United States
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
( X ) Quarterly report under Section 13 or 15 (d) of the
Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998 or
------------------
( ) Transition report under Section 13 or 15 (d) of the
Exchange
Act
For the transition period from to
Commission file number 000 - 18561
UNITED SECURITY BANCORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Washington 91-1259511
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9506 North Newport Highway, Spokane, WA 99218-1200
(Address of Principal Executive Offices)
(509) 467-6949
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) 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
The issuer has one class of capital stock, that being common stock.
On April 30, 1998 there were 4,054,278 shares of such stock
outstanding.
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UNITED SECURITY BANCORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 1998
Table of Contents
Page
Part I Financial Information
Item 1. Financial Statements
Consolidated Statements of Condition - March 31, 1998
and December 31, 1997 . . . . . . . . . . . . . . .
3
Consolidated Statements of Income - Three Months
Ended March 31, 1998 and 1997 . . . . . . . . . . .
4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997. . . . .
5
Notes to Consolidated Financial Statements . . . .
6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . .
9-10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . .
11
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . .
11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
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3 UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
March 31,
December 31,
($ in thousands) 1998
1997
ASSETS
(Audited)
Cash and due from banks $ 16,787 $
19,058
Overnight interest bearing deposits with
other banks 1,351
9,656
Federal funds sold 1,785
5,210
--------- -------
- --
Cash and cash equivalents 19,923
33,924
Securities (Note 2) 65,161
66,770
Loans, net of allowance for loan losses of $2,647
in 1998 and $2,613 in 1997 (Notes 3 and 4) 238,803
226,735
Accrued interest receivable 3,150
2,867
Premises and equipment, net 8,627
9,199
Foreclosed real estate and other foreclosed
assets 1,023
967
Life insurance and salary continuation assets 2,798
2,512
Intangible assets (Note 5) 6,814
6,910
Other assets 579
595
--------- -------
- --
TOTAL ASSETS $ 346,878 $
350,479
=========
=========
LIABILITIES
Noninterest bearing - demand deposits $ 60,099 $
64,586
Interest bearing:
NOW and savings accounts 127,446
129,811
Time, $100,000 and over 29,182
30,161
Other time 84,381
83,028
--------- -------
- --
TOTAL DEPOSITS 301,108
307,586
Notes payable 6,507
6,257
Capital lease obligations 727
732
Accrued interest payable 880
813
Other liabilities 3,118
2,002
--------- -------
- --
TOTAL LIABILITIES 312,340
317,390
STOCKHOLDERS' EQUITY
Common stock, no par, shares authorized
15,000,000; issued and outstanding 4,054,278
in 1998 and 4,052,775 in 1997 28,388
28,383
Retained earnings 6,162
4,771
Accumulated other comprehensive income, net of
tax (Note 1) (12)
(65)
--------- -------
- --
TOTAL STOCKHOLDERS' EQUITY 34,538
33,089
--------- -------
- --
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 346,878 $
350,479
=========
=========
The accompanying notes are an integral part of these statements.
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UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share)
Three Months Ended
March 31,
1998 1997
INTEREST INCOME
Interest and fees on loans and leases $ 6,303 $ 4,786
Interest on securities 1,034 295
Other interest income 189 241
------- -------
TOTAL INTEREST INCOME 7,526 5,322
------- -------
INTEREST EXPENSE
Interest on deposits 2,962 2,037
Interest on borrowings 169 75
------- -------
TOTAL INTEREST EXPENSE 3,131 2,112
------- -------
NET INTEREST INCOME 4,395 3,210
Provision for loan losses (Note 4) 184 153
------- -------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 4,211 3,057
------- -------
NONINTEREST INCOME
Fees and service charges 366 265
Insurance commissions 284 288
Securities gains/(losses) 41 (25)
Other 538 104
------- -------
TOTAL NONINTEREST INCOME 1,229 632
------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 2,072 1,455
Occupancy expense, net 261 145
Equipment expense 294 167
Other operating expense 784 457
------- -------
TOTAL NONINTEREST EXPENSE 3,411 2,224
------- -------
INCOME BEFORE TAXES 2,029 1,465
FEDERAL INCOME TAX EXPENSE 639 476
------- -------
NET INCOME $ 1,390 $ 989
======= =======
Earnings per common share $ .34 $ .24
Weighted average shares outstanding 4,052,610 4,050,575
The accompanying notes are an integral part of these statements.
