<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ---------------------
Commission File No. 000-18561
---------
UNITED SECURITY BANCORPORATION
Washington 91-1259511
- ----------------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
N. 9506 Newport Highway, Spokane, WA 99218-1200
- ----------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (509) 467-6949
-----------------------
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
--- ---
The issuer has one class of capital stock, that being common stock. On May
12, 1995, there were 2,604,880 shares of such stock outstanding.
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<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARY
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
MARCH 31, 1995
PAGE
----
Part I - Financial Information:
Item 1. Financial Statements
Consolidated Statements of Condition - March 31, 1995
and December 31, 1994. . . . . . . . . . . . . . . . . . 3-4
Consolidated Statements of Income - Three
Months Ended March 31, 1995 and 1994 . . . . . . . . . . 5-6
Consolidated Condensed Statements of Cash Flows - Three
Months Ended March 31, 1995 and 1994 . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . 8-13
Item 2. Management's Discussion and Analysis and Plan of
Operations. . . . . . . . . . . . . . . . . . . . . . . . 13-17
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>>
DECEMBER 31
MARCH 31 1994
1995 (AUDITED)
------------ ------------
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 7,316,884 $ 7,983,049
FEDERAL FUNDS SOLD 1,119,000 1,477,616
------------ ------------
CASH AND CASH EQUIVALENTS 8,435,884 9,460,665
INTEREST BEARING DEPOSITS WITH
OTHER BANKS 2,356,239 0
SECURITIES AVAILABLE-FOR-SALE 22,637,410 23,100,333
SECURITIES HELD-TO-MATURITY 60,237 34,814
LOANS
Commercial and industrial 69,152,641 61,967,573
Agricultural 19,478,341 16,721,023
Real estate mortgage 16,588,312 24,882,955
Real estate construction 7,432,308 8,126,189
Installment 10,044,293 7,780,750
Bank cards and other 3,353,771 3,286,336
------------ ------------
TOTAL LOANS 126,049,666 122,764,826
Deferred loan fees, net of
deferred costs (424,352) (437,525)
Allowance for loan losses (Note 4) (1,363,095) (1,245,833)
------------ ------------
NET LOANS 124,262,219 121,081,468
ACCRUED INTEREST RECEIVABLE 1,480,023 1,478,639
PREMISES AND EQUIPMENT 5,271,455 5,097,148
FORECLOSED REAL ESTATE 161,732 231,276
LIFE INSURANCE AND SALARY
CONTINUATION ASSETS 1,913,030 1,913,030
OTHER ASSETS 1,292,784 1,514,065
------------ ------------
TOTAL ASSETS $167,871,013 $163,911,438
------------ ------------
------------ ------------
</TABLE>
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<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 3 1994
1995 (AUDITED)
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
Non-interest bearing - demand $ 21,584,075 $ 22,917,368
------------ ------------
Interest bearing:
NOW accounts 42,884,444 39,345,114
Savings 15,615,354 15,511,257
Time, $100,000 and over 16,402,541 15,905,560
Other time 54,036,291 52,950,230
------------ ------------
128,938,630 123,712,161
------------ ------------
TOTAL DEPOSITS 150,522,705 146,629,529
FEDERAL FUNDS PURCHASED 1,660,000 2,725,000
ACCRUED INTEREST PAYABLE 487,728 354,198
NOTES PAYABLE (Note 5) 491,358 504,817
CAPITAL LEASE OBLIGATION (Note 6) 780,853 805,032
OTHER LIABILITIES 1,013,805 706,974
------------ ------------
TOTAL LIABILITIES $154,956,449 $151,725,550
------------ ------------
STOCKHOLDERS' EQUITY (Note 7)
Common stock, no par, 5,000,000 shares
authorized;2,604,880 and 1,604,880
issued and outstanding respectively 10,249,683 10,202,388
Retained Earnings 3,041,334 2,552,107
Net unrealized loss on securities
available-for-sale, net of tax (356,453) (548,607)
------------ ------------
12,934,564 12,205,888
Less guaranteed bank loan of Employee
Stock Ownership Plan (20,000) (20,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,914,564 12,185,888
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $167,871,013 $163,911,438
------------ ------------
------------ ------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1994
----------- -----------
<S> <C> <C>
INTEREST INCOME
Loans receivable, including fees $ 3,337,412 $ 2,222,307
Interest on investment securities:
Taxable 337,490 208,438
Tax-Exempt 823 912
Federal funds sold 58,802 28,955
Deposits with other banks 36,313 45,795
Direct lease financing -- 2,732
----------- -----------
TOTAL INTEREST INCOME 3,770,840 2,509,139
----------- -----------
