-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WLv5YCH6GS0tQIv4aVBlT/JXX9Vs50RS2qTazV7v/UMAo008kS12/3slJMrIEzUd BaG141KshZATCgLj18qopw== 0000939057-97-000107.txt : 19970812 0000939057-97-000107.hdr.sgml : 19970812 ACCESSION NUMBER: 0000939057-97-000107 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION FINANCIAL BANCSHARES INC CENTRAL INDEX KEY: 0000926164 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 570264560 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-80808 FILM NUMBER: 97655786 BUSINESS ADDRESS: STREET 1: 203 WEST MAIN ST CITY: UNION STATE: SC ZIP: 29379 BUSINESS PHONE: 8644277692 MAIL ADDRESS: STREET 1: 203 WEST MAIN STREET STREET 2: PO BOX 866 CITY: UNION STATE: SC ZIP: 29379 10QSB 1 UNION FINANCIAL BANCSHARES, INC. FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ______________ COMMISSION FILE NUMBER 1-5735 UNION FINANCIAL BANCSHARES, INC. -------------------------------- Delaware 57-1001177 -------- ---------- (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 821,564 shares, $0.01 par value, common stock as of July 1, 1997. UNION FINANCIAL BANCSHARES, INC. INDEX PART I. FINANCIAL INFORMATION PAGE --------------------- ---- Item 1. Consolidated Financial Statements (unaudited) Consolidated Balance Sheets as of June 30, 1997 and September 30, 1996 3 Consolidated Statements of Income for the three and nine months ended June 30, 1997 and 1996 4 Consolidated Statements of Cash Flows for the nine months ended June 30, 1997 and 1996 5-6 Notes to Consolidated Financial Statements 7-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-16 PART II. OTHER INFORMATION 17-18 SIGNATURES 19 Item 1. Financial Statements UNION FINANCIAL BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS June 30, 1997 (unaudited) and September 30, 1996 June 30, September 30, ASSETS 1997 1996 (DOLLARS IN THOUSANDS) ------ ------ Cash $ 1,724 $ 1,747 Short term interest-bearing deposits 1,726 1,938 ------ ------ Total cash and cash equivalents 3,450 3,685 Investment and mortgage-backed securities: Held to maturity 9,392 11,622 Available for sale 16,196 22,174 ------ ------ Total investment and mortgage-backed securities 25,588 33,796 Loans receivable, net Held for sale 9,105 Held for investment 124,527 85,997 ------ ------ Total loans receivable, net 133,632 85,997 Office properties and equipment, net 2,660 1,664 Federal Home Loan Bank Stock, at cost 1,997 950 Accrued interest receivable 1,254 1,121 Real estate acquired through foreclosure 8 19 Deposit premium intangible 2,368 0 Other assets 288 901 ------ ------ TOTAL ASSETS $ 171,245 $ 128,133 ======= ======= LIABILITIES Deposit accounts $ 116,556 $ 93,715 Advances from the Federal Home Loan Bank and other borrowings 40,627 20,488 Accrued interest on deposits 239 79 Advances from borrowers for taxes and insurance 320 420 Other liabilities 375 1,177 ------ ------ TOTAL LIABILITIES 158,117 115,879 SHAREHOLDERS' EQUITY Serial preferred stock, $0.01 par value, authorized - 500,000 shares, issued and outstanding - None 0 0 Common stock - $0.01 par value, authorized - 2,500,000 shares, issued and outstanding - 821,564 shares 7 8 Additional paid-in capital 3,967 3,897 Unrealized (loss) on investment and mortgage-backed securities available for sale (163) (229) Retained earnings, substantially restricted 9,317 8,578 ------ ------ TOTAL SHAREHOLDERS' EQUITY 13,128 12,254 ------ ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 171,245 $ 128,133 ======= ======= See notes to consolidated financial statements. 3 UNION FINANCIAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME Three and Nine Months Ended June 30, 1997 (unaudited) and 1996 (unaudited) Three Months Ended Nine Months Ended June 30, June 30, June 30, June 30, 1997 1996 1997 1996 (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS) ------ ------ ------ ------ Interest Income: Loans $ 2,827 $ 1,548 $ 7,095 $ 4,728 Deposits and federal funds sold 13 43 40 87 Mortgage-backed securities 94 282 450 815 Interest and dividends on investment securities 386 360 1,145 1,015 ------ ------ ------ ------ Total Interest Income 3,320 2,233 8,730 6,645 Interest Expense: Deposit accounts 1,260 1,109 3,386 3,378 Advances from the FHLB and other borrowings 570 111 1,387 402 ------ ------ ------ ------ Total Interest Expense 1,830 1,220 4,773 3,780 ------ ------ ------ ------ Net Interest Income 1,490 1,013 3,957 2,865 Provision for loan losses 55 0 200 0 Net Interest Income After ------ ------ ------ ------ Provision for Loan Losses 1,435 1,013 3,757 2,865 Non-Interest Income: Fees for financial services 196 106 448 303 Loan servicing fees (costs) (9) 16 (20) 58 Net gains (losses) on sale of loans (47) 4 (47) 11 Net gains on sale of investments 0 5 38 5 ------ ------ ------ ------ Total Non-Interest Income 140 131 419 377 Non-Interest Expense: Compensation and employee benefits 484 324 1,228 961 Occupancy and equipment 183 138 507 410 Deposit insurance premiums 15 53 74 160 Professional services 58 38 206 117 Real estate operations 0 0 (4) (3) Other 247 97 475 300 ------ ------ ------ ------ Total Non-Interest Expense 987 650 2,486 1,945 ------ ------ ------ ------ Income Before Income Taxes 588 494 1,690 1,297 Income tax expense 221 158 628 407 ------ ------ ------ ------ Net Income $ 367 $ 336 $ 1,062 $ 890 ====== ====== ====== ====== Net Income Per Common Share $ 0.43 $ 0.42 $ 1.23 $ 1.10 ====== ====== ====== ====== Weighted Average Number of Common Shares Outstanding 863,066 809,386 865,330 807,726 See notes to consolidated financial statements. 4 UNION FINANCIAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended June 30, 1997 (unaudited) and 1996 (unaudited) Nine Months Ended June 30, June 30, OPERATING ACTIVITIES: 1997 1996 ------ ------ Net income $1,062 $890 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 200 0 Amortization of intangibles 53 0 Depreciation expense 136 126 Provision for (gain)/loss on real estate owned,net 0 (8) Recognition of deferred income, net of costs (78) (106) Deferral of fee income, net of costs 71 182 (Gain) Loss on investment transactions 38 (11) Loans originated for sale (16,317) (805) Sale of loans 16,317 805 (Gain) loss on sale of loans 47 (5) Changes in operating assets and liabilities: Decrease (increase) in accrued interest receivabl (133) (71) Decrease (increase) in other assets 613 (9) Decrease (increase) in Deposit Premium Intangible (2,421) 0 (Decrease)Increase in other liabilities (900) (724) Increase (decrease) in accrued interest payable 160 50 ------ ------ Net cash provided by (uses by) operating activities (1,152) 314 ------ ------ INVESTING ACTIVITIES: Maturities of time deposits 0 99 Purchase of investment and mortgage-backed securities: Held to maturity (2,000) (11,777) Available for sale (1,950) (6,020) Proceeds from sale of investment and mortgage- backed securities 6,736 11,075 Proceeds from maturity of investment and mortgage- backed securities: Held to maturity 500 0 Available for sale 3,388 6,091 Principal repayments on mortgage-backed securities: Held to maturity 110 9 Available for sale 1,424 2,122 Loan originations (59,013) (20,080) Principal repayments of loans 11,163 22,067 Proceeds from sale of real estate acquired in settle 11 36 Purchase of FHLB stock (1,272) 0 Redemption of FHLB stock 225 0 Purchase of office properties and equipment (1,132) (102) ------ ------ Net cash provided by (used by) investing activities ($41,810) $3,520 ------ ------ 5 UNION FINANCIAL BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended June 30, 1997 (unaudited) and 1996 (unaudited) Nine Months Ended June 30, June 30, FINANCING ACTIVITIES: 1997 1996 ------ ------ Proceeds from the exercise of stock options $69 $29 Dividends paid in cash ($0.135 per share - 1997 and $0.125 per share - 1996) (323) (303) Proceeds from FHLB advances and other borrowings 99,940 11,225 Repayment of FHLB advances and other borrowings (79,800) (15,305) Acquired deposits from purchased branch 20,144 0 Increase (Decrease) in deposit accounts 2,697 931 ------ ------ Net cash (used by) provided by financing activities 42,727 (3,423) ------ ------ NET DECREASE\INCREASE IN CASH AND CASH EQUIVALENTS (235) 411 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,685 3,805 ------ ------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,450 $4,216 ====== ====== SUPPLEMENTAL DISCLOSURES: Cash paid for: Income taxes $578 $814 Interest 4,613 3,730 Non-cash transactions: Loans foreclosed 0 0 See notes to consolidated financial statements. 