10-Q 1 0001.txt 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, 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 October 31, 2000 Common Stock, $.01 par value 3,570,431 shares UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES Page PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 3 CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999 4 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 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 12 SIGNATURE PAGE 13 SIGNATURES
UNITED SECURITY BANCSHARES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except per share data) ASSETS September 30, December 31, 2000 1999 (Unaudited) CASH AND DUE FROM BANKS $ 12,265 $ 12,223 INTEREST-BEARING DEPOSITS IN BANKS 6,611 666 FEDERAL FUNDS SOLD 200 0 INVESTMENT SECURITIES AVAILABLE FOR SALE, at fair value 149,643 157,874 LOANS, net of allowances for loan losses of $5,911 and $5,579, respectively 297,318 276,172 PREMISES AND EQUIPMENT, net 8,915 9,541 OTHER ASSETS 20,769 20,123 Total assets $ 495,721 $ 476,599 LIABILITIES AND SHAREHOLDERS' EQUITY DEPOSITS $ 334,410 $ 326,751 BORROWINGS 89,249 82,774 OTHER LIABILITIES 6,741 5,404 Total liabilities 430,400 414,929 SHAREHOLDERS' EQUITY: Common stock, par value $.01 per share; 10,000,000 shares authorized; 3,634,431 and 3,632,081 shares issued, respectively 36 36 Surplus 8,769 8,728 Accumulated other comprehensive income (loss) (1,344) (1,753) Retained earnings 58,112 54,911 Less treasury stock-64,000 shares, at cost (252) (252) Total shareholders' equity 65,321 61,670 Total liabilities and shareholders' equity $ 495,721 $ 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 Nine Months Ended September 30, September 30, 2000 1999 2000 1999 (Unaudited) (Unaudited) INTEREST INCOME: Interest and fees on loans $ 9,323 $ 8,664 $ 27,536 $24,803 Interest on securities 2,839 2,804 8,500 8,315 Total interest income 12,162 11,468 36,036 33,118 INTEREST EXPENSE: Interest on deposits 3,455 3,079 9,656 9,145 Interest on borrowings 1,332 879 3,726 2,198 Total interest expense 4,787 3,958 13,382 11,343 NET INTEREST INCOME 7,375 7,510 22,654 21,775 PROVISION FOR LOAN LOSSES 1,631 918 4,287 2,769 Net interest income after provision for loan losses 5,744 6,592 18,367 19,006 NONINTEREST INCOME: Service and other charges on deposit accounts 580 538 1,658 1,495 Other income 240 507 1,827 1,743 Securities gains 71 5 159 524 Total noninterest income 891 1,050 3,644 3,762 NONINTEREST EXPENSES: Salaries and employee benefits 2,819 2,753 8,535 8,026 Occupancy expense 344 348 991 882 Furniture and equipment expense 397 382 1,238 1,089 Other expenses 869 1,209 3,791 3,690 Total noninterest expense 4,429 4,692 14,555 13,687 Income before income taxes 2,206 2,950 7,456 9,081 PROVISION FOR INCOME TAXES 391 848 1,792 2,695 NET INCOME $ 1,815 $ 2,102 $ 5,664 $ 6,386 BASIC NET INCOME PER SHARE $.51 $.59 $1.59 $1.79 DILUTED NET INCOME PER SHARE $.51 $.58 $1.58 $1.78 DIVIDENDS PER SHARE $.23 $.21 $ .69 $ .63 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, 2000 1999 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,664 $ 6,386 Adjustments: Depreciation 927 735 Amortization of premiums and discounts, net 103 913 Amortization of intangibles 292 536 Provision for losses on loans 4,287 2,769 Gain on sale of securities, net (159) (524) Changes in assets and liabilities: Increase in other assets (938) (4,733) Increase in other liabilities 2,400 2,614 Total adjustments 6,912 2,310 Net cash provided by operating activities 12,576 8,696 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities/call and paydowns of securities available for sale 10,723 45,642 Proceeds from sales of securities 4,330 52,501 Purchase of property and equipment, net (301) (2,245) Purchase of securities available for sale (7,620) (105,910) Loan (originations) and principal re- payments, net (25,433) (32,223) Net cash used by investing activities (18,301) (42,235) CASH FLOWS FROM FINANCING ACTIVITIES: Increase(decrease) in customer deposits, net 7,659 (1,935) Exercise of stock options 41 348 Dividends paid (2,463) (2,242) Increase in borrowings 6,475 22,486 Net cash provided by financing activities 11,712 18,657 Net increase(decrease) in cash and cash equivalents 5,987 (14,882) CASH AND CASH EQUIVALENTS, beginning of period 12,889 26,831 CASH AND CASH EQUIVALENTS, end of period 18,876 11,949
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 September 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 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, 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 nine month periods ended September 30, 2000, and 1999. 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, 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 Company's 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, 2000, and 1999: Net Income For the Three Months Ended Income Shares Per Share September 30, 2000 ($ in thousands): Net income $1,815 Basic net income per share: Income available to common shareholders 1,815 3,570,331 $.51 Dilutive securities: Stock options 0 11,174 Dilutive net income per share: Income available to common shareholders plus assumed conversions 1,815 3,581,505 $.51 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 $.58 Net Income For the Nine Months Ended Income Shares Per Share September 30, 2000 ($ in thousands): Net income $5,664 Basic net income per share: Income available to common shareholders 5,664 3,570,064 $1.59 Dilutive securities: Stock option 0 11,159 Dilutive net income per share: Income available to common shareholders plus assumed conversions $5,664 3,581,223 $1.58 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
