<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X) Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
- ---
of 1934
For the quarterly period ended March 31, 2000 or
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(_) Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number 000 - 18561
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UNITED SECURITY BANCORPORATION
------------------------------
(Exact Name of Registrant 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
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(Address of Principal Executive Offices)
(509) 467-6949
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(Registrant's Telephone Number, Including Area Code)
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 April 20,
2000, there were 7,315,959 shares of such stock outstanding.
1
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UNITED SECURITY BANCORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2000
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Accountant's Report 3
Part I Financial Information
Item 1. Financial Statements
Consolidated Statements of Condition - March 31, 2000
and December 31, 1999.................................... 4
Consolidated Statements of Income - Three Months Ended
March 31, 2000 and 1999.................................. 5
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999............... 6
Notes to Consolidated Financial Statements............... 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 9-10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.............................................. 11
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K......................... 11
Signatures............................................................... 11
</TABLE>
2
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UNITED SECURITY BANCORPORATION
Independent Accountant's Report
Board of Directors and Shareholders
United Security Bancorporation
We have reviewed the accompanying consolidated statement of condition of United
Security Bancorporation and subsidiaries as of March 31, 2000, and the related
consolidated statement of income, and consolidated condensed statement of cash
flows for the three months ended March 31, 2000. These financial statements are
the responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
Everett, Washington /s/ Moss Adams LLP
April 14, 2000
3
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UNITED SECURITY BANCORPORATION
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
($ In thousands) March 31, December 31,
2000 1999
ASSETS Reviewed Audited
<S> <C> <C>
Cash and due from banks $ 19,822 $ 21,387
Overnight interest bearing deposits with other banks 10,458 4,632
-------- --------
Cash and cash equivalents 30,280 26,019
Securities 52,022 53,141
Loans, net of allowance for loan losses of $4,307 in 2000
and $4,349 in 1999 419,439 418,210
Accrued interest receivable 5,098 4,494
Premises and equipment, net 13,511 13,133
Foreclosed real estate and other foreclosed assets 1,164 1,179
Life insurance and salary continuation assets 4,089 4,049
Intangible assets 6,091 6,189
Other assets 1,346 1,312
-------- --------
TOTAL ASSETS $533,040 $527,726
======== ========
LIABILITIES
Noninterest bearing - demand deposits $ 80,733 $ 82,299
Interest bearing:
NOW and savings accounts 196,783 196,513
Time, $100,000 and over 64,743 56,430
Other time 123,214 117,657
-------- --------
TOTAL DEPOSITS 465,473 452,899
Short-term borrowings 1,700 7,508
Capital lease obligations 684 690
Accrued interest payable 1,482 1,367
Other liabilities 2,787 2,340
-------- --------
TOTAL LIABILITIES 472,126 464,804
STOCKHOLDERS' EQUITY
Common stock, no par, shares authorized 15,000,000; issued
and outstanding 7,315,959 in 2000 and 6,942,439 in 1999 49,646 44,471
Retained earnings 12,314 19,460
Accumulated other comprehensive income/(loss), net of tax (1,046) (1,009)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 60,914 62,922
-------- --------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $533,040 $527,726
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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UNITED SECURITY BANCORPORATION
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
($ In thousands, except per share) March 31,
2000 1999
INTEREST INCOME Reviewed Unaudited
<S> <C> <C>
Interest and fees on loans and leases $ 10,333 $ 9,299
Interest on securities 803 1,213
Other interest income 102 100
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TOTAL INTEREST INCOME 11,238 10,612
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INTEREST EXPENSE
Interest on deposits 4,263 3,675
Interest on borrowings 48 39
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TOTAL INTEREST EXPENSE 4,311 3,714
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NET INTEREST INCOME 6,927 6,898
Provision for loan losses 337 267
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,590 6,631
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NONINTEREST INCOME
Fees and service charges 596 626
Insurance commissions 234 263
Securities gains/(losses) (6) 42
Other 219 334
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TOTAL NONINTEREST INCOME 1,043 1,265
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NONINTEREST EXPENSE
Salaries and employee benefits 3,129 2,853
Occupancy expense, net 445 385
Equipment expense 351 333
Intangible amortization 98 94
Other operating expense 1,197 1,153
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TOTAL NONINTEREST EXPENSE 5,220 4,818
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INCOME BEFORE TAXES 2,413 3,078
INCOME TAX EXPENSE 623 999
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NET INCOME $ 1,790 $ 2,079
========== ==========
Basic earnings per common share $ 0.24 $ 0.27
Diluted earnings per common share $ 0.24 $ 0.27
Basic weighted average shares outstanding 7,546,429 7,622,110
Diluted weighted average shares outstanding 7,606,969 7,731,503
</TABLE>
The accompanying notes are an integral part of these statements.
