UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
(x)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Report Pursuant to Section 13 or 15 (2) of the Securities
Exchange Act of 1934
( ) Transition Report Pursuant to Section 13 or 15 (2) of the Securities
Exchange Act of 1934
FOR THE QUARTER ENDED MARCH 31,Period Ended June 30, 1997
Commission File NumberNumber: 0-14549
UNITED SECURITY BANCSHARES, INC.United Security Bancshares, Inc.
(Exact Namename of Registrantregistrant as Specifiedspecified in its Charter)charter)
Alabama 63-0843362
(State or Other Jurisdictionother jurisdiction of (I R S(I.R.S. Employer Identification
Incorporationincorporation or Organization) Number)organization) No.)
131 West Front Street
(334) 636-5424
Post Office Box 249
(Registrant's Telephone
Thomasville, AL 36784 Number Including Area36784
(Address and Zip Code of principal executive offices) (Zip Code)
Principal Executive Offices)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)15(d) of the Securities and 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).(X) No ( ).
Shares)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, ($.01 par value) outstanding as of March 31, 1997:
2,137,960.
Total Number of Pages: 14
Exhibit Indexthe latest practicable date.
Class Outstanding at Page:June 30, 1997
Common Stock, $.01 par value 3,536,589 shares
UNITED SECURITY BANCSHARES, INCINC.
PART I. FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AT 3
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR
THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997, AND 1996 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR
THE SIX MONTHS ENDED JUNE 30, 1997, AND 1996 5
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE
NOT BEEN AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS,
BUT REFLECT, IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS
NECESSARY FOR A FAIR REPRESENTATION OF FINANCIAL CONDITION AND
THE RESULTS OF OPERATIONS FOR THE PERIODS PRESENTED 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION
OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURE PAGE 12
SIGNATURES 12
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
INDEX TO FORM 10-Q
PAGE
PART I.SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition at March 31, 1997
(Unaudited), and December 31, 1996 4
Consolidated Statements of Income (Unaudited) for the
Three Months Ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows (Unaudited) for
the Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE PAGE
Signatures 12CONDITION
(Dollars in thousands, except per share data)
ASSETS
June 30, December 31,
1997 1996
(Unaudited)
CASH AND DUE FROM BANKS $ 18,554 $ 16,006
TRADING ACCOUNT SECURITIES, at fair value 1,469 0
INVESTMENT SECURITIES AVAILABLE FOR SALE,
at fair value 186,266 185,916
LOANS, net of allowance for loan losses of $3,526
and $2,880, respectively 206,030 204,885
PREMISES AND EQUIPMENT 6,900 6,747
OTHER ASSETS 15,828 16,829
Total assets $435,047 $430,383
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS $347,878 $346,306
BORROWINGS 32,751 31,531
OTHER LIABILITIES 4,173 4,930
Total liabilities 384,802 382,767
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share; 10,000,000
shares authorized; 3,600,689 and 3,601,604 shares
issued, respectively 36 36
Surplus 8,041 8,047
Net unrealized gain on securities available for sale 1,030 1,045
Retained earnings 41,392 38,748
Less treasury stock--64,100 shares and 65,015 shares,
respectively, at cost (254) (260)
Total shareholders' equity 50,245 47,616
Total liabilities and shareholders' equity $435,047 $430,383
The accompanying notes are an integral part of these statements.
