<PAGE>
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, 1999
-----------------
- -------
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 1,890,218 shares, $0.01 par value, common stock as of February 1,
2000.
<PAGE>
UNION FINANCIAL BANCSHARES, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
--------------------- -----
<S> <C>
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of December 31, 1999
and September 30, 1999 3
Consolidated Statements of Income for the three months
ended December 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the three
months ended December 31, 1999 and 1998 5
Consolidated Statements of Shareholders' Equity for the
three months ended December 31, 1999 and 1998 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
</TABLE>
<PAGE>
Item 1. Financial Statements
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 (unaudited) and September 30, 1999
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ -------------
ASSETS (DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash $ 4,697 $ 3,149
Short term interest-bearing deposits 4,775 2,421
---------- ----------
Total cash and cash equivalents 9,472 5,570
---------- ----------
Investment and mortgage-backed securities:
Held to maturity 9,609 5,586
Available for sale 25,993 27,335
---------- ----------
Total investment and mortgage-backed securities 35,602 32,921
Loans, net
Held for sale 306 216
Held for investment 191,050 149,185
---------- ----------
Total loans receivable, net 191,356 149,401
Office properties and equipment, net 5,085 4,524
Federal Home Loan Bank Stock, at cost 2,263 2,050
Accrued interest receivable 2,105 1,574
Mortgage servicing rights 3,277 3,842
Goodwill intangible 4,294 1,818
Other assets 3,421 3,594
---------- ----------
TOTAL ASSETS $ 236,875 $ 205,294
========== ==========
LIABILITIES
Deposit accounts $ 185,215 $ 142,624
Advances from the Federal Home Loan Bank and
other borrowings 50,003 46,503
Accrued interest on deposits 340 226
Advances from borrowers for taxes and insurance 215 548
Other liabilities 1,031 655
---------- ----------
TOTAL LIABILITIES 236,804 190,556
---------- ----------
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 -
1,890,218 shares at 12/31/99 and 1,357,214 at 9/30/99 19 14
Additional paid-in capital 11,190 5,484
Accumulated other comprehensive income (2,488) (1,779)
Retained earnings, substantially restricted 11,350 11,019
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 20,071 14,738
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 256,875 $ 205,294
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended December 31, 1999 (unaudited) and 1998 (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31, December 31,
1999 1998
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest Income:
Loans $ 3,492 $ 2,938
Deposits and federal funds sold 19 19
Mortgage-backed securities 272 356
Interest and dividends on investment securities 367 208
--------- ---------
Total Interest Income 4,150 3,521
--------- ---------
Interest Expense:
Deposit accounts 1,670 1,414
Advances from the FHLB and other borrowings 703 560
--------- ---------
Total Interest Expense 2,373 1,974
--------- ---------
Net Interest Income 1,777 1,547
Provisions for loan losses 50 15
--------- ---------
Net Interest Income After Provision for Loan Losses 1,727 1,532
--------- ---------
Non Interest Income:
Fees for financial services 263 196
Loan servicing fees (costs) 24 (86)
Net gains (losses) on sale of loans 109 143
--------- ---------
Total Non Interest Income 396 253
--------- ---------
Non Interest Expense:
Compensation and employee benefits 694 582
Occupancy and equipment 331 283
Deposit insurance premiums 20 25
Professional services 84 75
Real estate operations 5 5
Goodwill amortization 99 53
Other 180 186
--------- ---------
Total Non Interest Expense 1,413 1,209
--------- ---------
Income Before Income Taxes 710 576
Income Tax expense 253 208
--------- ---------
Net Income $ 457 $ 368
========= =========
Basic Net Income Per Common Share $ 0.27 $ 0.27
========= =========
Diluted Net Income Per Common Share $ 0.26 $ 0.26
========= =========
Weighted Average Number of Common Shares Outstanding
Basic 1,709,874 1,344,365
Diluted 1,730,502 1,411,163
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 1999 (unaudited) and 1998 (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31, December 31,
1999 1998
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 457 $ 368
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 50 15
Amortization of intangibles 99 53
Depreciation expense 101 79
Recognition of deferred income, net of costs (25) (25)
