-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qbW7JEQJhN0PZVd4RbfOQPp0ipdlUbs8X8b+SqNu/cTELSqyjg/5HcmYSQFgb5v4 yOQzqxgFs4Xwmgr3WPo+Hw== 0000912057-95-003808.txt : 19950516 0000912057-95-003808.hdr.sgml : 19950516 ACCESSION NUMBER: 0000912057-95-003808 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NASD 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-18561 FILM NUMBER: 95539068 BUSINESS ADDRESS: STREET 1: 9506 N NEWPORT HWY CITY: SPOKANE STATE: WA ZIP: 99218 BUSINESS PHONE: 5094676949 MAIL ADDRESS: STREET 1: 9506 N NEWPORT HWY CITY: SPOKANE STATE: WA ZIP: 99218 10QSB 1 10-QSB FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 ------------------------------------------ OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------- --------------------- Commission File No. 000-18561 --------- UNITED SECURITY BANCORPORATION Washington 91-1259511 - ----------------------------------------- ----------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) N. 9506 Newport Highway, Spokane, WA 99218-1200 - ----------------------------------------- ----------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (509) 467-6949 ----------------------- 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 --- --- The issuer has one class of capital stock, that being common stock. On May 12, 1995, there were 2,604,880 shares of such stock outstanding. -1- UNITED SECURITY BANCORPORATION AND SUBSIDIARY INDEX TO QUARTERLY REPORT ON FORM 10-QSB MARCH 31, 1995 PAGE ---- Part I - Financial Information: Item 1. Financial Statements Consolidated Statements of Condition - March 31, 1995 and December 31, 1994. . . . . . . . . . . . . . . . . . 3-4 Consolidated Statements of Income - Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . 5-6 Consolidated Condensed Statements of Cash Flows - Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . 7 Notes to Consolidated Financial Statements . . . . . . . 8-13 Item 2. Management's Discussion and Analysis and Plan of Operations. . . . . . . . . . . . . . . . . . . . . . . . 13-17 Part II - Other Information: Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 18 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 -2- PART I ITEM 1. FINANCIAL STATEMENTS UNITED SECURITY BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION
> DECEMBER 31 MARCH 31 1994 1995 (AUDITED) ------------ ------------ ASSETS CASH AND DUE FROM BANKS $ 7,316,884 $ 7,983,049 FEDERAL FUNDS SOLD 1,119,000 1,477,616 ------------ ------------ CASH AND CASH EQUIVALENTS 8,435,884 9,460,665 INTEREST BEARING DEPOSITS WITH OTHER BANKS 2,356,239 0 SECURITIES AVAILABLE-FOR-SALE 22,637,410 23,100,333 SECURITIES HELD-TO-MATURITY 60,237 34,814 LOANS Commercial and industrial 69,152,641 61,967,573 Agricultural 19,478,341 16,721,023 Real estate mortgage 16,588,312 24,882,955 Real estate construction 7,432,308 8,126,189 Installment 10,044,293 7,780,750 Bank cards and other 3,353,771 3,286,336 ------------ ------------ TOTAL LOANS 126,049,666 122,764,826 Deferred loan fees, net of deferred costs (424,352) (437,525) Allowance for loan losses (Note 4) (1,363,095) (1,245,833) ------------ ------------ NET LOANS 124,262,219 121,081,468 ACCRUED INTEREST RECEIVABLE 1,480,023 1,478,639 PREMISES AND EQUIPMENT 5,271,455 5,097,148 FORECLOSED REAL ESTATE 161,732 231,276 LIFE INSURANCE AND SALARY CONTINUATION ASSETS 1,913,030 1,913,030 OTHER ASSETS 1,292,784 1,514,065 ------------ ------------ TOTAL ASSETS $167,871,013 $163,911,438 ------------ ------------ ------------ ------------
-3- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION (CONTINUED)
DECEMBER 31 MARCH 3 1994 1995 (AUDITED) ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY DEPOSITS Non-interest bearing - demand $ 21,584,075 $ 22,917,368 ------------ ------------ Interest bearing: NOW accounts 42,884,444 39,345,114 Savings 15,615,354 15,511,257 Time, $100,000 and over 16,402,541 15,905,560 Other time 54,036,291 52,950,230 ------------ ------------ 128,938,630 123,712,161 ------------ ------------ TOTAL DEPOSITS 150,522,705 146,629,529 FEDERAL FUNDS PURCHASED 1,660,000 2,725,000 ACCRUED INTEREST PAYABLE 487,728 354,198 NOTES PAYABLE (Note 5) 491,358 504,817 CAPITAL LEASE OBLIGATION (Note 6) 780,853 805,032 OTHER LIABILITIES 1,013,805 706,974 ------------ ------------ TOTAL LIABILITIES $154,956,449 $151,725,550 ------------ ------------ STOCKHOLDERS' EQUITY (Note 7) Common stock, no par, 5,000,000 shares authorized;2,604,880 and 1,604,880 issued and outstanding respectively 10,249,683 10,202,388 Retained Earnings 3,041,334 2,552,107 Net unrealized loss on securities available-for-sale, net of tax (356,453) (548,607) ------------ ------------ 12,934,564 12,205,888 Less guaranteed bank loan of Employee Stock Ownership Plan (20,000) (20,000) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 12,914,564 12,185,888 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $167,871,013 $163,911,438 ------------ ------------ ------------ ------------