PART I
FINANCIAL INFORMATIONUNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(Unaudited)
INTEREST INCOME:
Interest and fees on loans $5,408 $4,893 $10,738 $9,518
Interest on securities 3,846 3,772 7,602 7,289
Total interest income 9,254 8,665 18,340 16,807
INTEREST EXPENSE:
Interest on deposits 3,375 3,177 6,701 6,216
Interest on borrowings 529 560 1,020 1,022
Total interest expense 3,904 3,737 7,721 7,238
NET INTEREST INCOME 5,350 4,928 10,619 9,569
PROVISION FOR LOAN LOSSES 345 115 768 230
Net interest income after provision
for loan losses 5,005 4,813 9,851 9,339
NONINTEREST INCOME:
Service and other charges on deposit
accounts 457 432 912 846
Other income 190 191 419 352
Securities gains 23 96 157 227
Total noninterest income 670 719 1,488 1,425
NONINTEREST EXPENSES:
Salaries and employee benefits 1,500 1,531 3,267 3,007
Occupancy expense 160 163 358 321
Furniture and equipment expense 356 241 634 466
Other expenses 1,441 1,160 2,414 2,061
Total noninterest expense 3,457 3,095 6,673 5,855
Income before income taxes 2,218 2,437 4,666 4,909
PROVISION FOR INCOME TAXES 511 626 1,191 1,338
NET INCOME $1,707 $1,811 $3,474 $3,569
AVERAGE NUMBER OF SHARES OUTSTANDING 3,536,589 3,536,589 3,536,589 3,536,589
NET INCOME PER SHARE $.48 $.51 $.98 $1.01
DIVIDENDS PER SHARE $.11 $.10 $.11 $.10
The accompanying notes are an integral part of these statements.
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
March 31, December 31,
ASSETS 1997 1996
[S] [C] [C]
Cash and due from banks $7,095,766 $ 8,233,120
Federal funds sold 2,200,000 0
TOTAL CASH AND CASH EQUIVALENTS 9,295,766 8,233,120
Investment securities available for sale 155,982,915 150,839,464
Trading account securities 241,281 0
Other investments(Federal Home Loan Bank Stock) 1,283,400 1,034,100
Loans 67,956,832 66,294,023
Less: Unearned interest on loans ( 472,955) ( 529,631)
Less: Allowance for possible loan losses ( 1,192,001) ( 1,191,171)
NET LOANS 66,291,876 64,573,221
Premises and equipment 4,176,528 4,118,562
Accrued interest receivable 1,652,615 1,570,844
Other assets 5,182,337 4,821,812
TOTAL ASSETS $244,106,718 $235,191,123
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand - non-interest bearing $ 26,140,760 $ 24,694,668
Demand - interest bearing 37,286,039 33,425,315
Savings 17,094,483 16,442,903
Time 106,199,151 105,362,841
TOTAL DEPOSITS 186,720,433 179,925,727
U.S. Treasury tax and loan 1,314,937 988,975
Other borrowings - short-term 0 20,000,000
Other borrowings - long-term 25,000,000 0
Federal Funds Purchased 0 1,375,000
Dividend payable 320,694 277,935
Accrued interest payable 788,483 909,313
Other liabilities 1,256,258 2,207,438
Long-term debt 659,722 680,556
TOTAL LIABILITIES 216,060,527 206,364,944
SHAREHOLDERS' EQUITY
Common stock, par value $.01 per share;
2,400,000 shares authorized; 2,202,060
shares issued 22,021 22,021
Surplus 5,761,552 5,761,552
Net unrealized gain on
available for sale securities ( 551,866) 1,062,247
Retained earnings 23,068,904 22,234,779
Less: Treasury stock-64,100 shares, at cost ( 254,420) ( 254,420)
TOTAL SHAREHOLDERS' EQUITY 28,046,191 28,826,179
$244,106,718 $235,191,123
See Notes to Consolidated Financial Statements.
