1996:
2,137,960.
Total Number of Pages: 13
Exhibit Index at Page: 0
<PAGE>
UNITED SECURITY BANCSHARES, INC AND SUBSIDIARY
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Statements of Condition at June 30, 1996
(Unaudited), and December 31, 1995 3
Consolidated Statements of Income (Unaudited) for the
Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Income (Unaudited) for the
Three Months Ended June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows (Unaudited) for
the Six Months Ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE PAGE
Signatures 13
<PAGE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
June 30, December 31,
ASSETS 1996 1995
[S] [C] [C]
Cash and due from banks $ 6,737,210 $ 5,749,922
Federal funds sold 0 600,000
TOTAL CASH AND CASH EQUIVALENTS 6,737,210 6,349,922
Investment securities available for sale 149,666,414 127,864,402
Other investments(Federal Home Loan Bank Stock) 1,236,200 1,138,200
Loans 72,373,308 55,469,552
Less: Unearned interest on loans (662,210) (487,995)
Less: Allowance for possible loan losses (1,193,545) (778,391)
NET LOANS 70,517,553 54,203,166
Premises and equipment 4,187,568 3,616,182
Accrued interest receivable 1,798,997 1,594,147
Other assets 4,851,097 2,701,753
TOTAL ASSETS $238,995,039 $197,467,772
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand - non-interest bearing $25,532,252 $ 24,365,287
Demand - interest bearing 33,784,970 23,125,800
Savings 17,719,319 14,800,275
Time 05,277,478 84,223,353
TOTAL DEPOSITS 182,314,019 146,514,715
Federal funds purchased 1,575,000 0
U.S. Treasury tax and loan 859,592 369,272
Other borrowings 24,000,000 22,000,000
Dividend payable 277,935 235,176
Accrued interest payable 836,633 792,077
Other liabilities 1,749,250 1,563,396
Current portion long-term debt 83,333 83,333
Long-term debt 638,889 680,556
TOTAL LIABILITIES 212,334,651 172,238,525
SHAREHOLDERS' EQUITY
Common stock, par value $.01 per share:
2,400,000 shares authorized; 2,202,060
shares issued 22,021 22,021
Surplus 5,761,552 5,761,552
Net unrealized gain on
available for sale securities 488,438 616,295
Retained earnings 20,642,797 19,083,799
Less: Treasury stock - 64,100, at cost (254,420) (254,420)
TOTAL SHAREHOLDERS' EQUITY 26,660,388 25,229,247
$238,995,039 $197,467,772
See Notes to Consolidated Financial Statements.
<PAGE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six months ended June 30,
1996 1995
INTEREST INCOME
[S] [C] [C]
Interest and fees on loans $2,728,220 $ 2,692,066
Interest on investment securities:
Taxable 0 352,650
Tax-exempt 0 475,504
0 828,154
Interest on investment securities
available for sale 6,028,541 4,315,248
Interest on trading securities 3,297 6,084
Federal Home Loan Bank dividends 44,971 37,122
Interest on federal funds sold 35,489 15,767
Interest on rate swaps 27,072 14,616
Dividends 50 5,000
TOTAL INTEREST INCOME 8,867,640 7,914,057
INTEREST EXPENSE
Interest on deposits 3,018,974 2,651,162
Interest on short-term borrowings 738,803 503,705
Interest on long-term debt 23,834 176,007
TOTAL INTEREST EXPENSE 3,781,611 3,330,874
Net interest income 5,086,029 4,583,183
Provision for possible loan losses 15,000 0
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 5,071,029 4,583,183
NON-INTEREST INCOME
Service and penalty charges on deposit accounts 391,852 406,306
Credit life insurance commissions 10,193 12,492
Other income 65,189 78,436
Securities gains (losses):
Investment securities (113,439) (154,132)
Trading securities (14,375) 9,559
Options 367,740 161,007
TOTAL NON-INTEREST INCOME 707,160 513,668
NON-INTEREST EXPENSES
Salaries 1,264,059 1,189,437
Employee benefits 188,269 173,948
Occupancy expense 158,521 157,358
Furniture and equipment expense 311,374 314,160
Stationery and operating supplies 62,008 70,475
Telephone expense 77,958 76,490
FDIC assessment 1,000 158,138
Other expenses 775,133 503,376
TOTAL NON-INTEREST EXPENSES 2,838,322 2,643,382
Income before income taxes 2,939,867 2,453,469
Applicable income taxes 825,000 688,000
NET INCOME $2,114,867 $ 1,765,469
Average number of shares outstanding 2,137,960 2,137,960
Net income per share .99 .83
See Notes to Consolidated Financial Statements.