6 UNION FINANCIAL BANCSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Presentation of Consolidated Financial Statements The accompanying unaudited consolidated financial statements of Union Financial Bancshares, Inc. (the "Corporation") were prepared in accordance with instructions for Form 10-QSB and, therefore, do not include all disclosures necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. However, all adjustments which are, in the opinion of management, necessary for the fair presentation of the interim consolidated financial statements have been included. All such adjustments are of a normal and recurring nature. The consolidated financial statements include the corporation's wholly owned subsidiary, Provident Community Bank (formerly known as Union Federal Savings Bank) (the "Bank"). The results of operations for the nine months ended June 30, 1997 are not necessarily indicative of the results which may be expected for the entire fiscal year. The consolidated balance sheet as of September 30, 1996 has been derived from the Company's audited financial statements presented in the annual report to shareholders. Certain amounts in the prior year's financial statements have been reclassified to conform with current year classifications. The Financial Accounting Standards Board recently issued Statement No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS 114") which was subsequently amended by SFAS No. 118. SFAS 114 requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical matter, at the loan's observable market value or fair value of the collateral if the loan is collateral dependent. The Statement was adopted in fiscal 1996; implementation of the statement did not have a material impact on financial condition or results of operations. The Corporation maintains an allowance for impaired loans based on a combination of evaluation of impairment of smaller balance, homogeneous loans (primarily consumer loans and 1-4 family real estate mortgages) and specific identification of impaired loans based on delinquency status and other factors related to the borrower's ability to repay the loan. The risk characteristics used to aggregate loans are collateral type, borrower's financial condition and geographic location. The Corporation generally determines a loan to be impaired at the time management believes that it is probable that the principal and interest may be uncollectible. Management has determined that, generally, a failure to make a payment within a 90-day period constitutes a minimum delay or shortfall and does not generally constitute an impaired loan. However, management reviews each past due loan on a loan-by-loan basis and may determine a loan to be impaired prior to the loan becoming over 90 days past due, depending upon the 7 circumstances of that particular loan. A loan is classified as a nonaccrual loan at the time management believes that the collection of interest is improbable, generally when a loan becomes 90 days past due. At the time management believes the collection of interest and principal is remote, the loan is charged off. The Corporation's policy is to evaluate impaired loans based on the fair value of the collateral. Interest income from impaired loans is recorded using the cash method. As of and for the nine months ended June 30, 1997, there were no impaired loans and the Corporation had recognized no interest income from impaired loans. In connection with adopting the guidance in A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities published by the FASB in November, 1995, management reclassified all held-to-maturity securities to the available-for-sale classification. The securities transferred had a total amortized cost of approximately $12,101,000 and a total market value of approximately $12,266,000. The transfer resulted in an unrealized gain of approximately $165,000. In March 1995, the FASB issued SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Statement was adopted on October 1, 1996; implementation of the Statement did not have a material impact on financial condition or results of operations. In May 1995, the FASB issued SFAS 122, "Accounting for Mortgage Servicing Rights,"which amends SFAS 65, "Accounting for Mortgage Banking Activities." This statement allows the capitalization of servicing-related costs associated with mortgage loans that are originated for sale, and to create servicing assets for such loans. Prior to this statement, originated mortgage servicing rights were generally