<PAGE> 1
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, 2000
--------------
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)429-1864
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 1,901,721 shares, $0.01 par value, common stock as of April 26,
2000.
<PAGE> 2
UNION FINANCIAL BANCSHARES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of March 31, 2000
and September 30, 1999 3
Consolidated Statements of Income for the three and six months
ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the six
months ended March 31, 2000 and 1999 5
Consolidated Statements of Shareholders' Equity for the
six months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II. OTHER INFORMATION 14
-----------------
Signatures 15
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATING BALANCE SHEET
MARCH 31, 2000 (UNAUDITED) AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ASSETS MARCH 31, SEPTEMBER 30,
2000 1999
--------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash $ 1,536 $ 3,149
Short term interest-bearing deposits 4,983 2,421
------------ ------------
Total cash and cash equivalents 6,519 5,570
------------ ------------
Investment and mortage-backed securities
Held to maturity 12,472 5,586
Available for sale 29,477 27,335
------------ ------------
Total investment and mortgage-backed securities 41,949 32,921
Loans, net
Held for sale 970 216
Held for investment 191,257 149,185
------------ ------------
Total loans receivable, net 192,227 149,401
Office properties and equipment, net 5,516 4,524
Federal Home Loan Bank Stock, at cost 2,095 2,050
Accrued interest receivable 2,070 1,574
Mortgage servicing rights 3,176 3,842
Goodwill intangible 4,315 1,818
Other assets 3,122 3,594
------------ ------------
TOTAL ASSETS $ 260,989 $ 205,294
============ ============
LIABILITIES
Deposit accounts $ 197,694 $ 142,624
Advances from Federal Home Loan Bank and
other borrowings 40,668 46,503
Accrued interest on deposits 355 226
Advances from borrowers for taxes and insurance 342 548
Other liabilities 1,533 655
------------ ------------
TOTAL LIABILITIES 240,592 190,556
------------ ------------
SHAREHOLDERS' EQUITY
Serial preferred stock, no 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 - 1,901,721 shares
at 3/31/00 and 1,357,214 at 9/30/99 20 14
Additional paid-in capital 11,263 5,484
Accumulated other comprehensive income (2,351) (1,779)
Retained earnings, substantially restricted 11,465 11,019
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 20,397 14,738
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 260,989 $ 205,294
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED) AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999 2000 1999
------------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 3,773 $ 2,631 $ 7,222 $ 5,569
Deposits and federal funds sold 19 31 39 50
Mortgage-backed securities 266 391 538 747
Interest and dividends on
investment securities 384 226 751 434
------------ ------------ ------------- -------------
TOTAL INTERST INCOME 4,442 3,279 8,550 6,800
------------ ------------ ------------- -------------
INTEREST EXPENSE:
Deposit accounts 2,145 1,454 3,815 2,868
Advances from the FHLB and other
borrowings 587 407 1,292 968
------------ ------------ ------------- -------------
TOTAL INTEREST EXPENSE 2,732 1,861 5,107 3,836
------------ ------------ ------------- -------------
NET INTEREST INCOME 1,710 1,418 3,443 2,964
Provision for loan losses 0 30 50 45
------------ ------------ ------------- -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,710 1,388 3,393 2,919
------------ ------------ ------------- -------------
NON INTEREST INCOME:
Fees for financial services 300 206 616 388
Loan servicing fees (costs) 23 (3) 38 (75)
Net gains (losses) on sale of
investments 0 7 0 7
------------ ------------ ------------- -------------
Net gains (losses) on sale of loans 22 231 131 374
------------ ------------ ------------- -------------
TOTAL NON INTEREST INCOME 345 441 785 694
NON INTEREST EXPENSE:
Compensation and employee benefits 792 600 1,486 1,182
Occupancy and equipment 367 252 698 535
Deposit insurance premiums 8 17 29 42
Professional services 94 62 179 137
Real estate operations 10 (3) 15 2
Goodwill amortization 96 53 185 115
Other 218 211 406 388
------------ ------------ ------------- ------------
TOTAL NON INTERST EXPENSE 1,585 1,192 2,998 2,401
------------ ------------ ------------- ------------
INCOME BEFORE INCOME TAXES 470 637 1,180 1,212
Income tax expense 164 232 417 439
------------ ------------ ------------- ------------
NET INCOME $ 306 $ 405 $ 763 $ 773
------------ ------------ ------------- ------------
BASIC NET INCOME PER COMMON SHARE $ 0.16 $ 0.30 $ 0.42 $ 0.57
============ ============ ============= ============
DILUTED NET INCOME PER COMMON SHARE $ 0.16 $ 0.28 $ 0.42 $ 0.55
============ ============ ============= ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
BASIC 1,899,516 1,347,669 1,804,177 1,345,999
DILUTED 1,910,002 1,423,567 1,819,761 1,417,297
See notes to consolidated financial statements.
