U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
( X ) Quarterly report under Section 13 or 15 (d) of the
Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1996
( ) Transition report under Section 13 or 15 (d) of the
Exchange
Act
For the transition period from to
Commission file number 000 - 18561
UNITED SECURITY BANCORPORATION
(Exact Name of Small Business Issuer as Specified in Its
Charter)
Washington 91-1259511
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9506 North Newport Highway, Spokane, WA 99218-1200
(Address of Principal Executive Offices)
(509) 467-6949
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Exchange Act during the past
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 July 17, 1996, there were 3,348,030 shares of such stock
outstanding.
1
<PAGE> 2
UNITED SECURITY BANCORPORATION
INDEX QUARTERLY REPORT ON FORM 10-QSB
June 30, 1996
Table of Contents
<TABLE>
<CAPTION>
Page
<S>
<C>
Part I Financial Information
Item 1. Financial Statements
Consolidated Statements of Condition - June 30, 1996
and December 31, 1995 . . . . . . . . . . . . . . .
3
Consolidated Statements of Income - Three Months and
Six Months Ended June 30, 1996 and 1995 . . . . . .
4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 . . . . . .
5
Notes to Consolidated Financial Statements . . . .
6-7
Item 2. Management's Discussion and Analysis or Plan of
Operation . . . . . . . . . . . . . . . . . . . . .
8-9
Part II Other Information
Item 4. Submission of Matters to a Vote of Security-Holders
10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . .
10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
Exhibit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
</TABLE>
2
<PAGE> 3
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30, December
31,
($ in thousands) 1996 1995
<S> <C> <C>
ASSETS
(Audited)
Cash and due from banks $ 8,254 $
7,889
Overnight interest bearing deposits with
other banks 3,772
4,337
Federal funds sold 3,785
3,355
--------- --------
- -
Cash and cash equivalents 15,811
15,581
Securities available-for-sale (Note 2) 18,289
22,036
Securities held-to-maturity (Note 2) 606
365
Loans, net of allowance for loan losses of
$1,570 in 1996 and $1,391 in 1995
(Notes 3 and 4) 166,407
141,861
Accrued interest receivable 1,953
1,635
Premises and equipment, net 6,293
6,383
Foreclosed real estate 493
370
Life insurance and salary continuation assets 2,550
2,315
Other assets 1,183
1,267
--------- --------
- -
TOTAL ASSETS $ 213,585 $
191,813
=========
=========
LIABILITIES
Noninterest bearing - demand deposits $ 28,438 $
25,643
Interest bearing:
NOW and savings accounts 71,564
59,044
Time, $100,000 and over 23,748
21,693
Other time 57,689
57,411
--------- --------
- -
TOTAL DEPOSITS 181,439
l63,791
Accrued interest payable 603
580
Note payable (Note 5) 2,511
Capital lease obligations 759
767
Other liabilities 1,873
1,812
--------- --------
- -
TOTAL LIABILITIES 187,185
166,950
STOCKHOLDERS' EQUITY
Common stock, no par, shares authorized
15,000,000 in 1996 and 5,000,000 in 1995,
issued and outstanding 3,348,030 in 1996
and 3,332,310 in 1995 21,048
20,837
Retained earnings 5,893
4,114
Net unrealized loss on securities available-
for-sale, net of tax of $330 in 1996 and
$45 for 1995 (541)
(88)
--------- --------
- -
TOTAL STOCKHOLDERS' EQUITY 26,400
24,863
--------- --------
- -
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 213,585 $
191,813
=========
=========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share)
<TABLE>
<CAPTION>
Three Months Ended
June 30, Year-
To-Date
1996 1995 1996
1995
<S> <C> <C> <C>
<C>
INTEREST INCOME
Interest and fees on loans and leases $ 4,616 $ 3,593 $ 8,857
$6,976
Interest on securities 305 420 691
759
Other interest income 114 70 254
165
------- ------- -------
- ------
TOTAL INTEREST INCOME 5,035 4,083 9,802
7,900
------- ------- -------
- ------
INTEREST EXPENSE
Interest on deposits 1,898 1,744 3,758
3,394
Interest on notes and capital leases 79 36 141
73
------- ------- -------
- ------
TOTAL INTEREST EXPENSE 1,977 1,780 3,899
3,467
------- ------- -------
- ------
NET INTEREST INCOME 3,058 2,303 5,903
4,433
Provision for loan losses (Note 4) 121 29 267
171
------- ------- -------
