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 June 30, 1997
[ ] 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
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(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
203 West Main Street, Union, South Carolina 29379
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(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 821,564 shares, $0.01 par value, common stock as of July 1, 1997.
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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 June 30, 1997
and September 30, 1996 3
Consolidated Statements of Income for the three
and nine months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the nine
months ended June 30, 1997 and 1996 5-6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-16
PART II. OTHER INFORMATION 17-18
SIGNATURES 19
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Item 1. Financial Statements
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1997 (unaudited) and September 30, 1996
June 30, September 30,
ASSETS 1997 1996
(DOLLARS IN THOUSANDS)
------ ------
Cash $ 1,724 $ 1,747
Short term interest-bearing deposits 1,726 1,938
------ ------
Total cash and cash equivalents 3,450 3,685
Investment and mortgage-backed securities:
Held to maturity 9,392 11,622
Available for sale 16,196 22,174
------ ------
Total investment and mortgage-backed securities 25,588 33,796
Loans receivable, net
Held for sale 9,105
Held for investment 124,527 85,997
------ ------
Total loans receivable, net 133,632 85,997
Office properties and equipment, net 2,660 1,664
Federal Home Loan Bank Stock, at cost 1,997 950
Accrued interest receivable 1,254 1,121
Real estate acquired through foreclosure 8 19
Deposit premium intangible 2,368 0
Other assets 288 901
------ ------
TOTAL ASSETS $ 171,245 $ 128,133
======= =======
LIABILITIES
Deposit accounts $ 116,556 $ 93,715
Advances from the Federal Home Loan Bank and
other borrowings 40,627 20,488
Accrued interest on deposits 239 79
Advances from borrowers for taxes and insurance 320 420
Other liabilities 375 1,177
------ ------
TOTAL LIABILITIES 158,117 115,879
SHAREHOLDERS' EQUITY
Serial preferred stock, $0.01 par value,
authorized - 500,000 shares, issued
and outstanding - None 0 0
Common stock - $0.01 par value,
authorized - 2,500,000 shares,
issued and outstanding - 821,564 shares 7 8
Additional paid-in capital 3,967 3,897
Unrealized (loss) on investment and mortgage-backed
securities available for sale (163) (229)
Retained earnings, substantially restricted 9,317 8,578
------ ------
TOTAL SHAREHOLDERS' EQUITY 13,128 12,254
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 171,245 $ 128,133
======= =======
See notes to consolidated financial statements.
3
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UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended June 30, 1997 (unaudited) and 1996 (unaudited)
Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
------ ------ ------ ------
Interest Income:
Loans $ 2,827 $ 1,548 $ 7,095 $ 4,728
Deposits and federal funds sold 13 43 40 87
Mortgage-backed securities 94 282 450 815
Interest and dividends on
investment securities 386 360 1,145 1,015
------ ------ ------ ------
Total Interest Income 3,320 2,233 8,730 6,645
Interest Expense:
Deposit accounts 1,260 1,109 3,386 3,378
Advances from the FHLB and
other borrowings 570 111 1,387 402
------ ------ ------ ------
Total Interest Expense 1,830 1,220 4,773 3,780
------ ------ ------ ------
Net Interest Income 1,490 1,013 3,957 2,865
Provision for loan losses 55 0 200 0
Net Interest Income After ------ ------ ------ ------
Provision for Loan Losses 1,435 1,013 3,757 2,865
Non-Interest Income:
Fees for financial services 196 106 448 303
Loan servicing fees (costs) (9) 16 (20) 58
Net gains (losses) on sale of loans (47) 4 (47) 11
Net gains on sale of investments 0 5 38 5
------ ------ ------ ------
Total Non-Interest Income 140 131 419 377
Non-Interest Expense:
Compensation and employee benefits 484 324 1,228 961
Occupancy and equipment 183 138 507 410
Deposit insurance premiums 15 53 74 160
Professional services 58 38 206 117
Real estate operations 0 0 (4) (3)
Other 247 97 475 300
------ ------ ------ ------
Total Non-Interest Expense 987 650 2,486 1,945
------ ------ ------ ------
Income Before Income Taxes 588 494 1,690 1,297
Income tax expense 221 158 628 407
------ ------ ------ ------
Net Income $ 367 $ 336 $ 1,062 $ 890
====== ====== ====== ======
Net Income Per Common Share $ 0.43 $ 0.42 $ 1.23 $ 1.10
====== ====== ====== ======
Weighted Average Number of
Common Shares Outstanding 863,066 809,386 865,330 807,726
See notes to consolidated financial statements.
