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, 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
(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 819,654 shares, $0.01 par value, common stock as of April 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 March 31, 1997
and September 30, 1996 3
Consolidated Statements of Income for the six months
ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the six
months ended March 31, 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
FINANCIAL DATA SCHEDULE 20-21
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Item 1. Financial Statements
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1997 (unaudited) and September 30, 1996
March 31, September 30,
ASSETS 1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
Cash $ 1,817 $ 1,747
Short term interest-bearing deposits 2,751 1,938
-------- --------
Total cash and cash equivalents 4,568 3,685
Investment and mortgage-backed securities:
Held to maturity 9,965 11,622
Available for sale 17,033 22,174
-------- --------
Total investment and mortgage-backed securities 26,998 33,796
Loans receivable, net 122,559 85,997
Office properties and equipment, net 2,576 1,664
Federal Home Loan Bank Stock, at cost 1,442 950
Accrued interest receivable 1,338 1,121
Real estate acquired through foreclosure 5 19
Deposit Premium Intangible 2,115 0
Other assets 236 901
-------- --------
TOTAL ASSETS $ 161,837 $ 128,133
======== ========
LIABILITIES
Deposit accounts $ 117,842 $ 93,715
Advances from the Federal Home Loan Bank and
other borrowings 30,179 20,488
Accrued interest on deposits 144 79
Advances from borrowers for taxes and insurance 232 420
Other liabilities 670 1,177
-------- --------
TOTAL LIABILITIES 149,067 115,879
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 - 819,654 shares 6 8
Additional paid-in capital 3,959 3,897
Unrealized gain (loss) on investment and mortgage-
backed securities available for sale (253) (229)
Retained earnings, substantially restricted 9,060 8,578
-------- --------
TOTAL SHAREHOLDERS' EQUITY 12,772 12,254
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 161,837 $ 128,133
======== ========
See notes to consolidated financial statements.
3
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UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended March 31, 1997 (unaudited) and 1996 (unaudited)
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
1997 1996 1997 1996
-------- -------- -------- --------
Interest Income: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans $ 2,292 $ 1,606 $ 4,267 $ 3,180
Deposits and federal funds sold 11 16 28 44
Mortgage-backed securities 138 269 356 533
Interest and dividends on
investment securities 378 337 758 655
-------- -------- -------- --------
Total Interest Income 2,819 2,228 5,409 4,412
Interest Expense:
Deposit accounts 1,056 1,123 2,127 2,269
Advances from the FHLB and other borrowings 480 131 816 291
-------- -------- -------- --------
Total Interest Expense 1,536 1,254 2,943 2,560
Net Interest Income 1,283 974 2,466 1,852
Provision for loan losses 106 (5) 144 0
Net Interest Income After -------- -------- -------- --------
Provision for Loan Losses 1,177 979 2,322 1,852
Non-Interest Income:
Fees for financial services 138 103 252 197
Loan servicing fees (1) 19 (11) 42
Net gains on sale of loans 0 0 0 7
Net gains on sale of investments 15 0 38 0
-------- -------- -------- --------
Total Non-Interest Income 152 122 279 246
Non-Interest Expense:
Compensation and employee benefits 386 306 744 637
Occupancy and equipment 161 131 324 272
Deposit insurance premiums 3 53 59 107
Professional services 85 37 148 79
Real estate operations (5) (6) (4) (3)
Other 125 112 228 203
-------- -------- -------- --------
Total Non-Interest Expense 755 633 1,499 1,295
Income Before Income Taxes 574 468 1,102 803
Income tax expense 210 145 408 249
-------- -------- -------- --------
Net Income $ 364 $ 323 $ 694 $ 554
======== ======== ======== ========
Net Income Per Common Share $ 0.42 $ 0.40 $ 0.80 $ 0.69
Weighted Average Number of
Common Shares Outstanding 866,950 806,980 865,154 806,980
See notes to consolidated financial statements.