<PAGE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended June 30,
1996 1995
INTEREST INCOME
[S] [C] [C]
Interest and fees on loans $1,445,290 $ 1,376,995
Interest on investment securities:
Taxable 0 170,912
Tax-exempt 0 240,721
0 411,633
Interest on investment securities
available for sale 3,118,683 2,154,943
Interest on trading securities 2,473 1,474
Federal Home Loan Bank dividends 23,641 20,925
Interest on federal funds sold 28,376 12,553
Interest on rate swaps 6,240 10,504
Dividends 50 5,000
TOTAL INTEREST INCOME 4,624,753 3,994,027
INTEREST EXPENSE
Interest on deposits 1,573,149 1,369,810
Interest on short-term borrowings 404,484 272,572
Interest on long-term debt 11,816 88,895
TOTAL INTEREST EXPENSE 1,989,449 1,731,277
Net interest income 2,635,304 2,262,750
Provision for possible loan losses 6,000 0
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN 2,629,304 2,262,750
NON-INTEREST INCOME
Service & penalty charges on deposit accounts 199,268 207,119
Credit life insurance commissions 6,603 7,400
Other income 25,315 24,754
Securities gains (losses):
Investment securities (211,079) 123,126
Trading securities 14,375 (6,187)
Options 304,597 105,944
TOTAL NON-INTEREST INCOME 339,079 462,156
NON-INTEREST EXPENSES
Salaries 634,304 619,450
Employee benefits 96,712 96,462
Occupancy expense 78,940 79,292
Furniture and equipment expense 154,276 156,235
Stationery and operating supplies 33,340 38,643
Telephone expense 43,382 38,285
FDIC assessment 500 79,358
Other expenses 513,330 277,383
TOTAL NON-INTEREST EXPENSES 1,554,784 1,385,108
Income before income taxes 1,413,599 1,339,798
Applicable income taxes 369,000 371,000
NET INCOME $1,044,599 $ 968,798
Average number of shares outstanding 2,137,960 2,137,960
Net income per share .49 .45
See Notes to Consolidated Financial Statements.
<PAGE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended June 30,
1996 1995
Cash flows from operating activities:
[S] [C] [C]
Net income $2,114,867 $1,765,469
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 194,853 202,910
Provision for possible loan losses 15,000 0
Amortization of intangible assets 230,652 281,023
Investment securities losses 113,439 154,132
Loss on sale of fixed assets 4,813 0
Net securities premium amortization 591,719 227,138
(Increase) decrease in:
Interest receivable 42,018 (25,561)
Other assets (33,216) (903,153)
Increase (decrease) in:
Interest payable (78,531) 232,484
Other liabilities 248,426 (301,156)
Net cash provided by operating activities 3,444,040 1,633,286
Cash flows from investing activities:
Proceeds from maturities and prepayments of
investment securities 0 506,930
Purchases of investment securities 0 (1,397,040)
Proceeds from sales of investment
securities available for sale 19,284,467 25,797,013
Proceeds from maturities, calls and
prepayments of investment securities
available for sale 2,104,456 693,767
Purchases of investment securities
available for sale (37,762,727) (28,412,932)
Purchases of other investments (98,000) 0
Net cash received in acquisition of bank 8,605,941 0
Net increase in loans (915,800) (180,316)
Purchase of premises and equipment (21,052) (35,623)
Net cash used in investing activities (8,802,715) (3,028,201)
Cash flows from financing activities:
Net decrease in demand and
savings deposits (322,021) (3,118,708)
Net increase in time deposits 2,557,442 4,947,506
Net increase in short-term
borrowings 4,065,320 2,201,205
Repayments of long-term debt (41,667) (41,666)
Dividends paid (513,111) (459,662)
Net cash provided by financing activities 5,745,963 3,528,675
<PAGE>
See Notes to Consolidated Financial Statements.
