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 March 31, 1999
Commission File Number: 0-14549
United Security Bancshares, Inc.
(Exact name of registrant as apecified in its charter)
Alabama 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 March 31, 1999
Common Stock, $.01 par value 3,554,531 Shares
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 1998 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 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 10
PART II. OTHER INFORMATION
OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE PAGE 13
SIGNATURES
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
ASSETS
March 31 December 31
1999 1998
Unaudited
CASH AND DUE FROM BANKS $ 9,790 $ 12,103
INTEREST-BEARING DEPOSITS IN BANKS 126 14,728
TRADING SECURITIES 1,352 0
INVESTMENT SECURITIES AVAILABLE FOR SALE,
at fair value 175,959 164,019
LOANS, net of allowance for loan losses of
$5,478 and $4,989, respectively 235,165 235,060
PREMISES AND EQUIPMENT 8,935 8,225
OTHER ASSETS 16,226 15,938
Total assets $447,553 $450,073
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS $324,158 $326,645
BORROWINGS 57,215 55,859
OTHER LIABILITIES 5,205 7,001
Total liabilities 386,578 389,505
SHAREHOLDERS' EQUITY
Common stock, par value $.01 per share;
10,000,000 shares authorized; 3,618,531
and 3,610,945 shares issued, respectively 36 36
Surplus 8,351 8,219
Accumulated other comprehensive income 1,607 2,822
Retained earnings 51,233 49,743
Less treasury stock-64,000 shares, at cost (252) (252)
Total shareholders' equity 60,975 60,568
Total liabilities and shareholders'
equity $447,553 $450,073
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
March 31,
1999 1998
(Unaudited)
INTEREST INCOME:
Interest and fees on loans $ 7,820 $ 6,653
Interest on securities 2,798 3,472
Total interest income 10,618 10,125
INTEREST EXPENSE:
Interest on deposits 3,020 3,083
Interest on borrowings 649 643
Total interest expense 3,669 3,726
NET INTEREST INCOME 6,949 6,399
PROVISION FOR LOAN LOSSES 1,014 633
Net interest income after provision
for loan losses 5,935 5,766
NONINTEREST INCOME:
Service and other charges on deposit
accounts 462 539
Other income 598 423
Securities gains 511 249
Total noninterest income 1,571 1,211
NONINTEREST EXPENSES:
Salaries and employee benefits 2,557 2,187
Occupancy expense 266 256
Furniture and equipment expense 352 352
Other expenses 1,148 1,099
Total noninterest expense 4,323 3,894
Income before income taxes 3,183 3,083
PROVISION FOR INCOME TAXES 948 840
NET INCOME $ 2,235 $ 2,243
BASIC NET INCOME PER SHARE $ .63 $ .63
DILUTED NET INCOME PER SHARE $ .63 $ .63
DIVIDENDS PER SHARE $ .21 $ .19
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)
Three Months Ended
March 31,
1999 1998
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,235 $ 2,243
Adjustments:
Depreciation 226 232
Amortization of premiums and discounts,
net 391 139
Amortization of intangibles 175 160
Provisions for losses on loans 1,014 633
(Gain) loss on sale of securities, net (556) (71)
Changes in assets and liabilities
Decrease (increase) in other assets 245 (1,838)
(Decrease) increase in other liabilities (1,796) 826
Total adjustments (301) 81
Net cash provided by operating
activities 1,934 2,324
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/call of securities
available for sale 25,764 11,809
Proceeds from sales of securities 21,010 16,373
(Purchase of) proceeds from sale of property
and equipment, net (936) (688)
Purchase of securities available for sale (61,824) (27,025)
Loan (originations) and principal repayments,
net (1,119) (7,137)
Net cash used by investing activities (17,105) (6,668)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease (increase) in customer deposits, net (2,487) 2,334
Sale of treasury stock 0 3
Exercise of stock options 132 75
Dividends paid (745) (673)
Increase (decrease) in borrowings 1,356 (1,423)
Net cash used by financing activities (1,744) 316
Net increase (decrease) in cash and cash
equivalents (16,915) (4,028)
CASH AND CASH EQUIVALENTS, beginning of period 26,831 14,539
CASH AND CASH EQUIVALENTS, end of period $ 9,916 $10,511
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 March 31, 1999 and 1998 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, 1998. 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 on Form 10-K for the year ended December 31, 1998, 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, 1998 consolidated financial statements.
2. NET INCOME PER SHARE
Basic net income per share was computed by dividing net income by
weighted average number of shares of common stock outstanding
during the three months period ended March 31, 1999. Common stock
outstanding consists of issued shares less treasury stock.
Diluted net income per share for the three month period ended
March 31, 1999 and 1998, was 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 month period ended March 31, 1999 and
1998:
Net Income
For the Three Months Ended Income Shares Per Share
March 31, 1999 ($ in thousands):
Net income $2,235
Basic net income per share:
Income available to common
shareholders 2,235 3,550,841 $.63
Dilutive securities:
Stock option 0 23,028
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions $2,235 3,573,869 $.63
March 31, 1998:
Net income $2,243
Basic net income per share:
Income available to common
shareholders 2,243 3,539,833 $.63
Dilutive securities 0 24,758 0
Dilutive net income per share $2,243 3,564,591 $.63
3. COMPREHENSIVE INCOME
The company adopted SFAS No. 130 effective January 1, 1998. SFAS
No. 130 established standards for reporting and display of
comprehensive income and its components.
The Company has classified its securities as available for sale in
accordance with Financial Accounting Standards Board Statement No.
115. For the three month period ended March 31, 1999, the net
unrealized gain on these securities decreased by $1.2 million.
