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 September 30, 1999
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 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 September 30, 1999
Common Stock, $.01 par value 3,566,856 shares
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements:
Condensed Consolidated Statements of Financial Condition
at September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income (Unaudited)
for the three and nine months ended September 30, 1999
and September 30, 1998 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
The Condensed Consolidated Financial Statements furnished
have not been audited by independent 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
ITEM 2. Management's discussion and analysis of Financial
Condition and results of operations 11
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
Sept. 30, Dec. 31,
1999 1998
(Unaudited)
Cash and due from banks $10,405 $12,103
Interest-bearing deposits in banks 1,544 14,728
Trading securities 2,063 0
Investment securities available for
sale, at fair value 163,267 164,019
Loans, net of allowances for loan
losses of $5,099 and $4,989,
respectively 264,514 235,060
Premises and equipment 9,735 8,225
Other assets 20,135 15,938
Total Assets $471,663 $450,073
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $324,710 $326,645
Borrowings 78,345 55,859
Other Liabilities 7,471 7,001
Total Liabilities 410,526 389,505
Shareholders' Equity:
Common stock, par value $.01 per
share; 10,000,000 shares authorized;
3,630,856 and 3,610,945 shares issued
respectively 36 36
Surplus 8,567 8,219
Accumulated other comprehensive
income (1,101) 2,822
Retained earnings 53,887 49,743
Less treasury stock-64,000 shares,
at cost (252) (252)
Total Shareholders' Equity 61,137 60,568
Total Liabilities and
Shareholders' Equity $471,663 $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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
Interest Income:
Interest and fees on loans $8,664 $7,687 $24,803 $21,449
Interest on securities 2,804 3,567 8,315 10,530
Total interest income 11,468 11,254 33,118 31,979
Interest Expense:
Interest on deposits 3,079 3,191 9,145 9,387
Interest on borrowings 879 865 2,198 2,295
Total interest expense 3,958 4,056 11,343 11,682
Net Interest Income 7,510 7,198 21,775 20,297
Provision for Loan Losses: 918 719 2,769 1,969
Net interest income after
provision for loan losses 6,592 6,479 19,006 18,328
Noninterest Income:
Service and other charges
on deposit accounts 538 514 1,495 1,546
Other income 507 496 1,743 1,393
Securities gains 5 55 524 520
Total noninterest income 1,050 1,065 3,762 3,459
Noninterest Expenses:
Salaries and employee
benefits 2,753 2,480 8,026 7,083
Occupancy expense 348 290 882 803
Furniture and equipment
expense 382 378 1089 1105
Other Expenses 1,209 1,113 3,690 3,334
Total noninterest
expense 4,692 4,261 13,687 12,325
Income before income taxes 2,950 3,283 9,081 9,462
Provision for Income Taxes 848 972 2,695 2,732
Net Income $2,102 $2,311 $6,386 $6,730
Basic Net Income Per Share $.59 $.65 $1.79 $1.90
Diluted Net Income Per Share $.58 $.65 $1.78 $1.89
Dividends Per Share $.21 $.19 $.63 $0.57
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)
Nine Months Ended
September 30,
1999 1998
(Unaudited)
Cash Flows from Operating Activities
Net Income $6,386 $6,730
Adjustments:
Depreciation 735 730
Amortization of premiums and discounts, net 913 167
Amortization of intangibles 536 424
Provision for losses on loan 2,769 1,969
Gain on sale of securities, net (524) (254)
(Gain) loss on sale of fixed assets 0 (7)
Changes in assets and liabilities:
Decrease (increase) in other assets (4,733) (3,378)
(Decrease) increase in other liabilities 2,614 1,203
Total Adjustments 2,310 854
Net cash provided by operating activities 8,696 7,584
Cash Flows from Investing Activities:
Proceeds from maturities/call and paydowns of
securities available for sale 45,642 35,832
Proceeds from sales of securities 52,501 28,455
Purchase of property and equipment, net (2,245) (1,671)
Purchase of securities available for sale (105,910) (64,918)
Loan(originations) and principal repayments, (32,223) (17,403)
Net
Net cash used by investing activities (42,235) (19,705)
Cash Flows from Financing Activities:
Decrease in customer deposits, net (1,935) (1,091)
Sale of treasury stock 0 3
Exercise of stock options 348 133
Dividends paid (2,242) (2,021)
(Decrease) increase in borrowings 22,486 13,231
Net cash provided by financing activities 18,657 10,255
Net decrease in cash and cash equivalents (14,882) (1,866)
Cash and Cash Equivalents, beginning of period 26,831 14,539
Cash and Cash Equivalents, end of period $11,949 $12,673