INTEREST EXPENSE
Deposits 1,650,345 852,701
Interest on notes and capital leases 36,712 58,580
----------- -----------
TOTAL INTEREST EXPENSE 1,687,057 911,209
----------- -----------
NET INTEREST INCOME 2,083,783 1,597,930
PROVISION FOR LOAN LOSSES (Note 4) 141,500 11,500
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,942,283 1,586,430
----------- -----------
NONINTEREST INCOME
Service charges on deposit accounts 173,698 160,317
Escrow fees 11,991 14,830
Net realized gains on sales of
available-for-sale securities 12,438 2,280
Insurance Commissions 319,519 343,661
Other 152,327 203,624
----------- -----------
TOTAL NONINTEREST INCOME 669,973 724,712
----------- -----------
----------- -----------
</TABLE>
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<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF INCOME (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1994
----------- -----------
<S> <C> <C>
NONINTEREST EXPENSES
Salaries and wages 746,427 698,547
Employee benefits 180,324 184,267
Occupancy expense, net 77,610 69,634
Net cost of operation of other
real estate 39,596
Writedowns and losses on foreclosed
real estate 0 0
Equipment expense 110,982 129,195
Other operating expense 554,151 528,944
----------- -----------
TOTAL NONINTEREST EXPENSES 1,709,090 1,610,587
----------- -----------
INCOME BEFORE INCOME TAXES 903,166 700,555
FEDERAL INCOME TAX EXPENSE 361,600 235,500
----------- -----------
NET INCOME $ 541,566 $ 465,055
----------- -----------
----------- -----------
Per share amounts:
Earnings per common share:
Income before cumulative effect
of a change in accounting principle $ .34 $ .37
Cumulative effect on prior years (to
December 31, 1991) of changing to
a different income tax method 0.00 0.00
----------- -----------
NET INCOME $ .34 $ .37
----------- -----------
----------- -----------
Cash dividends paid or declared per share $ 0.00 $ 0.00
----------- -----------
----------- -----------
Average shares outstanding 1,604,880 1,249,195
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Quarter Ended March 31, 1995 and 1994
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES 1995 1994
- ---------------------------------------------------- ------------ ------------
<S> <C> <C>
Net Income . . . . . . . . . . . . . . . . . . . . $ 541,566 $ 465,055
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses . . . . . . . . . . . 141,500 11,500
Provision of losses on other real estate . . . . -- --
Depreciation and amortization . . . . . . . . . 72,340 121,684
Amortization of investment security discounts. . (22,559) (60,443)
Accretion of investment securities . . . . . . . (7,091) 4,463
(Increase) decrease in assets:
Accrued interest receivables . . . . . . . . . . 1,384 425,302
Other assets . . . . . . . . . . . . . . . . . . 293,523 (385,851)
Deferred loan fees . . . . . . . . . . . . . . . (43,482) 441,287
Unearned income . . . . . . . . . . . . . . . . -- --
Increase (decrease) in liabilities:
Accrued interest payable . . . . . . . . . . . . 133,530 19,241
Other liabilities . . . . . . . . . . . . . . . 167,283 (385,851)
------------ -----------
Net cash provided by operating activities. . . 1,277,994 (1,117,298)
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Proceeds from sales of investment securities . . . 1,038,530 2,217,832
Proceeds from maturities of investment securities. 1,010,300 1,442,370
Proceeds from maturities of interest-bearing
deposits . . . . . . . . . . . . . . . . . . . . 1,000,000 600,000
Purchases of investment securities . . . . . . . . (1,345,849) (1,376,403)
Purchases of interest-bearing deposits. . . . . . (3,273,000) (500,000)
Principal collected on loans . . . . . . . . . . . 27,394,887 25,353,177
Loans originated or acquired . . . . . . . . . . . (31,102,926) (31,859,410)
Purchases of premises and equipment . . . . . . . (558,949) (206,719)
Proceeds from sale of other real estate . . . . . -- --
Costs incurred to repossess other real estate. . . -- --
------------ -----------
Net cash provided by investment activities . . . $ (5,837,007) $(2,060,255)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Net increase (decrease) in demand deposits,
NOW accounts, and savings accounts . . . . . . . (775,189) 3,767,332
Proceeds from issuance of certificates of deposit. 15,419,853 5,140,592
Payments for maturing certificates of deposit. . . (10,349,547) (4,443,925)
Proceeds from notes payable . . . . . . . . . . . -- --
Principal payments on notes payable . . . . . . . (1,276) (45,967)