Pursuant to Statement 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 period ended
March 31, 1999 and 1998, the Company recognized a corresponding
adjustment 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 nine months
ended September 30, 1998 and 1997:
Three Months
Ended
March 31,
1999 1998
Net income $2,235 $2,243
Other comprehensive income,
net of tax:
Unrealized gain on securities 1,607 525
Comprehensive income $3,842 $2,768
4. MARKET RISK
There have been no material changes in reported market risks since
year-end.
5. PENDING ACCOUNTING PRONOUNCEMENTS
The AICPA has issued Statements of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use. This statement requires capitalization for external direct
costs of materials and services; payroll and payroll-related costs
for employees directly associated; and interest costs during
development of computer software for internal use (planning and
preliminary costs should be expensed). Also, capitalized costs of
computer software developed or obtained for internal use should be
amortized on a straight-line basis unless another systematic and
rational basis is more representative of the software's use.
This statement is effective for financial statements for fiscal
years beginning after December 15, 1998 (prospectively) and is not
expected to have a material effect on the consolidated financial
statements.
The Financial Accounting Standards Board ("FASB") has issued
Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and for Hedging Activities. The
statement requires derivatives to be recorded in the balance sheet
as either an asset or liability measured at its fair value. The
Statement also requires that changes in the derivatives' fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. This Statement is effective for
fiscal years beginning after June 15, 1999 (prospectively) and is
not expected to have a material effect on the consolidated
financial statements.
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. 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, 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:
All
FUSB ALC Other Eliminations Consolidated
Total interest income $8,014 $3,860 $ 2,290 $(3,546) $10,618
Total interest expense 3,669 1,312 0 1,312 3,669
Net interest income 4,345 2,548 2,290 (2,234) 6,949
Provision for loan losses 70 944 0 0 1,014
Net interest income after
provision 4,275 1,604 2,290 (2,234) 5,935
Total noninterest income 1,291 303 6 (29) 1,571
Total noninterest expense 2,901 1,366 61 5 4,323
Income(loss) before income
taxes (tax benefit) 2,665 541 2,235 (2,258) 3,183
Provision for income taxes
(tax benefit) 737 211 0 0 948
Net income(loss) $ 1,928 $ 330 $ 2,235 $ (2,258) $ 2,235
Other significant items:
Total assets $437,139 $69,549 $61,924 $(121,059) $447,553
Total investment
securities 173,145 0 2,814 0 175,959
Total loans, net 234,428 65,899 0 (65,162) 235,165
Investment in wholly-
owned subsidiaries 1,566 0 55,604 (57,170) 0
Total interest income
from external customers 6,726 3,860 32 0 10,618
Total interest income
from affiliates 1,312 0 0 (1,312) 0
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" or "the Company" ).
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 three months ended March 31, 1999, and 1998, while comparing
income for the three months period ended March 31, 1999, to income for the
three months period ended March 31, 1998.
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 MARCH 31, 1999, TO THE THREE MONTHS ENDED
MARCH 31, 1998:
Net income decreased $8,000, or .36%, resulting in virtually no change in
increasing basic net income per share of $.63.
The increase in interest income was due to increases in interest on loans. This
increase is due to an increase in the average loans outstanding and an
increase in the average yield.
The $428,000, or 11%, increase in noninterest expense was primarily attributed
to increases in salaries and employee benefits expenses of $370,000 and an
increase in other noninterest expenses of $48,000, or 4.4%. A significant
portion of the increase in salaries and employee benefits expenses is
associated with the cost of adding offices to the Acceptance Loan Company, a
wholly owned subsidiary of First United Security Bank.
COMPARING THE MARCH 31, 1999, STATEMENT OF FINANCIAL CONDITION TO DECEMBER 31,
1998:
In comparing the financial condition at December 31, 1998, to March 31, 1999,
the liquidity and capital resources did not materially change during the period.
Total assets decreased $2.5 million to $448 million, while liabilities decreased
$2.9 million to $386 million. Retained earnings increased $1.5 million, or 3%,
due to earnings in excess of dividends paid during the period. This change
and a decrease of $1.2 million in net unrealized gain on available for sale
securities increased shareholders' equity by $406,000 to $60.1 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 March
31, 1999, and December 31, 1998, 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 rising 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 Year 2000 ("Y2K") problem is the programming problem caused by some computer
software programs and hardware systems using only two digits to indicate a year
and assuming that the first two digits of any year are "19". Risks to the
Company if its computer systems are not Y2K compliant include the inability to
process customer deposits or checks drawn on the Bank, inaccurate interest
accruals and maturity dates of loans and time deposits, and the inability to
update accounts for daily transactions. Other risks to the Company exist if
certain of its vendors', suppliers', and customers' computer systems are not
Y2K compliant. These risks include the inability of the Bank to communicate
with the centralized data processing center if phone systems are not working,
the interruption of business in the event of power outages, the inability of
loan customers to comply with repayment terms if their businesses are
interrupted, and the inability to make payment for checks drawn on the Bank,
receive payment for checks deposited by the Bank's customers, or invest excess
funds if the Federal Reserve Banks or correspondent banks are not Y2K
compliant. The Company's most important mission critical system is the
software and hardware responsible for maintaining and processing general
ledger, deposits, and loan accounts. The Bank has satisfactorily completed
testing of all in-house systems. The Company continues to contact its key
vendors, suppliers, and customers to determine their Y2K compliance. This
phase of preparedness should be completed by June 30, 1999. The Company has
completed a contingency plan with testings and training continuing. Total
expenditures for Y2K compliance has been approximately $175,000 with an
additional $25,000 expected by year-end.
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: May 17, 1999
BY: /s/ Larry M. Sellers
Its Vice-President and Secretary and Treasurer
(Duly Authorized Officer and Principal Financial Officer)