Six months ended June 30,
1996 1995
Net increase in cash and cash
[S] [C] [C]
equivalents $ 387,288 $ 2,133,760
Cash and cash equivalents, beginning of
period 6,349,922 7,190,823
Cash and cash equivalents, end of period $6,737,210 $ 9,324,583
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $3,737,055 $ 3,098,714
Income taxes $ 831,582 $ 748,486
Supplemental schedule of noncash investing
and financing activities:
Dividends declared but unpaid $ 277,935 $ 235,176
The purchase of the stock of
Brent Banking Company as of June 1,
1996, resulted in an increase of the
following assets and liabilities:
Assets
Investment securities available for sale $ 6,337,938
Loans $15,413,587
Premises and equipment $ 750,000
Accrued interest receivable $ 246,868
Other assets $ 2,346,780
Liabilities
Demand deposits $12,893,539
Savings deposits $ 2,173,661
Time deposits $18,496,683
Accrued interest payable $ 123,087
Other liabilities $ 14,144
<PAGE>
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, 1995, of United Security
Bancshares, Inc. and subsidiary.
Note B - Acquisitions
On June 1, 1996, the Company completed the acquisition of all of the
outstanding shares of Brent Banking Company for $7.05 million in cash. This
acquisition increased the Company's total assets by $33.7 million.
Note C - New Accounting Standards
The Company has adopted the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets". The adoption of this standard did not have
a significant effect on the Financial position of the Company.
Note D - Reclassifications
Certain balances in the prior year have been reclassified to conform with the
presentation adopted in the current year.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and financial information are presented to aid in an
understanding of the current financial position and results of operations of
United Security Bancshares, Inc. ("United Security"). United Security is the
Parent Holding Company of United Security Bank (the "Bank"), and it has no
operations of any consequence other than the ownership of its subsidiary. The
emphasis of this discussion is a comparison of Assets, Liabilities, and Capital
for the six months ended June 30, 1996, to year-end 1996; while comparing
income for the first half ended June 30, 1996, to income for the first half
ended June 30, 1995.
On June 1, 1996, United Security Bank completed the acquisition of all of the
outstanding shares of Brent Banking Company. The acquisition increased United
Security's total assets by $33.7 million. The total asset and liability
increase is reflected in the June 30, 1996 Statement of Condition, However,
since the merger did not occur until June 1, 1996, only one month of income
after the merger is recorded in the Statement of Income. The discussion and
analysis below, therefore, will be impacted by some large increases due to the
merger, particularly in the areas of asset and deposit growth.
All yields and ratios presented and discussed herein are based on the cash
basis and not on the tax-equivalent basis.
COMPARING THE SIX MONTHS ENDED JUNE 30, 1996, TO THE SIX MONTHS ENDED JUNE 30,
1995:
Net income increased $349,398 or 19.79% increasing net income per share to $.99
from $.83. The increase is due to improved net interest income.
Net interest income increased $487,846 or 10.64% over the first half of 1995.
A combination of volume, rate and yield changes contributed to this increase.
Total interest income increased $953,583 or 12.05% over the first half of 1995.
Much of this increase is due to the increases in investment income generated.
Total interest-earning assets increased by $37,614,399 or 20.46% while interest-
bearing liabilities increased $38,655,992 or 26.61% in the first half of 1996.
It is again significant to note that while assets and liabilities have
increased considerably due to the Brent Bank merger, the income from that merger
is reflected for only one month.
Net operating income (income excluding taxes and securities transactions)
increased $262,906 or 10.78% in the first half of 1996 compared to the same
period in 1995. Management's investment strategy continued to be maximizing
portfolio returns commensurate with appropriate risk and liquidity
considerations. In July of 1995, United Security reclassified all investment
securities from held to maturity to available for sale to allow more
flexibility in managing the investment portfolio. This investment strategy
has resulted in increased yields and liquidity.
Total interest expense increased $450,737 or 13.53% in the first half of 1996
compared to the same period in 1995. Interest expense on short-term borrowings
increased $235,098 during the first half of 1996 compared to the first half of
1995. Short-term borrowing consists of U. S. Treasury demand notes in the
Treasury, Tax and Loan Accounts, securities sold under repurchase agreements
and federal funds purchased and are used to satisfy short term funding needs
including arbitrage when advantageous to the Bank. The increased interest
expense on deposits during the first half of 1996 is a result of the increase
in total interest bearing deposits during the same period. Interest expense
associated with the Brent Bank merger is only reflected in one month's
operating expense.
