SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ---------- to ----------
COMMISSION FILE NUMBER 1-5735
UNION FINANCIAL BANCSHARES, INC.
--------------------------------
Delaware 57- 1001177
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
203 West Main Street, Union, South Carolina 29379
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (864)427-7692
Check whether the issuer: (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
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: The Corporation had issued
and outstanding 404,990 shares, $0.01 par value, common stock as of April 30,
1996.
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UNION FINANCIAL BANCSHARES, INC.
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of March 31, 1996 and September
30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income for the three and six months
ended March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows for the six months ended
March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . 3-4
Notes to Consolidated Financial Statements . . . . . . . . . . . . 5-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 10-15
Part II. OTHER INFORMATION. . . . . . . . . . . . . . . . . 16-17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1996 (unaudited) and September 30, 1995
March 31, September 30,
1996 1995
ASSETS --------- ---------
(In Thousands)
Cash $ 439 $ 253
Short term interest-bearing deposits 1,747 3,552
Total cash and cash equivalents 2,186 3,805
Time deposits 0 99
Investment and mortgage-backed securities:
Held to maturity 0 12,682
Available for sale 38,830 27,198
Total investment and mortgage-backed securities 38,830 39,880
Loans receivable, net:
Held for sale 0 0
Held for investment 71,254 73,431
Total loans receivable, net 71,254 73,431
Office properties and equipment,net 1,711 1,714
Federal Home Loan Bank Stock, at cost 753 753
Accrued interest receivable 1,022 880
Real estate acquired through foreclosure 2 30
Other assets 330 287
-------- --------
TOTAL ASSETS $116,088 $120,879
LIABILITIES
Deposit accounts $ 96,085 $ 96,750
Advances from the Federal Home
Loan Bank and other borrowings 7,236 13,080
Accrued interest on deposits 27 30
Advances from borrowers for taxes and insurance 251 434
Other liabilities 252 729
-------- --------
TOTAL LIABILITIES 103,851 109,023
SHAREHOLDERS' EQUITY
Serial preferred stock, no par value,
authorized - 2,000,000 shares, issued
and outstanding - None 0 0
Common Stock - $0.01 par value,
authorized - 1,500,000 shares,
issued and outstanding - 403,490 shares 4 4
Additional paid-in capital 3,861 3,860
Unrealized gain (loss) on investment and
mortgage-backed securities available for sale (101) (128)
Retained earnings, substantially restricted 8,473 8,120
-------- --------
TOTAL SHAREHOLDERS' EQUITY 12,237 11,856
TOTAL LIABILITIES AND SHARE HOLDERS' EQUITY $116,088 $120,879
======== ========
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UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended March 31, 1996 and 1995 (unaudited)
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
1996 1995 1996 1995
(Dollars in Thousands)
------ ------ ------ ------
Interest Income:
Loans $1,606 $1,689 $3,180 $3,285
Deposits and federal funds sold 16 20 44 41
Mortgage-backed securities 269 279 533 524
Interest and dividends on
investment securities 337 291 655 687
------ ------ ------ ------
Total Interest Income 2,228 2,279 4,412 4,537
Interest Expense:
Deposit accounts 1,123 953 2,269 1,891
Advances from the FHLB and
other borrowings 131 289 291 548
------ ------ ------ ------
Total Interest Expense 1,254 1,242 2,560 2,439
Net Interest Income 974 1,037 1,852 2,098
Provision for loan losses (5) 10 0 70
Net Interest Income After ------ ------ ------ ------
Provision for Loan Losses 979 1,027 1,852 2,028
Non-Interest Income:
Fees for financial services 103 66 197 132
Loan servicing fees 19 19 42 31
Gains (losses) on sale of loans 0 12 7 7
------ ------ ------ ------
Total Non-Interest Income 122 97 246 170
Non-Interest Expense:
Compensation and employee benefits 306 334 637 633
Occupancy and equipment 131 109 272 196
Deposit insurance premiums 53 48 107 118
Professional services 37 57 79 103
Real estate operations (6) 13 (3) 19
Other 112 98 203 183
------ ------ ------ ------
Total Non-Interest Expense 633 659 1,295 1,252
Income Before Income Taxes 468 465 803 946
Income tax expense 145 189 249 379
------ ------ ------ ------
Net Income 323 276 554 567
Net Income Per Common Share $0.80 $0.70 $1.37 $1.45
Weighted Average Number of
Common Shares Outstanding 403,490 391,539 403,451 392,594
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UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31, 1996 and 1995 (unaudited)
Six Months Ended
March 31, March 31,
1996 1995
(In Thousands)
OPERATING ACTIVITIES: ------- -------
Net income $ 554 $ 567