4
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UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31, 1997 (unaudited) and 1996 (unaudited)
Six Months Ended
March 31, March 31,
1997 1996
(IN THOUSANDS)
OPERATING ACTIVITIES: -------- --------
Net income $694 $554
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 144 0
Depreciation expense 83 87
Provision for (gain)/loss on real estate owned, net 0 (8)
Recognition of deferred income, net of costs (11) (92)
Deferral of fee income, net of costs 87 162
Gain on investment transactions (38) (2)
Loans originated for sale 0 (805)
Sale of loans 0 805
Gain (loss) on sale of loans 0 (5)
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest
receivable (217) (142)
Decrease (increase) in other assets 665 (42)
Decrease (increase) in Deposit Premium
Intangible (2,115) 0
(Decrease)Increase in other liabilities (695) (660)
Increase (decrease) in accrued interest payable 65 (3)
-------- --------
Net cash provided by operating activities (1,338) (151)
-------- --------
INVESTING ACTIVITIES:
Maturities of time deposits 0 99
Purchase of investment and mortgage-backed securities:
Held to maturity (2,000) 0
Available for sale (1,950) (6,020)
Proceeds from sale of investment and mortgage-
backed securities 5,763 2,953
Proceeds from maturity of investment and mortgage-
backed securities:
Held to maturity 0 0
Available for sale 3,389 2,751
Principal repayments on mortgage-backed securities:
Held to maturity 37 0
Available for sale 1,559 1,218
Loan originations (42,390) (8,562)
Principal repayments of loans 5,535 10,807
Proceeds from sale of real estate acquired in
settlement of loans 14 36
Purchase of FHLB stock (717) 0
Redemption of FHLB stock 225 0
Purchase of office properties and equipment (912) (141)
-------- --------
Net cash provided by (used by) investing act ($31,447) $3,141
-------- --------
5
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Six Months Ended
March 31, March 31,
1997 1996
(IN THOUSANDS)
-------- --------
FINANCING ACTIVITIES:
Proceeds from the exercise of stock options $62 $1
Dividends paid in cash ($0.135 per share - 1997
and $0.125 per share - 1996) (212) (101)
Proceeds from FHLB advances and other borrow 70,241 9,461
Repayment of FHLB advances and other borrowi (60,550) (15,305)
Acquired deposits from purchased branch 20,144 0
Increase (Decrease) in deposit accounts 3,983 1,335
-------- --------
Net cash (used by) provided by financing act 33,668 (4,609)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS 883 (1,619)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,685 3,805
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,568 $2,186
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Income taxes $302 $674
Interest 2,943 2,563
Non-cash transactions:
Loans foreclosed 0 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 six months ended March 31, 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.
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 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
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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. 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 six months ended March 31, 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 six months ended March 31,
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 $4,980,000 and $5,114,000 of debt securities at March 31,
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 March 31, 1997 related to these items is
summarized below:
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Loan Commitments: Contract Amount
----------------- ---------------
Approved loan commitments $ 3,527,000
Unadvanced portions of loans 7,425,000
------------
Total loan commitments $ 10,952,000
============
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 March 31, 1997 consist of fixed and
adjustable rate loans of approximately $10,952,000 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 $3,045,000. Of these lines, the outstanding loan balances
totaled approximately $3,600,000. 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 March 31, 1997
of approximately $554,000. At March 31, 1997, the Bank had loan
commitments to sell $1,000,000 in fixed rate residential loans which
had not been originated to FHLMC for the month of May, 1997.
5. 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.
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 will operate 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 subsidiary 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 (the "Reorgani zation"), 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 for record as of the close of business on
July 9, 1996.
Financial Condition
At March 31, 1997 total assets of the Corporation increased 26.31% to
$161,837,000 from $128,133,000 at September 30, 1996. The increase was
due primarily to a increase in loans receivable, net, of approximately
$36,562,000 or 42.52% during the six months ended March 31, 1997. The
increase was due primarily to increased purchases of adjustable-rate
loans in the six months ended March 31, 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 also increased from $3,685,000
at September 30, 1996 to $4,568,000 at March 31, 1997, a increase of
$883,000 or 23.97%. Deposits increased $24,127,000 or 25.75% to
$117,842,000 for the six months ended March 31, 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
$9,691,000 or 47.30% from $20,488,000 at September 30, 1996 to
$30,179,000 at March 31, 1997, as a result of increased loan
originations. Total investment and mortgage-backed securities decreased
$6,798,000, or 20.12%, to $26,998,000 during the six months ended March
31, 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 March 31, 1997, real estate acquired through foreclosure ("REO")
consisted of one property with a net book value of $1,500. Repossessed
assets consisted of $3,800 of automobiles as of March 31, 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
7.14% as of March 31, 1997. As in the past, management expects that the
Bank can meet its obligations to fund outstanding mortgage loan
commitments, which were approximately $3,527,000, as described in Note
4 to the Consolidated Financial Statements, and other loan commitments
as of March 31, 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 March 31, 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 $2,409 $10,763 $8,354
Tangible capital to adjusted total assets 1.50% 6.70% 5.20%
Core capital $4,882 $10,763 $5,881
Core capital to adjusted total assets 3.00% 6.70% 3.70%
Risk based capital $6,896 $11,682 $4,786
Risk based capital to risk weighted assets 8.00% 13.56% 5.56%
The reported capital requirements are based on information reported in
the OTS March 31, 1997 quarterly thrift financial report.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
General
Net income increased $140,000 or 25.27% to $694,000 for the six months
ended March
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31, 1997 as compared to the same period in 1996. The
increase in net income was due primarily to a 33.16% increase in net
interest income for the six months ended March 31, 1997 as compared to
the same period in 1996.