Principal payment of capital lease obligations . . (24,179) (10,551)
Cash dividends paid . . . . . . . . . . . . . . . -- (9,968)
Cash received from stock offering . . . . . . . . -- --
------------ -----------
Net cash provided by financing activities. . . . $ 4,269,662 $ 4,397,513
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (289,351) 1,219,960
CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR . . $ 9,460,665 $10,738,821
CASH AND CASH EQUIVALENTS, END OF QUARTER . . . . . $ 9,171,314 $11,958,781
------------ -----------
------------ -----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-7-
<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: MANAGEMENT STATEMENT RE-ADJUSTMENTS
In the opinion of the Company, the accompanying audited and unaudited
Consolidated Financial Statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial position
of the Company as of March 31, 1995, December 31, 1994, and March 31, 1994, and
the results of operations and the changes in financial position for the three
month period ended March 31, 1995, and March 31, 1994.
NOTE 2: INVESTMENT SECURITIES
Virtually all of the investment securities are classified as "available for
sale" and are stated at cost, adjusted for amortization of premiums and
accretion of discounts, which are recognized as adjustment to interest income.
Unrealized gains or losses are recognized and adjustments made to equity. Gains
or losses on dispositions reported as a component of other income are based on
the net proceeds and the adjusted carrying amount of the securities sold, using
the specific identification method. Carrying amounts and approximate market
values of investment securities at March 31, 1995, December 31, 1994 and March
31, 1994 were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994 MARCH 31, 1994
------------------- ------------------- -------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
(AUDITED)
--------- ------- --------- ------- --------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Held-to-maturity securities:
State and
Political Subdivisions $ 61 $ 61 $ 35 $ 36 $ 190 $ 203
------- ------- ------- ------- ------- ------
------- ------- ------- ------- ------- ------
Available-for-sale securities:
U.S. government agencies and
corporations $14,273 $14,223 $12,763 $12,599 $12,220 $11,976
State and political
subdivisions 11 20 22 71 22 55
Other 3,039 2,801 4,286 3,970 2,759 2,649
Mortgage backed securities 5,857 5,593 6,861 6,460 0 0
------- ------- ------- ------- ------- --------
$23,241 $22,698 $23,967 $23,136 $15,191 $14,883
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
-8-
<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: LOANS
Total loans by category at March 31, 1995, December 31, 1994, and March 31,
1994, were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994 MARCH 31, 1994
(AUDITED)
(DOLLARS IN THOUSANDS)
------------------------------------------------------
<S> <C> <C> <C>
Commercial and
Industrial $ 69,153 $ 61,968 $60,727
Agricultural 19,478 16,721 12,017
Real estate-mortgage 16,588 24,883 14,135
Real estate-construction 7,433 8,126 --
Installment 10,044 7,781 5,982
Bank cards & other 3,354 3,286 2,785
Lease Financing -- 0 50
-------- -------- -------
Totals $126,050 $122,765 $95,696
</TABLE>
NOTE 4: ALLOWANCE FOR LOAN LOSSES
Reserves for possible losses on loans are maintained at a levels considered
adequate by management to provide for anticipated loan losses through charges to
operating expense. The reserve is based upon management's assessment of various
factors affecting the loan portfolios, including problem loans, business
conditions and loss experience, an overall evaluation of the quality of the
underlying collateral, holding and disposal costs, and the cost of funds to the
Company. Changes in the allowance for loan losses during the three months ended
March 31, 1995, and 1994 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1994
--------------------------
<S> <C> <C>
Balance Beginning of Period $1,245,833 $801,950
Provision Charged to Operations 141,500 11,500
Loans Charged Off (27,174) (72,792)
Recoveries 1,708 3,196
Balance, End of Period $1,361,867 $676,718
</TABLE>
-9-
<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: ALLOWANCE FOR LOAN LOSSES (Continued)
The following table represents the allowance for loan losses by loan category as
of March 31, 1995, based on management's assessment of the risk associated with
such categories, and summarizes the percentage of gross loans in each category
to total gross loans.