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 0 70
Depreciation expense 87 67
Provision for and (gain)/loss on
real estate owned, net (8) 0
Rental proceeds and cash recovery
applied to reduce real estate owned 0 9
Recognition of deferred income, net of costs (92) (60)
Deferral of fee income, net of costs 162 58
(Gain) loss on sale of investment and mortgage
backed securities available for sale (2) 0
Loan originated for sale (805) (1,637)
Proceeds from loans sold 805 1,637
Loss (gain) on sale of loans held for sale (5) (7)
(Increase) decrease in accrued interest receivable (142) 44
(Increase) decrease in other assets (42) 1,078
(Decrease) increase in other liabilities (660) (772)
Increase (decrease) in accrued interest payable (3) 57
------ ------
Net cash (used by provided by operating activities (151) 1,111
INVESTING ACTIVITIES:
Purchases of time deposits 0 (100)
Maturities of time deposits 99 299
Purchase of investment and mortgage-backed securities:
Held to maturity 0 (628)
Available for sale (6,020) (4,495)
Proceeds from sale of investment
and mortgage-backed securities:
Held to maturity 0 0
Available for sale 2,953 2,895
Proceeds from maturity of investment
and mortgage-backed securities:
Held to maturity 0 100
Available for sale 2,751 410
Principal repayments on mortgage-backed securities:
Held to maturity 0 414
Available for sale 1,218 1,790
Loan originations (8,562) (14,191)
Principal repayments of loans 10,807 6,259
Proceeds from sale of real estate
acquired in settlement of loans 36 101
Property improvements to real estate owned 0 0
Purchase of FHLB stock 0 (459)
Redemption of FHLB stock 0 0
Purchase of office properties and equipment (141) (95)
Net cash provided by (used by) ------ ------
investing activities $3,141 $(7,700)
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UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31, 1996 and 1995 (unaudited)
Six Months Ended
March 31, March 31,
1996 1995
(In Thousands)
FINANCING ACTIVITIES: ------- -------
Proceeds from the exercise of stock options $ 1 $ 25
Dividends paid in cash ($0.25 per share - 1996
and $0.50 per share - 1995) (101) (197)
Stock redemption 0 (94)
Proceeds from FHLB advances and other borrowings 9,461 45,500
Repayment of FHLB advances and other borrowings (15,305) (34,660)
Increase (decrease) in deposit accounts 1,335 (4,509)
------- -------
Net cash (used by) provided by financial activities (4,609) 6,065
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,619) (524)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,805 3,223
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 2,186 2,699
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Income taxes $ 674 $ 145
Interest 2,563 2,382
Non-cash transactions:
Loans foreclosed $ 0 $ 30
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UNION FINANCIAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Presentation of Consolidated Financial Statements
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and, therefore, do
not include all disclosures necessary for a complete presentation of
consolidated financial condition, results of operations, and cash flows in
conformity with generally accepted accounting principles. However, all
adjustments which are, in the opinion of management, necessary for the fair
presentation of the interim consolidated financial statements have been
included. All such adjustments are of a normal and recurring nature. The
results of operations for the six months ended March 31, 1996 are not
necessarily indicative of the results which may be expected for the entire
fiscal year. Certain amounts in the prior year's financial statements have
been reclassified to conform with current year classifications.
On November 9, 1994, Union Federal Savings Bank (the "Bank") reorganized
into the holding company form of ownership (the "Reorganization"), resulting
in Union Financial Bancshares, Inc. (the "Registrant," "Union Financial" or
the "Corporation") becoming the sole stockholder of the Bank (after resolution
of dissenters' rights). Each outstanding share of common stock of the Bank
and options to acquire shares of common stock of the Bank, became outstanding
shares of common stock of the Registrant, respectively, as a result of the
Reorganization. The consolidated financial statements as of March 31, 1996
and for the three and six months ended March 31, 1996 and 1995 include the
accounts of Union Financial and the Bank. Significant intercompany balances
and transactions have been eliminated in consolidation.
Prior to the Reorganization, Union Financial had no material assets or
liabilities and engaged in no business activity. Subsequent to the
acquisition of the Bank, the Registrant has engaged in no significant activity
other than holding the stock of the Bank and engaging in certain passive
investment activities.