</TABLE>
4
<PAGE> 5
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED) AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $763 $773
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 50 45
Amortization of intangibles 185 115
Depreciation expense 216 163
Recognition of deferred income, net of costs (27) (55)
Deferral of fee income, net of costs 224 18
Loans originated for sale 17,977 (81,611)
Sale of loans (17,977) 86,529
Gain on sale of loans (131) (381)
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable (496) (135)
(Increase) decrease in other assets 472 164
Increase (decrease) in other liabilities 672 (1,297)
Increase (decrease) in accrued interest payable 129 (80)
--------- ---------
Net cash provided by (used by) operating activities 2,057 4,248
INVESTING ACTIVITIES:
Purchase of investment and mortgage-backed securities:
Held to maturity (4,886) 0
Available for sale (2,901) (18,930)
Investments acquired in merger (2,602) 0
Proceeds from sale of investment and mortgage-
backed securities 0 2,090
Proceeds from maturity of investment and mortgage-
backed securities:
Available for sale 0 4,657
Principal repayments on mortgage-backed securities:
Held to maturity 386 165
Available for sale 975 2,565
Loans acquired in merger (41,144) 0
Net (increase) decrease in loans (2,371) 5,244
Net (increase) decrease in mortgage servicing rights 666 (833)
Purchase of FHLB stock (45) 0
Redemption of FHLB stock 0 290
Purchase of office properties and equipment (1,206) (423)
--------- ---------
Net cash provided by (used by) investing activities ($53,128) ($5,175)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from the dividend reinvestment plan 123 97
Dividends paid in cash ($0.10 per share - 2000
and $0.093 per share - 1999) (317) (242)
Proceeds from the exercise of stock options 13 0
Increase in goodwill intangible (2,682) (1,073)
Proceeds from term borrowings (5,835) (16,872)
Capital acquired in merger 5,648 0
Deposits acquired in acquisition 35,688 12,622
Increase (Decrease) in deposit accounts 19,382 8,494
--------- ---------
Net cash (used by) provided by financing activities 52,020 3,026
--------- ---------
NET DECREASE\INCREASE IN CASH
AND CASH EQUIVALENTS 949 2,099
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 5,570 3,593
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $6,519 $5,692
========== =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Income taxes $0 $803
Interest 4,977 3,916
Non-cash transactions:
Loans foreclosed 200 0
See notes to consolidated financial statements.
</TABLE>
5
<PAGE> 6
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 2000 AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Retained Accumulated
Additional Earnings Other Total
Common Stock Paid-in Substantially Comprehensive Shareholders'
Shares Amount Capital Restricted Income Equity
------ ------ ------- ---------- ------ ------
(In Thousands, Except Share Data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1998 1,278,250 $13 $4,475 $10,664 $148 $15,300
Net income 773 773
Other comprehensive income
Unrealized losses on securities:
Unrealized holding losses arising during
period (559) (559)
----- -----
Comprehensive income 214
Dividend reinvestment plan contributions 6,813 0 97 97
Five percent stock dividend 64,090
Cash dividend ($.093 per share) (242) (242)
----------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1999 1,349,153 13 4,572 11,195 (411) 15,369
==================================================================================
BALANCE AT SEPTEMBER 30, 1999 1,357,214 14 5,484 11,019 (1,779) 14,738
Net income 763 763
Other comprehensive income
Unrealized losses on securities:
Unrealized holding losses arising during
period (572) (572)
----- -----
Comprehensive loss 191
Options exercised 2,200 13 13
Dividend reinvestment plan contributions 16,124 1 123 124
Acquisition of SC Community Bancshares 526,183 5 5,643 5,648
Cash dividend ($.20 per share) (317) (317)
----------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2000 1,901,721 $20 $11,263 $11,465 ($2,351) $20,397
==================================================================================
</TABLE>
6
<PAGE> 7
UNION FINANCIAL BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 (the "Bank"). The results of
operations for the six months ended March 31, 2000 are not necessarily
indicative of the results which may be expected for the entire fiscal
year. The consolidated balance sheet as of September 30, 1999 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.
