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 June 30, 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 of (IRS Employer Identification
incorporation or organization) 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 June 30, 1998
Common Stock, $.01 par value 3,543,070 shares
<PAGE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
[S]
PAGE
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION AT JUNE 30, 1998 (UNAUDITED) AND DECEMBER
31, 1997 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1998 AND 1997 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30,
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 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE PAGE
SIGNATURES 13
<PAGE>
UNITED SECURITY BANCSHARES INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS
June 30, December 31,
1998 1997
(Unaudited)
[S] [C] [C]
Cash and due from banks $ 10,728 $ 14,539
Federal funds sold 6,850 0
Investment securities available for sale,
at fair value 171,328 172,499
Loans, net of allowance for loan losses of
$4,553 and $4,046 respectively 229,441 215,897
Premises and equipment 7,525 6,837
Other assets 16,443 16,169
Total assets $ 442,315 $ 425,941
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 321,379 $ 322,418
Borrowings 58,426 44,879
Other liabilities 5,872 5,933
Total liabilities 385,677 373,230
Shareholders' equity:
Common stock, par value $.01 per share;
10,000,000 shares authorized; 3,607,070
and 3,601,785 shares issued, respectively 36 36
Surplus 8,151 8,057
Net unrealized gain on securities available
for sale 1,771 1,013
Retained earnings 46,932 43,859
Less treasury stock--64,000 shares and 64,100
shares, respectively, at cost (252) (254)
Total shareholders' equity 56,638 52,711
Total liabilities and shareholders equity $ 442,315 $ 425,941
The accompanying notes are an integral part of these statements.
<PAGE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Interest income:
[S] [C] [C] [C] [C]
Interest and fees on loans $ 7,109 $ 5,408 $13,762 $10,738
Interest on securities 3,491 3,846 6,963 7,602
Total interest income 10,600 9,254 20,725 18,340
Interest expense:
Interest on deposits 3,113 3,375 6,196 6,701
Interest on borrowings 787 529 1,430 1,020
Total interest expense 3,900 3,904 7,626 7,721
Net interest income 6,700 5,350 13,099 10,619
Provision for loan losses 617 345 1,250 768
Net interest income after pro-
vision for loan losses 6,083 5,005 11,849 9,851
Noninterest income:
Service and other charges
on deposit accounts 493 457 1,032 912
Other income 474 190 897 419
Securities gains 216 23 465 157
Total noninterest income 1,183 670 2,394 1,488
Noninterest expenses:
Salaries and employee
Benefits 2,416 1,500 4,603 3,267
Occupancy expense 257 160 513 358
Furniture and equipment
Expense 375 356 727 634
Other expenses 1,122 1,441 2,221 2,415
Total noninterest
Expense 4,170 3,457 8,064 6,674
Income before income taxes 3,096 2,218 6,179 4,665
Provision for income taxes 920 511 1,760 1,191
Net income $ 2,176 $ 1,707 $ 4,419 $ 3,474
Basic net income per share $ .61 $ .48 $ 1.25 $ .98
Diluted net income per share $ .61 $ .48 $ 1.24 $ .98
Dividends per share $ .19 $ .11 $ .38 $ .22
The accompanying notes are an integral part of these statements.
<PAGE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands, Except per Share Data)
Six Months Ended
June 30,
1998 1997
(Unaudited)
Cash Flows from Operating Activities:
[S] [C] [C]
Net Income $ 4,419 $ 3,474
Adjustments:
Depreciation 464 445
Amortization of premiums and discounts, net 334 332
Amortization of intangibles 322 249
Provision for losses on loans 1,250 768
(Gain) loss on sale of securities, net (465) (157)
Changes in assets and liabilities:
Decrease(increase) in other assets (975) 1,186
(Decrease)increase in other liabilities (61) (800)
Total adjustments 869 2,023
Net cash provided by operating activities 5,288 5,497
Cash Flows from Investing Activities:
Proceeds from maturities/call of securities
available for sale 21,212 5,896
Proceeds from sale of securities 31,781 19,925
(Purchase of) proceeds from sale of property
and equipment, net (1,152) (597)
Purchase of securities available for sale (50,554) (27,300)
Loan (originations) and principal repayments, net (14,794) (2,879)
Net cash used by investing activities (13,507) (4,955)
Cash Flows from Financing Activities:
Decrease(increase) in customer deposits, net (1,039) 1,571
Sale of treasury stock 3 0
Exercise of stock options 93 0
Dividends paid (1,346) (786)
(Decrease)increase in borrowings 13,547 1,221
Net cash used by financing activities 11,258 2,006
Net increase(decrease) in cash and cash
equivalents 3,039 2,548
Cash and cash equivalents, beginning of period 14,539 16,006
Cash and cash equivalents, end of period 17,578 18,554
The accompanying notes are an integral part of these statements.