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UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR-TO-DATE MARCH 31, 1998 AND 1997
($ in thousands)
1998 1997
Increase in Cash and Cash Equivalents
Net income $ 1,390 $ 989
Cash flows from operating activities:
Provision for loan losses 184 153
Depreciation and amortization 173 114
(Increase)/decrease in assets and liabilities
Accrued interest receivable (283) (6)
Life insurance and salary continuation
assets (286) (53)
Other assets 112 (30)
Accrued interest payable 67 (49)
Other liabilities 1,116 (137)
------- -------
Net cash provided by operating activities 2,473 981
------- -------
Cash flows from investing activities:
Securities:
Maturities 6,658 294
Sales 6,098 4,577
Purchases (11,094) (8,189)
Net (increase)/decrease in loans and leases(12,252) 877
Sales of premises and equipment 923
Purchases of premises and equipment (524) (11)
Foreclosed real estate activity (56) (132)
------- -------
Net cash provided by investing activities (10,247) (2,584)
------- -------
Cash flows from financing activities:
Net increase/(decrease) in deposits (6,478) 3,643
Proceeds from notes payable 262
Principal payments on notes payable (12) (12)
Principal payments on capital lease
obligations (5) (5)
Cash received from stock sales 18
Cash paid for redemption of fractional
shares (12) (7)
------- -------
Net cash provided by financing activities (6,227) 3,619
------- -------
Net increase/(decrease) in cash and
cash equivalents (14,001) 2,016
Cash and cash equivalents, beginning of year 33,924 27,423
------- -------
Cash and cash equivalents, end of quarter $19,923 $29,439
======= =======
The accompanying notes are an integral part of these statements.
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UNITED SECURITY BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Management Statement
In the opinion of the Company, the accompanying audited and
unaudited Consolidated Financial Statements present fairly the
financial position of the Company as of March 31, 1998 and 1997 and
December 31, 1997, and the results of operations and the changes in
financial position for the three month period ended March 31, 1998
and 1997.
Certain reclassifications of 1997 balances have been made to
conform with the March 31, 1998 presentation; there was no impact
on net income, earnings per share or stockholders' equity. Also
per share amounts and weighted average shares outstanding have been
retroactively adjusted to reflect previously disclosed stock
dividends and split-ups.
Effective January 1, 1998, the Company adopted two recently issued
Statement of Financial Accounting Standards (SFAS) as follows:
SFAS No. 130, Reporting Comprehensive Income establishes standards
for reporting and display of comprehensive, or all inclusive
income. In the Company's case, based on current operations, it
includes as an addition or deduction to reported net income, the
net change in unrealized gains or losses on securities. This
statement has no effect on net income of the Company. All prior
periods shown on the financial statements have been restated to
conform with the statement.
SFAS No. 131, Disclosure about Segments of an Enterprise and
Related Information establishes standards for the way that public
business enterprises report information about operating segments in
annual financial statements. Management believes that the
provisions of the statement will not have a material effect on its
financial condition or reported results of operations.
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UNITED SECURITY BANCORPORATION
NOTE 2. Securities
Most of the securities are classified as available-for-sale and are
stated at fair value, and unrealized holding gains and losses, net
of related deferred taxes, are reported as a separate component of
stockholders' equity. Gains or losses on available-for-sale
securities sales are reported as part of noninterest income based
on the net proceeds and the adjusted carrying amount of the
securities sold, using the specific identification method.
