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 September 30, 2000
Commission File Number: 0-14549
United Security Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Delaware 63-0843362
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 October 31, 2000
Common Stock, $.01 par value 3,570,431 shares
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UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
<S> <C>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30,
1999 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FURNISHED
HAVE NOT BEEN AUDITED BY INDEPENDENT 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 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE PAGE 13
SIGNATURES
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UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS
September 30, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
CASH AND DUE FROM BANKS $ 12,265 $ 12,223
INTEREST-BEARING DEPOSITS IN BANKS 6,611 666
FEDERAL FUNDS SOLD 200 0
INVESTMENT SECURITIES AVAILABLE FOR SALE,
at fair value 149,643 157,874
LOANS, net of allowances for loan losses
of $5,911 and $5,579, respectively 297,318 276,172
PREMISES AND EQUIPMENT, net 8,915 9,541
OTHER ASSETS 20,769 20,123
Total assets $ 495,721 $ 476,599
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS $ 334,410 $ 326,751
BORROWINGS 89,249 82,774
OTHER LIABILITIES 6,741 5,404
Total liabilities 430,400 414,929
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share;
10,000,000 shares authorized; 3,634,431
and 3,632,081 shares issued, respectively 36 36
Surplus 8,769 8,728
Accumulated other comprehensive income (loss) (1,344) (1,753)
Retained earnings 58,112 54,911
Less treasury stock-64,000 shares, at cost (252) (252)
Total shareholders' equity 65,321 61,670
Total liabilities and shareholders' equity $ 495,721 $ 476,599
The accompanying notes are an integral part of these statements.
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UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(Unaudited) (Unaudited)
INTEREST INCOME:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 9,323 $ 8,664 $ 27,536 $24,803
Interest on securities 2,839 2,804 8,500 8,315
Total interest income 12,162 11,468 36,036 33,118
INTEREST EXPENSE:
Interest on deposits 3,455 3,079 9,656 9,145
Interest on borrowings 1,332 879 3,726 2,198
Total interest expense 4,787 3,958 13,382 11,343
NET INTEREST INCOME 7,375 7,510 22,654 21,775
PROVISION FOR LOAN LOSSES 1,631 918 4,287 2,769
Net interest income after provision
for loan losses 5,744 6,592 18,367 19,006
NONINTEREST INCOME:
Service and other charges on
deposit accounts 580 538 1,658 1,495
Other income 240 507 1,827 1,743
Securities gains 71 5 159 524
Total noninterest income 891 1,050 3,644 3,762
NONINTEREST EXPENSES:
Salaries and employee benefits 2,819 2,753 8,535 8,026
Occupancy expense 344 348 991 882
Furniture and equipment expense 397 382 1,238 1,089
Other expenses 869 1,209 3,791 3,690
Total noninterest expense 4,429 4,692 14,555 13,687
Income before income taxes 2,206 2,950 7,456 9,081
PROVISION FOR INCOME TAXES 391 848 1,792 2,695
NET INCOME $ 1,815 $ 2,102 $ 5,664 $ 6,386
BASIC NET INCOME PER SHARE $.51 $.59 $1.59 $1.79
DILUTED NET INCOME PER SHARE $.51 $.58 $1.58 $1.78
DIVIDENDS PER SHARE $.23 $.21 $ .69 $ .63
The accompanying notes are an integral part of these statements.
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UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)
Nine Months Ended
September 30,
2000 1999
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 5,664 $ 6,386
Adjustments:
Depreciation 927 735
Amortization of premiums and discounts, net 103 913
Amortization of intangibles 292 536
Provision for losses on loans 4,287 2,769
Gain on sale of securities, net (159) (524)
Changes in assets and liabilities:
Increase in other assets (938) (4,733)
Increase in other liabilities 2,400 2,614
Total adjustments 6,912 2,310
Net cash provided by operating activities 12,576 8,696
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/call and paydowns
of securities available for sale 10,723 45,642
Proceeds from sales of securities 4,330 52,501
Purchase of property and equipment, net (301) (2,245)
Purchase of securities available for sale (7,620) (105,910)
Loan (originations) and principal re-
payments, net (25,433) (32,223)
Net cash used by investing activities (18,301) (42,235)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase(decrease) in customer deposits, net 7,659 (1,935)
Exercise of stock options 41 348
Dividends paid (2,463) (2,242)
Increase in borrowings 6,475 22,486
Net cash provided by financing activities 11,712 18,657
Net increase(decrease) in cash and cash
equivalents 5,987 (14,882)
CASH AND CASH EQUIVALENTS, beginning of period 12,889 26,831
CASH AND CASH EQUIVALENTS, end of period 18,876 11,949
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The accompanying notes are an integral part of these statements.