5
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UNITED SECURITY BANCORPORATION
United Security Bancorporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Year-To-Date March 31, 2000 and 1999
($ in thousands)
<TABLE>
<CAPTION>
2000 1999
Cash flows from operating activities: Reviewed Unaudited
<S> <C> <C>
Net income $ 1,790 $ 2,079
Provision for loan losses 337 267
Depreciation and amortization 250 229
(Increase)/decrease in assets and liabilities:
Accrued interest receivable (604) (194)
Life insurance and salary continuation assets (40) (32)
Other assets 61 (289)
Accrued interest payable 115 (77)
Other liabilities 447 (629)
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Net cash provided by operating activities 2,356 1,354
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Cash flows from investing activities:
Securities:
Maturities 50 19,728
Sales 2,950 4,058
Purchases (1,918) (5,116)
Net increase in loans (1,566) (10,974)
Sales of premises and equipment 24
Purchases of premises and equipment (652) (293)
Foreclosed real estate activity 15 (21)
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Net cash change in investing activities (1,097) 7,382
-------- ---------
Cash flows from financing activities:
Net change in deposits 12,574 (19,737)
Proceeds from borrowings 408
Principal payments on borrowings (5,808)
Principal payments on capital lease obligations (6) (5)
Cash payments for stock repurchases (4,175)
Cash received from stock sales 417 196
Cash redemption of fractional shares (17)
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Net cash provided by financing activities 3,002 (19,155)
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Net change in cash and cash equivalents 4,261 (10,419)
Cash and cash equivalents, beginning of year 26,019 37,088
-------- ---------
Cash and cash equivalents, end of quarter $ 30,280 $ 26,669
======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
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UNITED SECURITY BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Management Statement
The consolidated financial statements include United Security Bancorporation and
its wholly owned subsidiaries (USBN), United Security Bank, Home Security Bank,
Bank of Pullman, Grant National Bank, AmericanWest Bank, and USB Insurance
Agencies, Inc. after eliminating all significant intercompany balances and
transactions. In the opinion of USBN, the accompanying Consolidated Financial
Statements present fairly the financial position of USBN as of March 31, 2000
and December 31, 1999, and the related statements of income and cash flows for
the three-month period ended March 31, 2000 and 1999.
NOTE 2. Securities
Most of the 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 March 31, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
Fair Fair
($ in thousands) Amortized Value Financial Amortized Value Financial
Cost Reviewed Statements Cost Audited Statements
<S> <C> <C> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury securities $ 2,502 $ 2,495 $ 2,495 $ 2,503 $ 2,503 $ 2,503
Obligations of federal government agencies 16,838 16,239 16,239 16,888 16,317 16,317
Mortgage backed securities 8,767 8,544 8,544 10,014 9,812 9,812
Obligations of states, municipalities and
political subdivisions 8,046 8,028 8,028 8,201 8,163 8,163
Other securities 16,743 16,010 16,010 16,356 15,639 15,639
-------------------------------- ------------------------------
52,896 51,316 51,316 53,962 52,434 52,434
Securities held-to-maturity:
Obligations of states, municipalities and
political subdivisions 706 701 706 707 699 707
-------------------------------- ------------------------------
Total $53,602 $52,017 $52,022 $54,669 $53,133 $53,141
================================ ==============================
</TABLE>
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UNITED SECURITY BANCORPORATION
NOTE 3. LOANS
Loan detail by category as of March 31, 2000 and December 31, 1999 were as
follows:
($ in thousands) March 31, 2000 December 31, 1999
Reviewed Audited
Commercial and industrial $252,629 $246,796
Agricultural 64,293 67,025
Real estate mortgage 66,531 66,690
Real estate construction 13,259 14,781
Installment 21,290 21,190
Bank cards and other 6,526 6,939
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Total loans 424,528 423,421
Allowance for loan losses (4,307) (4,349)
Deferred loan fees, net of deferred costs (782) (862)
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Net loans $419,439 $418,210
=========== ===========
NOTE 4. ALLOWANCE FOR LOAN LOSSES
The allowance for loan loss is maintained at levels considered adequate by
management to provide for possible loan losses. The allowance is based on
management's assessment of various factors affecting the loan portfolio,
including problem loans, business conditions and loss experience, and an overall
evaluation of the quality of the underlying collateral. Changes in the
allowance for loan losses during the three months ended March 31, 2000 and 1999
were as follows:
Three Months Ended
March 31,
($ in thousands) 2000 1999
Reviewed Unaudited
Balance, beginning of period $4,349 $3,819
Provision for loan losses 337 267
Loan charge-offs (402) (332)
Loan recoveries 23 27
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Balance, end of period $4,307 $3,781
========= =========
8
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UNITED SECURITY BANCORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion contains a review of the results of operations and
financial condition for first quarter in 2000 and 1999. This information should
be read in conjunction with the financial statements and related notes appearing
in this report. The reader is assumed to have access to USBN's Form 10-K for
the year ended December 31, 1999, which contains additional information.
This discussion may contain certain forward-looking statements, which are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
stated. Readers are cautioned not to place undue reliance on these forward-
looking statements.
Overview
A performance summary and detailed discussion regarding the first quarter for
2000 and 1999 follow this table.
