UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
Commission File Number: 0-14549
United Security Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Delaware 63-0843362
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
131 West Front Street
Post Office Box 249
Thomasville, AL. 36784
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (334) 636-5424
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 2000
Common Stock, $.01 par value 3,570,431 shares
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements:
Condensed Consolidated Statements of Financial Condition
at June 30, 2000 (Unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Income (Unaudited)
for the three and six months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 30, 2000 and 1999 5
The Condensed Consolidated Financial Statements furnished
have not been audited by independent public accountants,
but reflect, in the opinion management, all adjustments
necessary for a fair presentation 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 12
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
Signatures
UNITED SECURITY BANCSHARES, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS
June 30, Dec. 31,
2000 1999
(Unaudited)
Cash and due from banks $11,408 $12,223
Interest-bearing deposits in banks 179 666
Federal Funds Sold 6,259 0
Trading securities 3,739 0
Investment securities available for
sale, at fair value 151,535 157,874
Loans, net of allowance for loan
losses of $5,783 and $5,579,
respectively 291,151 276,172
Premises and equipment, net 9,146 9,541
Other assets 20,980 20,123
Total Assets $494,397 $476,599
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $334,885 $326,751
Borrowings 90,677 82,774
Other Liabilities 5,545 5,404
Total Liabilities 431,107 414,929
Shareholders' Equity:
Common stock, par value $.01 per
share; 10,000,000 shares authorized;
3,634,431 and 3,622,081 shares issued,
respectively 36 36
Surplus 8,769 8,728
Accumulated other comprehensive
income (loss) (2,381) (1,753)
Retained earnings 57,118 54,911
Less treasury stock-64,000 shares,
at cost (252) (252)
Total Shareholders' Equity 63,290 61,670
Total Liabilities and
Shareholders' Equity $494,397 $476,599
The accompanying notes are an integral part of these statements.
UNITED 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,
2000 1999 2000 1999
(Unaudited) (Unaudited)
Interest Income:
Interest and fees on loans $9,059 $8,319 $18,213 $16,139
Interest on securities 2,855 2,713 5,662 5,511
Total interest income 11,914 11,032 23,875 21,650
Interest Expense:
Interest on deposits 3,186 3,046 6,201 6,066
Interest on borrowings 1,238 670 2,394 1,319
Total interest expense 4,424 3,716 8,595 7,385
Net Interest Income 7,490 7,316 15,280 14,265
Provision for Loan Losses: 1,530 837 2,656 1,851
Net interest income after
provision for loan losses 5,960 6,479 12,624 12,414
Noninterest Income:
Service and other charges
on deposit accounts 559 495 1,078 957
Other income 2,157 638 2,635 1,236
Securities gains 80 8 87 519
Total noninterest income 2,796 1,141 3,800 2,712
Noninterest Expenses:
Salaries and employee
benefits 2,793 2,716 5,716 5,273
Occupancy expense 342 268 646 534
Furniture and equipment
expense 429 355 841 707
Other Expenses 2,761 1,333 3,970 2,481
Total noninterest
expense 6,325 4,672 11,173 8,995
Income before income taxes 2,431 2,948 5,251 6,131
Provision for Income Taxes 632 899 1,402 1,847
Net Income $1,799 $2,049 $3,849 $4,284
Basic Net Income Per Share $.50 $.58 $1.08 $1.20
Diluted Net Income Per Share $.50 $.57 $1.07 $1.20
Dividends Per Share $.23 $.21 $0.46 $0.42
The accompanying notes are an integral part of these statements.
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)
Six Months Ended
June 30,
2000 1999
(Unaudited)
Cash Flows from Operating Activities
Net Income $3,849 $4,284
Adjustments:
Depreciation 635 453
Amortization of premiums and discounts, net 53 766
Amortization of intangibles 361 353
Provision for losses on loans 2,656 1,851
Gain on sale of securities, net (87) (519)
Changes in assets and liabilities:
Increase in other assets (1,218) (4,210)
Increase (decrease) in other liabilities 516 (3,196)
Total Adjustments 2,916 (4,502)
Net cash (used in) provided by operating
activities 6,765 (218)
Cash Flows from Investing Activities:
Proceeds from maturities/calls/sales and
paydowns of securities available for sale 7,380 90,667
Purchase of property and equipment, net (240) (1,637)
Purchase of securities available for sale (12,008) (90,345)
Loan (originations) and principal repayments,
net (17,635) (22,331)
Net cash used by investing activities (22,503) (23,646)
Cash Flows from Financing Activities:
Increase in customer deposits, net 8,134 2,488
Exercise of stock options 41 206
Dividends paid (1,642) (1,493)
Increase in borrowings 7,903 12,309
Net cash provided by financing activities 14,436 13,510
Net decrease in cash and cash equivalents (1,302) (10,354)
Cash and Cash Equivalents, beginning of period 12,889 26,831
Cash and Cash Equivalents, end of period $11,587 $16,477
The accompanying notes are an integral part of these statements.