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended March 31,
1997 1996
INTEREST INCOME
[S] [C] [C]
Interest and fees on loans $1,528,675 $1,282,930
Interest on investment securities
available for sale 3,212,616 2,909,858
Interest on trading securities 2,280 824
Federal Home Loan Bank dividends 20,323 21,330
Interest on federal funds sold 2,923 7,113
Interest on rate swaps 10,963 20,832
TOTAL INTEREST INCOME 4,777,780 4,242,887
INTEREST EXPENSE
Interest on deposits 1,744,288 1,445,825
Interest on short-term borrowings 64,446 334,319
Interest on long-term debt 283,301 12,018
TOTAL INTEREST EXPENSE 2,092,035 1,792,162
Net interest income 2,685,745 2,450,725
Provision for possible loan losses 25,000 9,000
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 2,660,745 2,441,725
NON-INTEREST INCOME
Service and penalty charges on deposit accounts 221,170 192,584
Credit life insurance commissions 4,566 3,590
Other income 133,164 39,874
Securities gains (losses):
Investment securities 100,045 97,640
Trading securities 263 ( 28,750)
Options 93,152 63,143
TOTAL NON-INTEREST INCOME 552,360 368,081
NON-INTEREST EXPENSES
Salaries 767,472 629,755
Employee benefits 98,091 91,557
Occupancy expense 96,117 79,581
Furniture and equipment expense 204,221 157,098
Stationery and operating supplies 39,390 28,668
Telephone expense 65,206 34,576
FDIC assessment 5,248 500
Amortization 32,559 0
Other expenses 288,982 261,803
TOTAL NON-INTEREST EXPENSES 1,597,286 1,283,538
Income before income taxes 1,615,819 1,526,268
Applicable income taxes 461,000 456,000
NET INCOME $1,154,819 $1,070,268
Average number of shares outstanding 2,137,960 2,137,960
Net income per share $ .54 $ .50
See Notes to Consolidated Financial Statements.
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARYCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended March 31,
1997 1996
Cash flows from operating activities:
[S] [C] [C]
Net income $ 1,154,819 $ 1,070,268
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 112,888 97,359
Provision for possible loan losses 25,000 9,000
Amortization of intangible assets 81,290 123,095
Investment securities (gains) losses (100,045) (97,640)
Loss on sale of fixed assets 0 4,813
Net securities premium amortization 200,802 188,485
Increase(Dollars in trading account securities (241,281) 0
(Increase) decrease in:
Interest receivable (81,771) 215,622
Other assets (441,815) (158,011)
Increase (decrease) in:
Interest payable (120,830) 61,162
Other liabilities 17,289 598,414
Net cash provided by operating activities 606,346 2,112,567
Cash flows from investing activities:
Proceeds from sales of investment
securities available for sale 4,357,786 9,469,990
Proceeds from maturities and prepayments of
investment securities available for sale 1,644,952 1,074,521
Purchases of investment securities
available for sale (13,829,529) (21,587,658)
Purchases of other investments (249,300) 0
Net decrease (increase) in loans (1,743,655) 1,376,767
Purchase of premises and equipment (170,854) 0
Net cash used in investing activities (9,990,600) (9,666,380)
Cash flows from financing activities:
Net increase in demand and
savings deposits 5,958,396 2,282,610
Net increase in time deposits 836,310 1,230,330
Net increase (decrease) in short-term
borrowings (1,049,038) 4,573,890
Proceeds of long-term borrowings 5,000,000 0
Repayments of long-term debt (20,833) (20,833)
Dividends paid (277,935) (235,176)
Net cash provided by financing activities 10,446,900 7,830,821
Net increase in cash and cash equivalents 1,062,646 277,008
Cash and cash equivalents, beginning of
period 8,233,120 6,349,922
Cash and cash equivalents, end of period $ 9,295,766 $ 6,626,930
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,212,865 $ 1,731,000
Income taxes $ 0 $ 0
Supplemental schedule of noncash investing
and financing activities:
Dividends declared but unpaid $ 320,694 $ 277,935
See Notes to Consolidated Financial Statements.thousands, except per share data)
Six Months Ended
June 30,
1997 1996
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,474 $ 3,569
Adjustments:
Depreciation 445 470
Amortization of premiums and discounts, net 332 618
Amortization of intangibles 249 231
Provision for losses on loans 768 230
(Gain) loss on sale of securities, net (157) (227)
(Gain) loss on sale of fixed assets 0 5
Changes in assets and liabilities:
Decrease (increase) in other assets 1,186 (3,207)
(Decrease) increase in other liabilities (800) 349
Total adjustments 2,023 (1,531)
Net cash provided by operating activities 5,497 2,038
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/call of securities available
for sale 5,896 3,997
Proceeds from sales of securities 19,925 21,042
(Purchase of) proceeds from sale of property and
equipment, net (597) (565)
Purchase of securities available for sale (27,300) (42,922)
Loan (originations) and principal repayment, net (2,879) (8,607)
Net cash received in acquisition of bank 0 8,606
Net cash used by investing activities (4,955) (18,449)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease (increase) in customer deposits, net 1,571 4,254
Dividends paid (786) (691)
(Decrease) increase in borrowings 1,221 10,042
Net cash provided by financing activities 2,006 13,605
Net increase (decrease) in cash and cash
equivalents: $ 2,548 $ (2,806)
CASH AND CASH EQUIVALENTS, beginning of period $16,006 $15,360
CASH AND CASH EQUIVALENTS, end of period $18,554 $12,554
The accompanying notes are an integral part of these statements.