- ------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 2,937 2,274 5,636
4,262
------- ------- -------
- ------
NONINTEREST INCOME
Fees and service charges 297 220 549
429
Insurance commissions 320 303 632
630
Securities gains/losses 2 21 53
33
Life insurance proceeds 1,030
1,030
Other 117 211 247
300
------- ------- -------
- ------
TOTAL NONINTEREST INCOME 736 1,785 1,481
2,422
------- ------- -------
- ------
NONINTEREST EXPENSE
Salaries and employee benefits 1,485 1,336 2,900
2,387
Occupancy expense, net 151 109 297
202
Equipment expense 177 152 368
306
Death benefit expense 379
379
Amortization on noncompete agreements 6 43 12
64
FDIC assessments 1 89 2
178
State business and occupation tax 68 57 135
124
Other operating expense 449 292 765
539
------- ------- -------
- ------
TOTAL NONINTEREST EXPENSE 2,337 2,457 4,479
4,179
------- ------- -------
- ------
INCOME BEFORE TAXES 1,336 1,602 2,638
2,505
FEDERAL INCOME TAX EXPENSE 396 338 859
700
------- ------- -------
- ------
NET INCOME $ 940 $ 1,264 $ 1,779
$1,805
======= ======= =======
======
Earnings per common share $ .28 $ .46 $ .53
$ .77
Weighted average shares outstanding 3,337,948 2,752,574 3,335,144
2,348,934
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR-TO-DATE JUNE 30, 1996 AND 1995
($ in thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Increase in Cash and Cash Equivalents
Net income $ 1,779 $ 1,805
Cash flows from operating activities:
Provision for loan losses 267 171
Depreciation and amortization 270 205
Amortization of investment securities 19 49
(Increase)/decrease in assets and liabilities
Accrued interest receivable (318) (109)
Other assets (239) (145)
Deferred loan fees 51 24
Accrued interest payable 23 193
Other liabilities 61 1,553
------- -------
Net cash provided by operating activities 1,913 3,746
------- -------
Cash flows from investing activities:
Investment securities:
Maturities 5,644 2,010
Sales 4,525 2,579
Purchases (7,135) (11,254)
Net increase in loans and leases (24,776) (9,908)
Purchases of premises and equipment (189) (983)
Proceeds from sales of equipment 9
Foreclosed real estate activity (123) 70
------- -------
Net cash provided by investing activities (22,045) (17,486)
------- -------
Cash flows from financing activities:
Net increase in deposits 17,648 12,727
Federal funds purchased (2,725)
Proceeds from notes payable 2,531
Principal payments on notes payable (20) (485)
Principal payments on capital lease
obligations (8) (31)
Stock options 18
Cash received from stock sales 200 8,473
Cash paid for redemption of fractional
shares (7) (5)
------- -------
Net cash provided by financing activities 20,362 17,954
------- -------
Net increase/(decrease) in cash and
cash equivalents 230 4,214
Cash and cash equivalents, beginning of year 15,581 9,461
------- -------
Cash and cash equivalents, end of quarter $15,811 $13,675
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
UNITED SECURITY BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Management Statement
In the opinion of the Company, the accompanying audited and
unaudited Consolidated Financial Statements present fairly the
financial position of the Company as of June 30, 1996, December 31,
1995, and June 30, 1995, and the results of operations and the
changes in financial position for the six month period ended June
30, 1996 and 1995.
Certain reclassifications of June 30, 1995 balances have been made
to conform with the June 30, 1996 presentation; there was no impact
on net income, earnings per share or stockholders' equity. Also
per share amounts and weighted average shares outstanding have been
retroactively adjusted to reflect a previously disclosed stock
dividend and stock split-up.
NOTE 2. Investment Securities
Most of the investment securities are classified as available-for-
sale and are stated at fair value, and unrealized holding gains and
losses, net of related deferred taxes, are reported as a separate
component of stockholders' equity. Gains or losses on available-
for-sale securities sales are reported as part of noninterest
income based on the net proceeds and the adjusted carrying amount
of the securities sold, using the specific identification method.