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying unaudited condensed consolidated financial statements as of
June 30, 2000, and 1999 include the accounts of United Security Bancshares,
Inc. and its subsidiaries (the "Company"). All significant intercompany
transactions and accounts have been eliminated.
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for a fair presentation of
financial position and results of operations for such periods presented. Such
adjustments are of a normal, recurring nature. The results of operations for
any interim period are not necessarily indicative of results expected for the
fiscal year ending December 31, 2000. While certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principals have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission, management believes that the disclosures herein are adequate to
make the information presented not misleading. These financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto contained in the Annual Report on Form 10-K for the year ended
December 31, 1999, of United Security Bancshares, Inc. and Subsidiaries. The
accounting policies followed by United Security Bancshares, Inc. ("USB") are
set forth in the summary of significant accounting policies in USB's December
31, 1999 consolidated financial statements.
2. Net income per share.
Basic net income per share was computed by dividing net income by the weighted
average number of shares of common stock outstanding during the three and six
month periods ended June 30, 2000 and 1999. Common stock outstanding consists
of issued shares less treasury stock. Diluted net income per share for the
three and six month periods ended June 30, 2000 and 1999, were computed by
dividing net income by the weighted average number of shares of common stock
and the dilutive effects of the shares awarded under the Stock Option plan,
based on the treasury stock method using an average fair market value of the
stock during the respective periods.
The following table represents the net income per share calculations for the
three and six months periods ended June 30, 2000 and 1999:
Net Income
For the Three Months Ended Income Shares Per Share
June 30, 2000 ($ in thousands):
Net income $1,799
Basic net income per share:
Income available to
common shareholders 1,799 3,570,331 $.50
Dilutive securities:
Stock option 0 11,590
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions $1,799 3,581,921 $.50
June 30, 1999 ($ in thousands):
Net income $2,049
Basic net income per share:
Income available to common
shareholders 2,049 3,557,525 $.58
Dilutive securities:
Stock option 0 27,245
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions $2,049 3,584,770 $.57
Net Income
For the Six Months Ended Income Shares Per Share
June 30, 2000:
Net Income $3,849
Basic net income per share:
Income available to common
shareholders 3,849 3,569,931 $1.08
Dilutive securities:
Stock option 0 11,518
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions $3,849 3,581,449 $1.07
June 30,1999 ($ in thousands):
Net income $4,284
Basic net income per share:
Income available to common
shareholders 4,284 3,555,367 $1.20
Dilutive securities:
Stock option 0 27,256
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions $4,284 3,582,623 $1.20
3. COMPREHENSIVE INCOME
The Company has classified its securities as available for sale in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115. For the
six month period ended June 30, 2000, the net unrealized loss on these
securities increased by $.6 million. Pursuant to SFAS No. 115, any unrealized
gain or loss activity of available for sale securities is to be recorded as an
adjustment to a separate component of shareholders' equity, net of income tax
effect. Accordingly, for the three-month and six-month periods ended June 30,
2000 and 1999, the Company recognized corresponding adjustments in the net
unrealized gain component of equity.
Since comprehensive income is a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the
period, this change in unrealized gain serves to increase or decrease
comprehensive income. The following table represents comprehensive income for
the three and six-month periods ended June 30, 2000 and 1999:
Three Months Six Months
Ended Ended
June 30, June 30,
2000 1999 2000 1999
Net income $1,799 $2,049 $3,849 $4,284
Other comprehensive income,
net of tax:
Unrealized gain (loss)
on securities 16 (1,984) (628) (3,199)
Comprehensive income $1,815 $65 $3,221 $1,085
4. MARKET RISK
There have been no material changes in reported market risks since year-end.