accorded off-balance sheet treatment. The Statement was adopted on October 1, 1996; implementation of the Statement did not have a material impact on financial condition or results of operations. The FASB issued SFAS 123, "Accounting for Stock-Based Compensation," in October 1995. This statement supersedes APB Opinion 25, "Accounting for Stock Issued to Employees" and established financial accounting and reporting standards for stock-based compensation plans. SFAS 123 requires that an employer's financial statements include certain disclosures about stock-based employee compensation arrangements regardless of the method used to account for them. The accounting requirements of this statement are effective for transactions entered into in fiscal years that begin after December 15, 1995. The Company has elected to continue use of the method prescribed by APB 25 for recording stock-based compensation and will provide pro forma disclosures in its annual financial statements as prescribed by SFAS 123. 8 In August 1996, the FASB issued SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS 125 provides accounting and reporting standards for transfers of financial assets and extinguishment of liabilities based on a consistent application of financial components approach that focuses on control of assets and liabilities. SFAS 125 is effective for transactions entered into after December 31, 1996 and is not expected to have a material impact on the Corporation's financial position or results of operations. 2. Income Per Share Effective July 9, 1996, the Corporation declared a two-for-one stock split effected in the form of a 100% stock dividend of the Corporation's common stock. The weighted average number of shares and all other share data have been restated for all periods presented to reflect this stock split. Income per share amounts for the three and nine months ended June 30, 1997 and 1996 were computed based on the weighted average number of common shares outstanding adjusted for the dilutive effect of outstanding common stock options during the periods. 3. Assets Pledged Approximately $10,959,000 and $5,114,000 of debt securities at June 30, 1997 and September 30, 1996, respectively, were pledged by the Bank as collateral to secure deposits of the State of South Carolina, the City of Union and certain other liabilities. The Bank pledges as collateral to Federal Home Loan Bank advances the Bank's Federal Home Loan Bank stock and has entered into a blanket collateral agreement with the Federal Home Loan Bank whereby the Bank maintains, free of other encumbrances, qualifying mortgages (as defined) with unpaid principal balances equal to, when discounted at 75% of the unpaid principal balances, 100% of total advances. 4. Contingencies and Loan Commitments The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These instruments expose the Bank to credit risk in excess of the amount recognized in the balance sheet. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Total credit exposure at June 30, 1997 related to these items is summarized below: 9 Loan Commitments: Contract Amount ----------------- --------------- Approved loan commitments $ 1,643,000 Unadvanced portions of loans 6,568,000 --------- Total loan commitments $ 8,211,000 Loan commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management's credit evaluation of the counter party. Collateral held is primarily residential property. Interest rates on loan commitments are a combination of fixed and variable. Commitments outstanding at June 30, 1997 consist of fixed and adjustable rate loans of approximately $8,211,000 at rates ranging from 7% to 9%. Commitments to originate loans generally expire within 30 to 60 days. Commitments to fund credit lines (principally variable rate, consumer lines secured by real estate and overdraft protection) totaled approximately $3,434,000. Of these lines, the outstanding loan balances totaled approximately $3,605,000. The Bank also has commitments to fund warehouse lines of credit for various mortgage banking companies totaling $1,500,000, which had an outstanding balance at June 30, 1997 of approximately $306,000. At June 30, 1997, the Bank had loan commitments to sell $11,760,000 in fixed rate residential loans which had not been originated to Freddie Mac for the months of July and August, 1997. 