In May, 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 114, Accounting by Creditors
for Impairment of a Loan ("SFAS 114") (which was subsequently amended by SFAS
No. 118). It requires that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan s effective
interest rate or, as a practical matter, at the loan's observable market value
or fair value of the collateral if the loan is collateral dependent. The
Statement applies to financial statements for fiscal years beginning after
December 15, 1994. The Corporation implemented this standard effective
October 1, 1995. Implementation of the Statement did not have a material
impact on financial condition or results of operations.
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The Corporation maintains an allowance for impaired loans based on a
combination of evaluation of impairment of smaller balance, homogeneous loans
such as consumer loans and 1-4 family real estate mortgages and specific
identification of impaired loans based on delinquency status and other factors
related to the borrower s ability to repay the loan. The risk characteristics
used to aggregate loans are collateral type, borrower s financial condition
and geographic location.
The Corporation's policy is to evaluate impaired loans based on the fair
value of the collateral. Interest income from impaired loans is recorded
using the cash method. At March 31, 1996, there were no impaired loans.
In connection with adopting the guidance in A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities published by the FASB in November, 1995, management reclassified
all held-to-maturity securities to the available-for-sale classification. The
securities transferred had a total amortized cost of approximately $12,101,000
and a total market value of approximately $12,266,000. The transfer resulted
in an unrealized gain of approximately $165,000.
In March 1995, the FASB issued SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. The statement
requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The statement is effective for the Corporation for the fiscal
year ending September 30, 1997, although earlier application is encouraged.
Based on the Corporation s present assets, this statement is not expected to
have a significant impact on the Corporation's financial statements.
In May 1995, the FASB issued SFAS 122, Accounting for Mortgage Servicing
Rights, which amends SFAS 65, Accounting for Mortgage Banking Activities.
This statement allows the capitalization of servicing-related costs associated
with mortgage loans that are originated for sale, and to create servicing
assets for such loans. Prior to this statement, originated mortgage servicing
rights were generally accorded off-balance sheet treatment. The statement is
effective for the Corporation for the fiscal year ending September 30, 1997.
The adoption is not expected to have a material effect on the company's
financial condition or results of operations.
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The FASB issued SFAS 123, Accounting for Stock-Based Compensation, in
October 1995. This statement supersedes APB Opinion 25, Accounting for Stock
Issued to Employees and established financial accounting and reporting
standards for stock-based compensation plans. SFAS 123 requires that an
employer's financial statements include certain disclosures about stock-based
employee compensation arrangements regardless of the method used to account
for them. The accounting requirements of this statement are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
Though they may be adopted at issuance, the disclosure requirements are
effective for financial statements for fiscal years beginning after December
15, 1995, or for an earlier fiscal year for which this statement is initially
adopted for recognizing compensation cost. The Corporation has not determined
the impact of adopting SFAS 123 but believes the impact, if any, will be
immaterial.
2. Income Per Share
Income per share amounts for the three and six months ended March 31,
1996 and 1995 were computed based on the weighted average number of common
shares outstanding during the periods. Stock options outstanding are not
considered in determining weighted average shares outstanding because they
have no significant dilutive effect.
3. Assets Pledged
Approximately $2,375,000 and $3,600,000 of debt securities at September
30, 1995 and March 31, 1996, respectively, were pledged by the Bank as
collateral to secure deposits of the State of South Carolina, the City of
Union and certain other liabilities. The Bank pledges as collateral to
Federal Home Loan Bank advances their Federal Home Loan Bank stock and has
entered into a blanket collateral agreement with the Federal Home Loan Bank
whereby the Bank maintains, free of other encumbrances, qualifying mortgages
(as defined) with unpaid principal balances equal to, when discounted at 75%
the unpaid principal balances, 100% of total advances.
4. Contingencies and Loan Commitments
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These instruments expose the Bank to credit risk in excess of the amount
recognized in the balance sheet.
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The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. Total credit exposure at March 31,
1996 related to these items is summarized below:
Contract Amount
Loan commitments:
Approved loan commitments $ 3,251,000
Unadvanced portion of loans 544,000
-----------
Total loan commitments $ 3,795,000
Loan commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Loan commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The Bank evaluates each customer's
creditworthiness on a case-by- case basis. The amount of collateral obtained
upon extension of credit is based on management s credit evaluation of the
counterparty. Collateral held is primarily residential property. Interest
rates on loan commitments are a combination of fixed and variable.
Commitments outstanding at March 31, 1996 consist of adjustable and fixed
rate loans of approximately $325,000 and $3,470,000, respectively, at rates
ranging from 6.5% to 11.5%. Commitments to originate loans generally expire
within 30 to 60 days.