5. PENDING ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137, Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133. This statement encourages earlier application, but
delays the effective date of Statement 133 from fiscal quarters of all fiscal
years beginning after June 15, 1999 to fiscal quarters of all fiscal years
beginning after June 15, 2000. In accordance with the new standard,
management will continue to evaluate the impact and defer implementation as
the standard allows.
6. SEGMENT REPORTING
Under SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, certain information is disclosed for the two reportable operating
segments of the Company, First United Security Bank ("FUSB") and Acceptance
Loan Company, Inc. ("ALC"). The reportable segments were determined using the
internal management reporting system. They are composed of the Company's
significant subsidiaries. The accounting policies for each segment are the
same as those used by the Company as described in Note 2 of the Company's
annual consolidated financial statements, Summary of Significant Accounting
Policies. The segment results include certain overhead allocations and
intercompany transactions that were recorded at current market prices. All
intercompany transactions have been eliminated to determine the consolidated
balances. The results for the two reportable segments of the Company are
included in the following table:
Elimina-
FUSB ALC All Other tions Consolidated
For the three
months ended
June 30,
2000:
Net interest
income $5,412 $2,015 $1,705 $(1,642) $7,490
Provision for
loan losses 73 1,457 0 0 1,530
Total noninterest
income 1,009 222 1,798 (233) 2,796
Total noninterest
expense 2,922 1,737 1,675 (9) 6,325
Income (loss)
before
income taxes
(tax benefit) 3,426 (957) 1,828 (1,866) 2,431
Provision for
income taxes
(tax benefit) 976 (373) 29 0 632
Net income
(loss) $2,450 $(584) $1,799 $(1,866) $1,799
For the six
months ended
June 30,
2000:
Net Interest
Income $10,639 $4,514 $1,770 $(1,643) $15,280
Provision for
loan losses 73 2,583 0 0 2,656
Total noninterest
income 1,813 419 3,867 (2,299) 3,800
Total noninterest
expense 5,895 3,525 1,762 (9) 11,173
Income (loss)
before income
taxes (tax
benefit) 6,484 (1,175) 3,875 (3,933) 5,251
Provision for
income taxes
(tax benefit) 1,833 (459) 28 0 1,402
Net income
(loss) $4,651 $(716) $3,847 $(3,933) $3,849
Elimina-
FUSB ALC All Other tions Consolidated
Other significant
items:
Total assets,
June 30,
2000 $488,350 $76,706 $64,863 $(135,522) $494,397
Total
investment
securities 147,894 0 3,641 0 151,535
Total loans 295,382 71,843 0 (76,074) 291,151
Total interest
income from
external
customers, six
months ended
June 30, 2000 15,750 7,997 128 0 23,875
Total interest
income from
affiliates,
six months
ended June 30,
2000 3,483 0 0 (3,483) 0
Investment in
wholly owned
subsidiaries 1,616 0 58,271 (59,887) 0
For the three
months ended
June 30,
1999:
Net interest
income $4,580 $2,697 $766 $(727) $7,316
Provision for
loan losses 40 797 0 0 837
Total noninterest
income 837 277 1,346 (1,319) 1,141
Total noninterest
expense 2,982 1,579 114 (3) 4,672
Income (loss)
before income
taxes
(tax benefit) 2,395 598 1,998 (2,043) 2,948
Provision for
income taxes
(tax benefit) 668 233 (2) 0 899
Net income
(loss) $1,727 $365 $2,000 $(2,043) $2,049
For the six
months ended
June 30,
1999:
Net Interest
Income $8,925 $5,245 $1,532 $(1,437) $14,265
Provision for
loan losses 110 1,741 0 0 1,851
Total noninterest
income 2,128 580 2,870 (2,866) 2,712
Total noninterest
expense 5,883 2,945 175 (8) 8,995
Elimina-
FUSB ALC All Other tions Consolidated
Income (loss)
before
income taxes
(tax benefit) 5,060 1,139 4,227 (4,295) 6,131
Provision for
income taxes
(tax benefit) 1,405 444 (2) 0 1,847
Net income
(loss) $3,655 $695 $4,229 $(4,295) $4,284
Other significant
items:
Total assets,
June 30,
1999 $456,289 $75,806 $61,329 $(129,771) $463,653
Total interest
income from
external cus-
tomers, six
months ended
June 30,
1999 13,620 7,970 60 0 21,650
Total interest
income from
affiliates,
six months
ended June
30, 1999 2,720 0 0 (2,720) 0
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis are presented to aid in an understanding
of the current financial position and results of operations of United Security
Bancshares, Inc. ("United Security"). United Security is the parent holding
company of First United Security Bank (the "Bank"), and it has no operations
of any consequence other than the ownership of its subsidiaries.
