UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
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 (I.R.S. Employer Identifi-
of incorporation or organization) cation No.)
131 West Front Street
Post Office Box 249
Thomasville, AL 36784
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (334) 636-5424
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 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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 31, 1998
Common Stock, $.01 par value 3,542,115 shares
<PAGE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
<TABLE>
PAGE
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<S> <C>
AT MARCH 31, 1998, (UNAUDITED) AND DECEMBER 31, 1997 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998, AND 1997 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1998,
AND 1997 5
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FURNISHED
HAVE NOT BEEN AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS, BUT REFLECT, IN THE OPINION OF MANAGEMENT,
ALL ADJUSTMENTS NECESSARY FOR A FAIR PRESENTATION OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS FOR THE
PERIODS PRESENTED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURE PAGE 12
SIGNATURES
</TABLE>
<PAGE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
<TABLE>
ASSETS
March 31, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 10,511 $ 14,539
Trading account securities, at fair value 995 0
Investment securities available for sale,
at fair value 172,348 172,499
Loans, net of allowance for loan losses of
$4,309 and $4,046, respectively 222,402 215,897
Premises and equipment 7,293 6,837
Other assets 16,302 16,169
Total Assets $ 429,851 $ 425,941
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 324,752 $ 322,418
Borrowings 43,456 44,879
Other Liabilities 6,759 5,933
Total liabilities $ 374,967 $ 373,230
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share;
10,000,000 shares authorized; 3,606,115
and 3,601,785 shares issued,
respectively $ 36 $ 36
Surplus 8,133 8,057
Net unrealized gain on securities
available for sale 1,538 1,013
Retained earnings 45,429 43,859
Less treasury stock-64,000 shares and
64,100 shares, respectively, at cost (252) (254)
Total shareholders' equity $ 54,884 $ 52,711
Total liabilities and shareholders'
equity $ 429,851 $ 425,941
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended
March 31,
1998 1997
(Unaudited)
INTEREST INCOME:
<S> <C> <C>
Interest and fees on loans $ 6,653 $ 5,330
Interest on securities 3,472 3,756
Total interest income 10,125 9,086
INTEREST EXPENSE:
Interest on deposits 3,083 3,326
Interest on borrowings 643 491
Total interest expense 3,726 3,817
NET INTEREST INCOME 6,399 5,269
PROVISION FOR LOAN LOSSES 633 423
Net interest income after
provision for loan losses 5,766 4,846
NONINTEREST INCOME:
Service and other charges on
deposit accounts 539 455
Other income 423 229
Securities gains 249 134
Total noninterest income 1,211 818
NONINTEREST EXPENSES:
Salaries and employee benefits 2,187 1,767
Occupancy expense 256 198
Furniture and equipment expense 352 278
Other expenses 1,099 974
Total noninterest expense 3,894 3,217
Income before income taxes 3,083 2,447
PROVISION FOR INCOME TAXES 840 680
NET INCOME $ 2,243 $ 1,767
BASIC AND DILUTED NET INCOME PER SHARE $ .63 $ .50
DIVIDENDS PER SHARE $ .19 $ .11
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)
<TABLE>
Three Months Ended
March 31,
1998 1997
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 2,243 $ 1,767
Adjustments:
Depreciation 232 220
Amortization of premiums and discounts,
net 139 161
Amortization of intangibles 160 124
Provision for losses on loans 633 423
(Gain) loss on sale of securities, net (71) (54)
Changes in assets and liabilities:
Decrease(increase) in other assets (1,838) 620
(Decrease)increase in other
liabilities 826 (530)
Total adjustments 81 964
Net cash provided by operating
activities 2,324 2,731
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/call of securities
available for sale 11,809 2,865
Proceeds from sales of securities 16,373 12,350
(Purchase of) proceeds from sale of
property and equipment, net (688) 286
Purchase of securities available for sale (27,025) (14,624)
Loan (originations) and principal
repayments, net (7,137) (2,143)
Net cash used by investing activities (6,668) (1,266)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease(increase) in customer deposits,
net 2,334 754
Sale of treasury stock 3 0
Exercise of stock options 75 0
Dividends paid (673) (390)
(Decrease)increase in borrowings (1,423) (843)
Net cash used by financing activities 316 (479)
Net increase(decrease) in cash and
cash equivalents (4,028) 986
CASH AND CASH EQUIVALENTS, beginning
of period 14,539 16,006
CASH AND CASH EQUIVALENTS, end of period $10,511 $16,992
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed consolidated financial
statements as of March 31, 1998 and 1997 and for the three-month
periods then ended, include the accounts of United Security
Bancshares, Inc. and its subsidiaries. All significant
intercompany transactions and 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 financial position and results of operations for
such periods presented. Such adjustments are of a normal,
recurring nature. The results of operation for any interim period
are not necessarily indicative of results expected for the fiscal
year ended December 31, 1998. While certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission,
management believes that the disclosures herein are adequate to
make the information presented not misleading. These financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Annual
Report on Form 10-K for the year ended December 31, 1997, of
United Security Bancshares, Inc. and Subsidiaries. The accounting
policies followed by United Security Bancshares, Inc. ("USB") are
set forth in the summary of significant accounting policies in
USB's December 31, 1997 consolidated financial statements.
