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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
---------------
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-24082
STANDARD FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3941870
(State or other jurisdiction (IRS Employer
of organization or Identification
incorporation) Number)
4192 SOUTH ARCHER AVENUE 60632-1890
CHICAGO, ILLINOIS (Zip Code)
(Address of principal
executive offices)
(312) 847-1140
(Registrant's telephone number, including area
code)
------------------------
Indicate by check mark whether the registrant (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.
(1) Yes__X__ No_____
(2) Yes__X__ No_____
The number of shares outstanding of each of the issuer's classes of common
stock was 16,405,264 shares of common stock, $0.01 par value, as of July 31,
1996.
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STANDARD FINANCIAL, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
-----
Item 1 Financial Statements.......................................................
Consolidated Statements of Condition as of June 30, 1996 (unaudited) and
December 31, 1995......................................................... 2
Consolidated Statements of Income for the Three Months and Six Months Ended
June 30, 1996 and 1995 (unaudited)........................................ 3
Consolidated Statement of Stockholders' Equity for the Six Months Ended
June 30, 1996 (unaudited)................................................. 4
Consolidated Statements of Cash Flows for the Six Months Ended June 30,
1996 and 1995 (unaudited)................................................. 5
Notes to Consolidated Financial Statements (unaudited)..................... 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 6
PART II. OTHER INFORMATION
Item 1 Legal Proceedings.......................................................... 20
Item 2 Changes in Securities...................................................... 20
Item 3 Defaults upon Senior Securities............................................ 20
Item 4 Submission of Matters to a Vote of Security Holders........................ 20
Item 5 Other Information.......................................................... 20
Item 6 Exhibits and Reports on Form 8-K........................................... 21
Signature Page............................................................. 22
1
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
PART I -- FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(DOLLARS IN THOUSANDS)
ASSETS:
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
(UNAUDITED) (AUDITED)
Cash................................................................................ $ 22,630 $ 22,620
Interest-bearing deposits at depository institutions................................ 22,094 46,951
------------- -------------
Cash and cash equivalents....................................................... 44,724 69,571
Investment securities............................................................... 139,464 137,807
Mortgage-backed and related securities.............................................. 732,744 804,010
Loans receivable, net............................................................... 1,290,125 1,010,777
Real estate held for sale........................................................... 0 180
Investment in Federal Home Loan Bank stock.......................................... 18,527 12,802
Office properties and equipment..................................................... 28,440 28,468
Deferred tax and income tax receivable.............................................. 694 524
Accrued interest receivable......................................................... 14,550 13,754
Other assets........................................................................ 4,746 3,222
Excess of cost over net assets of acquired association, less accumulated
amortization....................................................................... 522 113
------------- -------------
Total assets.................................................................... $ 2,274,536 $ 2,081,228
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits.......................................................................... $ 1,670,871 $ 1,538,546
Advances from Federal Home Loan Bank of Chicago................................... 310,000 235,000
Advance payments by borrowers for taxes and insurance............................. 10,991 7,854
Federal & state income taxes payable.............................................. 1,730 4,044
Miscellaneous liabilities......................................................... 14,650 14,898
------------- -------------
Total liabilities............................................................... 2,008,242 1,800,342
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none outstanding... 0 0
Common stock, $0.01 par value; 25,000,000 shares authorized, 19,078,114 shares
issued, 16,393,764 shares outstanding at June 30, 1996; and 25,000,000 shares
authorized, 19,082,089 shares issued, 17,608,089 outstanding at December 31,
1995............................................................................. 190 191
Additional paid-in capital........................................................ 188,716 188,443
Unrealized gain(loss), net of income taxes, on securities available-for-sale...... (845) 3,581
Retained income, substantially restricted......................................... 129,865 123,841
Treasury stock, at cost (2,684,350 shares at June 30, 1996; 1,474,000 shares at
December 31, 1995)............................................................... (37,285) (19,411)
ESOP shares....................................................................... (10,246) (10,880)