Commitments to fund credit lines (principally variable rate, consumer
lines, secured by real estate and overdraft protection) totaled approximately
$1,055,000. Of these lines, the outstanding loan balances totaled
approximately $1,618,000. The Bank also has commitments to fund warehouse
lines of credit for various mortgage banking companies totaling $1,000,000,
which had an outstanding balance at March 31, 1996 of approximately $706,000.
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Effective, January 1, 1996, the FDIC substantially reduced deposit
insurance premiums for well-capitalized, well-managed financial institutions
that are members of the Bank Insurance Fund ("BIF"). Under the new assessment
schedule, approximately 92% of BIF members pay the statutory minimum annual
assessment of $2,000. With respect to Savings Association Insurance Fund
("SAIF") member institutions, the FDIC has retained the existing rate schedule
of 23 to 31 basis points. Proposed federal legislation would recapitalize the
SAIF and resolve the current premium disparity by requiring savings
associations like the Bank to pay a one-time assessment to increase the SAIF s
reserves to $1.25 per $100 of deposits. The assessment is expected to be
approximately 80 basis points on the amount of deposits held by a SAIF member
institution at March 31, 1995. The payment of a one-time fee would have the
effect of immediately reducing the capital and pre-tax earnings of SAIF-member
institutions by the amount of the fee. Based on the Bank s assessable
deposits of approximately $92.8 million at March 31, 1995, a one-time
assessment of 80 basis points would equal approximately $742,000. Management
cannot predict whether any legislation, including legislation imposing such a
fee, will be enacted, or, if enacted, the amount of any one-time fee or
whether ongoing SAIF premiums will be reduced to a level equal to that of BIF
premiums.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
On November 9, 1994, Union Federal Savings Bank (the "Bank") reorganized
into the holding company form of ownership (the "Reorganization"), resulting
in Union Financial Bancshares, Inc. (the "Corporation") becoming the sole
stockholder of the Bank (after resolution of dissenters' rights). Pursuant to
an Agreement and Plan of Reorganization, dated May 23, 1994, between the
Corporation and the Bank, each outstanding share of common stock of the Bank
and options to acquire shares of common stock of the Bank, became outstanding
shares of common stock of the Corporation and options to acquire shares of
common stock of the Corporation, respectively, as a result of the
Reorganization.
Effective, January 1, 1996, the FDIC substantially reduced deposit
insurance premiums for well-capitalized, well-managed financial institutions
that are members of the Bank Insurance Fund ("BIF"). Under the new assessment
schedule, approximately 92% of BIF members pay the statutory minimum annual
assessment of $2,000. With respect to Savings Association Insurance Fund
("SAIF") member institutions, the FDIC has retained the existing rate schedule
of 23 to 31 basis points. Proposed federal legislation would recapitalize the
SAIF and resolve the current premium disparity by requiring savings
associations like the Bank to pay a one-time assessment to increase the SAIF s
reserves to $1.25 per $100 of deposits. The assessment is expected to be
approximately 80 basis points on the amount of deposits held by a SAIF member
institution at March 31, 1995. The payment of a one-time fee would have the
effect of immediately reducing the capital and pre-tax earnings of SAIF-member
institutions by the amount of the fee. Based on the Bank s assessable
deposits of approximately $92.8 million at March 31, 1995, a one-time
assessment of 80 basis points would equal approximately $742,000. Management
cannot predict whether any legislation, including legislation imposing such a
fee, will be enacted, or, if enacted, the amount of any one-time fee or
whether ongoing SAIF premiums will be reduced to a level equal to that of BIF
premiums.
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FINANCIAL CONDITION
At March 31, 1996 total assets of the Corporation decreased 3.97% to
$116,088,000 from $120,879,000 at September 30, 1995. This reduction was due
primarily to a decrease in net loans receivable of approximately $2,176,000 or
2.97% during the six months ended March 31, 1996. The previous year loan
balances included approximately $4,300,000 in construction loans as compared
to the current period balance of approximately $1,900,000. The current year
trend for loan production is a focus toward more conventional, lower risk
loans. Total cash and cash equivalents also decreased from $3,805,000 at
September 30, 1995 to $2,186,000 at March 31, 1996, a decrease of $1,619,000
or 42.55%. Total investment and mortgage-backed securities experienced a
decrease of $1,050,000, or 2.64%, to $38,830,000 during the six months ended
March 31, 1996. The reduction in cash equivalents and securities were
utilized to reduce borrowings. Deposits increased $1,335,000 or 1.41% to
$96,085,000 for the six months ended March 31, 1996. This increase was due to
an increased emphasis on core deposits through product development along with
increased advertising. Borrowings decreased from $13,080,000 at September
30, 1995 to $7,236,000 at March 31, 1996, a decrease of $5,844,000 or 44.68%
as a result of increased deposits along with reductions in securities and cash
equivalents.