2. MERGER BETWEEN USB AND FBI
On June 30, 1997 First Bancshares, Inc. ("FBI") merged with and
into USB, and USB survived (combined entity the "Company").
Under the terms of the merger agreement, 1.4 million shares of the
Company's common stock were issued in exchange for all of the
outstanding shares of FBI's common stock (based on an exchange
ratio of 5.83 shares of the Company's common stock for each share
of FBI's common stock). The merger was accounted for as a
pooling-of-interests and, accordingly, the information included in
the financial statements and consolidated notes of the Company
presents the combined results of USB and FBI as if the merger had
been in effect for all periods presented.
The accompanying condensed consolidated financial statements give
effect to the merger, which has been accounted for as a pooling-
of-interests. Accordingly, the pre-merger accounts of the former
USB have been combined with those of FBI for all periods
presented.
3. NET INCOME PER SHARE
Basic net income per share was computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the three month period ended March 31, 1998 and 1997.
Common stock outstanding consists of issued shares less treasury
stock. Diluted net income per share for the three month period
ended March 31, 1998 and 1997, was computed by dividing net income
by the weighted average number of shares of common stock and the
dilutive effects of the shares awarded under the Stock Option
plan, based on the treasury stock method using an average fair
market value of the stock during the respective periods.
<PAGE>
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share,"
effective December 15, 1997. The following table represents the
net income per share calculations for the three months ended March
31, 1998 and 1997:
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Net Income
For the Three Months Ended Income Shares Per Share
March 31, 1998($ in thousands):
<S> <C> <C> <C>
Net income $2,243
Basic net income per share:
Income available to
common shareholders 2,243 3,539,833 $.63
Dilutive securities:
Stock option
Dilutive net income per share 0 24,758
Income available to common
shareholders plus
assumed conversions $2,243 3,564,591 $.63
March 31, 1997:
Net income $1,767
Basic net income per share:
Income available to
common shareholders 1,767 3,536,589 $.50
Dilutive securities 0 0
Dilutive net income per
share $1,767 3,536,589 $.50
</TABLE>
4. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130 January 1, 1998. SFAS No. 130
established standards for reporting and display of comprehensive
income and its components.
The Company has classified the majority of its securities as
available for sale in accordance with Financial Accounting
Standards Board Statement No. 115. For the quarter ended March
31, 1998, the net unrealized gain on these securities increased by
$833,000. For the quarter ended March 31, 1997, the net
unrealized gain on these securities decreased by $22,000.
Pursuant to Statement No. 115, any unrealized gain or loss
activity of available for sale securities is to be recorded as an
adjustment to a separate component of shareholders' equity, net of
income tax effect. Accordingly for the quarters ended March 31,
1998 and 1997, the Company recognized a $525,000 increase and
$22,000 decrease in the net unrealized gain component of equity,
respectively.
Since comprehensive income is a measure of all changes in equity
of an enterprise that result from transactions and other economic
events of the period, this change in unrealized gain serves to
increase or decrease comprehensive income. The following table
represents comprehensive income for the quarters ended March 31,
1998 and 1997:
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1998 1997
<S> <C> <C>
Net income $2,243 $1,767
Other comprehensive income(loss),
net of tax Unrealized gain (loss)
on securities 525 (15)
Comprehensive income $2,768 $1,752
</TABLE>
5. MARKET RISK
There have been no material changes in reported market risks since
year-end.
<PAGE>
6. PENDING ACCOUNTING PRONOUNCEMENTS
The AICPA has issued Statements of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use. This statement requires capitalization of external direct
costs of materials and services; payroll and payroll-related costs
for employees directly associated; and interests costs during
development of computer software for internal use (planning and
preliminary costs should be expensed). Also, capitalized costs of
computer software developed or obtained for internal use should be
amortized on a straight-line basis unless another systematic and
rational basis is more representative of the software's use.
This statement is effective for financial statements for fiscal
years beginning after December 15, 1998 (prospectively) and is not
expected to have a material effect on the consolidated financial
statements.
<PAGE>
Item 2.
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
First United Security Bank (the "Bank"), and it has no operations
of any consequence other than the ownership of its subsidiary.
The Bank's name was changed from United Security Bank to First
United Security Bank on July 9, 1997.
The emphasis of this discussion is a comparison of Assets,
Liabilities, and Capital for the three months ended March 31,
1998, to year-end 1997; while comparing income for the three
months ended March 31, 1998, to income for the three months ended
March 31, 1997.