5. Savings Association Insurance Fund (SAIF) Assessment On September 30, 1996, legislawas enacted which provided for a one-time assessment on all SAIF-insured deposits fpurpose of recapitalizing the SAIF. The one-time assessment is 0.657% of SAIF-insured deposits as of March 31, 1995. During the quarter ended December 31, 1996, the Corporation paid approximately $606,000 representing its one-time assessment. 6. Branch Acquisition On March 24, 1997, the Corporation, through its subsidiary, Provident Community Bank, consummated the purchase of certain assets and the assumption of certain liabilities of the Laurens, South Carolina branch of First Union National Bank. Provident Community Bank acquired $20,144,000 in deposit liabilities and $800,000 in premises and equipment. The total premium paid for the acquisition was approximately $2,115,000. The premium paid will be amortized using straight-line amortization over a period of ten years. 10 7. Other Events On March 24, 1997, the Corporation, through its subsidiary, Provident Community Bank, established a wholesale residential loan mortgage division, Provident Mortgage Company. The company operates as a division of the Bank with the primary business purpose of purchasing and selling residential mortgage loan products along with generating mortgage servicing portfolios through Fannie Mae and Freddie Mac agencies. On March 24, 1997, the Corporation, through its subsidiary, Provident Community Bank, established a financial services subsidiary, Provident Financial Services, Inc. The company will operate as a subsidiary of the Bank with the primary business purpose of providing brokerage financial services for customers of the Bank. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General On November 9, 1994, Provident Community Bank (the "Bank"), formerly Union Federal Savings Bank, reorganized into the holding company form of ownership, resulting in Union Financial Bancshares, Inc. (the "Corporation") becoming the sole stockholder of the Bank (after resolution of dissenters' rights). On June 18, 1996 the Corporation declared a 2 for 1 stock split in the form of a 100% stock dividend on the Corporation's outstanding shares of common stock for each stockholder for record as of the close of business on July 9, 1996. Financial Condition At June 30, 1997 total assets of the Corporation increased 33.65% to $171,245,000 from $128,133,000 at September 30, 1996. The increase was due primarily to an increase in loans receivable, net, of approximately $47,635,000 or 55.39% during the nine months ended June 30, 1997. The increase was due primarily to increased purchases of adjustable-rate loans in the nine months ended June 30, 1997. This increase in loans receivable was partially offset by a reduction in investments and mortgage-backed securities that resulted from maturities and sales. The current year trend for loan production will be slower growth with fixed rate production generated being securitized and sold in the secondary market. Total cash and cash equivalents decreased from $3,685,000 at September 30, 1996 to $3,450,000 at June 30, 1997, a decrease of $235,000 or 6.38%. Deposits increased $22,841,000 or 24.37% to $116,556,000 for the nine months ended June 30, 1997. Approximately $20,144,000 or 83.5% of the deposit increase was a result of the First Union branch purchase that was consummated on March 24, 1997. The remaining growth was a result of various deposit promotion programs with continued emphasis on core deposits. Borrowings increased $20,139,000 or 98.30% from $20,488,000 at September 30, 1996 to $40,627,000 at June 30, 1997, as a result of increased loan originations. Total investment and mortgage-backed securities decreased $8,208,000, or 24.29%, to $25,588,000 during the nine months ended June 30, 1997. The decrease was a result of maturities and sales of investments available for sale with the proceeds being utilized for the funding of higher yielding loans. As of June 30, 1997, real estate acquired through foreclosure ("REO") consisted of one property with a net book value of $1,500. Repossessed assets consisted of $6,800 of automobiles as of June 30, 1997. REO and repossessed assets are carried at their estimated fair values less estimated selling costs. 