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A - General1. GENERAL
The accompanying unaudited condensed consolidated financial statements
as of June 30, 1997 and 1996 and for the three and six months periods
then ended, include the accounts of United Security Bancshares, Inc.
(Bancshares) and its subsidiary.subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for a fair presentation of
financial position and results of operations for such periods.periods presented.
Such adjustments are of a normal, recurring nature. The results of
operation for any interim period are not necessarily indicative of results
expected for the full year.fiscal year ended December 31, 1997. 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 for the year ended December 31, 1996, of United Security
Bancshares, Inc. and Subsidiary. Note B - AcquisitionsThe accounting policies followed by
United Security Bancshares, Inc. ("USB") are set forth in the summary of
significant accounting policies in USB's December 31, 1996
consolidated financial statements.
2. MERGER BETWEEN USB AND FBI
On August 19, 1996, the Company entered into an agreement to merge withJune 30, 1997 First Bancshares, Inc. ("FBI") merged with and into USB,
and USB survived (Combined entity the "Company").
Under the terms of the merger agreement, 1.4 million shares of the
Company's common stock were issued in exchange for all of the outstanding
shares of FBI's common stock (based on an exchange ratio of 5.8321 shares
of the Company's common stock for each share of FBI's common stock). The
merger was accounted for as a pooling-of-interests and, accordingly, the
information included in the financial statements and consolidated notes of
the Company presents the combined results of USB and FBI as if the merger
had been in effect for all periods presented.
The accompanying condensed consolidated financial statements give effect to
the merger which has been accounted for as a pooling-of-interests.
Accordingly, the pre-merger accounts of the former USB have been combined
with those of FBI for all periods presented. Separate unaudited results of
operations of the combining entities for the three and six months ended
June 30, 1997 and 1996, are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(Dollars in thousands)
Net interest revenue:
USB $2,668 $2,635 $5,353 $5,086
FBI 2,682 2,293 5,266 4,483
Net income:
USB $1,118 $1,044 $2,273 $2,116
FBI 589 767 1,201 1,453
3. EARNINGS PER SHARE
Earnings per share for the six month period and three month periods ended
June 30, 1997 has been computed based on the earnings during that period,
and the weighted average number of shares of common stock outstanding
during that period.
4. STOCK OPTIONS
The stockholders approved by all regulatory authoritiesthe United Security Bancshares, Inc. Long-Term
Incentive Compensation Plan (the "LTICP"). The LTICP provides for a
number of forms of stock-based compensation with up to 60,000 shares of
the Company's common stock authorized for issuance through the Plan. The
Company may award eligible employees incentive and nonqualified stock
options, stock appreciation rights, and restricted stock. The LTICP
became effective June 1, 1997. As of June 30, 1997, options for 57,900
shares were outstanding.
5. ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 125, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS No. 125 provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer
of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes
liabilities when extinguished.
This statement is pending approval by the shareholders. A vote is scheduledeffective for May 20, 1997.
Attransfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, First Bancshares, Inc. had assetsand
is to be applied prospectively. Earlier or retroactive application is not
permitted. The Company adopted the provisions of $195.2 millionthe Standard on January
1, 1997. Based on the Company's current operating activities, the
adoption of this statement did not have an impact on the Company's
financial condition or results of operations.
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. This
Statement established standards for computing and shareholders equitypresenting earnings per
share (EPS) and applies to entities with publicly held common stock or
potential common stock. This Statement simplifies the standards for
computing earnings per share previously found in APB Opinion No. 15,
Earnings Per Share, and makes them comparable to international EPS
standards. It replaces the presentation of $18.8 million.primary EPS with a presenta-
tion of basic EPS and requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
This Statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier
application is not permitted. This Statement requires restatement of all
prior period EPS data presented. The Company will adopt the Statement at
fiscal year-end 1998. Basic and dilutive earnings per share under SFAS
No. 128 would be identical to earnings per share as presented in the
financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting of Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of financial statements. This statement also
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
This statement is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to stockholders. This statement also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This statement requires the
reporting of financial and descriptive information about an enterprise's
reportable operating segments.
This statement is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
For the Three Months Ended March 31, 1997
The following discussion and financial information are presented to aid in an
understanding of the current financial position and results of operations of
United Security Bancshares, Inc. ("United Security"). United Security is the
Parent Holding Companyparent holding company of United Security Bank (the "Bank"), and it has no
operations of any consequence other than the ownership of its subsidiary. The
Bank's name was changed from United Security Bank to First United Security Bank
on July 9, 1997.
The emphasis of this discussion is a comparison of Assets, Liabilities, and
Capital for the threesix months ended March 31,June 30, 1997, to year-end 1996; while
comparing income for the first half and second quarter ended March 31,June 30, 1997,
to income for the quarterfirst half ended March 31,June 30, 1996.
All yieldsOn the close of business, June 30, 1997, United Security Bancshares, Inc. and
ratiosUnited Security Bank completed the merger with First Bancshares, Inc. and First
Bank and Trust. The merger is considered as a "pooling of interest" for
accounting and financial reporting purposes, therefore all financial
information presented and discussed herein are based
oncombines the cash basis and not onresults of both institutions as if the
tax-equivalent basis.merger had been in effect for all periods presented.
On June 1, 1996, United Security Bank completed the acquisition of all the
outstanding shares of Brent Banking Company. The acquisition increased United
Security's total assets by $33.7 million. SinceThe total assets and liability
increase is reflected in the March 31,June 30, 1996 Statement of Income was not effected byCondition; however,
since the merger did not occur until June 1, 1996, only one month of income
and expense after the acquisition is recorded in the June 30, 1996 Statement
of Income comparisonIncome. The discussion and analysis below, therefore, will be impacted.impacted
by some increases due to the acquisition.
All yields and ratios presented and discussed herein are based on the cash
basis and not on the tax-equivalent basis.
COMPARING THE SIX MONTHS ENDED JUNE 30, 1997, TO THE SIX MONTHS ENDED JUNE 30,
1996:
Net income decreased $95,000, or 2.7%, thus decreasing net income per share to
$.98 from $1.01. The decrease is primarily attributable to a $817,000, or
13.9%, increase in noninterest expense and a $538,000 increase in provision for
loan losses which were offset by a $1,050,000, or 11.0%, increase in net
interest income. The increase in the provision for loan losses was a result
of conforming the loss analysis methodologies between the two banks and
resulted in raising the allowance for loan losses to a higher level within
management's acceptable range. The allowance for loan losses reflects
management's estimates which take into account historical experience, the
amount of nonperforming assets, and general economic conditions.
The $817,000, or 13.9%, increase in noninterest expense was primarily attributed
to increases in salaries and employee benefits expenses by $260,000, furniture
and equipment expenses by $168,000, and other expenses by $352,000. A
significant portion of these increases is associated with the cost of adding
seven offices to the Acceptance Loan Company, a wholly owned subsidiary of
First United Security Bank and expenses associated with the Brent Banking
Company acquisition of June 1, 1996.