Carrying amount and fair values at June 30, 1996 and December 31,
1995 were as follows:
<TABLE>
<CAPTION>
June 30, 1996 December 31,
1995
Amortized Fair Amortized
Fair
($ in thousands) Cost Value Cost
Value
<S> <C> <C> <C>
<C>
Securities available-for-sale:
U.S. Treasury securities $ 1,251 $
1,251
Obligations of federal government
agencies $ 2,360 $ 2,344 2,814
2,800
Mortgage backed securities 10,007 9,692 13,550
13,545
Obligations of states, municipalities
and political subdivisions 3,247 2,941
Other securities 3,493 3,312 4,554
4,440
------- ------- ------- --
- -----
Total $19,107 $18,289 $22,169
$22,036
======= ======= =======
=======
Securities held-to-maturity:
Obligations of states, municipalities
and political subdivisions $ 606 596 $ 365 $
374
======= ======= =======
=======
</TABLE>
6
<PAGE> 7
UNITED SECURITY BANCORPORATION
NOTE 3. LOANS
Loan detail by category as of June 30, 1996 and December 31, 1995
were as follows:
<TABLE>
<CAPTION>
($ in thousands) 1996 1995
(Audited)
<S> <C> <C>
Commercial and industrial $ 88,604 $
75,011
Agricultural 26,788
19,787
Real estate mortgage 29,537
25,048
Real estate construction 9,055
10,169
Installment 9,855
9,234
Lease financing 2,580
1,336
Bank cards and other 2,114
3,172
-------- ------
- --
Total loans 168,533
143,757
Allowance for loan losses (1,570)
(1,391)
Deferred loan fees, net of deferred costs (556)
(505)
-------- ------
- --
Net loans $166,407
$141,861
========
========
</TABLE>
NOTE 4. ALLOWANCE FOR LOAN LOSSES
The allowance for loan loss is maintained at levels considered
adequate by management to provide for possible loan losses. The
allowance is based on management's assessment of various factors
affecting the loan portfolio, including problem loans, business
conditions and loss experience, and an overall evaluation of the
quality of the underlying collateral. Changes in the allowance for
loan loss during the three and six months ended June 30, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30, Year-To-
Date
($ in thousands) 1996 1995 1996
1995
<S> <C> <C> <C>
<C>
Balance, beginning of period $1,465 $1,361 $1,391
$1,246
Provision for loan losses 121 29 267
171
Loan charge-offs (19) (36) (92)
(64)
Loan recoveries 3 3 4
4
------ ------ ------ -
- -----
Balance, end of period $1,570 $1,357 $1,570
$1,357
====== ====== ======
======
</TABLE>
NOTE 5. NOTE PAYABLE
Note payable as of June 30, 1996 was a borrowing by United Security
Bancorporation from a bank for five years to complete the sale of
Bank real estate to the Parent Company. The debt provides for
monthly payments of $23,000 including interest at 8.75%. The debt
reprices annually at prime plus .25%.
7
<PAGE> 8
UNITED SECURITY BANCORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
A performance summary and detailed discussion regarding the second
quarter and year-to-date results in 1996 and 1995 follow this
table.
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
PERFORMANCE SUMMARY
<TABLE>
<CAPTION>
Three Months Ended
June 30, Year-
To-Date
%
%
($ in thousands) 1996 1995 Change 1996
1995 Change
<S> <C> <C> <C> <C>
<C> <C>
Interest income $5,035 $4,083 23.3% $9,802
$7,900 24.1%
Interest expense 1,977 1,780 11.1% 3,899
3,467 12.5%
------ ------ ------ ------
- ------ -----
Net interest income 3,058 2,303 32.8% 5,903
4,433 33.2%
Provision for loan losses 121 29 317.2% 267
171 56.1%
------ ------ ------ ------
- ------ -----
Net interest income after
provision for loan losses 2,937 2,274 29.2% 5,636
4,262 32.2%
Noninterest income 736 1,785 -58.8% 1,481
2,422 -38.9%
Noninterest expense 2,337 2,457 -4.9% 4,479
4,179 7.2%
------ ------ ------ ------
- ------ ------
Income before income taxes 1,336 1,602 -16.6% 2,638
2,505 5.3%
Income taxes 396 338 17.2% 859
700 22.7%
------ ------ ------ ------
- ------ ------
Net income $ 940 $1,264 -25.6% $1,779
$1,805 -1.4%
====== ====== ====== ======
====== ======
Earnings per share $ .28 $ .46 -38.4% $ .53
$ .77 -30.6%
Average shares outstanding 3,337,948 2,752,574 21.3% 3,335,144
2,348,934 42.0%
</TABLE>
Results of Operations
The results of operations include the consolidated results of
operations for United Security Bancorporation and its wholly-owned
subsidiaries (Corporation), United Security Bank, Home Security
Bank, USB Insurance Agencies, Inc., USB Mortgage Company and USB
Leasing, Inc. This information should be read in conjunction with
the financial statements and related notes appearing in this
report.