See Accompanying Notes to Consolidated Financial Statements. -4- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1995 1994 ----------- ----------- INTEREST INCOME Loans receivable, including fees $ 3,337,412 $ 2,222,307 Interest on investment securities: Taxable 337,490 208,438 Tax-Exempt 823 912 Federal funds sold 58,802 28,955 Deposits with other banks 36,313 45,795 Direct lease financing -- 2,732 ----------- ----------- TOTAL INTEREST INCOME 3,770,840 2,509,139 ----------- ----------- INTEREST EXPENSE Deposits 1,650,345 852,701 Interest on notes and capital leases 36,712 58,580 ----------- ----------- TOTAL INTEREST EXPENSE 1,687,057 911,209 ----------- ----------- NET INTEREST INCOME 2,083,783 1,597,930 PROVISION FOR LOAN LOSSES (Note 4) 141,500 11,500 ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,942,283 1,586,430 ----------- ----------- NONINTEREST INCOME Service charges on deposit accounts 173,698 160,317 Escrow fees 11,991 14,830 Net realized gains on sales of available-for-sale securities 12,438 2,280 Insurance Commissions 319,519 343,661 Other 152,327 203,624 ----------- ----------- TOTAL NONINTEREST INCOME 669,973 724,712 ----------- ----------- ----------- -----------
-5- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF INCOME (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1995 1994 ----------- ----------- NONINTEREST EXPENSES Salaries and wages 746,427 698,547 Employee benefits 180,324 184,267 Occupancy expense, net 77,610 69,634 Net cost of operation of other real estate 39,596 Writedowns and losses on foreclosed real estate 0 0 Equipment expense 110,982 129,195 Other operating expense 554,151 528,944 ----------- ----------- TOTAL NONINTEREST EXPENSES 1,709,090 1,610,587 ----------- ----------- INCOME BEFORE INCOME TAXES 903,166 700,555 FEDERAL INCOME TAX EXPENSE 361,600 235,500 ----------- ----------- NET INCOME $ 541,566 $ 465,055 ----------- ----------- ----------- ----------- Per share amounts: Earnings per common share: Income before cumulative effect of a change in accounting principle $ .34 $ .37 Cumulative effect on prior years (to December 31, 1991) of changing to a different income tax method 0.00 0.00 ----------- ----------- NET INCOME $ .34 $ .37 ----------- ----------- ----------- ----------- Cash dividends paid or declared per share $ 0.00 $ 0.00 ----------- ----------- ----------- ----------- Average shares outstanding 1,604,880 1,249,195
See Accompanying Notes to Consolidated Financial Statements. -6- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES Consolidated Statement of Cash Flows Quarter Ended March 31, 1995 and 1994 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES 1995 1994 - ---------------------------------------------------- ------------ ------------ Net Income . . . . . . . . . . . . . . . . . . . . $ 541,566 $ 465,055 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses . . . . . . . . . . . 141,500 11,500 Provision of losses on other real estate . . . . -- -- Depreciation and amortization . . . . . . . . . 72,340 121,684 Amortization of investment security discounts. . (22,559) (60,443) Accretion of investment securities . . . . . . . (7,091) 4,463 (Increase) decrease in assets: Accrued interest receivables . . . . . . . . . . 1,384 425,302 Other assets . . . . . . . . . . . . . . . . . . 293,523 (385,851) Deferred loan fees . . . . . . . . . . . . . . . (43,482) 441,287 Unearned income . . . . . . . . . . . . . . . . -- -- Increase (decrease) in liabilities: Accrued interest payable . . . . . . . . . . . . 133,530 19,241 Other liabilities . . . . . . . . . . . . . . . 167,283 (385,851) ------------ ----------- Net cash provided by operating activities. . . 1,277,994 (1,117,298) CASH FLOWS FROM INVESTING ACTIVITIES - ------------------------------------ Proceeds from sales of investment securities . . . 1,038,530 2,217,832 Proceeds from maturities of investment securities. 1,010,300 1,442,370 Proceeds from maturities of interest-bearing deposits . . . . . . . . . . . . . . . . . . . . 