<PAGE>
Total net non-interest expense (non-interest expense less non-interest income)
increased only $1,448 or less than 1%. This flat rate of growth was due in part
to the gains realized in securities transactions and reduction in FDIC premiums
during the first half of 1996.
COMPARING THE ENDING FIGURES JUNE 30, 1996, TO ENDING FIGURES DECEMBER 31, 1995:
Total assets increased $41,527,267 or 21.03% to $238,995,039. The Brent Banking
Company merger accounted for $33.7 million or 17.06% of the increase in total
assets. Net loans increased $16,314,387 or 30.10% to $70,517,553, while
investment securities increased by $21,900,012 or 16.98% to $150,902,614.
Deposits increased by $35,799,304 or 24.43% to $182,314,019 in the first half
of 1996.
Federal funds purchased generally mature within one to four days from the
transaction date and these funds are generally used to satisfy daily funding
needs. At June 30, 1996, the Bank had purchased $1,575,000 in federal funds.
Other borrowings increased by $2,000,000 during the first half of 1996. Other
borrowings consist of loans from the Federal Home Loan Bank in the amount of
$24,000,000 and also represents short term debt. Treasury tax and loan deposits
are on demand and increased by $490,320 at June 30, 1996.
The long-term debt consists of a floating rate note from the Federal Home Loan
Bank secured by investment securities pledged to the Federal Home Loan Bank.
This debt is used to fund long-term fixed-rate mortgages and the final
installment is due in 2005. The first half reduction was $41,667.
Undivided profits increased $1,558,998 or 8.17%, and net unrealized gain on
available for sale securities realized a decrease of $127,857 in the first
half, which resulted in a Stockholder's Equity increase of $1,431,141 or
5.67% to $26,660,388. Shareholders' Equity was not impacted by the merger of
Brent Banking Company because the acquisition was a purchase transaction of
all the outstanding shares.
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. However, there were six law suits pending
against the Bank at the end of the first half of 1996, which could impact the
Banks future earnings. Management, however does not expect any material
financial impact at this time and the Bank is committed to offer a vigorous
defense in each case.
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
ITEM 6.
Exhibits and Reports on Form 8-K
(a) Exhibit 27 is filed with this report.
(b) A report on Form 8-K/A was filed on June 4, 1996, containing unaudited pro
forma financial statements and reporting the consummation on May 31, 1996,
of the acquisition of Brent Banking Company pursuant to an Agreement and
Plan of Share Exchange dated as of January 15, 1996. In addition, on
May 31, 1996, Brent Banking Company was merged with and into United
Security Bank pursuant to a Subsidiary Agreement and Plan of Merger dated
as of February 8, 1996.
<PAGE>
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: August 13, 1996
BY: /s/ 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,737,210
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 149,666,414
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 71,711,098
<ALLOWANCE> 1,193,545
<TOTAL-ASSETS> 238,995,039
<DEPOSITS> 182,314,019
<SHORT-TERM> 26,517,925
<LIABILITIES-OTHER> 2,863,818
<LONG-TERM> 638,889
0
0
<COMMON> 22,021
<OTHER-SE> 26,638,367
<TOTAL-LIABILITIES-AND-EQUITY> 238,995,039
<INTEREST-LOAN> 2,728,220
<INTEREST-INVEST> 6,139,420
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,867,640
<INTEREST-DEPOSIT> 3,018,974
<INTEREST-EXPENSE> 3,781,611
<INTEREST-INCOME-NET> 5,086,029
<LOAN-LOSSES> 15,000
<SECURITIES-GAINS> 239,926
<EXPENSE-OTHER> 2,838,322
<INCOME-PRETAX> 2,939,867
<INCOME-PRE-EXTRAORDINARY> 2,939,867
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,114,867
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
<YIELD-ACTUAL> 4.84
<LOANS-NON> 681,378
<LOANS-PAST> 186,502
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,296,196
<ALLOWANCE-OPEN> 1,192,837
<CHARGE-OFFS> 34,010
<RECOVERIES> 19,718
<ALLOWANCE-CLOSE> 1,193,545
<ALLOWANCE-DOMESTIC> 1,193,545
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