Deferral of fee income, net of costs 221 4
Loans originated for sale 7,164 40,119
Sale of loans (7,164) (40,119)
Gain on sales of loans 109 143
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable (531) (49)
(Increase) decrease in other assets 173 (401)
Increase (decrease) in other liabilities 43 (1,055)
Increase (decrease) in accrued interest payable 114 (44)
---------- ----------
Net cash provided by (used by) operating activities 811 (912)
---------- ----------
INVESTING ACTIVITIES:
Purchase of investment and mortgage-backed securities:
Held to maturity (982) 0
Available for sale 0 (11,022)
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 1,374
Principal repayments on mortgage-backed securities:
Held to maturity 266 165
Available for sale 637 1,315
Loans acquired in merger (41,144) 0
Net (increase) decrease in loans (1,974) 7,928
Net (increase) decrease in mortgage servicing rights 565 (685)
Purchase of FHLB stock (213) (30)
Redemption of FHLB stock 0 0
Purchase of office properties and equipment (662) (161)
---------- ----------
Net cash provided by (used by) investing activities $ (46,109) $ 974
---------- ----------
FINANCING ACTIVITIES:
Proceeds from the dividend reinvestment plan 50 19
Dividends paid in cash (126) (96)
Proceeds from the exercise of stock options 13 0
Increase in goodwill intangible (2,476) 0
Proceeds from term borrowings 3,500 (4,895)
Capital acquired in merger 5,648 0
Deposits acquired in merger 35,688 0
Increase (Decrease) in deposit accounts 6,903 6,048
---------- ----------
Net cash (used by) provided by financing activities 49,200 1,076
---------- ----------
NET DECREASE/INCREASE IN CASH
AND CASH EQUIVALENTS 3,902 1,138
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 5,570 3,593
---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 9,472 $ 4,731
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Income taxes $ 0 $ 443
Interest 2,373 1,974
Non-cash transactions:
Loans foreclosed 0 0
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
UNION FINANCIAL BANCSHARES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998 (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 $15,300
Net income 368 368
Other comprehensive income
Unrealized losses on securities:
Unrealized holding losses arising during
period (227) (227)
----- -----
Comprehensive income 141
Dividend reinvestment plan contributions 3,150 0 18 18
Cash dividend ($.093 per share) (96) (96)
----------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 1,281,400 13 4,493 10,936 (79) 15,363
============================================================================
BALANCE AT SEPTEMBER 30, 1999 1,357,214 14 5,484 11,019 (1,779) 14,738
Net income 457 457
Other comprehensive income
Unrealized losses on securities:
Unrealized holding losses arising during
period (709) (709)
----- -----
Comprehensive loss (252)
Options exercised 2,200 13 13
Dividend reinvestment plan contributions 4,621 50 50
Acquisition of SC Community Bancshares 526,183 5 5,643 5,648
Cash dividend ($.093 per share) (126) (126)
----------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 1,890,218 $19 $11,190 $11,350 ($2,488) $20,071
============================================================================
</TABLE>
6
<PAGE>
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
three months ended December 31, 1999 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.
SFAS No. 135, Rescission of SFAS No. 75 and Technical Corrections. This
---------------------------------------------------
statement provides technical corrections for previously issued statements
and rescinds SFAS No. 75, which provides guidance related to pension plans
of state and local governmental units. SFAS No. 135 is effective for fiscal
years ending after February 15, 1999. The adoption of SFAS No. 135 did not
have a material impact on the presentation of the Corporation's financial
results or financial position.
SFAS No. 136, Transfers of Assets to a Not-for-Profit Organization or
-------------------------------------------------------
Charitable Trust that Raises or Holds Contributions for Others. This
--------------------------------------------------------------
statement establishes standards for transactions in which an entity makes a
contribution by transferring assets to not-for-profit
7
<PAGE>
organization or charitable trust and then requires these contributions to
be used on specified manner. SFAS 136 is effective for fiscal years
beginning after December 15, 1999. The Corporation does not expect that the
adoption of SFAS No. 136 will have a material impact on the presentation of
the Corporation's financial results or financial position.
