-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RnJBNunZy7OWu8BUKhWNidMolpoVsB9pI6jJv3rVbg/iPnoIg+U7aVkluuCbqqy/ NyDVVxBjZ6a4vOkwTl4YwA== 0000726990-99-000005.txt : 19990505 0000726990-99-000005.hdr.sgml : 19990505 ACCESSION NUMBER: 0000726990-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED SECURITY BANCORPORATION CENTRAL INDEX KEY: 0000726990 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 911259511 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18561 FILM NUMBER: 99609397 BUSINESS ADDRESS: STREET 1: 9506 N NEWPORT HWY CITY: SPOKANE STATE: WA ZIP: 99218-1200 BUSINESS PHONE: 5094676949 MAIL ADDRESS: STREET 1: 9506 N NEWPORT HWY CITY: SPOKANE STATE: WA ZIP: 99218-1200 10-Q 1 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, 1999 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 (Registrant'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 26, 1999, there were 6,939,511 shares of such stock outstanding. 1 2 UNITED SECURITY BANCORPORATION INDEX TO QUARTERLY REPORT ON FORM 10-Q March 31, 1999 Table of Contents
Page Part I Financial Information Item 1. Financial Statements Consolidated Statements of Condition - March 31, 1999 and December 31, 1998 . . . . . . . . . . . . . . . 3 Consolidated Statements of Income - Three Months Ended March 31, 1999 and 1998 . . . . . . . . . . . 4 Consolidated Condensed Statements of Cash Flows - Three Months Ended March 31, 1999 and 1998. . . . . 5 Notes to Consolidated Financial Statements . . . . 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . 9-11 Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . 12 Part II Other Information Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 12 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2 3 UNITED SECURITY BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION
March 31, December 31, ($ in thousands) 1999 1998 ASSETS Cash and due from banks $ 16,790 $ 24,437 Overnight interest bearing deposits with other banks 7,004 12,166 Federal funds sold 2,875 485 --------- ------- - -- Cash and cash equivalents 26,669 37,088 Securities 68,599 87,350 Loans, net of allowance for loan losses of $3,781 in 1999 and $3,819 in 1998 370,239 359,532 Accrued interest receivable 4,759 4,565 Premises and equipment, net 12,209 12,145 Foreclosed real estate and other foreclosed assets 1,266 1,245 Life insurance and salary continuation assets 3,470 3,438 Intangible assets 6,474 6,525 Other assets 1,589 1,249 --------- ------- - -- TOTAL ASSETS $ 495,274 $ 513,137 ========= ========= LIABILITIES Noninterest bearing - demand deposits $ 77,346 $ 85,422 Interest bearing: NOW and savings accounts 192,642 198,812 Time, $100,000 and over 52,728 53,195 Other time 110,475 115,499 --------- ------- - -- TOTAL DEPOSITS 433,191 452,928 Short-term borrowings 408 Capital lease obligations 707 712 Accrued interest payable 1,569 1,646 Other liabilities 3,011 3,640 --------- ------- - -- TOTAL LIABILITIES 438,886 458,926 STOCKHOLDERS' EQUITY Common stock, no par, shares authorized 15,000,000; issued and outstanding 6,939,511 in 1999 and 6,928,522 in 1998 44,447 41,853 Retained earnings 11,827 12,162 Accumulated other comprehensive income, net of tax 114 196 --------- ------- - -- TOTAL STOCKHOLDERS' EQUITY 56,388 54,211 --------- ------- - -- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 495,274 $ 513,137 ========= =========
The accompanying notes are an integral part of these statements. 3 4 UNITED SECURITY BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME ($ in thousands, except per share)
Three Months Ended March 31, 1999 1998 INTEREST INCOME Interest and fees on loans and leases $ 9,299 $ 8,581 Interest on securities 1,213 1,551 Other interest income 100 217 ------- ------- TOTAL INTEREST INCOME 10,612 10,349 ------- ------- INTEREST EXPENSE Interest on deposits 3,675 3,950 Interest on borrowings 39 228 ------- ------- TOTAL INTEREST EXPENSE 3,714 4,178 ------- ------- NET INTEREST INCOME 6,898 6,171 Provision for loan losses 267 220 ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,631 5,951 ------- ------- NONINTEREST INCOME Fees and service charges 626 567 Insurance commissions 263 284 Securities gains/(losses) 42 48 Other 334 667 ------- ------- TOTAL NONINTEREST INCOME 1,265 1,566 ------- ------- NONINTEREST EXPENSE Salaries and employee benefits 2,853 2,775 Occupancy expense, net 385 340 Equipment expense 333 356 Intangible amortization 94 109 Other operating expense 1,153 966 ------- ------- TOTAL NONINTEREST EXPENSE 4,818 4,546 ------- ------- INCOME BEFORE TAXES 3,078 2,971 INCOME TAX EXPENSE 999 895 ------- ------- NET INCOME $ 2,079 $ 2,076 ======= ======= Basic earnings per common share $ .30 $ .30 Diluted earnings per common share $ .30 $ .30 Basic weighted average shares outstanding 6,931,130 6,896,934 Weighted average shares outstanding 7,032,045 7,029,932