Carrying amount and fair values at March 31, 1998 and December 31,
1997 were as follows:
March 31, 1998
December 31, 1997
Amortized Fair Financial Amortized
Fair Financial
($ in thousands) Cost Value Statements Cost
Value Statements
Securities available-for-sale:
U.S. Treasury securities $ 2,005 $ 2,009 $ 2,009 $ 3,775 $
3,785 $ 3,785 Obligations of federal government
agencies 37,640 37,744 37,744 38,606
38,621 38,621
Mortgage backed securities 13,679 13,689 13,689 13,042
13,051 13,051
Obligations of states, municipalities
and political subdivisions 3,981 4,023 4,023 5,358
5,410 5,410
Other securities 7,040 6,861 6,861 4,774
4,591 4,591
------- ------- ------- ------- --
- ---- ------
64,345 64,326 64,326 65,555
65,458 65,458
Securities held-to-maturity:
Obligations of states, municipalities
and political subdivisions 835 833 835 1,312
1,332 1,312
------- ------- ------- ------- ---
- ---- -------
Total $65,180 $65,159 $65,161 $66,867
$66,790 $66,770
======= ======= ======= =======
======= =======
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UNITED SECURITY BANCORPORATION
NOTE 3. LOANS
Loan detail by category as of March 31, 1998 and December 31, 1997
were as follows:
($ in thousands) March 31,
December 31,
1998
1997
(Audited)
Commercial and industrial $128,121
$122,482
Agricultural 33,381
33,787
Real estate mortgage 51,141
42,884
Real estate construction 8,325
8,440
Installment 12,178
12,666
Lease financing 4,770
5,209
Bank cards and other 4,136
4,541
-------- ------
- --
Total loans 242,052
230,009
Allowance for loan losses (2,647)
(2,613)
Deferred loan fees, net of deferred costs (602)
(661)
-------- ------
- --
Net loans $238,803
$226,735
========
========
NOTE 4. ALLOWANCE FOR LOAN LOSSES
The allowance for loan loss is maintained at levels considered
adequate by management to provide for possible loan losses. The
allowance is based on management's assessment of various factors
affecting the loan portfolio, including problem loans, business
conditions and loss experience, and an overall evaluation of the
quality of the underlying collateral. Changes in the allowance for
loan loss during the three months ended March 31, 1998 and 1997
were as follows:
Three Months Ended
March 31,
($ in thousands) 1998 1997
Balance, beginning of period $2,613 $2,034
Provision for loan losses 184 153
Loan charge-offs (195) (25)
Loan recoveries 45 44
------ ------
Balance, end of period $2,647 $2,206
====== ======
NOTE 5. OTHER EVENTS
In third quarter 1998 the Company anticipates acquiring Grant
National Bank, Ephrata, Washington per a definitive agreement
announced on March 24, 1998. The pooling of interests accounting
method will be used for the transaction. This will add
approximately $32 million in assets, $21 million in loans, and $28
million in deposits to the Company totals. Total consideration
paid will be approximately $10 million in Company common stock.
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UNITED SECURITY BANCORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains a review of the results of
operations and financial condition for first quarter 1998 for
United Security Bancorporation and it wholly-owned subsidiaries
(USBN), United Security Bank, Home Security Bank, Bank of Pullman,
USB Insurance Agencies, Inc., USB Mortgage Company and USB Leasing,
Inc. This information should be read in conjunction with the
financial statements and related notes appearing in this report.
The reader is assumed to have access to USBN's Form 10-K for the
year ended December 31, 1997, which contains additional
information.
This discussion may contain certain forward looking statements,
which are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties that could cause
actual results to differ materially from those stated. Readers are
cautioned not to place undue reliance on those forward-looking
statements.
Overview
A performance summary and detailed discussion regarding the first
quarter results in 1998 and 1997 follow this table.