Interest Income
Interest income increased $997,000 or 22.60% for the six months ended
March 31, 1997 as compared to the same period in 1996. Interest income
on loans increased 34.19% or $1,087,000 to $4,267,000 for the six
months ended March 31, 1997 from $3,180,000 for the six moths ended
March 31, 1996 due to higher volumes. Interest income on overnight
deposits and federal funds sold and on mortgage-backed securities
decreased $16,000 and $177,000, respectively, for the six months ended
March 31, 1997 as compared to the same period in the prior year due
primarily to smaller balances. Interest and dividends on investment
securities increased $103,000 or 15.73% for the six months ended March
31, 1997 to $758,000 from $655,000 during the same period in 1996. The
increase was due primarily to an increase in interest rates.
Interest Expense
The Bank experienced an overall increase of $383,000 or 14.96% in
interest expense for the six months ended March 31, 1997 as compared to
the six months ended March 31, 1996. Interest expense on deposit
accounts decreased $142,000 or 6.26% to $2,127,000 for the six months
ended March 31, 1997 from $2,269,000 during the same period in 1996.
Lower rates along with lower costing deposits was the primary reason
for the decrease. Interest expense on borrowings increased $525,000 for
the six months ended March 31, 1997 as compared to the six months ended
March 31, 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 six months ended March 31, 1997, provisions for loan losses
were $144,000 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 at March 31, 1997 were approximately .80% of the Bank's
outstanding loan portfolio, net compared to 1.18% 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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MARCH 31, 1997 SEPTEMBER 30, 1996
-------------- ------------------
Non-accruing loans which are
contractually past due 90 days
or more:
Real Estate:
Residential $580 $1,049
Commercial 0 74
Construction -- --
Non-mortgage 251 --
----- ------
Total $831 1,123
==== =====
Percentage of loans receivable, net .73% 1.33%
==== =====
Allowance for loan losses $920 $799
==== ====
Real estate acquired through
foreclosure and repossessed
assets, net of allowances $ 5 $ 19
=== ====
Non Interest Income and Expense
Total non-interest income increased $33,000 or 13.42% to $279,000 for
the six months ended March 31, 1997 from $246,000 for the same period
in the previous year. This increase was due in large part to an
increase in fees for financial services of $55,000 or 27.92% during the
six months ended March 31, 1997 as compared to the six months ended
March 31, 1996. The increase in fees was a direct result of fee and
account restructuring that occurred in the previous year. 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 six months ended March 31, 1997 as
compared to $0 for the six months ended March 31, 1996.
For the six months ended March 31, 1997, total non-interest expense
increased $204,000 or 15.76% to $1,499,000 from $1,295,000 for the same
period in 1996. The current year period ending March 31, 1997 includes
additional expenses for a new branch acquisition along with expenses
for the new Mortgage Division. During this same time period, the
Corporation also changed the name of the subsidiary bank from Union
Federal Savings Bank to Provident Community Bank. As a result of the
name change, the Corporation incurred additional advertising and legal
expenses. Compensation and employee benefits increased $107,000 or
16.80% to $744,000 for the six months period ended March 31, 1997 from
$637,000 for the same period in 1996. Occupancy and equipment expense
increased $52,000 or 19.12% to $324,000 for the six months ended March
31, 1997 from $272,000 for the same period in
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1996. Professional services expenses increased $69,000 or 87.35% to
$148,000 for the six months period ended March 31, 1997 from $79,000
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. As stated above 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 six months ended March 31, 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
The Annual Meeting of Stockholders of the Company was held on
January 22, 1997. 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
Louis M. Jordan 475,027 40,040
------- ------
Dwight V. Neese 477,495 37,572
------- ------
Broker non-votes totaled 93,738 .
2> The amendment of the Corporation's Certificate of
Incorporation to increase the number of authorized
shares from 1,500,000 to 2,500,000 was approved by
stockholders by the following vote:
For 471,008; Against 11,448; Abstain 28,458
Broker non-votes totaled 93,738 .
3> The appointment of Elliott, Davis & Company, LLP, as
auditors for
17
<PAGE>
<PAGE>
the Corporation for the fiscal year ending September
30, 1997 was ratified by shareholders by the
following vote:
For 488,861; Against 0; Abstain 26,206
Broker non-votes totaled 93,738 .
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
None
18
<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: May 8, 1997 By:/s/DWIGHT V. NEESE
----------- ------------------
Dwight V. Neese, CEO
Date: May 8, 1997 By:/s/RICHARD H. FLAKE
----------- -------------------
Richard H. Flake, CFO
19
<PAGE>
<PAGE>
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