2. Income Per Share
----------------
Effective January 31, 1999, the Corporation declared a stock dividend of 5%
per share on common stock. 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 months ended December 31, 1999 and
1998 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 $12,947,000 and $12,963,000 of debt securities at December
31, 1999 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 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, 1999 related to these items is summarized below:
Loan Commitments: Contract Amount
----------------- ---------------
Approved loan commitments $ 808,000
Unadvanced portions of loans 8,001,000
----------
Total loan commitments $8,809,000
----------
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
8
<PAGE>
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 commitments are a combination of fixed and residential
property. Interest rates on loan commitments are a combination of fixed
and variable.
Commitments outstanding at December 31, 1999 consist of fixed and
adjustable rate loans of approximately $8,809,000 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
$19,701,000 at December 31, 1999. Of these lines, the outstanding loan
balances totaled approximately $11,700,000. 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 December 31, 1999 of
approximately $0. At December 31, 1999, the Bank had loan commitments to
sell $5,225,000 in fixed rate residential loans which had not been closed
to Freddie Mac for the months of January-March 2000.
5. Acquisition of South Carolina Community Bancshares, Inc.
--------------------------------------------------------
On November 12, 1999, the Corporation, through its subsidiary, Provident
Community Bank, 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.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
-------------------
At December 31, 1999 total assets of the Corporation increased $51,581,000
or 25.13% to $256,875,000 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 $2,681,000 or 8.14% during the three
months ended December 31, 1999. Loans increased $41,955,000 or 28.08% to
$191,356,000 for the three months ended December 31, 1999. The increase in
loans included approximately $40.2 million from the acquisition of South
Carolina Community Bancshares of which 91.4% were residential mortgage
loans. Deposits increased $42,591,000 or 29.86% to $185,215,000 for the
three months ended December 31, 1999. 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. At
December 31, 1999, mortgage servicing rights decreased $565,000 or 14.71%
to $3,277,000 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 $227,017,000 at December 31, 1999.
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 withdrawable deposits plus short-term borrowings. The liquidity
level of the Bank as measured for regulatory purposes was 16.70% as of
December 31, 1999. As in the past, management expects that the Bank can
meet its obligations to fund outstanding mortgage loan commitments, which
were approximately $808,000, as described in Note 4 to the Consolidated
Financial Statements, and other loan commitments as of December 31, 1999,
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.
As of December 31, 1999, the Bank's capital position, as calculated under
regulatory guidelines, exceeds these minimum requirements as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Requirement Actual Excess
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tangible capital $ 3,853 $18,178 $14,325
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C> <C>
Tangible capital to adjusted total assets 1.50% 7.13% 5.63%
Core capital $10,204 $18,178 $ 7,974
Core capital to adjusted total assets 4.00% 7.13% 3.13%
Risk based capital $12,983 $19,446 $ 6,463
Risk based capital to risk weighted assets 8.00% 11.98% 3.98%
</TABLE>
The reported capital requirements are based on information reported in the
OTS December 31, 1999 quarterly thrift financial report.
Results of operations for the three months ended December 31, 1999 and
----------------------------------------------------------------------
1998
----
General
-------
Net income increased $89,000 or 24.18% to $457,000 for the three months
ended December 31, 1999 as compared to the same period in 1998. Non
interest income increased $143,000 or 56.52% and net interest income after
provision for loan losses increased $195,000 or 12.73%.
Interest Income
---------------
Interest income increased $629,000 or 17.86% for the three months ended
December 31, 1999 as compared to the same period in 1998. Interest income
on loans increased 18.86% or $554,000 to $3,492,000 for the three months
ended December 31, 1999 from $2,938,000 for the three months ended December
31,1998 due primarily to growth of the portfolio. Interest and dividends on
investment and mortgage-backed securities increased $75,000 or 13.3% for
the three months ended December 31, 1999 to $639,000 from $564,000 during
the same period in 1998. The increase was due primarily to an increase in
the level of purchases in investment and mortgage-backed securities made
during the first quarter of the fiscal year.