SFAS No. 133, Accounting for Derivative Instruments and Hedging
--------------------------------------------------------
Activities-This statement establishes accounting and reporting standards
----------
for derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use
of the derivative. The statement is effective for the Corporation for the
fiscal year beginning October 1, 1999 and may not be applied
retroactively.
SFAS No. 134, Accounting for Mortgage-Backed Securities Retained after the
------------------------------------------------------------
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
--------------------------------------------------------------------------
Enterprise. The new statement establishes accounting and reporting
----------
standards for certain activities of mortgage banking activities. The
statement is effective for the first quarter beginning December 15, 1998.
This statement had no effect on the financial statements of the
Corporation.
2. Income Per Share
----------------
Effective January 31, 1999, the Corporation declared a 5% stock dividend.
The weighted average number of shares and all other share data have been
restated for all periods presented to reflect this dividend.
Income per share amounts for the three and six months ended March 31, 2000
and 1999 were
7
<PAGE> 8
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 $13,966,000 and $12,963,000 of debt securities at March 31,
2000 and September 30, 1999, respectively, were pledged by the Bank as
collateral to secure deposits of the State of South Carolina, Laurens
County and certain other liabilities. The Bank pledges as collateral for
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 on 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, 2000 related to these items is summarized below:
<TABLE>
<CAPTION>
Loan Commitments: Contract Amount
- ---------------- ---------------
<S> <C>
Unadvanced portions of loans $ 7,880,000
Total loan commitments $ 7,880,000
-----------
</TABLE>
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, 2000 consist of fixed and adjustable
rate loans of approximately $7,880,000 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
8
<PAGE> 9
estate and overdraft protection) totaled approximately $19,656,000 at
March 31, 2000. Of these lines, the outstanding loan balances totaled
approximately $11,776,000. The Bank also has commitments to fund warehouse
lines of credit for various mortgage banking companies totaling $750,000,
which had an outstanding balance at March 31, 2000 of approximately $ 0.
At March 31, 2000, the Bank had loan commitments to sell $3,971,000 in
fixed rate residential loans which had not been closed to Freddie Mac for
the months of April-June, 2000.
5. Acquisition of South Carolina Community Bancshares, Inc.
-------------------------------------------------------
On November 12, 1999, the Corporation completed the acquisition of South
Carolina Community Bancshares, Inc. and its wholly owned subsidiary,
Community Federal Savings Bank. The Corporation issued a total of 526,290
shares and paid a total of $3,582,081 to the shareholders of South
Carolina Community Bancshares, Inc. The transaction was accounted for
under the purchase method of accounting. The two offices of Community
Federal Savings Bank became offices of Provident Community Bank. At
September 30, 1999, South Carolina Community Bancshares, Inc. had total
assets of $46.6 million, loans of $40.2 million and deposits of $35.9
million. Approximately $1.7 million in goodwill was created with the
transaction and will be amortized straight-line over 15 years.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition
-------------------
At March 31, 2000, total assets of the Corporation increased $55,695,000
or 27.13% to $260,989,000 from $205,294,000 at September 30, 1999
primarily as a result of the acquisition of South Carolina Community
Bancshares, which was completed on November 12, 1999. Investments and
mortgage-backed securities increased approximately $9,028,000 or 27.42%
during the six months ended March 31, 2000. Loans increased $42,826,000 or
28.67% to $192,227,000 for the six months ended March 31, 2000. The
increase in loans included approximately $41.1 million from the
acquisition of South Carolina Community Bancshares of which 91.4% were
residential mortgage loans. At March 31, 2000, mortgage servicing rights
decreased $666,000 or 17.33% to $3,176,000 from $3,842,000 at September
30, 1999. The reduction in mortgage servicing rights was due to a sale of
servicing of approximately $30 million that was completed in October,
1999. In conjunction with this reduction, loans serviced for others
decreased from $257,906,000 at September 30, 1999 to $233,771,000 at March
31, 2000. Deposits increased $55,070,000 or 38.61% to $197,694,000 for the
six months ended March 31, 2000. Approximately $35,900,000 or 84.3% of the
deposit increase was a result of the South Carolina Community Bancshares
acquisition. The remaining growth was a result of various deposit
promotion programs with continued emphasis on core deposits.
