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 December 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)427-9000
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 816,622 shares, $0.01 par value, common stock as of January
31, 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 December 31, 1996
and September 30, 1996 3
Consolidated Statements of Income for the three months
ended December 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the three
months ended December 31, 1996 and 1995 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
-----------------
Signatures 18
2
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Item 1. Financial Statements
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 (unaudited) and September 30, 1996
December 31, September 30,
ASSETS 1996 1996
-------- --------
(DOLLARS IN THOUSANDS)
Cash $ 1,031 $ 1,747
Short term interest-bearing deposits 1,206 1,938
-------- --------
Total cash and cash equivalents 2,237 3,685
Investment and mortgage-backed securities:
Held to maturity 7,993 11,622
Available for sale 18,045 22,174
-------- --------
Total investment and mortgage-backed securities 26,038 33,796
-------- --------
Loans receivable, net 103,103 85,997
Office properties and equipment, net 1,688 1,664
Federal Home Loan Bank Stock, at cost 1,410 950
Accrued interest receivable 1,055 1,121
Real estate acquired through foreclosure 2 19
Other assets 470 901
-------- --------
TOTAL ASSETS $ 136,003 $ 128,133
======== ========
LIABILITIES
Deposit accounts $ 93,474 $ 93,715
Advances from the Federal Home Loan Bank and
other borrowings 29,074 20,488
Accrued interest on deposits 244 79
Advances from borrowers for taxes and insurance 263 420
Other liabilities 307 1,177
-------- --------
TOTAL LIABILITIES 123,362 115,879
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 - 814,286 shares 8 8
Additional paid-in capital 3,924 3,897
Unrealized gain (loss) on investment and mortgage-
backed securities available for sale (106) (229)
Retained earnings, substantially restricted 8,815 8,578
-------- --------
TOTAL SHAREHOLDERS' EQUITY 12,641 12,254
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $136,003 $128,133
======== ========
See notes to consolidated financial statements.
3
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UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended December 31, 1996 (unaudited) and 1995 (unaudited)
Three Months Ended
December 31, December 31,
1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
Interest Income:
Loans $ 1,975 $ 1,574
Deposits and federal funds sold 17 28
Mortgage-backed securities 218 264
Interest and dividends on
investment securities 380 318
-------- --------
Total Interest Income 2,590 2,184
Interest Expense:
Deposit accounts 1,071 1,146
Advances from the FHLB and other borrowings 336 160
-------- --------
Total Interest Expense 1,407 1,306
Net Interest Income 1,183 878
Provision for loan losses 38 5
-------- --------
Net Interest Income After Provision for Loan Losses 1,145 873
Non-Interest Income:
Fees for financial services 114 94
Loan servicing fees (1) 23
Net gains on sale of investments 23 5
Gains (losses) on sale of loans 0 2
-------- --------
Total Non-Interest Income 136 124
Non-Interest Expense:
Compensation and employee benefits 358 331
Occupancy and equipment 163 141
Deposit insurance premiums 56 54
Professional services 63 42
Real estate operations 1 3
Other 103 91
-------- --------
Total Non-Interest Expense 744 662
Income Before Income Taxes 537 335
Income tax expense 198 104
-------- --------
Net Income $ 339 $ 231
======== ========
Net Income Per Common Share $ 0.39 $ 0.29
Weighted Average Number of Common Shares Outstanding 864,848 806,822
See notes to consolidated financial statements.