Net gains of $7,000 were realized on the sale of whole loans to the
Federal Home Loan Mortgage Corporation ("FHLMC") for the six months ended
March 31, 1996. The loans sold to FHLMC were current production. Interest
rates have recently increased to such an extent that management believes it is
more prudent to retain conforming loans. This practice will be reviewed
periodically in order to ascertain its continued economic benefit.
As of March 31, 1996, real estate acquired through foreclosure ("REO")
consisted of two properties with a net book value of $2,000. Repossessed
assets, which are included in other assets, consisted of $36,000 of
automobiles as of March 31, 1996. REO and repossessed assets are carried at
their estimated fair values less estimated selling costs.
LIQUIDITY
Liquidity is the ability to meet demand for loan disbursements, deposit
withdrawals, repayment of debt, payment of interest on deposits and other
operating expenses. The primary sources of liquidity are savings deposits,
loan repayments, borrowings and interest payments.
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The OTS imposes a minimum level of liquidity on the Bank which is
currently 5% of withdrawable deposits plus short-term borrowings. The
liquidity level of the Bank as measured for regulatory purposes was 18.81% as
of March 31, 1996. As in the past, management expects that the Bank can meet
its obligations to fund outstanding loan commitments, which were approximately
$3,251,000, as described in Note 4 to the Consolidated Financial Statements,
and other loan commitments as of March 31, 1996, while maintaining liquidity
in excess of regulatory requirements. In addition, the Bank believes that it
can meet any deposit liability maturities through a combination of replacement
of the deposits with deposits of a similar type and through its borrowing
capacity with the Federal Home Loan Bank.
CAPITAL RESOURCES
The capital requirement of the Bank consists of three components: (1)
tangible capital, (2) core capital and (3) risk based capital. Tangible
capital must equal or exceed 1.5% of adjusted total assets. Core capital
must be a minimum of 3% of adjusted total assets and risk based capital must
be a minimum of 8% of risk weighted assets.
As of March 31, 1996, the Bank's capital position, as calculated under
regulatory guidelines, exceeds these minimum requirements as follows (dollars
in thousands):
Requirement Actual Excess
----------- ------- -------
Tangible capital $ 1,737 $11,816 $10,079
Tangible capital to adjusted total assets 1.50% 10.20% 8.70%
Core capital $ 3,475 $11,816 $ 8,341
Core capital to adjusted total assets 3.00% 10.20% 7.20%
Risk based capital $ 4,315 $12,490 $ 8,175
Risk based capital to risk weighted assets 8.00% 23.16% 15.16%
The reported capital requirements are based on information reported in the OTS
March 31, 1996 quarterly thrift financial report.
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Results of Operations for the Six Months Ended March 31, 1996 and 1995
GENERAL
Net income decreased $13,000 or 2.30% to $554,000 for the six months
ended March 31, 1996 as compared to the same period in 1995. The decrease in
net income was due primarily to a 4.97% increase in total interest expense for
the six months ended March 31, 1996 as compared to the same period in 1995.
INTEREST INCOME
Interest income decreased $125,000 or 2.76% for the six months ended
March 31, 1996 as compared to the six months ended March 31, 1995.
Interest income on loans, due to lower volumes, decreased 3.23% or $106,000 to
$3,179,000 for the six months ended March 31, 1996 from $3,285,000 for the six
months ended March 31, 1995. The lower loan volumes were a direct result of
reductions in construction loan balances with net balances for six months
ended March 31, 1996 at approximately $1,900,000 compared to approximately
$10,400,000 for the same previous year period. The trend in loan production
for the current fiscal year is toward more conventional lending. Interest
income on deposits and federal funds sold and on mortgage-backed securities
increased $3,000 and $9,000, respectively, for the six months ended March 31,
1996 as compared to the same period in the prior year. Interest and dividends
on investment securities decreased $32,000 or 4.66% for the six months ended
March 31, 1996 to $655,000 from $687,000 during the same period in 1995. The
decrease was due primarily to a decrease in volume and in interest rates.