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UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed consolidated financial statements as of
September 30, 2000 and 1999 include the accounts of United Security Bancshares,
Inc. and its subsidiaries (the "Company"). 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 operations for
any interim period are not necessarily indicative of results expected for the
fiscal year ending December 31, 2000. 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,
1999, 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, 1999,
consolidated financial statements.
2. 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 nine
month periods ended September 30, 2000, and 1999. Common stock outstanding
consists of issued shares less treasury stock. Diluted net income per share
for the three and nine month periods ended September 30, 2000, and 1999, were
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 Company's
Stock Option Plan, based on the treasury stock method using an average fair
market value of the stock during the respective periods.
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The following table represents the net income per share calculations for the
three and nine months period ended September 30, 2000, and 1999:
Net Income
For the Three Months Ended Income Shares Per Share
<S> <C> <C> <C>
September 30, 2000 ($ in thousands):
Net income $1,815
Basic net income per share:
Income available to common
shareholders 1,815 3,570,331 $.51
Dilutive securities:
Stock options 0 11,174
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions 1,815 3,581,505 $.51
September 30, 1999:
Net income 2,102
Basic net income per share:
Income available to common
shareholders 2,102 3,566,667 $.59
Dilutive securities:
Stock option 0 28,814
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions $2,102 3,595,481 $.58
Net Income
For the Nine Months Ended Income Shares Per Share
September 30, 2000 ($ in thousands):
Net income $5,664
Basic net income per share:
Income available to common
shareholders 5,664 3,570,064 $1.59
Dilutive securities:
Stock option 0 11,159
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions $5,664 3,581,223 $1.58
September 30, 1999:
Net income $6,386
Basic net income per share:
Income available to common
shareholders 6,386 3,559,133 $1.79
Dilutive securities:
Stock option 0 28,843
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions $6,386 3,587,976 $1.78
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3. COMPREHENSIVE INCOME
Comprehensive income is a measure of all changes in equity of an enterprise
that result from transactions and other economic events of the period.
Pursuant to SFAS 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. This change in unrealized gain
serves to increase or decrease comprehensive income. The following table
represents comprehensive income and its changes for the three and nine month
periods ended September 30, 2000, and 1999:
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Three Months Nine Months
Ended Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income $ 1,815 $ 2,102 $ 5,664 $ 6,386
Other comprehensive income,
net of tax:
Unrealized gain (loss)
on securities 1,037 (1,939) 409 (3,923)
Comprehensive income $2,852 $ 163 $6,073 $2,463
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4. MARKET RISK
There have been no material changes in reported market risks since year-end.
5. PENDING ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, which
establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in
a derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. In June 1999, the FASB issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statment No. 133, which delays the original effective
date of SFAS No. 133 until fiscal years beginning after June 15, 2000. In June
2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, which amends SFAS No. 133. SFAS
No. 138 addresses a limited number of issues related to the implementation of
SFAS No 133. Substantially all of the current derivative portfolio will
qualify under SFAS No. 133 for cash flow or fair value hedge accounting
treatment. The implementation of SFAS No. 133, as amended, is not expected to
have a material effect on the Company's consolidated financial position or
consolidated results of operations.
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6. SEGMENT REPORTING
Under SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, certain information is disclosed for the two reportable operating
segments of the Company, First United Security Bank ("FUSB") and Acceptance
Loan Company, Inc. ("ALC"). The reportable segments were determined using the
internal management reporting system. They are composed of the Company's
significant subsidiaries. The accounting policies for each segment are the
same as those used by the Company as described in Note 2 of the Company's
annual consolidated financial statements, Summary of Significant Accounting
Policies. The segment results include certain overhead allocations and
intercompany transactions that were recorded at current market prices. All
intercompany transactions have been eliminated to determine the consolidated
balances. The results for the two reportable segments of the Company are
included in the following table:
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Elimi- Consoli-
FUSB ALC All Other nations dated
For the three months
ended September 30,
2000:
<S> <C> <C> <C> <C> <C>
Net interest income $ 5,429 $ 1,882 $ 885 $ (821) $ 7,375
Provision for
loan losses 21 1,610 0 0 1,631
Total noninterest