4
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UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 1997 (unaudited) and 1996 (unaudited)
Nine Months Ended
June 30, June 30,
OPERATING ACTIVITIES: 1997 1996
------ ------
Net income $1,062 $890
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 200 0
Amortization of intangibles 53 0
Depreciation expense 136 126
Provision for (gain)/loss on real estate owned,net 0 (8)
Recognition of deferred income, net of costs (78) (106)
Deferral of fee income, net of costs 71 182
(Gain) Loss on investment transactions 38 (11)
Loans originated for sale (16,317) (805)
Sale of loans 16,317 805
(Gain) loss on sale of loans 47 (5)
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest receivabl (133) (71)
Decrease (increase) in other assets 613 (9)
Decrease (increase) in Deposit Premium Intangible (2,421) 0
(Decrease)Increase in other liabilities (900) (724)
Increase (decrease) in accrued interest payable 160 50
------ ------
Net cash provided by (uses by) operating activities (1,152) 314
------ ------
INVESTING ACTIVITIES:
Maturities of time deposits 0 99
Purchase of investment and mortgage-backed securities:
Held to maturity (2,000) (11,777)
Available for sale (1,950) (6,020)
Proceeds from sale of investment and mortgage-
backed securities 6,736 11,075
Proceeds from maturity of investment and mortgage-
backed securities:
Held to maturity 500 0
Available for sale 3,388 6,091
Principal repayments on mortgage-backed securities:
Held to maturity 110 9
Available for sale 1,424 2,122
Loan originations (59,013) (20,080)
Principal repayments of loans 11,163 22,067
Proceeds from sale of real estate acquired in settle 11 36
Purchase of FHLB stock (1,272) 0
Redemption of FHLB stock 225 0
Purchase of office properties and equipment (1,132) (102)
------ ------
Net cash provided by (used by) investing activities ($41,810) $3,520
------ ------
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UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 1997 (unaudited) and 1996 (unaudited)
Nine Months Ended
June 30, June 30,
FINANCING ACTIVITIES: 1997 1996
------ ------
Proceeds from the exercise of stock options $69 $29
Dividends paid in cash ($0.135 per share - 1997
and $0.125 per share - 1996) (323) (303)
Proceeds from FHLB advances and other borrowings 99,940 11,225
Repayment of FHLB advances and other borrowings (79,800) (15,305)
Acquired deposits from purchased branch 20,144 0
Increase (Decrease) in deposit accounts 2,697 931
------ ------
Net cash (used by) provided by financing activities 42,727 (3,423)
------ ------
NET DECREASE\INCREASE IN CASH AND CASH EQUIVALENTS (235) 411
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,685 3,805
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,450 $4,216
====== ======
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Income taxes $578 $814
Interest 4,613 3,730
Non-cash transactions:
Loans foreclosed 0 0
See notes to consolidated financial statements.
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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 of Union
Financial Bancshares, Inc. (the "Corporation") 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 consolidated financial statements include the
corporation's wholly owned subsidiary, Provident Community Bank (formerly known
as Union Federal Savings Bank) (the "Bank"). The results of operations for the
nine months ended June 30, 1997 are not necessarily indicative of the results
which may be expected for the entire fiscal year. The consolidated balance sheet
as of September 30, 1996 has been derived from the Company's audited financial
statements presented in the annual report to shareholders. Certain amounts in
the prior year's financial statements have been reclassified to conform with
current year classifications.
The Financial Accounting Standards Board recently issued Statement No.
114, Accounting by Creditors for Impairment of a Loan ("SFAS 114") which was
subsequently amended by SFAS No. 118. SFAS 114 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 was adopted in fiscal 1996; implementation
of the statement did not have a material impact on financial condition or
results of operations. The Corporation maintains an allowance for impaired loans
based on a combination of evaluation of impairment of smaller balance,
homogeneous loans (primarily 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 generally determines a loan to be impaired at the time
management believes that it is probable that the principal and interest may be
uncollectible. Management has determined that, generally, a failure to make a
payment within a 90-day period constitutes a minimum delay or shortfall and does
not generally constitute an impaired loan. However, management reviews each past
due loan on a loan-by-loan basis and may determine a loan to be impaired prior
to the loan becoming over 90 days past due, depending upon the
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circumstances of that particular loan. A loan is classified as a
nonaccrual loan at the time management believes that the collection of interest
is improbable, generally when a loan becomes 90 days past due. At the time
management believes the collection of interest and principal is remote, the loan
is charged off. 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.