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
PERFORMANCE SUMMARY
<TABLE>
<CAPTION>
Three Months Ended March 31,
%
($ in thousands, except per share) 2000 1999 Change
<S> <C> <C> <C>
Interest income $11,238 $10,612 5.9%
Interest expense 4,311 3,714 16.1%
------- ------- -------
Net interest income 6,927 6,898 0.4%
Provision for loan losses 337 267 26.2%
------- ------- -------
Net interest income after provision for loan losses 6,590 6,631 -0.6%
Noninterest income 1,043 1,265 -17.5%
Noninterest expense 5,220 4,818 8.3%
------- ------- -------
Income before income taxes 2,413 3,078 -21.6%
Income taxes 623 999 -37.6%
------- ------- -------
Net income $ 1,790 $ 2,079 -13.9%
======= ======= =======
Basic earnings per common share $ 0.24 $ 0.27 -11.1%
Diluted earnings per common share $ 0.24 $ 0.27 -11.1%
</TABLE>
9
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UNITED SECURITY BANCORPORATION
Net Income
USBN reported net income of $1,790,000 for the first quarter of 2000 compared to
$2,079,000 for the same period in 1999. Basic and diluted earnings per share
were $.24 in 2000 and $.27 in 1999. First quarter 2000 earnings were improved
by a $174,000 tax credit from the renovation of a historical property, which
reduced income tax expense and improved earnings per share by $.02.
Net Interest Income
For the first quarter of 2000 net interest income grew slightly to $6,927,000
compared to $6,898,000 in 1999. The growth in net interest income was due to
loan volume growth, which on an average basis grew to $481 million in 2000 from
$453 million in 1999. The net interest margin to average earning assets
declined from 6.17% in 1999 to 5.79% in 2000.
Provision for Loan Losses
The allowance for possible loan losses is based on management's evaluation of
the loan portfolio. The allowance for loan losses to total loans increased to
1.02% in 2000 compared to 1.01% in 1999.
Noninterest Income
Noninterest income was $1,043,000 in 2000 compared to $1,265,000 in 1999. Fees
and service charges declined from $626,000 in 1999 to $596,000 in 2000.
Insurance commissions were $234,000 in 2000 compared to $263,000 in 1999. There
were nonrecurring securities gains of $42,000 in 1999. Other noninterest income
was lower in 2000 primarily due to nonrecurring gains on the sale of escrow
servicing and real estate owned.
Noninterest Expense
Noninterest expense increased from $4,818,000 in 1999 to $5,220,000 in 2000.
The increase was primarily due to additional expenses for the five new branches
opened by USB and BOP in the latter part of 1999 and to accrue expense for a new
employee incentive program designed to create and reward productivity. Also
expense was incurred for a new Computer Center opened in first quarter 2000.
Income Tax Expense
Income tax expense was lower in first quarter 2000 due to a $174,000 tax credit
for the renovation of a historical property.
Stock Repurchase Program
USBN completed an approximately 5% stock repurchase program in March 2000, which
was approved by the Board of Directors in December 1999. Approximately 385,000
shares were repurchased for $4.2 million in February and March 2000.
10
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UNITED SECURITY BANCORPORATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Management considers interest rate risk to be a market risk that could have a
significant effect on the financial condition of USBN. There have been no
material changes in reported market risks faced by USBN since the end of the
most recent fiscal year end.
Part II
Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
None in first quarter 2000.
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 on April 20, 2000.
UNITED SECURITY BANCORPORATION
/s/ Richard C. Emery
------------------------------------
Richard C. Emery, President and
Chief Executive Officer
/s/ Chad Galloway
------------------------------------
Chad Galloway, Vice President and
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 19,822
<INT-BEARING-DEPOSITS> 10,458
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,316
<INVESTMENTS-CARRYING> 706
<INVESTMENTS-MARKET> 701
<LOANS> 423,746
<ALLOWANCE> 4,307
<TOTAL-ASSETS> 533,040
<DEPOSITS> 465,473
<SHORT-TERM> 1,700
<LIABILITIES-OTHER> 4,269
<LONG-TERM> 684
0
0
<COMMON> 49,646
<OTHER-SE> 11,268
<TOTAL-LIABILITIES-AND-EQUITY> 533,040
<INTEREST-LOAN> 10,333
<INTEREST-INVEST> 803
<INTEREST-OTHER> 102
<INTEREST-TOTAL> 11,238
<INTEREST-DEPOSIT> 4,263
<INTEREST-EXPENSE> 4,311
<INTEREST-INCOME-NET> 6,927
<LOAN-LOSSES> 337
<SECURITIES-GAINS> (6)
<EXPENSE-OTHER> 5,220
<INCOME-PRETAX> 2,413
<INCOME-PRE-EXTRAORDINARY> 2,413
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,790
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 5.79
<LOANS-NON> 6,410
<LOANS-PAST> 390
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,349
<CHARGE-OFFS> 402
<RECOVERIES> 23
<ALLOWANCE-CLOSE> 4,307
<ALLOWANCE-DOMESTIC> 4,307
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