1,000,000 600,000 Purchases of investment securities . . . . . . . . (1,345,849) (1,376,403) Purchases of interest-bearing deposits. . . . . . (3,273,000) (500,000) Principal collected on loans . . . . . . . . . . . 27,394,887 25,353,177 Loans originated or acquired . . . . . . . . . . . (31,102,926) (31,859,410) Purchases of premises and equipment . . . . . . . (558,949) (206,719) Proceeds from sale of other real estate . . . . . -- -- Costs incurred to repossess other real estate. . . -- -- ------------ ----------- Net cash provided by investment activities . . . $ (5,837,007) $(2,060,255) CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------ Net increase (decrease) in demand deposits, NOW accounts, and savings accounts . . . . . . . (775,189) 3,767,332 Proceeds from issuance of certificates of deposit. 15,419,853 5,140,592 Payments for maturing certificates of deposit. . . (10,349,547) (4,443,925) Proceeds from notes payable . . . . . . . . . . . -- -- Principal payments on notes payable . . . . . . . (1,276) (45,967) Principal payment of capital lease obligations . . (24,179) (10,551) Cash dividends paid . . . . . . . . . . . . . . . -- (9,968) Cash received from stock offering . . . . . . . . -- -- ------------ ----------- Net cash provided by financing activities. . . . $ 4,269,662 $ 4,397,513 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (289,351) 1,219,960 CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR . . $ 9,460,665 $10,738,821 CASH AND CASH EQUIVALENTS, END OF QUARTER . . . . . $ 9,171,314 $11,958,781 ------------ ----------- ------------ -----------
See Accompanying Notes to Consolidated Financial Statements. -7- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: MANAGEMENT STATEMENT RE-ADJUSTMENTS In the opinion of the Company, the accompanying audited and unaudited Consolidated Financial Statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 1995, December 31, 1994, and March 31, 1994, and the results of operations and the changes in financial position for the three month period ended March 31, 1995, and March 31, 1994. NOTE 2: INVESTMENT SECURITIES Virtually all of the investment securities are classified as "available for sale" and are stated at cost, adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustment to interest income. Unrealized gains or losses are recognized and adjustments made to equity. Gains or losses on dispositions reported as a component of other income are based on the net proceeds and the adjusted carrying amount of the securities sold, using the specific identification method. Carrying amounts and approximate market values of investment securities at March 31, 1995, December 31, 1994 and March 31, 1994 were as follows:
MARCH 31, 1995 DECEMBER 31, 1994 MARCH 31, 1994 ------------------- ------------------- ------------------- AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE COST VALUE (AUDITED) --------- ------- --------- ------- --------- ------- (THOUSANDS OF DOLLARS) Held-to-maturity securities: State and Political Subdivisions $ 61 $ 61 $ 35 $ 36 $ 190 $ 203 ------- ------- ------- ------- ------- ------ ------- ------- ------- ------- ------- ------ Available-for-sale securities: U.S. government agencies and corporations $14,273 $14,223 $12,763 $12,599 $12,220 $11,976 State and political subdivisions 11 20 22 71 22 55 Other 3,039 2,801 4,286 3,970 2,759 2,649 Mortgage backed securities 5,857 5,593 6,861 6,460 0 0 ------- ------- ------- ------- ------- -------- $23,241 $22,698 $23,967 $23,136 $15,191 $14,883 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
-8- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3: LOANS Total loans by category at March 31, 1995, December 31, 1994, and March 31, 1994, were as follows:
MARCH 31, 1995 DECEMBER 31, 1994 MARCH 31, 1994 (AUDITED) (DOLLARS IN THOUSANDS) ------------------------------------------------------ Commercial and Industrial $ 69,153 $ 61,968 $60,727 Agricultural 19,478 16,721 12,017 Real estate-mortgage 16,588 24,883 14,135 Real estate-construction 7,433 8,126 -- Installment 10,044 7,781 5,982 Bank cards & other 3,354 3,286 2,785 Lease Financing -- 0 50 -------- -------- ------- Totals $126,050 $122,765 $95,696