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 4% of with drawable deposits plus short-term borrowings. The
liquidity level of the Bank as measured for regulatory purposes was 14.00%
as of March 31, 2000. As in the past, management expects that the Bank
can meet its obligations to fund outstanding loan commitments 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 4% of adjusted total assets and risk based capital
must be a minimum of 8% of risk weighted assets.
10
<PAGE> 11
As of March 31, 2000, the Bank's capital position, as calculated under
regulatory guidelines, exceeds these minimum requirements as follows
(dollars in thousands):
<TABLE>
<CAPTION>
REQUIREMENT ACTUAL EXESS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tangible capital $3,888 $18,496 $14,608
Tangible capital to adjusted total assets 1.50% 7.14% 5.64%
Core capital $10,369 $18,496 $8,127
Core capital to adjusted total assets 4.00% 7.14% 3.14%
Risk based capital $12,782 $19,767 $6,985
Risk based capital to risk weighted assets 8.00% 12.37% 4.37%
The reported capital requirements are based on information reported in the
OTS March 31, 2000 quarterly thrift financial report.
</TABLE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
----------------------------------------------------------------------
General
-------
Net income decreased $10,000 or 1.29% to $763,000 for the six months ended
March 31, 2000 as compared to the same period in 1999. Non interest income
increased $91,000 or 13.11% and net interest income after provision for
loan losses increased $474,000 or 16.24%. All current year comparative
references reflect the acquisition of South Carolina Community Bancshares
from the acquisition date, November 12, 1999.
Interest Income
---------------
Interest income increased $1,750,000 or 25.74% for the six months ended
March 31, 2000 as compared to the same period in 1999. Interest income on
loans increased 29.68% or $1,653,000 to $7,222,000 for the six months
ended March 31, 2000 from $5,569,000 for the six months ended March
31,1999 due primarily to growth of the portfolio and the acquisition of
South Carolina Community Bancshares. Interest and dividends on investment
and mortgage-backed securities increased $97,000 or 7.88% for the six
months ended March 31, 1999 to $1,328,000 from $1,231,000 during the same
period in 1999. The increase was due primarily to an increase in the level
of purchases in investment and mortgage-backed securities made during the
first two quarters of the fiscal year along with the investments acquired
from South Carolina Community Bancshares.
Interest Expense
----------------
Interest expense increased $1,271,000 or 33.13% for the six months ended
March 31, 2000 as compared to the six months ended March 31, 1999 due
primarily to the growth in deposits
11
<PAGE> 12
primarily due to the deposits that were acquired from South Carolina
Community Bancshares. Interest expense on deposit accounts increased
$947,000 or 33.02% to $3,815,000 for the six months ended March 31, 2000
from $2,868,000 during the same period in 1999. Interest expense on
borrowings increased $324,000 or 33.47% for the six months ended March 31,
2000 as compared to the six months ended March 31, 1999. The increase was
due primarily to rising rates during the period.
Provision for Loan Loss
-----------------------
During the six months ended March 31, 2000, provisions for loan losses
were $50,000 as compared to $45,000 for the same period in the previous
year. The increase in loan loss provisions are due to the growth in the
loan portfolio as a result of the acquisition of South Carolina Community
Bancshares. 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, 2000 were approximately .66% of the Bank's
outstanding loan portfolio, net of loans held for sale compared to .74%
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):
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
<S> <C> <C>
Non-accruing loans which are
contractually past due 90 days
or more:
Real Estate:
Residential $1,267 $ 42
Commercial -- --
Construction -- --
Non-mortgage 276 141
--- ---
Total $1,544 $ 183
====== =====
Percentage of loans receivable, net 0.80% 0.12%
==== ====
Allowance for loan losses $1,271 $836
====== ====
Real estate acquired through
foreclosure and repossessed
assets, net of allowances $441 $241
==== ====
</TABLE>
All non-accruing loans and allowance for loan losses for the period ending
March 31, 2000 reflect loans and balances assumed with the acquisition of
South Carolina Community
12
<PAGE> 13
Bancshares.
Non Interest Income and Expense
-------------------------------
Total non interest income increased $91,000 or 13.11% to $785,000 for the
six months ended March 31, 2000 from $694,000 for the same period in the
previous year. The increase in non-interest income from the previous year
was due to increased fees from financial services which increased from
$388,000 at March 31, 1999 to $616,000 at March 31, 2000. Loan servicing
fee income for the six months ended March 31, 2000 was $38,000 compared to
loan service fee income of ($75,000) for the six months ended March 31,
1999. The increase in the loan servicing income is due to lower premium
amortization expense as a result of lower loan prepayments. Gain on sale
of loans decreased $243,000 or 64.97% to $131,000 for the six months ended
March 31, 2000 from $374,000 for the same period in the previous year. The
reduction was due to lower volumes of loans sold.