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
September 30, 1999, and 1998 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, 1999. 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, 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 the weighted
average number of shares of common stock outstanding during the three and nine
month periods ended September 31, 1999 and 1998. Common stock outstanding
consists of issued shares less treasury stock. Diluted net income per share
for the three and nine month periods ended September 30, 1999 and 1998, 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 nine months period ended September 30, 1999 and 1998:
Net Income
For the Three Months Ended Income Shares Per Share
September 30, 1999:
Net income $2,102
Basic net income per share:
Income available to
common shareholders 2,102 3,566,667 $.59
Dilutive securities:
Stock option 0 28,814
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions $2,102 3,595,481 $.58
September 30, 1998 ($ in thousands):
Net income $2,311
Basic net income per share:
Income available to common
shareholders 2,311 3,544,683 $.65
Dilutive securities:
Stock option 0 24,796
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions $2,311 3,569,479 $.65
Net Income
For the Nine Months Ended Income Shares Per Share
September 30, 1999:
Net Income $6,386
Basic net income per share:
Income available to common
shareholders 6,386 3,559,133 $1.79
Dilutive securities:
Stock option 0 28,843
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions $6,386 3,587,976 $1.78
September 30,1998 ($ in thousands):
Net income $6,730
Basic net income per share:
Income available to common
shareholders 6,730 3,555,367 $1.90
Dilutive securities:
Stock option 0 27,256
Dilutive net income per share:
Income available to common
shareholders plus assumed
conversions $6,730 3,582,623 $1.89
3. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards ("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 SFAS No. 115. For the three month period ended September 30, 1998, the
net unrealized loss on these securities increased by $1.9 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 period ended September 30, 1999 and 1998, the Company recognized a
corresponding adjustment in the net unrealized gain (loss) 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 month periods ended September 30, 1999 and 1998:
Three Months Nine Months
Ended Ended
September 30, September 30,
1999 1998 1999 1998
Net income $2,102 $2,311 $6,386 $6,730
Other comprehensive income,
net of tax:
Unrealized gain (loss)
on securities (1,939) (1,174) (3,923) 1,932
Comprehensive income $163 $3,485 $2,463 $8,662
4. MARKET RISK
There have been no material changes in reported market risks since year-end.
5. PENDING ACCOUNTING PRONOUNCEMENTS
In September 1999, the Financial Accounting Standards Board ("FASB") issued
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 SFAS No. 133
from fiscal quarters of all fiscal years beginning after September 15, 1999 to
fiscal quarters of all fiscal years beginning after September 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 tables:
Elimina-
FUSB ALC All Other tions Consolidated
For the three
months ended
September 30,
1999:
Net interest
income $4,854 $2,634 $827 $(805) $7,510
Provision for
loan losses 0 918 0 0 918
Total noninterest
income 796 248 1379 (1,373) 1,050
Total noninterest
expense 2,903 1,747 47 (5) 4,692
Income before
income taxes 2,747 217 2,159 (2,173) 2,950
Provision for
income taxes 760 86 2 0 848
Net income $1,987 $131 $2,157 $(2,173) $2,102
For the nine
months ended
September 30,
1999:
Net Interest
Income $13,779 $7,879 $2,359 $(2,242) $21,775
Provision for
loan losses 110 2,659 0 0 2,769
Total noninterest
income 2,924 828 4,249 (4,239) 3,762
Total noninterest
expense 8,786 4,692 222 (13) 13,687
Income before
income taxes 7,807 1,356 6,386 (6,468) 9,081
Provision for
income taxes 2,165 530 0 0 2,695
Net income $1,987 $826 $6,386 $(6,468) $6,386
Other significant
items:
Total assets,
September 30,
1999 $464,777 $76,919 $61,371 $(131,404) $471,663
Total interest
income from
external cus-
tomers, nine
months ended
September 30,
1999 $18,608 $12,151 $2,359 0 $33,118
Total interest
income from
affiliates,
nine months
ended Septem-
ber 30, 1999 $4,272 $0 $0 $(4,272) $0
Elimina-
FUSB ALC All Other tions Consolidated
For the three
months ended
September 30,
1998:
Net interest
income $4,995 $2,159 $815 $(771) $7,198
Provision for
loan losses 230 489 0 0 719
Total noninterest
income 847 219 1,318 (1,319) 1,065
Total noninterest
expense 2,957 1,254 (180) (230) 4,261
Income before
income taxes 2,655 635 2,313 (2,320) 3,283
Provision for