<TABLE>
<CAPTION>
MARCH 31, 1995
----------------------
PERCENT OF
CATEGORY OF LOAN ALLOWANCE TOTAL LOANS
- ---------------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial $ 749 55%
Agriculture 218 16%
Real estate-mortgage 177 13%
Real estate-construction 82 6%
Consumer 109 8%
Other 27 2%
------ ---
Total Allowance $1,362 100%
</TABLE>
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<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: NOTES PAYABLE
Notes payable consist of the following at March 31, 1995:
<TABLE>
<CAPTION>
BALANCE
-------
<S> <C>
Notes payable, collateralized by insurance agency
subsidiary assets with a net carrying value of
approximately $71,731:
Notes payable to an individual, payable $2,029
monthly including interest at 9.0%, matures May
2002; guaranteed by the Bancorporation. $127,685
Note payable to a bank, payable $6,510 monthly
including interest at Bank's prime plus 1.0%
with a floor of 9.5%(10.5% at March 31, 1995);
matures January 1998;guaranteed by the Company. 343,673
Note payable from the United Security Bancorporation
Employee Stock Ownership Plan to the Bank of Latah,
50% guaranteed by the Company, payable $100,000
annually plus interest at Bank's prime (10.0% at
March 31, 1995), due in full December 1995. 20,000
--------
Totals $491,358
--------
--------
</TABLE>
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<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: NOTES PAYABLE - continued
Estimated principal maturities of notes payable for the next five years are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
1995 71,346
1996 56,371
1997 61,889
1998 243,363
1999 18,649
Later years 53,199
--------
$504,817
</TABLE>
NOTE 6: CAPITAL LEASE OBLIGATIONS
During 1990, United Security Bank ("USB"), a wholly-owned subsidiary of the
Company, sold the land and buildings occupied by two of its branches to Joyce K.
Robinson. USB has leased the real estate back from Joyce K. Robinson for a term
of 20 years at rental rates of $71,400 and $12,810 per year respectively, and
continues to operate the branches at these same sites. These leases have been
treated as capital leases. The associated gain created by this transaction,
amounting to $358,283, has been deferred and is being amortized using the
straight-line method over the term of the lease. This deferred gain is included
in other liabilities.
In addition, USB has entered into certain non-cancelable capital lease
agreements for the equipment with varying terms through 1998.
The minimum annual rental commitments under these leases at December 31, 1994,
exclusive of taxes and other charges, are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDING CAPITAL
DECEMBER 31, LEASE
------------ ----------
<S> <C>
1995 $ 116,385
1996 93,688
1997 92,631
1998 92,631
1999 92,631
Later years 1,160,947
----------
Total Minimum Payments Due 1,648,913
Less: Amount representing interest (843,881)
Present value of net minimum lease payments $ 805,032
----------
</TABLE>
-12-
<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: CAPITAL STOCK
Total stockholders equity was $13.3 million on March 31, 1995, up from $8.8
million at March 31, 1994. The ratio of stockholders equity to total assets on
March 31, 1995, was 7.92% in comparison to March 31, 1994 of 6.72%.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The performance summary on the following page provides a more graphic
presentation of the comparison between the first quarter of 1995 and the first
quarter of 1994. A more detailed discussion of each of the items of income and
expense is on the pages following the comparison summary.