The accompanying notes are an integral part of these statements. 4 5 UNITED SECURITY BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR-TO-DATE March 31, 1999 and 1998 ($ in thousands)
1999 1998 Cash flows from operating activities: Net income $ 2,079 $ 2,076 Provision for loan losses 267 220 Depreciation and amortization 229 260 (Increase)/decrease in assets and liabilities Accrued interest receivable (194) (359) Life insurance and salary continuation assets (32) (286) Other assets (289) 67 Accrued interest payable (77) 185 Other liabilities (629) 1,044 ------- ------- Net cash provided by operating activities 1,354 3,207 ------- ------- Cash flows from investing activities: Securities: Maturities 19,728 10,414 Sales 4,058 6,098 Purchases (5,116) (11,609) Net increase in loans (10,974) (12,947) Sales of premises and equipment 923 Purchases of premises and equipment (293) (543) Foreclosed real estate activity (21) (95) ------- ------- Net cash change in investing activities 7,382 (7,759) ------- ------- Cash flows from financing activities: Net change in deposits (19,737) (8,671) Proceeds from borrowings 408 262 Principal payments on borrowings (1,782) Principal payments on capital lease obligations (5) (5) Cash received from stock sales 196 201 Cash dividends and redemption of fractional shares (17) (69) ------- ------- Net cash provided by financing activities (19,155) (10,064) ------- ------- Net change in cash and cash equivalents (10,419) (14,616) Cash and cash equivalents, beginning of year 37,088 41,926 ------- ------- Cash and cash equivalents, end of quarter $26,669 $27,310 ======= =======
The accompanying notes are an integral part of these statements. 5 6 UNITED SECURITY BANCORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Management Statement The consolidated financial statements include the accounts of United Security Bancorporation and its wholly-owned subsidiaries (USBN), United Security Bank, Home Security Bank, Bank of Pullman, Grant National Bank, Bank of the West, USB Insurance Agencies, Inc., USB Mortgage Company, and USB Leasing, Inc. after eliminating all significant intercompany balances and transactions. In the opinion of USBN, the accompanying Consolidated Financial Statements present fairly the financial position of USBN as of March 31, 1999 and December 31, 1998, and the related statements of income and cash flows for the three month period ended March 31, 1999 and 1998. Certain reclassifications of 1998 balances have been made to conform with the March 31, 1999 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. Prior reported amounts have been restated to reflect pooling of interests accounting for the Bank of the West (BOW) and Grant National Bank (GNB) mergers. See Note 5 for further information. Effective January 1, 1999, USBN adopted Statement of Financial Accounting Standards No. 134, "Accounting for Mortgage-Backed Securities Retained After Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise". The Statement establishes accounting and reporting standards for certain activities of mortgage banking enterprises. Management believes that the provisions of the statement will not have a material effect on its financial condition or reported results of operations. 6 7 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, 1999 and December 31, 1998 were as follows:
March 31, 1999 December 31, 1998 Amortized Fair Financial Amortized Fair Financial ($ in thousands) Cost Value Statements Cost Value Statements Securities available-for-sale: U.S. Treasury securities $ 3,806 $ 3,867 $ 3,867 $ 4,309 $4,401 $ 4,401 Obligations of federal government agencies 16,420 16,350 16,350 26,314 26,443 26,443 Mortgage backed securities 21,252 21,299 21,299 27,949 27,993 27,993 Obligations of states, municipalities and political subdivisions 9,591 9,856 9,856 2,061 2,103 2,103 Other securities 16,603 16,477 16,477 17,646 17,634 17,634 ------- ------- ------- ------- -- - ---- ------ 67,672 67,849 67,849 78,279 78,574 78,574 Securities held-to-maturity: Obligations of states, municipalities and political subdivisions 750 774 750 8,776 9,032 8,776 ------- ------- ------- ------- --- - ---- ------- Total $68,422 $68,623 $68,599 $87,055 $87,606 $87,350 ======= ======= ======= ======= ======= =======
NOTE 3. LOANS Loan detail by category as of March 31, 1999 and December 31, 1998 were as follows:
($ in thousands) March 31, December 31, 1999 1998 Commercial and industrial $213,196 $199,798 Agricultural 54,572 57,511 Real estate mortgage 65,035 63,127 Real estate construction 14,031 14,170 Installment 19,996 20,364 Lease financing 3,256 3,546 Bank cards and other 4,682 5,603 -------- ------ - -- Total loans 374,768 364,119 Allowance for loan losses (3,781) (3,819) Deferred loan fees, net of deferred costs (748) (768) -------- ------ - -- Net loans $370,239 $359,532 ======== ========