As of and for the nine months ended June 30, 1997, there were no
impaired loans and the Corporation had recognized no interest income from
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 was adopted on October 1, 1996; implementation of the
Statement did not have a material impact on financial condition or results of
operations.
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 was adopted on October 1, 1996; implementation of the Statement did
not have a material impact on financial condition or results of operations.
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.
The Company has elected to continue use of the method prescribed by APB 25 for
recording stock-based compensation and will provide pro forma disclosures in its
annual financial statements as prescribed by SFAS 123.
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In August 1996, the FASB issued SFAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS 125
provides accounting and reporting standards for transfers of financial assets
and extinguishment of liabilities based on a consistent application of financial
components approach that focuses on control of assets and liabilities. SFAS 125
is effective for transactions entered into after December 31, 1996 and is not
expected to have a material impact on the Corporation's financial position or
results of operations.
2. Income Per Share
Effective July 9, 1996, the Corporation declared a two-for-one stock
split effected in the form of a 100% stock dividend of the Corporation's common
stock. The weighted average number of shares and all other share data have been
restated for all periods presented to reflect this stock split.
Income per share amounts for the three and nine months ended June 30, 1997
and 1996 were computed based on the weighted average number of common shares
outstanding adjusted for the dilutive effect of outstanding common stock options
during the periods.
3. Assets Pledged
Approximately $10,959,000 and $5,114,000 of debt securities at June 30,
1997 and September 30, 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 the Bank's 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% of 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.
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 June 30, 1997
related to these items is summarized below:
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Loan Commitments: Contract Amount
----------------- ---------------
Approved loan commitments $ 1,643,000
Unadvanced portions of loans 6,568,000
---------
Total loan commitments $ 8,211,000
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 counter
party. Collateral held is primarily residential property. Interest rates on
loan commitments are a combination of fixed and variable.
Commitments outstanding at June 30, 1997 consist of fixed and
adjustable rate loans of approximately $8,211,000 at rates ranging from 7% to
9%. 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
$3,434,000. Of these lines, the outstanding loan balances totaled approximately
$3,605,000. The Bank also has commitments to fund warehouse lines of credit for
various mortgage banking companies totaling $1,500,000, which had an outstanding
balance at June 30, 1997 of approximately $306,000. At June 30, 1997, the Bank
had loan commitments to sell $11,760,000 in fixed rate residential loans which
had not been originated to Freddie Mac for the months of July and August, 1997.
5. Savings Association Insurance Fund (SAIF) Assessment
On September 30, 1996, legislawas enacted which provided for a one-time
assessment on all SAIF-insured deposits fpurpose of recapitalizing the SAIF. The
one-time assessment is 0.657% of SAIF-insured deposits as of March 31, 1995.
During the quarter ended December 31, 1996, the Corporation paid approximately
$606,000 representing its one-time assessment.
6. Branch Acquisition
On March 24, 1997, the Corporation, through its subsidiary, Provident
Community Bank, consummated the purchase of certain assets and the assumption
of certain liabilities of the Laurens, South Carolina branch of First Union
National Bank. Provident Community Bank acquired $20,144,000 in deposit
liabilities and $800,000 in premises and equipment. The total premium paid for
the acquisition was approximately $2,115,000. The premium paid will be amortized
using straight-line amortization over a period of ten years.
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7. Other Events
On March 24, 1997, the Corporation, through its subsidiary, Provident
Community Bank, established a wholesale residential loan mortgage division,
Provident Mortgage Company. The company operates as a division of the Bank with
the primary business purpose of purchasing and selling residential mortgage loan
products along with generating mortgage servicing portfolios through Fannie Mae
and Freddie Mac agencies.
On March 24, 1997, the Corporation, through its subsidiary, Provident
Community Bank, established a financial services subsidiary, Provident Financial
Services, Inc. The company will operate as a subsidiary of the Bank with the
primary business purpose of providing brokerage financial services for customers
of the Bank.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
On November 9, 1994, Provident Community Bank (the "Bank"), formerly
Union Federal Savings Bank, reorganized into the holding company form of
ownership, resulting in Union Financial Bancshares, Inc. (the "Corporation")
becoming the sole stockholder of the Bank (after resolution of dissenters'
rights).