<PAGE>
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed financial statements as of June 30,
1998 and 1997 and for the three-month and six-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.
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 and six-month periods ended June 30, 1998, and 1997. Common stock
outstanding consists of issued shares less treasury stock. Diluted net
income per share for the three and six-month periods ended June 30, 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.
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." The
following table represents the net income per share calculations for the
three and six months ended June 30, 1998, and 1997:
Net Income
For the Three Months Ended Income Shares Per Share
June 30, 1998($ in thousands):
[S] [C] [C] [C]
Net income $2,176 0 0
Basic net income per share:
Income available to common
shareholders 2,176 3,542,513 $.61
Dilutive securities:
Stock option 0 26,574
Dilutive net income per share
Income available to common
shareholders plus assumed
conversions $2,176 3,569,087 $.61
June 30, 1997:
Net income $1,707
Basic net income per share:
Income available to common
shareholders 1,707 3,536,589 $.48
Dilutive securities 0 0
Dilutive net income per share $1,707 3,536,589 $.48
Net Income
For the Six Months Ended Income Shares Per Share
June 30, 1998($ in thousands):
Net income $4,419
Basic net income per share:
Income available to common
shareholders 4,419 3,541,423 $1.25
Dilutive securities:
Stock option 0 27,497
Dilutive net income per share
Income available to common
shareholders plus assumed
conversions $4,419 3,568,920 $1.24
June 30, 1997:
Net income $3,474
Basic net income per share:
Income available to common
shareholders 3,474 3,536,589 $.98
Dilutive securities 0 0
Dilutive net income per share $3,474 3,536,589 $.98
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 three and six-month periods ended June 30, 1998, the net
unrealized gain on these securities decreased by $75,000 and increased by
$758,000, respectively. For the three and six-month periods ended June 30,
1997, the net unrealized gain on these securities increased by $7,000 and
decreased by $15,000, respectively. 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 shareholder's equity,
net of income tax effect. Accordingly, for the three and six month periods
ended June 30, 1998, and 1997, the Company recognized a corresponding
adjustment in the net unrealized gain component of equity.
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 three and six months ended June 30, 1998, and 1997:
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
[S] [C] [C] [C] [C]
Net income $2,176 $1,707 $4,419 $3,474
Other comprehensive income(loss),
net of tax
Unrealized gain(loss) on securities (75) 7 758 (15)
Comprehensive income $2,101 $1,714 $5,177 $3,459
5. MARKET RISK
There have been no material changes in reported market risks since year-
end.
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 of 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.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and for Hedging Activities. The statement requires derivatives
to be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivatives' fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The Statement is effective for fiscal
years beginning after June 15, 1999 (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 subsidiaries. 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 six months ended June 30, 1998, to year-end 1997; while
comparing income for the three and six-month periods ended June 30, 1998,
to income for the three and six-month periods ended June 30, 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.
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 JUNE 30, 1998, TO THE THREE MONTHS ENDED
JUNE 30, 1997:
Net income increased $469,000, or 27.5%, thus increasing net income per
share to $.61 from $.48. The increase is primarily attributable to a $1.3
million, or 14.5%, increase in interest income and a $513,000, or 76.6%,
increase in noninterest income, which were offset by a $713,000, or 20.6%,
increase in noninterest expense, and a $272,000 increase in the provision
for loan losses. The increase in the provision for loan losses was
primarily a result of continued growth in the finance company. The
allowance for loan losses reflects management's estimates, which take into
account historical experience, the amount of nonperforming assets, and
general economic conditions.
The increase in interest income was due to increases in interest on loans.
This increase is due to an increase in the average loans outstanding and an
increase in the average yield.