4
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UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 1996 (unaudited) and 1995 (unaudited)
Three Months Ended
December 31, December 31,
1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
OPERATING ACTIVITIES:
Net income $ 339 $ 231
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 38 5
Depreciation expense 41 47
Recognition of deferred income, net of costs (17) (28)
Deferral of fee income, net of costs 57 61
Gain on investment transactions (23) (5)
Loans originated for sale 0 (201)
Sale of loans 0 203
Gain (loss) on sale of loans 0 (2)
Changes in operating assets and liabilities:
Decrease in accrued interest receivable 66 29
Decrease (increase) in other assets 431 (30)
Decrease in other liabilities 1,027 (544)
Increase (decrease) in accrued interest payable 165 (6)
-------- --------
Net cash provided by operating activities 2,124 (240)
INVESTING ACTIVITIES:
Purchase of investment and mortgage-backed securities:
Held to maturity 0 (2,945)
Available for sale (450) (2,557)
Proceeds from sale of investment and mortgage-
backed securities available for sale
Held to maturity 0 125
Available for sale 4,295 1,142
Proceeds from maturity of investment and mortgage-
backed securities:
Held to maturity 1,022 0
Available for sale 2,454 2,771
Principal repayments on mortgage-backed securities:
Held to maturity 0 61
Available for sale 652 1,597
Loan originations (21,507) (2,699)
Principal repayments of loans 2,104 5,603
Proceeds from sale of real estate acquired
in settlement of loans 66 0
Purchase of FHLB stock (460) 0
Redemption of FHLB stock 0 0
Purchase of office properties and equipment (24) (56)
-------- --------
Net cash provided by (used by) investing activities ($11,848) $ 3,042
======== ========
5
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UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 1996 (unaudited) and 1995 (unaudited)
Three Months Ended
December 31, December 31,
1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
FINANCING ACTIVITIES:
Proceeds from the exercise of stock options $ 30 $ 0
Dividends paid in cash ($0.125 per share - 1996
and $0.125 per share - 1995) (102) (101)
Proceeds from FHLB advances and other borrowings 29,790 0
Repayment of FHLB advances and other borrowings (21,200) (2,854)
Decrease in deposit accounts (242) (1,874)
-------- --------
Net cash (used by) provided by financing activities 8,276 (4,829)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,448) (2,027)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,685 3,805
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,237 $ 1,778
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Income taxes $ 0 $ 225
Interest 1,242 1,151
Non-cash transactions:
Loans foreclosed 49 0
See notes to consolidated financial statements.
6
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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 three months ended December 31, 1996 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 combined in the annual
report to shareholders. Certain amounts in the prior year s financial
statements have been reclassified to conform with current year
classifications.
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.
Union Federal Savings Bank was renamed Provident Community Bank,
effective January 22, 1997.
The Financial Accounting Standards Board recently issued Statement No.
114, Accounting by Creditors for Impairment of a Loan ( SFAS 114"), which was
amended by Statement 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.
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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
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. The Corporation s
policy for charge-off of impaired loans is on a loan-by-loan basis. 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 three months ended December 31, 1996, 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 in fiscal 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 in fiscal 1996; implementation of the Statement did not have a
material impact on 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. 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.
In August 1996, the FASB issued SFAS 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 125
provides accounting and reporting standards for transfers of financial assets
and extinguishments 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 months ended December 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.
9
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3. Assets Pledged
Approximately $5,114,000 and $4,800,000 of debt securities at September
30, 1996 and December 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.
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 December 31,
1996 related to these items is summarized below:
Contract Amount
Loan commitments: ---------------
Approved loan commitments $ 2,210,000
Unadvanced portion of loans 1,481,000
---------
Total loan commitments $ 3,691,000
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 December 31, 1996 consist of fixed rate
loans of approximately $3,691,000 at rates ranging from 7.125% to
10.625%. Commitments to originate loans generally expire within 30 to 60
days.
10
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Commitments to fund credit lines (principally variable rate, consumer
lines, secured by real estate and overdraft protection) totaled approximately
$5,625,000. Of these lines, the outstanding loan balances totaled
approximately $2,894,000. 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 December 31, 1996 of approximately
$535,000.
Savings Association Insurance Fund (SAIF) Assessment - On September 30,
1996, legislation was enacted which provided for a one-time assessment on all
SAIF-insured deposits for the purpose 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.