United Security Bancorporation and its subsidiaries reported net
income of $1,779,000 for the first six months of 1996 compared to
$1,805,000 for the same period in 1995. Earnings per share were
$.53 and $.77, respectively. Earnings were $940,000 for second
quarter 1996 compared to $1,264,000 for second quarter 1995.
Earnings per share were $.28 and $.46, respectively. 1995 year-to-
date and second quarter net income were significantly improved by
insurance proceeds received due to the untimely death of a key
employee. 1995 earnings per share for second quarter and year-to-
date would have been $.18 and $.44, respectively without the net
insurance proceeds. 1996 year-to-date net income nearly matched
8
<PAGE> 9
UNITED SECURITY BANCORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
1995 net income, which were significantly improved by the insurance
proceeds
received in 1995.
Per share results for 1996 and 1995 are not directly comparable.
In May and June, 1995, United Security Bancorporation sold
1,150,000 shares of stock in its initial public offering. Year-to-
date average outstanding shares grew by 42.0% in 1996 compared to
1995.
Net Interest Income
Net interest income grew 33.2% to $5,903,000 in 1996 compared to
$4,433,000 in 1995. The increase is primarily the result of loan
growth. Total loans grew 17.3% to $167,977,000 during the first
half of 1996.
Provision for Loan Losses
The allowance for loan losses represents management's recognition
of risks in the loan and lease portfolio. The allowance for loan
losses grew to $1,570,000 as of June 30, 1996, which is .93% of
loans and leases outstanding.
Noninterest Income
Noninterest income decreased by 38.9% to $1,481,000 during the
first half of 1996 due to the insurance proceeds income of
$1,030,000 received in second quarter 1995 described above. Most
of the noninterest income categories were higher than in 1995
consistent with the growth of the Corporation. Other income was
lower in 1996 primarily due to the salary continuation plan income
recorded in second quarter 1995.
Noninterest Expense
Noninterest expense increased by 7.2% in 1996 reflecting the
opening of two new Bank branches in Downtown Spokane and Yakima,
Washington for United Security Bank and Home Security Bank,
respectively. USB Mortgage and USB Leasing have also significantly
increased their activity and expenses, while improving the net
profitability of the Corporation. Noninterest expense was
increased in 1995 by $379,000 for the death benefit expense
recognized.
Federal Income Tax Expense
Income tax expense is higher in 1996 by 22.7% reflecting higher
earnings after considering the insurance proceeds received in 1995
were not taxable.
9
<PAGE> 10
UNITED SECURITY BANCORPORATION
Part II
Other Information
Item 4. Submission of Matters to a Vote of Security-Holders
(a) Annual meeting of shareholders was held on May 14,
1996.
(b) Proxies for the annual meeting were solicited pursuant
to
Regulation 14 under the Act.
(c) Matters voted upon at the meeting
Item 1. Amendment to Articles of incorporation to
increase the
number of authorized shares from 5,000,000,
no par value,
to 15,000,000, no par value. Voting results:
For
2,233,777, Against 44,908, Abstain 26,610.
Item 2. Amendment of 1995 Stock Option Plan to amend
the Company's
1995 Incentive Stock Option Plan to increase
the number of
shares that may be issued pursuant to the
exercise of
options granted thereunder to the lesser of
eight percent
(8%) of the common stock then outstanding or
deemed
outstanding or 300,000 shares. Voting
results: For
1,845,308, Against 59,380, Abstain 37,984.