For the six months ended March 31, 2000, total non interest expense
increased $597,000 or 24.86% to $2,998,000 from $2,401,000 for the same
period in 1999. All expenses were affected by the acquisition of South
Carolina Community Bancshares. Compensation and employee benefits
increased $304,000 or 25.72% to $1,486,000 for the six month period ended
March 31, 2000 from $1,182,000 for the same period in 1999. Occupancy and
equipment expense increased $163,000 or 30.47% to $698,000 for the six
months ended March 31, 2000 from $535,000 for the same period in 1999.
Professional services expenses increased $42,000 or 30.66% to $179,000 for
the six month period ended March 31, 2000 from $137,000 for the same
period in 1999. The increase in compensation and employee benefits was due
primarily to the additional staff assumed in the merger. The increase in
occupancy and equipment expenses was due to higher data processing costs
along with higher depreciation expense. Goodwill amortization increased
from $115,000 at March 31, 1999 to $185,000 at March 31, 2000. The
increase was due to the additional amortization expense required for the
merger. Other operating expense for the six months ended March 31, 2000
increased $18,000 to $406,000 from $388,000 for the same period in 1999.
The increase in other operating expenses was due to increases in forms and
printing costs.
Year 2000
---------
The Corporation's formal Year 2000 plan provided the framework for a
successful year end changeover. All systems and procedures were tested on
January 1 to ensure compliance with the established plan. To date, all
equipment has worked properly and no service providers or customers have
notified the Corporation of any problems that would have a material
adverse effect on the Corporation.
13
<PAGE> 14
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 the Stockholders of the Corporation was held
on January 19, 2000. 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:
<TABLE>
<CAPTION>
Vote For Vote Withheld
-------- -------------
<S> <C> <C>
Louis M. Jordan 1,162,016 91,093
Dwight V. Neese 1,180,210 72,899
Philip C. Wilkins 1,187,763 65,346
</TABLE>
2. The appointment of Elliott, Davis & Company, LLP, as auditors
for the Corporation for the fiscal year ending September 30,
2000 was ratified by the shareholders by the following vote:
For 1,171,079 Against 60,611 Abstain 21,419
--------- ------ ------
ITEM 5. Other Information
-----------------
None
14
<PAGE> 15
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
None
Exhibits
--------
27 Financial Data Schedule
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION FINANCIAL BANCSHARES, INC.
--------------------------------
(REGISTRANT)
Date: 5-4-00 By: /s/ Dwight V. Neese
------------------------------------
Dwight V. Neese, CEO
Date: 5/4/00 By: /s/ Richard H. Flake
------------------------------------
Richard H. Flake, CFO
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the consolidated
financial statements of Union Financial Bancshares, Inc. for the year to date
period ended March 31, 2000 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000926164
<NAME> Union Financial Bancshares, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 1,536
<INT-BEARING-DEPOSITS> 4,938
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,477
<INVESTMENTS-CARRYING> 12,472
<INVESTMENTS-MARKET> 11,878
<LOANS> 192,227
<ALLOWANCE> 1,271
<TOTAL-ASSETS> 260,989
<DEPOSITS> 197,694
<SHORT-TERM> 15,668
<LIABILITIES-OTHER> 1,533
<LONG-TERM> 25,000
0
0
<COMMON> 20
<OTHER-SE> 20,377
<TOTAL-LIABILITIES-AND-EQUITY> 260,989
<INTEREST-LOAN> 7,222
<INTEREST-INVEST> 1,289
<INTEREST-OTHER> 39
<INTEREST-TOTAL> 8,550
<INTEREST-DEPOSIT> 3,815
<INTEREST-EXPENSE> 5,107
<INTEREST-INCOME-NET> 3,443
<LOAN-LOSSES> 50
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,998
<INCOME-PRETAX> 1,180
<INCOME-PRE-EXTRAORDINARY> 763
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 763
<EPS-BASIC> 0.42
<EPS-DILUTED> 0.42
<YIELD-ACTUAL> 7.82
<LOANS-NON> 1,531
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,047
<ALLOWANCE-OPEN> 836
<CHARGE-OFFS> 100
<RECOVERIES> 535
<ALLOWANCE-CLOSE> 1,271
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,271
</TABLE>