On October 3, 1996, the Corporation, through its subsidiary, Provident
Community Bank, agreed to purchase certain assets and assume certain
liabilities of the Laurens, South Carolina branch of First Union National
Bank. Provident Community Bank will purchase selected assets (primarily real
estate) and assume certain liabilities (primarily deposit liabilities) for
which it will pay $800,000 plus 10.5% of the aggregate outstanding deposits as
of the closing date. The purchase is subject to regulatory approval, but is
anticipated to occur by March 1997. The acquisition will be accounted for as
a purchase.
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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).
On June 18, 1996 the Corporation declared a stock split in the form of a 100%
stock dividend on the Corporation s outstanding shares of common stock for
each stockholder of record as of the close of business on July 9, 1996.
Financial Condition
At December 31, 1996 total assets of the Corporation increased 6.14% to
$136,003,000 from $128,133,000 at September 30, 1996. This change was due
primarily to an increase in loans receivable of approximately $17,106,000 or
19.89% during the three months ended December 31, 1996. The increase was due
primarily to higher adjustable loan originations that resulted from increased
purchased loans. 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 the investments and
securities portfolio is a continued reduction with the proceeds being utilized
for the origination and purchase of conventional mortgage products. Total
cash and cash equivalents decreased from $3,685,000 at September 30, 1996 to
$2,237,000 at December 31, 1996, a decrease of $1,448,000 or 39.29%. Deposits
decreased $242,000 or 0.26% to $93,473,000 for the three months ended December
31, 1996. Borrowings increased from $20,488,000 at September 30, 1996 to
$29,074,000 at December 31, 1996, an increase of $8,586,000 or 41.91% as a
result of increased loan originations.
As of December 31, 1996, real estate acquired through foreclosure ( REO )
consisted of two properties with a net book value of $2,000. There were no
repossessed assets, which are included in other assets, recorded as of
December 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 13.57% as of December 31,
1996. As in the past, management expects that the Bank can meet its
obligations to fund outstanding loan commitments, which were approximately
$3,691,000, as described in Note 4 to the Consolidated Financial Statements,
and other loan commitments as of December 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 December 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 $2,046 $12,516 $10,470
Tangible capital to adjusted total assets 1.50% 9.17% 7.67%
Core capital $4,093 $12,516 $8,423
Core capital to adjusted total assets 3.00% 9.17% 6.17%
Risk based capital $5,089 $13,312 $8,223
Risk based capital to risk weighted assets 8.00% 20.93% 12.93%
The reported capital requirements are based on information reported in the OTS
December 31, 1996 quarterly thrift financial report.
Results of Operations for the Three Months Ended December 31, 1996 and 1995
General
Net income increased $108,000 or 46.75% to $339,000 for the three months ended
December 31, 1996 as compared to the same period in 1995. The increase in
net income was due primarily to a 31.16% increase in the net interest margin
for the three months ended December 31, 1996 as compared to the same period in
1995.
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Interest Income
Interest income increased $406,000 or 18.58% for the three months ended
December 31, 1996 as compared to the three months ended December 31, 1995.
Interest income on loans, due to increased outstanding balances along with a
favorable economic environment, increased 25.48% or $401,000 to $1,975,000 for
the three months ended December 31, 1996 from $1,574,000 for the three months
ended December 31, 1995. Outstanding loan balances increased from $85,997,000
at 12/31/95 to $103,103,000 at 12/31/96 due primarily to increases in
outstanding residential adjustable rate mortgage loans. The trend in loan
production for the current fiscal year is toward more conventional lending.
Interest income on deposits and federal funds sold decreased $11,000 for the
three months ended December 31, 1996 as compared to the same period in the
prior year. Interest income on mortgage-backed securities decreased $46,000
for the three months ended December 31, 1996 as compared to the same period in
the prior year. The decrease was due to lower outstanding balances as a result
of principal pay downs. Interest and dividends on investment securities
increased $62,000 or 19.50% for the three months ended December 31, 1996 to
$380,000 from $318,000 during the same period in 1995. The increase was due
primarily to an increase in interest rates as a result of portfolio
restructuring that have taken place during the current and previous fiscal
year with a movement to extend maturities into higher yielding government
agency securities.