INTEREST EXPENSE
The Bank experienced an overall increase of $121,000 or 4.97% in interest
expense for the six months ended March 31, 1996 as compared to the six months
ended March 31, 1995. Interest expense on deposit accounts increased $377,000
or 19.94% to $2,268,000 for the six months ended March 31, 1996 from
$1,891,000 during the same period in 1995. In addition to higher rates,
deposit balances increased $3,284,000 with balances as of March 31, 1996 at
$96,085,000 compared to $92,801,000 for the comparable period for the previous
year. Interest expense on borrowings decreased $257,000 or 46.90% for the
six months ended March 31, 1996 as compared to the six months ended March 31,
1995. Lower volumes in FHLB advances for the six months ended March 31, 1996
as compared to the same period for the previous year accounted for this
decrease.
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PROVISION FOR LOAN LOSS
During the six months ended March 31, 1996, provisions for loan losses
decreased $70,000 or 100% from $70,000 during the same period in the previous
year. Additional provisions were not established due to the reduction in the
loan portfolio balance and the current year focus toward more conventional
lending. Management believes the Bank's loan loss allowances are adequate to
absorb estimated future loan losses. The Bank's loan loss allowances at March
31, 1996 were approximately 1.18% of the Bank's outstanding loan portfolio,
net as compared to 0.97% for the comparable period in the prior year.
The following table sets forth information with respect to the Bank's
non-performing assets for the period indicated (dollars in thousands):
March 31, 1996 September 30, 1995
-------------- ------------------
Non-accruing loans which are
contractually past due 90 days
or more:
Real Estate:
Residential $ 544 $ 249
Commercial 74 88
Construction -- --
Non-mortgage -- --
Total $ 618 $ 337
Percentage of loans receivable, net 0.87% 0.46%
Allowance for loan losses $ 843 $ 878
Real estate acquired through
foreclosure and repossessed
assets, net of allowances $ 37 $ 40
OTHER INCOME AND EXPENSE
Total other income increased $76,000 or 44.71% to $246,000 for the six
months ended March 31, 1996 from $170,000 for the same period in the previous
year. This increase was due in large part to an increase in fees for
financial services of $65,000 or 49.25% during the six months ended March 31,
1996 as compared to the six months ended March 31, 1995. There were also
increases in loan servicing fees of $11,000 for the six months ended March 31,
1996 as compared to the six months ended March 31, 1995.
<PAGE>
<PAGE>
For the six months ended March 31, 1996, total other expense increased
$43,000 or 3.44% to $1,295,000 from $1,252,000 for the same period in 1995.
The increase was due primarily to an increase in occupancy and equipment
expense of $76,000 for the six months ended March 31, 1996 as compared to the
six months ended March 31, 1995. Occupancy and equipment expense increased
due to increases in maintenance and service corporation expenses. These
increases were partially offset by a decrease in deposit insurance premiums
for the six months ended March 31, 1996 due to decreased average volumes in
deposits as compared to the same period in the previous year.
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Corporation is involved in various claims and legal actions arising
in the normal course of business. Management believes that these
proceedings will not result in a material loss to the Corporation.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on January 24,
1996. The results of the vote on the matters presented at the meeting is
as follows:
1> The following individuals were elected as directors, each for a three-
year term:
Vote For Vote Withheld
David G. Russell 195,774 23,422
Carl L. Mason 195,774 23,422
William M. Graham 195,774 23,422
Broker non-votes totaled 52,504 .
2> The 1995 Stock Option Plan was approved by shareholders by the
following vote:
For 171,073; Against 46,095; Abstain 2,028
Broker non-votes totaled 52,504 .
<PAGE>
<PAGE>
3> The appointment of Elliott, Davis & Company, LLP, as auditors for the
Corporation for the fiscal year ending September 30, 1996 was ratified
by shareholders by the following vote:
For 191,473; Against 21,315; Abstain 6,408
Broker non-votes totaled 52,504 .
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
A report on Form 8-K was filed on January 4, 1996, which was subsequently
amended on January 11, 1996, reporting under Item 4 the change in the
Company's certifying accountant.
<PAGE>
<PAGE>
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.
UNION FINANCIAL BANCSHARES, INC.
(Registrant)
Date: 5-13-96 By:/s/ DWIGHT V. NEESE
-------------------------
Dwight V. Neese, CEO
Date: 5-13-96 By:/s/ RICHARD H. FLAKE
-------------------------
Richard H. Flake, CFO
<PAGE>
<PAGE>
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