income 1,127 190 1,293 (1,719) 891
Total noninterest
expense 2,895 1,755 300 (521) 4,429
Income before
income taxes 3,640 (1,293) 1,878 (2,019) 2,206
Provision for
income taxes 889 (504) 6 0 391
Net income $ 2,751 $ (789) $1,872 $(2,019) $1,815
For the nine months
ended September 30,
2000:
Net interest
income $ 16,067 $ 6,396 $ 2,655 $(2,464) $ 22,654
Provision for
loan losses 94 4,193 0 0 4,287
Total noninterest
income 2,752 609 4,286 (4,003) 3,644
Total noninterest
expense 8,793 5,280 1,041 (559) 14,555
Income before
income taxes 9,932 (2,468) 5,900 (5,908) 7,456
Provision for
income taxes 2,721 (963) 34 0 1,792
Net income $ 7,211 $ (1,505) $ 5,866 $(5,908) $ 5,664
Other significant
items:
Total assets,
September 30,
2000 $491,164 $ 75,808 $67,103 $(138,354) $495,721
Total investment
securities 145,908 0 3,735 0 149,643
Total loans 302,477 71,199 0 (76,358) 297,318
Total interest
income from
external
customers,
nine months
ended
September 30,
2000 23,319 11,751 966 0 36,036
Total interest
income from
affiliates,
nine months
ended Septem-
ber 30, 2000 5,355 0 0 (5,355) 0
Investment in wholly
owned subsidiary 2,050 0 61,312 (63,362) 0
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All Elimina- Consol-
FUSB ALC Other tions idated
For the three months
ended September 30,
1999:
<S> <C> <C> <C> <C> <C>
Net interest income $ 4,854 $ 2,634 $ 827 $ (805) $ 7,510
Provision for loan
losses 0 918 0 0 918
Total noninterest income 796 248 1,379 (1,373) 1,050
Total noninterest expense 2,903 1,747 47 (5) 4,692
Income before income
taxes 2,747 217 2,159 (2,173) 2,950
Provision for income
taxes 760 86 2 0 848
Net income $ 1,987 $ 131 $2,157 $(2,173) $ 2,102
For the nine months
ended September 30,
1999:
Net interest income $13,779 $ 7,879 $2,359 $(2,242) $21,775
Provision for loan
losses 110 2,659 0 0 2,769
Total noninterest income 2,924 828 4,249 (4,239) 3,762
Total noninterest expense 8,786 4,692 222 (13) 13,687
Income before income
taxes 7,807 1,356 6,386 (6,468) 9,081
Provision for income
taxes 2,165 530 0 0 2,695
Net income $ 5,642 $ 826 $6,386 $(6,468) $6,386
Other significant items:
Total assets,
September 30, 1999 $464,777 $ 76,919 $ 61,371 $(131,404) $471,663
Total interest income
from external customers,
nine months ended
September 30, 1999 $ 18,608 $ 12,151 $ 2,359 $ 0 $ 33,118
Total interest income
from affiliates, nine
months ended
September 30, 1999 $ 4,272 $ 0 $ 0 $ (4,272) $ 0
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis 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 emphasis of this discussion is a comparison of Assets, Liabilities, and
Capital for the nine months ended September 30, 2000 to year-end 1999; while
comparing income and expense for the three and nine month periods ended
September 30, 2000, to income and expense for the three and nine month
periods ended September 30, 1999.
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 SEPTEMBER 30, 2000, TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1999
The increase in interest income was due to both an increase in the average
loans outstanding and an increase in the average yield.
The increase in interest expense was due to both an increase in the average
deposit and borrowing balances outstanding and an increase in the average
rate paid on interest bearing liabilities.
Net income decreased $287,000, or 13.7%, resulting in a decrease of basic net
income per share to $.51. This was due to the increase in interest expense
discussed above and an increase in the provision for loan losses of $713,000,
as described below.
COMPARING THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
The increase in interest income was due to both an increase in the average
loans outstanding and an increase in the average yield.
The increase in interest expense was due to both an increase in the average
deposit and borrowing balances outstanding and an increase in the average
rate paid on interest bearing liabilities.
Net income decreased $722,000, or 11.3%, thus decreasing basic net income per
share to $1.59. The decrease is primarily attributable to a $1.5 million, or
54.8% increase in the provision for loan losses. The allowance for loan
losses reflects management's estimates, which take into account historical
experience, the amount of nonperforming assets and general economic
conditions.
COMPARING THE SEPTEMBER 30, 2000 STATEMENT OF FINANCIAL CONDITION TO DECEMBER
31, 1999
In comparing financial condition at December 31, 1999 to September 30, 2000,
liquidity and capital resources did not materially change during the period.
Total assets increased $19.1 million to $495.7 million, while liabilities
increased $15.5 million to $430.4 million. These changes were representative
of the increases in loan volume discussed above, funded by deposit growth of
2.3% and increases in other borrowings of 7.8%. Retained earnings increased
$3.2 million, or 5.8%, due to earnings in excess of dividends paid during the
period. This change and an increase of $409,000 in accumulated other
comprehensive income increased shareholders' equity by $3.6 million to $65.3
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
September 30, 2000 and December 31, 1999, 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.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 is filed with this report.
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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 13, 2000
BY: /s/ Larry M. Sellers
Its Vice-President, Secretary, and Treasurer
(Duly Authorized Officer and Principal Financial Officer)
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