income taxes 721 249 2 0 972
Net income $1,934 $386 $2,311 $(2,320) $2,311
For the nine
months ended
September 30,
1998:
Net Interest
Income $14,946 $5,241 $5,617 $(5,507) $20,297
Provision for
loan losses 580 1,389 0 0 1,969
Total noninterest
income 2,775 660 1,358 (1,334) 3,459
Total noninterest
expense 8,818 3,285 245 (23) 12,325
Income before
income taxes 8,323 1,227 6,730 (6,864) 6,730
Provision for
income taxes 2,253 479 0 0 2,732
Net income $6,070 $748 $6,730 $(6,864) $6,730
Other significant
items:
Total assets,
September 30,
1998 $440,066 $63,669 $60,366 $(118,040) $446,061
Total interest
income from
external cus-
tomers, nine
months ended
September 30,
1998 $23,381 $8,491 $108 0 $31,980
Total interest
income from
affiliates,
nine months
ended Septem-
ber 30, 1998 $3,248 $0 $0 $(3,248) $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 nine months ended September 30, 1999, to year-end 1998; while
comparing income for the three and nine months period ended September 30,
1999, to income for the three and nine months period ended September 30, 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 SEPTEMBER 30, 1999, TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
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 $431,000, or 10.11%, increase in noninterest expense was primarily
attributed to increases in salaries and employee benefits expenses of $273,000
and an increase in other noninterest expenses of $96,000, or 8.63%. A
significant portion of the increase in salaries and employee benefits expenses
is associated with the costs of adding offices to Acceptance Loan Company, a
wholly owned subsidiary of First United Security Bank.
Net income decreased $209,000, or 9.04%, resulting in a decrease of basic net
income per share to $.59. This was due to the factors discussed above and an
increase in the provision for loan losses of $199,000, as described below.
COMPARING THE NINE MONTHS ENDED SEPTEMBER 30, 1999, TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Net income decreased $344,000, or 5.11%, thus decreasing net income per share
to $1.79 from $1.90. The decrease is primarily attributable to an $800,000,
or 40.63% increase in the provision for loan losses and a $1,362,000, or
11.05% increase in noninterest expense. The net interest margin and loan loss
provision both increased over the company's comparable periods of the prior
year. The increases are due to significant loan volume increases at
Acceptance Loan Company, the finance company subsidiary. This increased
provision has been necessary to cover charge-offs which resulted from the
company's growth strategy in place in 1998 and the first nine months of 1999.
This strategy involved the opening of thirteen new offices and loan growth of
approximately $38.8 million. 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 $1,362,000 increase in noninterest expense was
primarily attributed to increases in salaries and employee benefits expenses
of $943,000 and other expenses of $356,000. A significant portion of this
increase is associated with the cost of adding offices to ALC.
COMPARING THE SEPTEMBER 30, 1999, STATEMENT OF FINANCIAL CONDITION TO DECEMBER
31, 1998
In comparing financial condition at December 31, 1998, to September 30, 1999,
liquidity and capital resources did not materially change during the period.
Total assets, increased $21.6 million to $472 million, while liabilities
increased $21.0 million to $411 million. Retained earnings increased $4.1
million, or 8.33%, due to earnings in excess of dividends paid during the
period. This change and a decrease of $3.9 million in accumulated other
comprehensive income increased shareholders' equity by $569,000 to $61.1
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
September 30, 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 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 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 Bank's or correspondent bank's 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 prior to December 31, 1999. The
Company has completed a contingency plan with testings and training
continuing. Total expenditures for Y2K compliance have been approximately
$200,000 with an additional $10,000 expected by year-end.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibit 3.(i) is filed with this report.
(b.) Exhibit 3.(ii) is filed with this report.
(c.) Exhibit 27 is filed with this report.
<PAGE
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 authorized.
UNITED SECURITY BANCSHARES, INC.
DATE: November 12, 1999
BY: /s/Larry M. Sellers
Its Vice-President, Secretary, and Treasurer
(Duly Authorized Officer and Principal Financial Officer)