The emphasis of this discussion is a comparison of Assets, Liabilities, and
Capital for the six month period ended June 30, 2000 to year-end 1999; while
comparing income for the three and six month periods ended June 30, 2000, to
income for the three and six month periods ended June 30, 1999.
All yields and ratios presented and discussed herein are based on the cash
basis and not on the tax-equivalent basis.
COMPARING THE THREE MONTHS ENDED JUNE 30, 2000, TO THE THREE MONTHS ENDED JUNE
30, 1999:
The increase in interest income was due to increases in interest on loans.
This increase is due to both an increase in the average loans outstanding and
an increase in the average yield.
The increase in noninterest income of $1.7 million and noninterest expense of
$1.6 million during the quarter related to the creation of a new entity, FUSB
Reinsurance Inc., which specializes in reinsuring life, accident, and health
insurance originated at ALC and FUSB.
Net income decreased $250,000, or 12.2%, resulting in a decrease of basic net
income per share to $.50. This was due to the factors discussed above and an
increase in the provision for loan losses of $693,000 resulting from charge-
offs at one of the Acceptance Loan Company ("ALC") branches, the Company's
consumer finance subsidiary, as well as continued growth at ALC and
management's analysis of ALC's portfolio.
COMPARING THE SIX MONTHS ENDED JUNE 30, 2000, TO THE SIX MONTHS ENDED JUNE 30,
1999
Net income decreased $435,000, or 10.1%, thus decreasing net income per share
to $1.08 from $1.20. The decrease is primarily attributable to an $1.2
million, or 16.4% increase in interest expense and a $2.2 million, or 24.5%
increase in noninterest expense with a $805,000 increase in the provision for
loan losses. The increase in the provision for loan losses was a result of
the charge-off discussed above and the continued growth in ALC and further
analysis of ALC's portfolio. 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 increase
in interest income was due to increases in interest on loans. This increase
is due both to an increase in the average loans outstanding and an increase in
the average yield. The increase in noninterest income and expense was
primarily attributed to the creation of a new entity discussed above.
COMPARING THE JUNE 30, 2000, STATEMENT OF FINANCIAL CONDITION TO DECEMBER 31,
1999
In comparing financial condition at December 31, 1999, to June 30, 2000,
liquidity and capital resources did not materially change during the period.
Total assets, increased $17.8 million to $494.4 million, while liabilities
increased $16.2 million to $431.1 million. Retained earnings increased $2.2
million, or 4.0%, due to earnings in excess of dividends paid during the
period. This change and a decrease of $627,000 in accumulated other
comprehensive income increased shareholders' equity by $1.6 million to $63.3
million.
CAPITAL RESOURCES
The Bank's primary sources of funds are customer deposits, repayments of loan
principal, and interest from loans and investments. While scheduled principal
repayments on loans and mortgage-backed securities are a relatively
predictable source of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions, and competition.
The Bank manages the pricing of its deposits to maintain a desired deposit
balance. In addition, the Bank invests in short-term interest-earning assets,
which provide liquidity to meet lending requirements.
The Bank is required to maintain certain levels of regulatory capital. At
June 30, 2000 and December 31, 1999, United Security and the Bank were in
compliance with all regulatory capital requirements.
Management is not aware of any condition that currently exists that would have
any adverse effects on the liquidity, capital resources, or operation of
United Security Bancshares, Inc. However, the Company is a defendant in
certain claims and legal actions arising in the ordinary course of business.
In the opinion of management, after consultation with legal counsel, the
ultimate disposition of these matters is not expected to have a material
adverse effect on the financial position of the Company.
YEAR 2000 PROBLEM
The Company has not experienced any material effects as a result of the Year
2000 issues. However, there may be situations where third party commercial
lending customers or vendors could be adversely affected by the Year 2000
issue. If problems do materialize with commercial lending customers or
vendors, the customers' abilities to repay borrowings to the Company or
vendors' abilities to provide service could be affected. Management currently
believes that the risk of detrimental impact on the Company's results of
operations and financial position because of the Year 2000 issues is low.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibit 27 is filed with this report.
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: AUGUST 11, 2000
BY: /s/ Larry M. Sellers
Its Vice-President, Secretary, and Treasurer
(Duly Authorized Officer and Principal Financial Officer)