NOTE 4: ALLOWANCE FOR LOAN LOSSES Reserves for possible losses on loans are maintained at a levels considered adequate by management to provide for anticipated loan losses through charges to operating expense. The reserve is based upon management's assessment of various factors affecting the loan portfolios, including problem loans, business conditions and loss experience, an overall evaluation of the quality of the underlying collateral, holding and disposal costs, and the cost of funds to the Company. Changes in the allowance for loan losses during the three months ended March 31, 1995, and 1994 were as follows:
THREE MONTHS ENDED MARCH 31, 1995 1994 -------------------------- Balance Beginning of Period $1,245,833 $801,950 Provision Charged to Operations 141,500 11,500 Loans Charged Off (27,174) (72,792) Recoveries 1,708 3,196 Balance, End of Period $1,361,867 $676,718
-9- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4: ALLOWANCE FOR LOAN LOSSES (Continued) The following table represents the allowance for loan losses by loan category as of March 31, 1995, based on management's assessment of the risk associated with such categories, and summarizes the percentage of gross loans in each category to total gross loans.
MARCH 31, 1995 ---------------------- PERCENT OF CATEGORY OF LOAN ALLOWANCE TOTAL LOANS - ---------------- --------- ----------- (DOLLARS IN THOUSANDS) Commercial $ 749 55% Agriculture 218 16% Real estate-mortgage 177 13% Real estate-construction 82 6% Consumer 109 8% Other 27 2% ------ --- Total Allowance $1,362 100%
-10- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5: NOTES PAYABLE Notes payable consist of the following at March 31, 1995:
BALANCE ------- Notes payable, collateralized by insurance agency subsidiary assets with a net carrying value of approximately $71,731: Notes payable to an individual, payable $2,029 monthly including interest at 9.0%, matures May 2002; guaranteed by the Bancorporation. $127,685 Note payable to a bank, payable $6,510 monthly including interest at Bank's prime plus 1.0% with a floor of 9.5%(10.5% at March 31, 1995); matures January 1998;guaranteed by the Company. 343,673 Note payable from the United Security Bancorporation Employee Stock Ownership Plan to the Bank of Latah, 50% guaranteed by the Company, payable $100,000 annually plus interest at Bank's prime (10.0% at March 31, 1995), due in full December 1995. 20,000 -------- Totals $491,358 -------- --------
-11- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5: NOTES PAYABLE - continued Estimated principal maturities of notes payable for the next five years are as follows:
YEARS ENDING DECEMBER 31, AMOUNT ------------ -------- 1995 71,346 1996 56,371 1997 61,889 1998 243,363 1999 18,649 Later years 53,199 -------- $504,817
NOTE 6: CAPITAL LEASE OBLIGATIONS During 1990, United Security Bank ("USB"), a wholly-owned subsidiary of the Company, sold the land and buildings occupied by two of its branches to Joyce K. Robinson. USB has leased the real estate back from Joyce K. Robinson for a term of 20 years at rental rates of $71,400 and $12,810 per year respectively, and continues to operate the branches at these same sites. These leases have been treated as capital leases. The associated gain created by this transaction, amounting to $358,283, has been deferred and is being amortized using the straight-line method over the term of the lease. This deferred gain is included in other liabilities. In addition, USB has entered into certain non-cancelable capital lease agreements for the equipment with varying terms through 1998. The minimum annual rental commitments under these leases at December 31, 1994, exclusive of taxes and other charges, are summarized as follows:
YEARS ENDING CAPITAL DECEMBER 31, LEASE ------------ ---------- 1995 $ 116,385 1996 93,688 1997 92,631 1998 92,631 1999 92,631 Later years 1,160,947 ---------- Total Minimum Payments Due 1,648,913 Less: Amount representing interest (843,881) Present value of net minimum lease payments $ 805,032 ----------
-12- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7: CAPITAL STOCK Total stockholders equity was $13.3 million on March 31, 1995, up from $8.8 million at March 31, 1994. The ratio of stockholders equity to total assets on March 31, 1995, was 7.92% in comparison to March 31, 1994 of 6.72%. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The performance summary on the following page provides a more graphic presentation of the comparison between the first quarter of 1995 and the first quarter of 1994. A more detailed discussion of each of the items of income and expense is on the pages following the comparison summary. -13- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES PERFORMANCE SUMMARY (In Thousands)