12 Liquidity Liquidity is the ability to meet demand for loan disbursements, deposit withdrawals, repayment of debt, payment of interest on deposits and other operating expenses. The primary sources of liquidity are savings deposits, loan repayments, borrowings and interest payments. The OTS imposes a minimum level of liquidity on the Bank which is currently 5% of withdrawable deposits plus short-term borrowings. The liquidity level of the Bank as measured for regulatory purposes was 7.06% as of June 30, 1997. As in the past, management expects that the Bank can meet its obligations to fund outstanding mortgage loan commitments, which were approximately $1,643,000, as described in Note 4 to the Consolidated Financial Statements, and other loan commitments as of June 30, 1997, while maintaining liquidity in excess of regulatory requirements. Capital Resources The capital requirement of the Bank consists of three components: (1) tangible capital, (2) core capital and (3) risk based capital. Tangible capital must equal or exceed 1.5% of adjusted total assets. Core capital must be a minimum of 3% of adjusted total assets and risk based capital must be a minimum of 8% of risk weighted assets. As of June 30, 1997, the Bank's capital position, as calculated under regulatory guidelines, exceeds these minimum requirements as follows (dollars in thousands): REQUIREMENT ACTUAL EXCESS - ------------------------------------------------------------------------------ Tangible capital $2,550 $10,411 $7,861 Tangible capital to adjusted total assets 1.50% 6.12% 4.62% Core capital $5,099 $10,411 $5,312 Core capital to adjusted total assets 3.00% 6.12% 3.12% Risk based capital $7,352 $11,340 $3,988 Risk based capital to risk weighted assets 8.00% 12.34 4.34% The reported capital requirements are based on information reported in the OTS June 30, 1997 quarterly thrift financial report. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996 General Net income increased $172,000 or 19.33% to $1,062,000 for the nine months ended June 13 30, 1997 as compared to the same period in 1996. The increase in net income was due primarily to a 31.13% increase in net interest income for the nine months ended June 30, 1997 as compared to the same period in 1996. Interest Income Interest income increased $2,085,000 or 31.38% for the nine months ended June 30, 1997 as compared to the same period in 1996. Interest income on loans increased 50.06% or $2,367,000 to $7,095,000 for the nine months ended June 30, 1997 from $4,728,000 for the nine months ended June 30, 1996 due to higher loan volumes. Interest income on overnight deposits and federal funds sold and on mortgage-backed securities decreased $47,000 and $365,000, respectively, for the nine months ended June 30, 1997 as compared to the same period in the prior year due primarily to smaller balances. Interest and dividends on investment securities increased $130,000 or 12.81% for the nine months ended June 30, 1997 to $1,145,000 from $1,015,000 during the same period in 1996. The increase was due primarily to an increase in interest rates and a larger investment in stock of the Federal Home Loan Bank. Interest Expense The Corporation experienced an overall increase of $993,000 or 26.27% in interest expense for the nine months ended June 30, 1997 as compared to the nine months ended June 30, 1996. Interest expense on deposit accounts increased $8,000 or .24% to $3,386,000 for the nine months ended June 30, 1997 from $3,378,000 during the same period in 1996. Lower rates along with lower costing deposits were the primary reasons for the costs remaining constant even though deposit balances increased significantly. Interest expense on borrowings increased $985,000 for the nine months ended June 30, 1997 as compared to the nine months ended June 30, 1996. The increase was due to higher volumes in FHLB advances during the period which were required to fund higher loan originations. Provision for Loan Loss During the nine months ended June 30, 1997, provisions for loan losses were $200,000 as compared to $0 for the same period in the previous year. The increase in loan loss provisions are consistent with the growth in loans. Management believes the Bank's loan loss allowances are adequate to absorb estimated future loan losses. The Bank's loan loss allowances aJune 30, 1997 were approximately .79% of the Bank's outstanding loan