3. COMPREHENSIVE INCOME Comprehensive income is a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period. 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. This change in unrealized gain serves to increase or decrease comprehensive income. The following table represents comprehensive income and its changes for the three and nine month periods ended September 30, 2000, and 1999: Three Months Nine Months Ended Ended September 30, September 30, 2000 1999 2000 1999 Net income $ 1,815 $ 2,102 $ 5,664 $ 6,386 Other comprehensive income, net of tax: Unrealized gain (loss) on securities 1,037 (1,939) 409 (3,923) Comprehensive income $2,852 $ 163 $6,073 $2,463
4. MARKET RISK There have been no material changes in reported market risks since year-end. 5. PENDING ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in a derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statment No. 133, which delays the original effective date of SFAS No. 133 until fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which amends SFAS No. 133. SFAS No. 138 addresses a limited number of issues related to the implementation of SFAS No 133. Substantially all of the current derivative portfolio will qualify under SFAS No. 133 for cash flow or fair value hedge accounting treatment. The implementation of SFAS No. 133, as amended, is not expected to have a material effect on the Company's consolidated financial position or consolidated results of operations. 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: Elimi- Consoli- FUSB ALC All Other nations dated For the three months ended September 30, 2000: Net interest income $ 5,429 $ 1,882 $ 885 $ (821) $ 7,375 Provision for loan losses 21 1,610 0 0 1,631 Total noninterest income 1,127 190 1,293 (1,719) 891 Total noninterest expense 2,895 1,755 300 (521) 4,429 Income before income taxes 3,640 (1,293) 1,878 (2,019) 2,206 Provision for income taxes 889 (504) 6 0 391 Net income $ 2,751 $ (789) $1,872 $(2,019) $1,815 For the nine months ended September 30, 2000: Net interest income $ 16,067 $ 6,396 $ 2,655 $(2,464) $ 22,654 Provision for loan losses 94 4,193 0 0 4,287 Total noninterest income 2,752 609 4,286 (4,003) 3,644 Total noninterest expense 8,793 5,280 1,041 (559) 14,555 Income before income taxes 9,932 (2,468) 5,900 (5,908) 7,456 Provision for income taxes 2,721 (963) 34 0 1,792 Net income $ 7,211 $ (1,505) $ 5,866 $(5,908) $ 5,664 Other significant items: Total assets, September 30, 2000 $491,164 $ 75,808 $67,103 $(138,354) $495,721 Total investment securities 145,908 0 3,735 0 149,643 Total loans 302,477 71,199 0 (76,358) 297,318 Total interest income from external customers, nine months ended September 30, 2000 23,319 11,751 966 0 36,036 Total interest income from affiliates, nine months ended Septem- ber 30, 2000 5,355 0 0 (5,355) 0 Investment in wholly owned subsidiary 2,050 0 61,312 (63,362) 0
All Elimina- Consol- FUSB ALC Other tions idated 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 1,379 (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 $ 5,642 $ 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 customers, nine months ended September 30, 1999 $ 18,608 $ 12,151 $ 2,359 $ 0 $ 33,118 Total interest income from affiliates, nine months ended September 30, 1999 $ 4,272 $ 0 $ 0 $ (4,272) $ 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, 2000 to year-end 1999; while comparing income and expense for the three and nine month periods ended September 30, 2000, to income and expense for the three and nine month periods ended September 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 SEPTEMBER 30, 2000, TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999 The increase in interest income was due to both an increase in the average loans outstanding and an increase in the average yield. The increase in interest expense was due to both an increase in the average deposit and borrowing balances outstanding and an increase in the average rate paid on interest bearing liabilities. Net income decreased $287,000, or 13.7%, resulting in a decrease of basic net income per share to $.51. This was due to the increase in interest expense discussed above and an increase in the provision for loan losses of $713,000, as described below. COMPARING THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999 The increase in interest income was due to both an increase in the average loans outstanding and an increase in the average yield. The increase in interest expense was due to both an increase in the average deposit and borrowing balances outstanding and an increase in the average rate paid on interest bearing liabilities. Net income decreased $722,000, or 11.3%, thus decreasing basic net income per share to $1.59. The decrease is primarily attributable to a $1.5 million, or 54.8% increase in the provision for loan losses. The allowance for loan losses reflects management's estimates, which take into account historical experience, the amount of nonperforming assets and general economic conditions. COMPARING THE SEPTEMBER 30, 2000 STATEMENT OF FINANCIAL CONDITION TO DECEMBER 31, 1999 In comparing financial condition at December 31, 1999 to September 30, 2000, liquidity and capital resources did not materially change during the period. Total assets increased $19.1 million to $495.7 million, while liabilities increased $15.5 million to $430.4 million. These changes were representative of the increases in loan volume discussed above, funded by deposit growth of 2.3% and increases in other borrowings of 7.8%. Retained earnings increased $3.2 million, or 5.8%, due to earnings in excess of dividends paid during the period. This change and an increase of $409,000 in accumulated other comprehensive income increased shareholders' equity by $3.6 million to $65.3 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 September 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. 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: NOVEMBER 13, 2000 BY: /s/ Larry M. Sellers Its Vice-President, Secretary, and Treasurer (Duly Authorized Officer and Principal Financial Officer)