COMPARING THE THREE MONTHS ENDED MARCH 31,JUNE 30, 1997, TO THE THREE MONTHS ENDED
MARCH 31, 1996;JUNE 30, 1996:
Net income increased $86,551decreased $104,000, or 7.9% increasing5.7%, thus decreasing net income per share to
$.54$.48 from $.50.$.51. The decrease is primarily attributable to a $362,000, or 11.7%,
increase is due in part to improvednoninterest expense and a $230,000 increase in provision for loan
losses which were offset by a $422,000, or 8.6%, increase in net interest
income. Net interest income increased $219,020 or 8.97% over the first quarter of 1996.
A combination of volume, rate and yield changes, as well as the increased
income generated by the Brent Bank acquisition, contributed to this increase.
Total interest-earning assets increased by $9,552,687 or 4.41%The increase in the first
quarterprovision for loan losses was a result of
1997conforming the loss analysis methodologies between the two banks and interest-bearing liabilities increased $9,278,739 duringresulted
in raising the same period. Growth in interest earningallowance for loan losses to a higher level within
management's acceptable range. The allowance for loan losses reflects
management's estimates which took into account historical experience, the
amount of nonperforming assets, and growthgeneral economic conditions.
The $362,000, or 11.7%, increase in low interest
deposit products overnoninterest expense was primarily attributed
to increases in salaries and employee benefits expenses by $260,000, furniture
and equipment expenses by $115,000, and other expenses by $281,000. A
significant portion of these increases is associated with the first quartercost of 1997 has contributedadding
seven offices to the increased net interest income becauseAcceptance Loan Company, a wholly owned subsidiary of
the spread between the yield on assets
and the rates paid on liabilities.
Total interest expense increased $299,873 or 16.73% in the first quarter of
1997 compared to the same period in 1996. The increase can be directly
attributed to the increase in interest on deposits of $298,463, much of which
is due to the Brent Bank acquisition. Most of the short-term borrowings have
been reclassified as long-term debt, and the interest expense for each classi-
fication is off-set in the first quarter comparison. Short-term borrowing
consists of U. S. Treasury demand notes in the Treasury, Tax and Loan Accounts,
securities sold under repurchase agreements and federal funds purchased. Long-
term debt consists of loans from the Federal Home Loan Bank.
Net operating income (income excluding taxes and securities transactions)
increased $28,126 or 2.02% in the first quarter of 1997 compared to 1996.
Management's investment strategy continued to be maximizing portfolio returns
commensurate with appropriate risk and liquidity considerations. In July of
1995, United Security reclassified all investment securities from held to
maturity to available for sale to allow more flexibility in managing the
investment portfolio. This investment strategy has resulted in increased yields
and liquidity.
Total non-interest income increased $184,279 or 50.06% in the first quarter of
1997 when compared to the first quarter of 1996. There are three major factors
in the increase. First securities related income increased $61,427. Secondly,
the increase in deposits bought through the Brent acquisition produced more
service charge income, and third, the Bond Division opened by United Security Bank in the fourth quarter of 1996 contributed to non-interest income in the
first quarter of 1997.
Total non-interest expense increased $313,748 or 24.44% in the first quarter of
1997 compared to the first quarter of 1996. This increase is a direct result
ofand expenses associated with the Brent BankBanking
Company acquisition and the start-up of the Bond Division.June 1, 1996.
COMPARING THE ENDING FIGURES MARCH 31,JUNE 30, 1997 STATEMENT OF FINANCIAL CONDITION TO THE ENDING FIGURES
DECEMBER 31, 1996:
Total assets increased $8,915,595 or 3.79% to $244,106,718. Net loans increased
$1,718,655 or 2.66%, while investment securities increased by $5,634,032 or
3.71% to $157,507,596.
Deposits continue to show steady growth by increasing $6,794,706 or 3.78% to
$186,720,423 inIn comparing the first quarter of 1997. $5,306,816 of the deposit growth
was in demand deposits.
