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, 1997
Commission File Number: 0-14549
United Security Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Alabama 63-0843362
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
131 West Front Street
Post Office Box 249
Thomasville, AL 36784 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, 1997
Common Stock, $.01 par value 3,536,589 shares
UNITED SECURITY BANCSHARES, INC.
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 SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(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.
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,
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
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in 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
1. 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.
and its 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 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 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. 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, 1996
consolidated financial statements.
2. MERGER BETWEEN USB AND FBI
On June 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 the 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 effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and
is to be applied prospectively. Earlier or retroactive application is not
permitted. The Company adopted the provisions of the 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 presenting 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 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
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 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 six months ended June 30, 1997, to year-end 1996; while
comparing income for the first half and second quarter ended June 30, 1997,
to income for the first half ended June 30, 1996.
On the close of business, June 30, 1997, United Security Bancshares, Inc. and
United 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 combines the results of both institutions as if the
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. The total assets and liability
increase is reflected in the June 30, 1996 Statement of Condition; 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. The discussion and analysis below, therefore, will be 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 JUNE 30, 1997, TO THE THREE MONTHS ENDED
JUNE 30, 1996:
Net income decreased $104,000, or 5.7%, thus decreasing net income per share to
$.48 from $.51. The decrease is primarily attributable to a $362,000, or 11.7%,
increase in noninterest 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. 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 took into account historical experience, the
amount of nonperforming assets, and general economic conditions.
The $362,000, or 11.7%, increase in noninterest 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 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 JUNE 30, 1997 STATEMENT OF FINANCIAL CONDITION TO
DECEMBER 31, 1996:
In comparing the financial condition at December 31, 1996 to June 30, 1997, the
liquidity and capital 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 dividends 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, 1996, 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. There are, however, six law suits filed against the
Bank that could impact the Bank's future earnings. Management does not expect
any material financial impact at this time, and the Bank is committed to offer
a vigorous defense in each case.
PART II: OTHER INFORMATION
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, Financial Data Schedule, filed herewith.
(f) A report on Form 8-K, dated June 30, 1997, was filed on July 2, 1997,
reporting pursuant to Item 2 of Form 8-K the 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: August 13, 1997
BY: /s/ Larry M. Sellers
Its Vice-President, Secretary, and Treasurer
(Duly Authorized Officer and Principal Financial Officer)