7 8 UNITED SECURITY BANCORPORATION NOTE 4. ALLOWANCE FOR LOAN LOSSES The allowance for loan loss is maintained at levels considered adequate by management to provide for possible loan losses. The allowance is based on management's assessment of various factors affecting the loan portfolio, including problem loans, business conditions and loss experience, and an overall evaluation of the quality of the underlying collateral. Changes in the allowance for loan losses during the three months ended March 31, 1999 and 1998 were as follows:
Three Months Ended March 31, ($ in thousands) 1999 1998 Balance, beginning of period $3,819 $3,869 Provision for loan losses 267 220 Loan charge-offs (332) (206) Loan recoveries 27 45 ------ ------ Balance, end of period $3,781 $3,928 ====== ======
NOTE 5. Grant National Bank Acquisition On February 1, 1999 USBN completed its merger with BOW. As of February 1, 1999 BOW had approximately $103 million in total assets, $90 million in deposits, $68 million in loans, and $12 million in total equity. 1,749,300 USBN common shares were issued to BOW shareholders for the merger. On July 20, 1998, USBN completed its merger with GNB. As of July 20, 1998 GNB had approximately $32 million in total assets, $29 million in deposits, $22 million in loans, and $3 million in total equity. 468,270 USBN common shares were issued to GNB shareholders for the merger. The pooling of interests accounting method is being used for both of these transactions, which includes restating prior reported amounts to reflect the mergers with BOW and GNB. The effects of the restatement on revenue, net income and stockholders' equity are shown below:
Three Months Ended ($ in thousands) March 31, 1998 Net interest income and noninterest income: Original USBN amount reported $ 5,624 BOW 1,594 GNB 519 ------- As Restated $ 7,737 Net income: ======= Original USBN amounts reported $ 1,390 BOW 588 GNB 98 ------- As Restated $ 2,076 ======= Stockholders' equity: December 31, 1998 Original USBN amounts reported $42,201 BOW 12,010 ------- As Restated $54,211 =======
8 9 UNITED SECURITY BANCORPORATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains a review of the results of operations and financial condition for first quarter results in 1999 and 1998. This information should be read in conjunction with the financial statements and related notes appearing in this report. The reader is assumed to have access to USBN's Form 10-K for the year ended December 31, 1998, which contains additional information. This discussion may contain certain forward looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those stated. Readers are cautioned not to place undue reliance on those forward-looking statements. Overview A performance summary and detailed discussion regarding the first quarter results in 1999 and 1998 follow this table. UNITED SECURITY BANCORPORATION AND SUBSIDIARIES PERFORMANCE SUMMARY
Three Months Ended March 31, % ($ in thousands) 1998 1997 Change Interest income $10,612 $10,349 2.5% Interest expense 3,714 4,178 -11.1% ------- ------- ----- Net interest income 6,898 6,171 11.8% Provision for loan losses 267 220 21.4% ------- ------- ----- Net interest income after provision for loan losses 6,631 5,951 11.4% Noninterest income 1,265 1,566 -19.2% Noninterest expense 4,818 4,546 6.0% ------- ------- ----- Income before income taxes 3,078 2,971 3.6% Income taxes 999 895 11.6% ------- ------- ----- Net income $ 2,079 $ 2,076 .1% ======= ======= ===== Basic earnings per common share $ .30 $ .30 Diluted earnings per common share$ .30 $ .30
9 10 UNITED SECURITY BANCORPORATION Net Income USBN reported an increase in net income to $2,079,000 for the first three months of 1999 compared to $2,076,000 for the same period in 1998. Basic and diluted earnings per share were $.30 in 1999 and 1998. 1998 net income included $242,000 or $.03 per share net gain from the sale of property. Net Interest Income For the first three months of 1999 net interest income grew 12% to $6,898,000 compared to $6,171,000 in 1998. The increase is due to a combination of growth in the net interest margin to average earning assets from 5.74% to 6.17% and an increase in average earning loans from $321,148,000 to $366,879,000. Average deposits grew from $336 million in 1998 to $359 million in 1999. Deposits declined since the end of the year primarily due to seasonal fluctuation for each of the Banks. This reduction in deposits and the funding of the loan growth was accomplished primarily by reducing overnight cash investments and liquid security investments. Provision for Loan Losses The allowance for loan losses is based on management's evaluation of the loan portfolio. The allowance for loan losses is 1.01% of total loans as of March 31, 1999. Noninterest Income Noninterest income declined 19% to $1,265,000 from $1,566,000 in 1998. The decline is due to USBN recognizing income of $366,000 in 1998 from the sale of a commercial real estate property. Fees and service charges increased 10% to $626,000 in 1999 due to core deposit activity. Insurance commissions declined slightly to $263,000. Noninterest Expense Noninterest expense increased by 6% in 1999 to $4,818,000, which was primarily due to normal growth, expansion and merger related expenses. 