On December 31, 1996, Other Borrowings totalled $20 million and consisted of
loans from the Federal Home Loan Bank. These loans were reclassified as long-
term debt in the first quarter of 1997 and increased by $5 million. Investment
securities are pledged to secure these borrowings. Treasury tax and loan
deposits are on demand and increased by $325,962 as in the first quarter of
1997.
Undivided profits increased $834,125 or 3.75%, and net unrealized gain (loss)
on available for sale securities had a total decrease of $1,614,113 in the
first quarter due to an unrealized gain of $1,062,247financial condition at December 31, 1996 to June 30, 1997, the
liquidity and an unrealized losscapital resources did not materially change during the period.
Total assets increased $4.7 million to $435.0 million, while liabilities
increased $2.0 million to $384.8 million. Retained earnings increased $2.6
million, or 6.8%, due to earnings in excess of $551,866 at Marchdividends paid during the period.
This change increased shareholders' equity by $2.6 million to $435.0 million.
CAPITAL RESOURCES:
The Bank's primary sources of funds are customer deposits, repayments of loan
principal, and interest from loans and investments. While scheduled principal
repayments on loans and mortgage-backed securities are a relatively predictable
source of funds, deposit flows, and loan prepayments are greatly influenced by
general interest rates, economic conditions, and competition. The Bank manages
the pricing of its deposits to maintain a desired deposit balance. In addition,
the Bank invests in short-term interest-earning assets which provide liquidity
to meet lending requirements.
The Bank is required to maintain certain levels of regulatory capital. At June
30, 1997 and December 31, 1997. The unrealized loss
resulted1996, United Security and the Bank were in a decline in Stockholders' Equity of $779,988 or (2.71%) to
$28,046,191.compliance
with all regulatory capital requirements.
Management is not aware of any current recommendations by the regulatory
authorities whichcondition that currently exists that would have
any adverse effecteffects on the liquidity, capital resources, or operation of the Bank. However, there were fourUnited
Security Bancshares, Inc. There are, however, six law suits filed against the
Bank at the end of the first quarter of 1996, whichthat could impact the BanksBank's future earnings. Management however does not expect
any material financial impact at this time, and the Bank is committed to offer
a vigorous defense in each case.
On August 19, 1996, United Security Bancshares, Inc. entered into an agreement
to merge with First Bancshares, Inc. The application to merge has been approved
by all regulatory authorities and the merger is now pending approval by the
shareholders. The meeting for a shareholder vote is scheduled for May 20, 1997.
PART IIII: OTHER INFORMTION
ITEMINFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Amended and Restated Articles of Incorporation of USB, incorporated herein
by reference to the Exhibits to Form 10-Q for the Quarter ended June 30,
1995.
(b) Bylaws of USB, incorporated herein by reference to the Exhibits to Form
10-K for the year ended December 31, 1987.
(c) Exhibit 3.(i), Articles of Amendment to the Amended and Restated Articles
of Incorporation of USB, filed herewith.
(d) Exhibit 3.(ii), Amendments to the Bylaws of USB, filed herewith.
(e) Exhibit 27, isFinancial Data Schedule, filed with this report.
(b) No reports were filedherewith.
(f) A report on Form 8-K, fordated June 30, 1997, was filed on July 2, 1997,
reporting pursuant to Item 2 of Form 8-K the quarter ended March 31, 1997.merger of First Bancshares,
Inc. with and into the Registrant and the merger of First Bank and Trust
with and into the Registrant's wholly-owned subsidiary, United Security
Bank. Pursuant to Item 7(a)(4), financial statements required by Item 7
of Form 8-K will be filed not later than sixty (60) days after the date
that the Form 8-K was required to be filed.
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: MayAugust 13, 1997
BY: /s/ Larry M. Sellers
Its Vice-President, Secretary, and Treasurer
(Duly Authorized Officer and Principal Financial Officer)