On June 18, 1996 the Corporation declared a 2 for 1 stock split in the
form of a 100% stock dividend on the Corporation's outstanding shares of common
stock for each stockholder for record as of the close of business on July 9,
1996.
Financial Condition
At June 30, 1997 total assets of the Corporation increased 33.65% to
$171,245,000 from $128,133,000 at September 30, 1996. The increase was due
primarily to an increase in loans receivable, net, of approximately $47,635,000
or 55.39% during the nine months ended June 30, 1997. The increase was due
primarily to increased purchases of adjustable-rate loans in the nine months
ended June 30, 1997. This increase in loans receivable was partially offset by a
reduction in investments and mortgage-backed securities that resulted from
maturities and sales. The current year trend for loan production will be slower
growth with fixed rate production generated being securitized and sold in the
secondary market. Total cash and cash equivalents decreased from $3,685,000 at
September 30, 1996 to $3,450,000 at June 30, 1997, a decrease of $235,000 or
6.38%. Deposits increased $22,841,000 or 24.37% to $116,556,000 for the nine
months ended June 30, 1997. Approximately $20,144,000 or 83.5% of the deposit
increase was a result of the First Union branch purchase that was consummated on
March 24, 1997. The remaining growth was a result of various deposit promotion
programs with continued emphasis on core deposits. Borrowings increased
$20,139,000 or 98.30% from $20,488,000 at September 30, 1996 to $40,627,000
at June 30, 1997, as a result of increased loan originations. Total
investment and mortgage-backed securities decreased $8,208,000, or 24.29%, to
$25,588,000 during the nine months ended June 30, 1997. The decrease was a
result of maturities and sales of investments available for sale with the
proceeds being utilized for the funding of higher yielding loans.
As of June 30, 1997, real estate acquired through foreclosure ("REO")
consisted of one property with a net book value of $1,500. Repossessed assets
consisted of $6,800 of automobiles as of June 30, 1997. REO and repossessed
assets are carried at their estimated fair values less estimated selling costs.
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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.
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 7.06% as of June 30,
1997. As in the past, management expects that the Bank can meet its obligations
to fund outstanding mortgage loan commitments, which were approximately
$1,643,000, as described in Note 4 to the Consolidated Financial Statements, and
other loan commitments as of June 30, 1997, while maintaining liquidity in
excess of regulatory requirements.
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 June 30, 1997, the Bank's capital position, as calculated under
regulatory guidelines, exceeds these minimum requirements as follows (dollars in
thousands):
REQUIREMENT ACTUAL EXCESS
- ------------------------------------------------------------------------------
Tangible capital $2,550 $10,411 $7,861
Tangible capital to adjusted total assets 1.50% 6.12% 4.62%
Core capital $5,099 $10,411 $5,312
Core capital to adjusted total assets 3.00% 6.12% 3.12%
Risk based capital $7,352 $11,340 $3,988
Risk based capital to risk weighted assets 8.00% 12.34 4.34%
The reported capital requirements are based on information reported in
the OTS June 30, 1997 quarterly thrift financial report.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
General
Net income increased $172,000 or 19.33% to $1,062,000 for the nine
months ended June
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30, 1997 as compared to the same period in 1996. The increase in net
income was due primarily to a 31.13% increase in net interest income for the
nine months ended June 30, 1997 as compared to the same period in 1996.
Interest Income
Interest income increased $2,085,000 or 31.38% for the nine months
ended June 30, 1997 as compared to the same period in 1996. Interest income on
loans increased 50.06% or $2,367,000 to $7,095,000 for the nine months ended
June 30, 1997 from $4,728,000 for the nine months ended June 30, 1996 due to
higher loan volumes. Interest income on overnight deposits and federal funds
sold and on mortgage-backed securities decreased $47,000 and $365,000,
respectively, for the nine months ended June 30, 1997 as compared to the same
period in the prior year due primarily to smaller balances. Interest and
dividends on investment securities increased $130,000 or 12.81% for the nine
months ended June 30, 1997 to $1,145,000 from $1,015,000 during the same period
in 1996. The increase was due primarily to an increase in interest rates and a
larger investment in stock of the Federal Home Loan Bank.