Item 3. Election of Directors For Against
Abstain
David C. Blankenship 2,290,816 7,022
7,457
Robert J. Gardner 2,290,816 7,022
7,457
Robert L. Golob 2,290,101 7,737
7,457
James L. Moe 2,290,101 7,737
7,457
Dann Simpson 2,281,596 16,242
7,457
William Dashiell 2,281,596 16,242
7,457
Rand Elliott 2,290,816 7,022
7,457
Stan W. Horton 2,290,816 7,022
7,457
Keith P. Sattler 2,280,882 16,956
7,457
Norman J. Traaen 2,288,616 9,222
7,457
Item 4. Ratification of Auditor. Ratification of
McFarland &
Alton, P.S. as the Company's independent
auditor for the
year ending December 31, 1996 and any interim
period.
Voting results: For 2,282,453, Against
11,177, Abstain
11,665.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Item (3) (i) Amendment to the Articles of
Incorporation-see page 12.
(b) Reports on Form 8-K.
None in second quarter 1996.
10
<PAGE> 11
UNITED SECURITY BANCORPORATION
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 BANCORPORATION
/s/ William C. Dashiell
-------------------------------
- ---
William C. Dashiell, President
and
Chief Executive Officer
Date: July 17, 1996 /s/ Chad Galloway
------------- -------------------------------
- ---
Chad Galloway, Vice President
and
Chief Financial Officer
11
<PAGE> 12
UNITED SECURITY BANCORPORATION
Exhibit (3) (i)
Articles of Amendment of United Security Bancorporation
Pursuant to the provision of the Washington Business
Corporation Act, Chapter 23B.10 RCW, the following Articles of
Amendment to the Articles of Incorporation of United Security
Bancorporation are submitted for filing.
Whereas, the Corporation desires to increase its authorized
shares from five million to fifteen million shares of common stock.
Now, therefore, the following Articles of Amendment are
submitted:
Article I.
The name of this corporation is United Security
Bancorporation.
Article II.
Article IV, Section 1 of the Articles of Incorporation which
presently reads as follows:
Section 1. The capital stock of this corporation
consists of five
million shares of common stock of no par
value per
share.
is hereby amended to read as follows:
Section 1. The capital stock of this corporation
consists of
fifteen million shares of common stock of
no par value
per share.
The amendment was adopted by a resolution of the Board of
Directors on March 29, 1996 and submitted to the shareholders for
approval by vote at the annual meeting of the shareholders on May
14, 1996, at which time the Articles of Amendment were approved by
a two-thirds majority, in accordance with RCW 23B.10.030 & .040.
In witness whereof, the corporation has caused these Articles
of amendment to be executed this 17th day of July 1996.
UNITED SECURITY
BANCORPORATION
/s/ Jacqueline A. Barnard
----------------------------
- --
Jacqueline A. Barnard,
Secretary
Approved:
/s/ William C. Dashiell
- -------------------------
William C. Dashiell
Chairman of the Board
12
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000726990
<NAME> UNITED SECURITY BANCORPORATION
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 8254
<INT-BEARING-DEPOSITS> 3772
<FED-FUNDS-SOLD> 3785
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18289
<INVESTMENTS-CARRYING> 606
<INVESTMENTS-MARKET> 596
<LOANS> 167977
<ALLOWANCE> 1570
<TOTAL-ASSETS> 213585
<DEPOSITS> 181439
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2476
<LONG-TERM> 3270
0
0
<COMMON> 21048
<OTHER-SE> 5352
<TOTAL-LIABILITIES-AND-EQUITY> 213585
<INTEREST-LOAN> 8857
<INTEREST-INVEST> 691
<INTEREST-OTHER> 254
<INTEREST-TOTAL> 9802
<INTEREST-DEPOSIT> 3758
<INTEREST-EXPENSE> 3899
<INTEREST-INCOME-NET> 5903
<LOAN-LOSSES> 267
<SECURITIES-GAINS> 53
<EXPENSE-OTHER> 4479
<INCOME-PRETAX> 2638
<INCOME-PRE-EXTRAORDINARY> 1779
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1779
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
<YIELD-ACTUAL> 6.33
<LOANS-NON> 655
<LOANS-PAST> 672
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1391
<CHARGE-OFFS> 92
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 1570
<ALLOWANCE-DOMESTIC> 1570
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