10 11 UNITED SECURITY BANCORPORATION Year 2000 Issues The Year 2000 Problem. The century date change creates a problem because some computer programs and systems were designed to store calendar years with only two numbers, rather than four numbers. Computer programs and systems may recognize a date using "00" as 1900 rather than the Year 2000. The extent of the impact of this Year 2000 problem is not yet known and could affect the global economy and every organization. USBN is addressing these issues. The Challenges faced by USBN. The Year 2000 problem is of concern to USBN and other financial institutions because most financial transactions including interest accruals and payments are date sensitive. The Year 2000 problem could impact all automated systems including automated teller machines, alarm systems, and vaults. Some systems are more difficult to assess and repair. USBN's State of Readiness. USBN is reviewing its automated systems and business processes to identify and correct any date-related problems that may arise with the change of the century at December 31, 1999. In September, 1998, USBN and the provider of USBN's mainframe computer applications completed an installation and upgrade of the mainframe operating systems to comply with changes for the Year 2000. Testing of the new software will continue through 1999. USBN also continues to review its PC hardware and software and its major automated systems suppliers for Year 2000 compliance. A small number of PCs and PC systems required upgrades, which has been completed. Third Party Concerns. USBN has numerous customers, vendors, and third party service providers whose failure to address the Year 2000 problem may create significant business disruption and costs to USBN. It is impossible for any one party to eliminate the risks related to the Year 2000 problem. It is possible that USBN's service could be disrupted through the loss of electric power, phone service, or other reasons outside of USBN's control. USBN is in contact with its outside providers of services on an ongoing basis to evaluate their progress in addressing the Year 2000 problem. The Banks are incorporating Year 2000 issues into their standards of creditworthiness for new and renewed loans and are reviewing significant existing borrowers for Year 2000 risk. Review in this area will continue through 1999. Estimated Costs. The cost of complying with the Year 2000 issues is estimated to be $175,000 including staff time expenses. About $160,000 of this amount has already been incurred. USBN's Contingency Plans. USBN is in the process of developing and implementing contingency plans to handle the most reasonably likely worst case scenarios. Since these worst case scenarios are difficult or even impossible to predict at this time, these contingency plans are particularly challenging. USBN intends to develop contingency plans that are reasonably necessary to address the Year 2000 problem and to revise them as necessary on an ongoing basis until the problem is confronted and resolved. 11 12 UNITED SECURITY BANCORPORATION Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risks faced by Bank of the West are consistent with the other USBN subsidiary Banks. 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 1999. (b) Reports on Form 8-K during first quarter 1999
Date Item # Subject February 2, 1999 Item 2 United Security Bancorporation completes merger with Bank of the West
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 April 26, 1999. UNITED SECURITY BANCORPORATION /s/ Richard C. Emery ------------------------------- - ---- Richard C. Emery, President and Chief Executive Officer /s/ Chad Galloway ------------------------------- - --- Chad Galloway, Vice President and Chief Financial Officer 12 EX-27 2
9 0000726990 UNITED SECURITY BANCORPORATION 1000 US DOLLARS 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 1.000 16790 7004 2875 0 67849 750 774 374020 3781 495274 433191 408 4580 707 0 0 44447 11941 495274 9299 1213 100 10612 3675 3714 3898 267 42 4818 3078 3078 0 0 2079 .30 .30 6.17 2188 1262 0 0 3819 332 27 3781 3781 0 0
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