THREE MONTHS ENDED MARCH 31, 1995 1994 %CHANGE ------------------------------ (Unaudited) Interest income $3,771 $2,509 50.3% Interest expense 1,687 911 85.2% Net interest income 2,084 1,598 30.4% Provision for loan losses 142 12 1083.3% Net interest income after provision for loan losses 1,942 1,586 22.5% Noninterest income 670 724 (7.5%) Noninterest expense 1,709 1,611 6.1% Income before income tax and securities transactions 903 700 29.0% Income tax expense 362 235 54.0% Income before securities transactions 541 465 16.3% Securities transactions 0 0 0.0% Net income $ 541 $ 465 16.3% ------ ------ ------- ------ ------ -------
-14- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES NET INTEREST INCOME Net interest income for the first quarter of 1995 was $1,942,000 compared to $1,586,000 in the first quarter of 1994, reflecting a 22.5 percent increase. This increase is attributable to an increase in loan totals of the bank subsidiaries of the Company of 31.7 percent over the same period. PROVISION FOR LOAN LOSSES The allowance for loan losses represents management's recognition of the risks of extending credit and its evaluation of the quality of the loan portfolios of the Company's subsidiary banks. The allowance is maintained at levels considered adequate by management to provide for anticipated loan losses, and is based on management's assessment of various factors affecting the loan portfolios, including problem loans, business conditions and loss experience, an overall evaluation of the quailty of the underlying collateral, holding and disposal costs, and the cost of funds to the Company. The allowance is increased by provisions charged to operations and is reduced by loans charged off, net of any recoveries. The allowance for loan loss as a percentage of total loans for the first quarter of 1995 is at a 1.1% level. The loan loss reserve is monitored on a continual basis and is reported to the board of directors monthly. The loan policy requires all extensions of credit to be well collateralized and loan personnel be kept apprised of collateral values in relation to loan amounts. Economic conditions in the market area are also considered, and as changes take place, reserve adequacy is reviewed and, where necessary, adjusted to reflect such changes. Consequently, management believes that the allowances for possible loan loss is adequate to cover any potential loan loss. Past due loans over ninety days totaled $466,000 for the first quarter of 1995, compared to $129,000 for the same period last year. Of the 1995 first quarter total, $455,000 is well secured and is in the process of being renewed, extended or paid off. Nonaccrual loans totaled $504,000 for the first quarter of 1995, compared to $641,000 for the same period last year. The nonaccrual loan totals have been reduced significantly from the first quarter of 1994 as loans have either been paid off or charged off. NONINTEREST INCOME Noninterest income for the first quarter of 1995 was $670,000, a decrease of 7.5 percent from the first quarter of 1994. The decrease in noninterest income is primarily attributable to a decrease in service charges and fee income of the banks, as well as a reduction in commission income of USB Insurance Agencies,Inc. ("USB Insurance"), a wholly-owned subsidiary of the Company. -15- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES NONINTEREST INCOME (Continued) Income from insurance commissions from the USB Insurance for the first quarter of 1995 was $226,000, compared to $339,000 for the same period a year ago. This reduction is due primarily to the one-time sale of a life insurance product to the Company's bank subsidiaries, which generated approximately $111,000 in commission income in the first quarter of 1994. NONINTEREST EXPENSE Non-interest expense, which consists of personnel, occupancy, equipment and other operating expense, was $1,709,000 for the three months ended March 31, 1995, compared to $1,611,000 in the first quarter of 1994, an increase of 6.1 percent. The increase is primarily attributable to the opening of a branch of USB in the third quarter of 1994. Noninterest expense of USB Insurance was approximately $296,000 for the first quarter of 1995, compared to $370,000 for the first quarter of 1994, a reduction of 25%. The decrease was primarily due to a reduction in officer salaries as a result of the timing of the payment of bonus dollars in 