portfolio, net compared to 1.13% for the same period in the previous year. The following table sets forth information with respect to the Bank's non-performing assets at the dates indicated (dollars in thousands): 14 JUNE 30, 1997 SEPTEMBER 30, 1996 ------------- ------------------ Non-accruing loans which are contractually past due 90 days or more: Real Estate: Residential $1,091 $1 049 Commercial 0 74 Construction -- -- Non-mortgage 98 -- ----- ------ Total $1,189 1,123 ====== ====== Percentage of loans receivable, net .89% 1.33% ---- ===== Allowance for loan losses $929 $799 ==== ==== Real estate acquired through foreclosure and repossessed assets, net of allowances $ 8 $ 19 === ==== Non Interest Income and Expense Total non-interest income increased $42,000 or 11.14% to $419,000 for the nine months ended June 30, 1997 from $377,000 for the same period in the previous year. This increase was due in large part to an increase in fees for financial services of $145,000 or 47.85% during the nine months ended June 30, 1997 as compared to the nine months ended June 30, 1996. The increase in fees reflects the first quarter of operation of the branch acquired from First Union on March 24, 1997. There were also decreases in loan servicing fees due to the outsourcing of loan servicing for loans purchased in the previous year. Gains on sale of investments was $38,000 for the nine months ended June 30, 1997 as compared to $5,000 for the nine months ended June 30, 1996. During the quarter, the Bank recorded losses on the sales of loans of $47,000 due to the initial startup of the Mortgage Division. The Bank now has in place forward commitment coverage for approximately 75% of anticipated production in order to minimize such losses. For the nine months ended June 30, 1997, total non-interest expense increased $541,000 or 27.81% to $2,486,000 from $1,945,000 for the same period in 1996. The current year period ending June 30, 1997 includes additional expenses for a new branch acquisition along with expenses for the new Mortgage Division. Compensation and employee benefits increased $267,000 or 27.78% to $1,228,000 for the nine months period ended June 30, 1997 from $961,000 for the same period in 1996. Occupancy and equipment expense increased 15 $97,000 or 23.66% to $507,000 for the nine months ended June 30, 1997 from $410,000 for the same period in 1996. Professional services expenses increased $89,000 or 76.07% to $206,000 for the nine months period ended June 30, 1997 from $117,000 for the same period in 1996. The increase in compensation and employee benefits was due to cost of living increases along with additional staffing for the new branch acquisition and Mortgage Division. Occupancy and equipment expense increased due to increases in maintenance and data processing expenses. Professional services expenses increased due to additional advertising and legal expenses incurred for the name change of the subsidiary bank. These increases were partially offset by a decrease in deposit insurance premiums for the nine months ended June 30, 1997 due to reduction in the deposit assessment rate from 23 basis points to 6.45 basis points. 16 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings The Corporation is involved in various claims and legal actions arising in the normal course of business. Management believes that these proceedings will not result in a material loss to the Corporation. ITEM 2. Changes in Securities Not applicable. ITEM 3. Defaults upon Senior Securities Not applicable. ITEM 4. Submission of Matters to a Vote of Security Holders None ITEM 5. Other Information Not applicable. ITEM 6. Exhibits and Reports on Form 8-K Exhibits 27 Financial Data Schedule 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNION FINANCIAL BANCSHARES, INC. -------------------------------- (REGISTRANT) Date: August 5, 1997 By:/s/DWIGHT V. NEESE, CEO ----------------------- Dwight V. Neese, CEO Date: August 5, 1997 By:/s/RICHARD H. FLAKE, CFO ------------------------ Richard H. Flake, CFO 19 EX-27 2
9 1000 9-MOS SEP-30-1997 JUN-30-1997 1724 1726 0 0 16196 9392 9419 133632 929 171245 116556 8327 375 32300 0 0 6 13128 171245 7095 1145 490 8730 3386 4773 3957 200 38 2486 1691 1062 0 0 1062 1.30 1.23 8.11 1194 0 303 1380 799 130 0 929 0 0 929
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