The $713,000, or 20.6%, increase in noninterest expense was primarily
attributed to increases in salaries and employee benefits expenses by
$916,000 which was offset by reductions of $319,000 in other noninterest
expense. A significant portion of this increase is associated with the
cost of adding offices to the Acceptance Loan Company, a wholly owned
subsidiary of First United Security Bank.
COMPARING THE SIX MONTHS ENDED JUNE 30, 1998, TO THE SIX MONTHS ENDED JUNE
30, 1997:
Net income increased $945,000, or 27.2%, thus increasing net income per
share to $1.25 from $.98. The increase is primarily attributable to a $2.4
million, or 13.0%, increase in interest income and a $906,000, or 60.9%,
increase in noninterest income, which were offset by a $1.4 million, or
20.8%, increase in noninterest expense, and a $482,000 increase in the
provision for loan losses. The increase in the provision for loan losses
was primarily a result of continued growth in the finance company. The
allowance for loan losses reflects management's estimates, which take into
account historical experience, the amount of nonperforming assets, and
general economic conditions.
The increase in interest income was due to increases in interest on loans.
This increase is due to an increase in the average loans outstanding and an
increase in the average yield.
The $1.4 million, or 20.8%, increase in noninterest expense was primarily
attributed to increases in salaries and employee benefits expenses by $1.3
million. A significant portion of this increase is associated with the
cost of adding offices to the Acceptance Loan Company, a wholly owned
subsidiary of First United Security Bank.
COMPARING THE JUNE 30, 1998, STATEMENT OF FINANCIAL CONDITION TO DECEMBER
31, 1997:
In comparing the financial condition and December 31, 1997, to June 30,
1998, the liquidity and capital resources did not materially change during
the period. Total assets, increased $16.4 million to $442 million, while
liabilities increased $12.4 to $386 million. Retained earnings increased
$3.1 million, or 7.0%, due to earnings in excess of dividends paid during
the period. This change and an increase of $758,000 in net unrealized gain
on available for sale securities increased shareholders' equity by $3.9
million to $56.6 million.
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
June 30, 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 5. OTHER INFORMATION
Shareholder proposals submitted to Bancshares in compliance with SEC Rule
14a-8 (which concerns shareholder proposals that are requested to be
included in a company's proxy statement) must be received at Bancshares'
offices on or before December 2, 1998. Pursuant to SEC Rules 14a-4 and
14a-5 (which, among other things, concern the exercise of discretionary
voting authority with respect to shareholder proposals other than proposals
that have been requested to be included in Bancshares' proxy statement),
shareholders are advised that a shareholder proposal will be untimely if
provided to Bancshares after February 15, 1999.
<PAGE>
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: August 12, 1998
BY: /s/ Larry M. Sellers
Its Vice-President, Secretary, and Treasurer
(Duly Authorized Officer and Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of United Security Bancshares, Inc. for the six months
ended June 30, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,728
<INT-BEARING-DEPOSITS> 313
<FED-FUNDS-SOLD> 6,850
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 171,328
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 233,994
<ALLOWANCE> 4,553
<TOTAL-ASSETS> 442,315
<DEPOSITS> 321,379
<SHORT-TERM> 2,520
<LIABILITIES-OTHER> 5,872
<LONG-TERM> 40,936
0
0
<COMMON> 36
<OTHER-SE> 56,602
<TOTAL-LIABILITIES-AND-EQUITY> 442,315
<INTEREST-LOAN> 13,762
<INTEREST-INVEST> 6,963
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 20,725
<INTEREST-DEPOSIT> 6,196
<INTEREST-EXPENSE> 7,626
<INTEREST-INCOME-NET> 13,099
<LOAN-LOSSES> 1,250
<SECURITIES-GAINS> 465
<EXPENSE-OTHER> 2,221
<INCOME-PRETAX> 6,179
<INCOME-PRE-EXTRAORDINARY> 6,179
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,419
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.24
<YIELD-ACTUAL> 11.99
<LOANS-NON> 4,290
<LOANS-PAST> 4,291
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,601
<ALLOWANCE-OPEN> 4,046
<CHARGE-OFFS> 906
<RECOVERIES> 163
<ALLOWANCE-CLOSE> 4,553
<ALLOWANCE-DOMESTIC> 4,553
<ALLOWANCE-FOREIGN> 0
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</TABLE>