1994, which will be reflected in the second quarter in 1995. INCOME TAX A total of $362,000 has been accrued for income tax costs for 1995, and reflects the profitability of the Company's subsidiary banks through the first quarter. The accrual for income tax is calculated and expensed monthly, based on the tax rates and month-end net profit figures for the company. SECURITIES TRANSACTIONS Management continues to manage the investment portfolio under its investment policy guidelines and with the approval of the Board of Directors. Most activity has been in U.S. Government Agency securities, with relatively short maturities of generally no more than two to three years. On January 1, 1994, the bank subsidiaries adopted FASB Statement No. 115, which requires that investments be classified into one of three categories, each of which mandates a different accounting treatment for determining the carrying value of the investments as well as the recognition of unrealized gains and losses. The bank subsidiaries have accordingly classified debt and equity securities within the portfolio based on management's current intent. As a result, virtually all of the investments in the portfolio have been classified as "available for sale". -16- UNITED SECURITY BANCORPORATION AND SUBSIDIARIES NET INCOME Net income for the first quarter of 1995 was $541,000, compared to $465,000 for the same period a year ago. The increase is primarily due to the increase in net interest income from the first quarter of 1994. It is anticipated that USB Insurance will show a minimal net profit by year-end 1995 due to the cessation of amortization of noncompetition agreements with management employees in the second quarter of 1995. The write-off of accounts will continue into 1997. CAPITAL REQUIREMENTS The Company's two bank subsidiaries are subject to regulatory capital requirements of a minimum of 5% leverage ratio, 6% for Tier 1 capital and a minimum of 10% for Tier 1 and Tier 2 in total in order to be classified as Well Capitalized. Both bank subsidiaries met or exceeded regulatory capital requirements and were well capitalized at March 31, 1995. On March 27, 1995 a registration statement was filed with the Securities and Exchange Commission for a public offering of 1,000,000 shares of common stock of the Company to support the continued growth of the Company and its banking and nonbanking subsidiaries. This offering was completed on May 12, 1995 (subject to the possible future exercise of underwriters' purchase of an additional 150,000 shares) and yielded net proceeds to the Company of approximatley $7.4 million. On March 19, 1995, Joan K. Goldberg, Executive Vice President and Chief Financial Officer of United Security Bank succumbed to cancer. USB is the beneficiary of two life insurance policies. USB anticipates the receipt of the net proceeds in the second quarter of 1995, amounting to approximately $896,000. LIQUIDITY The primary liquidity needs of the two bank subsidiaries are to fund customer loan demands and to cover large deposit withdrawals. By developing total banking relationships with their customers, the banks have a relatively stable base of deposits; however, the business cycles of customers can cause significant changes in the deposit levels from month to month. Liquidity has been monitored at adequate levels through the substantial dollars invested in the Federal Funds market. The total investment portfolio is carried with a slightly over five-year weighted maturity level. In case of liqudity needs, the banks have set the following in order of priority to meet those requirements: 1. Federal Funds sold 2. Federal Funds Purchased/Lines of Credit 3. Sale of portion or complete loans 4. Sale of portions of investment portfolio -17- PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Reports on Form 8-K. There were no reports on Form 8-K filed for the three months ended March 31, 1995. -18- UNITED SECURITY BANCORPATION AND SUBSIDIARIES 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. UNITED SECURITY BANCORPORPORATION William C. Dashiell --------------------------------------- William C. Dashiell, President and Chief Executive Officer Date: May 10, 1995 Jacqueline A. Barnard -------------------------- --------------------------------------- Jacqueline A. Barnard, Assistant Vice President and Secretary/Treasurer (Principal financial Officer, duly authorized to sign on behalf of registrant) -19- -----END PRIVACY-ENHANCED MESSAGE-----