UNITED SECURITY BANCORPORATION AND SUBSIDIARIES
PERFORMANCE SUMMARY
Three Months Ended March 31,
%
($ in thousands) 1998 1997 Change
Interest income $ 7,526 $ 5,322 41.4%
Interest expense 3,131 2,112 48.2%
------- ------- -----
Net interest income 4,395 3,210 36.9%
Provision for loan losses 184 153 20.3%
------- ------- -----
Net interest income after
provision for loan losses 4,211 3,057 37.7%
Noninterest income 1,229 632 94.5%
Noninterest expense 3,411 2,224 53.4%
------- ------- -----
Income before income taxes 2,029 1,465 38.5%
Income taxes 639 476 34.2%
------- ------- -----
Net income $ 1,390 $ 989 40.5%
======= ======= =====
Basic and diluted earnings per share $ .34 $ .24 41.7%
Average shares outstanding 4,052,610 4,050,575 .1%
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UNITED SECURITY BANCORPORATION
Net Income
USBN reported a 41% increase in net income to $1,390,000 for the
first three months of 1998 compared to $989,000 for the same period
in 1997. Earnings per share increased by 42% to $.34 compared to
$.24 for 1997. Net income in first quarter 1998 included a gain of
$366,000 from a commercial land sale, which added $242,000 to net
income or $.06 per share.
Net Interest Income
Net interest income grew 37% to $4,395,000 in 1998 compared to
$3,210,000 in 1997. The increase is due to an increase in the
volume of earning assets, which grew 43% or $94 million from March
31, 1997 to March 31, 1998. Total loans grew 36% to $241,450,000
as of March 31, 1998 compared to $177,562,000 as of March 31, 1997.
Securities grew 246% from March 31, 1997 to March 31, 1998. The
1997 acquisitions of five Wells Fargo branches and the Bank of
Pullman were the primary reason for the growth of loans, securities
and deposits. USBN also had loan growth of approximately $28
million during the 12 months ended March 31, 1998 without the total
from the Bank of Pullman acquisition. Deposits grew approximately
$10,000,000 without the acquisitions of the Wells Fargo branches
and the Bank of Pullman.
The net interest margin to average earning assets was 5.73% and
6.06% fro March 31, 1998 and 1997, respectively.
Provision for Loan Losses
The allowance for loan losses grew 20% from March 31, 1997 to March
31, 1998, which represents 1.10% and 1.24% of loans, respectively.
Noninterest Income
Noninterest income increased 95% to $1,229,000 during the first
three months of 1998 compared to $632,000 for the same period in
1997. Fees and service charges increased 38% to $366,000 in 1998
from $265,000 in 1997 due primarily to deposit growth patterns.
Other income included the $366,000 gain on the sale of land, which
had been held as a possible future branch site. First quarter 1997
included losses on the sale of securities as USBN improved the
yield on its securities. First quarter 1998 results included gains
on the sale of securities as USBN obtained liquidity for its loan
portfolio growth. Securities outstanding were lower by $1.6
million since the end of the year.
Noninterest Expense
Noninterest expense increased by 53% in 1998 compared to 1997 due
to the increased costs from the 1997 acquisitions. USBN has
increased its number of locations from 10 to 24 from March 31, 1997
to March 31, 1998. The number of employees has increased from 140
to 212.
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UNITED SECURITY BANCORPORATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in reported market risks faced
by USBN since the end of the most recent fiscal year end.
Part II
Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None in first quarter 1998.
(b) Reports on Form 8-K during first quarter 1998
Date Item # Subject
March 24, 1998 Item 5 United Security Bancorporation to acquire
Grant National
Bank
Signatures
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 on May 1,
1998.
UNITED SECURITY BANCORPORATION
/s/ William C. Dashiell
-------------------------------
- ---
William C. Dashiell, Chairman
and
Chief Executive Officer
/s/ Richard C. Emery
-------------------------------
- ----
Richard C. Emery, President and
Chief Operating Officer
/s/ Chad Galloway
-------------------------------
- ---
Chad Galloway, Vice President
and
Chief Financial Officer
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