Interest Expense
----------------
The Corporation experienced an overall increase of $399,000 or 20.21% in
interest expense for the three months ended December 31, 1999 as compared
to the three months ended December 31, 1998 due primarily to the growth in
the deposit base. Interest expense on deposit accounts increased $256,000
or 18.10% to $1,670,000 for the three months ended December 31, 1999 from
$1,414,000 during the same period in 1998. Interest expense on borrowings
increased $143,000 or 25.54% for the three months ended December 31, 1999
as compared to the three months ended December 31, 1998. The increase was
due to higher volumes in FHLB advances and rising rates during the period.
Provision for Loan Loss
-----------------------
During the three months ended December 31, 1999, provisions for loan losses
were $50,000
11
<PAGE>
as compared to $15,000 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 December 31, 1999 were approximately .66% of the Bank's
outstanding loan portfolio, net of loans held for sale compared to .82% 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>
December 31, 1999 September 30, 1999
------------------ -------------------
<S> <C> <C>
Non-accruing loans which are
contractually past due 90 days
or more:
Real Estate:
Residential $ 921 $ 42
Commercial -- --
Construction -- --
Non-mortgage 394 141
--- ---
Total $1,315 $ 183
------ -----
Percentage of loans receivable, net 0.68% 0.12%
----- -----
Allowance for loan losses $1,268 $ 836
------ -----
Real estate acquired through
foreclosure and repossessed
assets, net of allowances $ 241 $ 241
------ -----
</TABLE>
All non-accruing loans and allowance for loan losses for the quarter ended
December 31, 1999 reflect loans and balances assumed with the acquisition
of South Carolina Community Bancshares.
Non Interest Income and Expense
-------------------------------
Total non interest income increased $143,000 or 56.52% to $396,000 for the
three months ended December 31, 1999 from $253,000 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
$196,000 at December 31, 1998 to $263,000 at December 31, 1999. Loan
servicing fee income for the three months ended December 31, 1999 was
$24,000 compared to loan service fee income of ($86,000) for the three
months ended December 31, 1998. The increase in the loan servicing income
is due to lower premium amortization expense as a result of lower loan
prepayments.
12
<PAGE>
For the three months ended December 31, 1999, total non interest expense
increased $204,000 or 16.87% to $1,413,000 from $1,209,000 for the same
period in 1998. All expenses were affected by the acquisition of South
Carolina Community Bancshares. Compensation and employee benefits increased
$112,000 or 19.24% to $694,000 for the three month period ended December
31, 1999 from $582,000 for the same period in 1998. Occupancy and equipment
expense increased $48,000 or 16.96% to $331,000 for the three months ended
December 31, 1999 from $283,000 for the same period in 1998. Professional
services expenses increased $9,000 or 12.00% to $84,000 for the three
month period ended December 31, 1999 from $75,000 for the same period in
1998. 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 $53,000
at December 31, 1998 to $99,000 at December 31, 1999. The increase was due
to the additional amortization expense required for the merger. Other
operating expense for the three months ended December 31, 1999 decreased
$6,000 to $180,000 from $186,000 for the same period in 1998. The decrease
in other operating expenses was due to reductions 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>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Corporation is involved in various claims and legal actions
arising in the normal course of business. Management believes
that these proceedings will not result in a material loss to the
Corporation.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
The Corporation filed a Current Report on Form 8-K on November
15, 1999 reporting the consummation of the acquisition of South
Carolina Community Bancshares under Item 2.
Exhibits
--------
27 Financial Data Schedule
14
<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: February 14, 2000 By: /s/ Dwight V. Neese
---------------------------- -----------------------------
Dwight V. Neese, CEO
Date: February 14, 2000 By: /s/ Richard H. Flake
---------------------------- -----------------------------
Richard H. Flake, CFO
15
<TABLE> <S> <C>
<PAGE>
<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 December 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1999
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0
0
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</TABLE>