On the close of business June 30, 1997, United Security
Bancshares, Inc. and United Security Bank completed the merger
with First Bancshares, Inc. and First Bank and Trust. The merger
is considered as a "pooling of interest" for accounting and
financial reporting purposes; therefore, all financial information
presented combines the results of both institutions as if the
merger had been in effect for all periods presented.
On June 1, 1996, United Security Bank completed the acquisition of
all the outstanding shares of Brent Banking Company. The
acquisition increased United Security's total assets by $33.7
million.
All yields and ratios presented and discussed herein are based on
the cash basis and not on the tax-equivalent basis.
COMPARING THE THREE MONTHS ENDED MARCH 31, 1998, TO THE THREE
MONTHS ENDED MARCH 31, 1997:
Net income increased $476,000, or 26.9%, thus increasing net
income per share to $.63 from $.50. The increase is primarily
attributable to a $920,000, or 19% increase in net interest income
and a $393,000, or 48% increase in non-interest income. The
increase in interest income was due to an increase in the loan
portfolio coupled with higher yields generated by Acceptance Loan
Company ("ALC"), a wholly owned subsidiary of First United
Security Bank. The increase in non-interest income is a result of
an increase in the Bank's fee structure and strategy, and $115,000
realized in securities gains.
Non-interest expenses increased $677,000, or 21%. The largest
component of this increase was a $420,000 or 23.8% increase in
salaries and employee benefits. This increase is primarily
associated with the cost of staffing new offices of Acceptance
Loan Company. The increases in occupancy expenses, furniture and
equipment expenses and other expenses were associated primarily
with opening the additional ALC offices and adding computer and
processing equipment to accommodate the Bank's consolidation.
COMPARING THE MARCH 31, 1998 STATEMENT OF FINANCIAL CONDITION TO
DECEMBER 31, 1997:
In comparing the financial condition at the end of 1997 to March
31, 1998, the liquidity and capital resources did not materially
change during the period. Total assets increased $3.9 million to
$429.9 million, while liabilities increased $1.7 million to $375
million. Retained earnings increased $1.5 million, or 3.6%, due
to earnings in excess of dividends paid during the period. This
change and an increase of $525,000 in net unrealized gain on
available for sale securities increased shareholders' equity by
$2.2 million to $54.9 million.
<PAGE>
CAPITAL RESOURCES:
The Bank's primary sources of funds are customer deposits,
repayments of loan principal, and interest from loans and
investments. While scheduled principal repayments on loans and
mortgage-backed securities are a relatively predictable source of
funds, deposit flows and loan prepayments are greatly influenced
by general interest rates, economic conditions, and competition.
The Bank manages the pricing of its deposits to maintain a desired
deposit balance. In addition, the Bank invests in short-term
interest-earning assets which provide liquidity to meet lending
requirements.
The Bank is required to maintain certain levels of regulatory
capital. At March 31, 1998 and December 31, 1997, United Security
and the Bank were in compliance with all regulatory capital
requirements.
Management is not aware of any condition that currently exists
that would have any adverse effects on the liquidity, capital
resources, or operation of United Security Bancshares, Inc.
However, the Company is a defendant in certain claims and legal
actions arising in the ordinary course of business. In the
opinion of management, after consultation with legal counsel, the
ultimate disposition of these matters is not expected to have a
material adverse effect on the financial position of the Company.
<PAGE>
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 is filed with this report.
<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: May 15, 1998
BY: /s/ Larry M. Sellers
Its Vice-President, Secretary, and Treasurer
(Duly Authorized Officer and Principal Financial Officer)
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<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of United Security Bancshares, Inc. for the three months
ended March 31, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,198
<INT-BEARING-DEPOSITS> 313
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 995
<INVESTMENTS-HELD-FOR-SALE> 172,348
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 226,711
<ALLOWANCE> 4,309
<TOTAL-ASSETS> 429,851
<DEPOSITS> 324,752
<SHORT-TERM> 2,520
<LIABILITIES-OTHER> 1,563
<LONG-TERM> 40,936
0
0
<COMMON> 36
<OTHER-SE> 54,848
<TOTAL-LIABILITIES-AND-EQUITY> 429,851
<INTEREST-LOAN> 6,653
<INTEREST-INVEST> 3,472
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,125
<INTEREST-DEPOSIT> 3,083
<INTEREST-EXPENSE> 3,726
<INTEREST-INCOME-NET> 6,399
<LOAN-LOSSES> 633
<SECURITIES-GAINS> 249
<EXPENSE-OTHER> 1,099
<INCOME-PRETAX> 3,083
<INCOME-PRE-EXTRAORDINARY> 3,083
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,243
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
<YIELD-ACTUAL> 8.79
<LOANS-NON> 4,146
<LOANS-PAST> 3,094
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,549
<ALLOWANCE-OPEN> 4,046
<CHARGE-OFFS> 439
<RECOVERIES> 69
<ALLOWANCE-CLOSE> 4,309
<ALLOWANCE-DOMESTIC> 4,309
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