Interest Expense
The Corporation experienced an overall increase of $993,000 or 26.27%
in interest expense for the nine months ended June 30, 1997 as compared to the
nine months ended June 30, 1996. Interest expense on deposit accounts increased
$8,000 or .24% to $3,386,000 for the nine months ended June 30, 1997 from
$3,378,000 during the same period in 1996. Lower rates along with lower costing
deposits were the primary reasons for the costs remaining constant even though
deposit balances increased significantly. Interest expense on borrowings
increased $985,000 for the nine months ended June 30, 1997 as compared to the
nine months ended June 30, 1996. The increase was due to higher volumes in FHLB
advances during the period which were required to fund higher loan originations.
Provision for Loan Loss
During the nine months ended June 30, 1997, provisions for loan losses
were $200,000 as compared to $0 for the same period in the previous year. The
increase in loan loss provisions are consistent with the growth in loans.
Management believes the Bank's loan loss allowances are adequate to absorb
estimated future loan losses. The Bank's loan loss allowances aJune 30, 1997
were approximately .79% of the Bank's outstanding loan portfolio, net compared
to 1.13% for the same period in the previous year.
The following table sets forth information with respect to the Bank's
non-performing assets at the dates indicated (dollars in thousands):
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JUNE 30, 1997 SEPTEMBER 30, 1996
------------- ------------------
Non-accruing loans which are
contractually past due 90 days
or more:
Real Estate:
Residential $1,091 $1 049
Commercial 0 74
Construction -- --
Non-mortgage 98 --
----- ------
Total $1,189 1,123
====== ======
Percentage of loans receivable, net .89% 1.33%
---- =====
Allowance for loan losses $929 $799
==== ====
Real estate acquired through
foreclosure and repossessed
assets, net of allowances $ 8 $ 19
=== ====
Non Interest Income and Expense
Total non-interest income increased $42,000 or 11.14% to $419,000 for
the nine months ended June 30, 1997 from $377,000 for the same period in the
previous year. This increase was due in large part to an increase in fees for
financial services of $145,000 or 47.85% during the nine months ended June 30,
1997 as compared to the nine months ended June 30, 1996. The increase in fees
reflects the first quarter of operation of the branch acquired from First Union
on March 24, 1997. There were also decreases in loan servicing fees due to the
outsourcing of loan servicing for loans purchased in the previous year. Gains on
sale of investments was $38,000 for the nine months ended June 30, 1997 as
compared to $5,000 for the nine months ended June 30, 1996. During the quarter,
the Bank recorded losses on the sales of loans of $47,000 due to the initial
startup of the Mortgage Division. The Bank now has in place forward commitment
coverage for approximately 75% of anticipated production in order to minimize
such losses.
For the nine months ended June 30, 1997, total non-interest expense
increased $541,000 or 27.81% to $2,486,000 from $1,945,000 for the same period
in 1996. The current year period ending June 30, 1997 includes additional
expenses for a new branch acquisition along with expenses for the new Mortgage
Division. Compensation and employee benefits increased $267,000 or 27.78% to
$1,228,000 for the nine months period ended June 30, 1997 from $961,000 for the
same period in 1996. Occupancy and equipment expense increased
15
<PAGE>
<PAGE>
$97,000 or 23.66% to $507,000 for the nine months ended June 30, 1997 from
$410,000 for the same period in 1996. Professional services expenses increased
$89,000 or 76.07% to $206,000 for the nine months period ended June 30, 1997
from $117,000 for the same period in 1996. The increase in compensation and
employee benefits was due to cost of living increases along with additional
staffing for the new branch acquisition and Mortgage Division. Occupancy and
equipment expense increased due to increases in maintenance and data processing
expenses. Professional services expenses increased due to additional advertising
and legal expenses incurred for the name change of the subsidiary bank. These
increases were partially offset by a decrease in deposit insurance premiums for
the nine months ended June 30, 1997 due to reduction in the deposit assessment
rate from 23 basis points to 6.45 basis points.
16
<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
None
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
27 Financial Data Schedule
17
<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: August 5, 1997 By:/s/DWIGHT V. NEESE, CEO
-----------------------
Dwight V. Neese, CEO
Date: August 5, 1997 By:/s/RICHARD H. FLAKE, CFO
------------------------
Richard H. Flake, CFO
19
<PAGE>
<PAGE>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
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0
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