-13-
<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
PERFORMANCE SUMMARY
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1994 %CHANGE
------------------------------
(Unaudited)
<S> <C> <C> <C>
Interest income $3,771 $2,509 50.3%
Interest expense 1,687 911 85.2%
Net interest income 2,084 1,598 30.4%
Provision for loan losses 142 12 1083.3%
Net interest income after provision
for loan losses 1,942 1,586 22.5%
Noninterest income 670 724 (7.5%)
Noninterest expense 1,709 1,611 6.1%
Income before income tax and
securities transactions 903 700 29.0%
Income tax expense 362 235 54.0%
Income before securities transactions 541 465 16.3%
Securities transactions 0 0 0.0%
Net income $ 541 $ 465 16.3%
------ ------ -------
------ ------ -------
</TABLE>
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<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
NET INTEREST INCOME
Net interest income for the first quarter of 1995 was $1,942,000 compared to
$1,586,000 in the first quarter of 1994, reflecting a 22.5 percent increase.
This increase is attributable to an increase in loan totals of the bank
subsidiaries of the Company of 31.7 percent over the same period.
PROVISION FOR LOAN LOSSES
The allowance for loan losses represents management's recognition of the risks
of extending credit and its evaluation of the quality of the loan portfolios of
the Company's subsidiary banks. The allowance is maintained at levels
considered adequate by management to provide for anticipated loan losses, and is
based on management's assessment of various factors affecting the loan
portfolios, including problem loans, business conditions and loss experience, an
overall evaluation of the quailty of the underlying collateral, holding and
disposal costs, and the cost of funds to the Company. The allowance is
increased by provisions charged to operations and is reduced by loans charged
off, net of any recoveries.
The allowance for loan loss as a percentage of total loans for the first quarter
of 1995 is at a 1.1% level. The loan loss reserve is monitored on a continual
basis and is reported to the board of directors monthly.
The loan policy requires all extensions of credit to be well collateralized and
loan personnel be kept apprised of collateral values in relation to loan
amounts. Economic conditions in the market area are also considered, and as
changes take place, reserve adequacy is reviewed and, where necessary, adjusted
to reflect such changes. Consequently, management believes that the allowances
for possible loan loss is adequate to cover any potential loan loss.
Past due loans over ninety days totaled $466,000 for the first quarter of 1995,
compared to $129,000 for the same period last year. Of the 1995 first quarter
total, $455,000 is well secured and is in the process of being renewed, extended
or paid off.
Nonaccrual loans totaled $504,000 for the first quarter of 1995, compared to
$641,000 for the same period last year. The nonaccrual loan totals have been
reduced significantly from the first quarter of 1994 as loans have either been
paid off or charged off.
NONINTEREST INCOME
Noninterest income for the first quarter of 1995 was $670,000, a decrease of
7.5 percent from the first quarter of 1994. The decrease in noninterest income
is primarily attributable to a decrease in service charges and fee income of the
banks, as well as a reduction in commission income of USB Insurance
Agencies,Inc. ("USB Insurance"), a wholly-owned subsidiary of the Company.
-15-
<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
NONINTEREST INCOME (Continued)
Income from insurance commissions from the USB Insurance for the first quarter
of 1995 was $226,000, compared to $339,000 for the same period a year ago. This
reduction is due primarily to the one-time sale of a life insurance product to
the Company's bank subsidiaries, which generated approximately $111,000 in
commission income in the first quarter of 1994.
NONINTEREST EXPENSE
Non-interest expense, which consists of personnel, occupancy, equipment and
other operating expense, was $1,709,000 for the three months ended March 31,
1995, compared to $1,611,000 in the first quarter of 1994, an increase of 6.1
percent. The increase is primarily attributable to the opening of a branch of
USB in the third quarter of 1994.