Interest Expense
The Bank experienced an overall increase of $101,000 or 7.73% in interest
expense for the three months ended December 31, 1996 as compared to the three
months ended December 31, 1995. Interest expense on deposit accounts decreased
$75,000 or 6.54% to $1,071,000 for the three months ended December 30, 1996
from $1,146,000 during the same period in 1995. In addition to lower rates,
deposit balances decreased $242,000 with balances as of December 31, 1996 at
$93,473,000 compared to $93,715,000 for the comparable period for the previous
year. Interest expense on borrowings increased $176,000 or 110.00% for the
three months ended December 31, 1996 as compared to the three months ended
December 31, 1995. Higher volumes in FHLB advances for the three months
ended December 31, 1996 as compared to the same period for the previous year
accounted for this increase. The proceeds of the increased advances was used
to fund increased loan originations.
Provision for Loan Loss
During the three months ended December 31, 1996, provisions for loan losses
increased $33,000 or 660% to $38,000 from $5,000 during the same period in
the previous year. Additional provisions were established due to the increase
in the loan portfolio balance. Management believes the Bank s loan loss
allowances are adequate to absorb estimated future loan losses. The Bank's
loan loss allowances at December 31, 1996 were approximately .82% of the
Bank's outstanding loan portfolio, net as compared to 1.23% for the comparable
period in the prior year.
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The following table sets forth information with respect to the Bank s
non-performing assets for the period indicated (dollars in thousands):
December 31, 1996 September 30, 1996
----------------- ------------------
Non-accruing loans which are
contractually past due 90 days
or more:
Real Estate:
Residential $408 $1,049
Commercial 283 74
Construction -- --
Non-mortgage 151 --
Total $ 842 $1,123
Percentage of loans receivable, net 0.82% 1.33%
Allowance for loan losses $827 $799
Real estate acquired through
foreclosure and repossessed
assets, net of allowances $ 2 $ 19
Non-Interest Income and Expense
Total non-interest income increased $12,000 or 9.67% to $136,000 for the three
months ended December 31, 1996 from $124,000 for the same period in the
previous year. This increase was due in large part to an increase in fees for
financial services of $20,000 or 21.28% during the three months ended December
31, 1996 as compared to the three months ended December 31, 1995. Loan
servicing fees decreased $24,000 for the three months ended December 31, 1996
as compared to the three months ended December 31, 1995. The decrease was due
to service fees paid for outsourcing of the loan servicing function. Also,
net gains of $23,000 were realized on the sale of investment and mortgage-
backed securities available for sale for the three months ended December 31,
1996 as compared to net gains of $18,000 for the same period in fiscal 1995.
The investment and mortgage-backed securities sales were primarily directed
toward increasing yields on earning assets with a movement from lower yielding
securities to higher yielding conventional mortgage loans. This practice will
be reviewed periodically in order to ascertain its continued economic benefit.
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For the three months ended December 31, 1996, total non-interest expense
increased $82,000 or 12.38% to $744,000 from $662,000 for the same period in
1995. Compensation and employee benefits expense increased $27,000 or 8.16%
due to higher salary and benefits expense. Occupancy and equipment expense
increased $22,000 or 15.60% due to increases in maintenance and data
processing expenses. Professional services increased $21,000 or 50.0% due to
increased advertising and legal expenses. Other operating expenses increased
$12,000 or 13.18% due to higher loan expenses as a result of a special loan
program where the Bank paid all loan closing costs.
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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
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
A Form 8-K was filed on October 10, 1996 reporting under Item 5 the
execution of a definitive agreement to acquire First Union's
Laurens, South Carolina branch.
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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: 2/10/97 By:/s/DWIGHT V. NEESE
-------------------
Dwight V. Neese, CEO
Date: 2/10/97 By:/s/RICHARD H. FLAKE
-------------------
Richard H. Flake, CFO
18
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