Noninterest expense of USB Insurance was approximately $296,000 for the first
quarter of 1995, compared to $370,000 for the first quarter of 1994, a reduction
of 25%. The decrease was primarily due to a reduction in officer salaries as a
result of the timing of the payment of bonus dollars in 1994, which will be
reflected in the second quarter in 1995.
INCOME TAX
A total of $362,000 has been accrued for income tax costs for 1995, and reflects
the profitability of the Company's subsidiary banks through the first quarter.
The accrual for income tax is calculated and expensed monthly, based on the tax
rates and month-end net profit figures for the company.
SECURITIES TRANSACTIONS
Management continues to manage the investment portfolio under its investment
policy guidelines and with the approval of the Board of Directors. Most
activity has been in U.S. Government Agency securities, with relatively short
maturities of generally no more than two to three years. On January 1, 1994,
the bank subsidiaries adopted FASB Statement No. 115, which requires that
investments be classified into one of three categories, each of which mandates a
different accounting treatment for determining the carrying value of the
investments as well as the recognition of unrealized gains and losses. The bank
subsidiaries have accordingly classified debt and equity securities within the
portfolio based on management's current intent. As a result, virtually all of
the investments in the portfolio have been classified as "available for sale".
-16-
<PAGE>
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
NET INCOME
Net income for the first quarter of 1995 was $541,000, compared to $465,000 for
the same period a year ago. The increase is primarily due to the increase in
net interest income from the first quarter of 1994.
It is anticipated that USB Insurance will show a minimal net profit by year-end
1995 due to the cessation of amortization of noncompetition agreements with
management employees in the second quarter of 1995. The write-off of accounts
will continue into 1997.
CAPITAL REQUIREMENTS
The Company's two bank subsidiaries are subject to regulatory capital
requirements of a minimum of 5% leverage ratio, 6% for Tier 1 capital and a
minimum of 10% for Tier 1 and Tier 2 in total in order to be classified as Well
Capitalized. Both bank subsidiaries met or exceeded regulatory capital
requirements and were well capitalized at March 31, 1995.
On March 27, 1995 a registration statement was filed with the Securities and
Exchange Commission for a public offering of 1,000,000 shares of common stock of
the Company to support the continued growth of the Company and its banking and
nonbanking subsidiaries. This offering was completed on May 12, 1995 (subject
to the possible future exercise of underwriters' purchase of an additional
150,000 shares) and yielded net proceeds to the Company of approximatley $7.4
million.
On March 19, 1995, Joan K. Goldberg, Executive Vice President and Chief
Financial Officer of United Security Bank succumbed to cancer. USB is the
beneficiary of two life insurance policies. USB anticipates the receipt of the
net proceeds in the second quarter of 1995, amounting to approximately $896,000.
LIQUIDITY
The primary liquidity needs of the two bank subsidiaries are to fund customer
loan demands and to cover large deposit withdrawals. By developing total
banking relationships with their customers, the banks have a relatively stable
base of deposits; however, the business cycles of customers can cause
significant changes in the deposit levels from month to month.
Liquidity has been monitored at adequate levels through the substantial dollars
invested in the Federal Funds market. The total investment portfolio is carried
with a slightly over five-year weighted maturity level.
In case of liqudity needs, the banks have set the following in order of priority
to meet those requirements:
1. Federal Funds sold
2. Federal Funds Purchased/Lines of Credit
3. Sale of portion or complete loans
4. Sale of portions of investment portfolio
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<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Reports on Form 8-K. There were no reports on Form 8-K
filed for the three months ended March 31, 1995.
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<PAGE>
UNITED SECURITY BANCORPATION AND SUBSIDIARIES
SIGNATURES
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 BANCORPORPORATION
William C. Dashiell
---------------------------------------
William C. Dashiell, President
and Chief Executive Officer
Date: May 10, 1995 Jacqueline A. Barnard
-------------------------- ---------------------------------------
Jacqueline A. Barnard,
Assistant Vice President and
Secretary/Treasurer
(Principal financial Officer,
duly authorized to sign on
behalf of registrant)
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