MRP shares........................................................................ (4,101) (4,879)
------------- -------------
Total stockholders' equity...................................................... 266,294 280,886
------------- -------------
Total liabilities and stockholders' equity...................................... $ 2,274,536 $ 2,081,228
------------- -------------
------------- -------------
2
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUME 30, JUME 30,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
INTEREST INCOME:
Loans............................................................ $ 22,583 $ 14,238 $ 42,886 $ 26,500
Mortgage-backed and related securities........................... 13,089 14,499 26,749 27,818
Investments and interest-bearing deposits........................ 2,881 4,009 6,306 8,801
--------- --------- --------- ---------
Total interest income.......................................... 38,553 32,746 75,941 63,119
INTEREST EXPENSE:
Deposits......................................................... 18,197 16,133 35,620 30,852
Borrowings....................................................... 4,688 1,133 8,658 1,917
--------- --------- --------- ---------
Total interest expense......................................... 22,885 17,266 44,278 32,769
--------- --------- --------- ---------
Net interest income before provision for loan losses............. 15,668 15,480 31,663 30,350
Provision for loan losses........................................ 800 605 1,600 770
--------- --------- --------- ---------
Net interest income after provision for loan losses.............. 14,868 14,875 30,063 29,580
NON-INTEREST INCOME:
Fees for customer services....................................... 1,141 880 2,226 1,691
Net gain on sales of investments and mortgage-backed
securities...................................................... 22 526 1,591 549
Net gain on sales of loans....................................... 42 0 70 0
Other............................................................ 237 194 555 413
--------- --------- --------- ---------
Total non-interest income...................................... 1,442 1,600 4,442 2,653
NON-INTEREST EXPENSE:
Compensation and benefits........................................ 4,912 4,329 9,948 8,494
Occupancy........................................................ 2,108 2,139 4,187 4,177
Federal deposit insurance premiums............................... 967 860 1,915 1,720
Marketing........................................................ 461 375 918 749
Other general and administrative expenses........................ 1,777 1,710 3,649 3,259
Amortization of excess of cost over net assets of acquired
association..................................................... 22 22 45 45
--------- --------- --------- ---------
Total non-interest expense..................................... 10,247 9,435 20,662 18,444
--------- --------- --------- ---------
Income before federal and state income taxes..................... 6,063 7,040 13,843 13,789
Federal and state income taxes................................... 2,245 2,537 5,104 4,995
--------- --------- --------- ---------
Net income....................................................... $ 3,818 $ 4,503 $ 8,739 $ 8,794
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary earnings per share....................................... $ 0.25 $ 0.26 $ 0.56 $ 0.51
Fully diluted earnings per share................................. 0.24 0.26 0.55 0.51
Dividends declared per share..................................... 0.08 0.00 0.16 0.00
3
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
UNREALIZED
GAIN (LOSS)
COMMON ADDITIONAL ON SEC.
STOCK COMMON STOCK PAID-IN AVAILABLE- RETAINED TREASURY ESOP MRP
ISSUED AT PAR VALUE CAPITAL FOR-SALE INCOME STOCK SHARES SHARES
----------- ------------- ----------- ----------- --------- --------- --------- ---------
Balance at January 1,
1996...................... 19,082 $ 191 $ 188,443 $ 3,581 $ 123,841 $ (19,411) $ (10,880) $ (4,879)
Net income for the
period.................... 0 0 0 0 8,739 0 0 0
Dividends paid............. 0 0 0 0 (2,715) 0 0 0
Change in unrealized gain
(loss), net of income
taxes, on securities
available-for-sale........ 0 0 0 (4,426) 0 0 0 0
Purchase of treasury
stock..................... 0 0 0 0 0 (17,874) 0 0
Options Exercised.......... 17 0 207 0 0 0 0 0
Tax benefit from options
exercised................. 0 0 21 0 0 0 0 0
ESOP shares earned......... 0 0 307 0 0 0 634 0
MRP shares forfeited....... (23) (1) (294) 0 0 0 0 295
Issuance of MRP shares..... 2 0 32 0 0 0 0 (32)
MRP shares earned, net..... 0 0 0 0 0 0 0 515
----------- ----- ----------- ----------- --------- --------- --------- ---------
Balance at June 30, 1996... 19,078 $ 190 $ 188,716 $ (845) $ 129,865 $ (37,285) $ (10,246) $ (4,101)
----------- ----- ----------- ----------- --------- --------- --------- ---------
----------- ----- ----------- ----------- --------- --------- --------- ---------
TOTAL
STOCK-
HOLDERS'
EQUITY
---------
Balance at January 1,
1996...................... $ 280,886
Net income for the
period.................... 8,739
Dividends paid............. (2,715)
Change in unrealized gain
(loss), net of income
taxes, on securities
available-for-sale........ (4,426)
Purchase of treasury
stock..................... (17,874)
Options Exercised.......... 207
Tax benefit from options
exercised................. 21
ESOP shares earned......... 941
MRP shares forfeited....... 0
Issuance of MRP shares..... 0
MRP shares earned, net..... 515
---------
Balance at June 30, 1996... $ 266,294
---------
---------
4
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED JUNE
30,
----------------------
1996 1995
---------- ----------
OPERATING ACTIVITIES:
Net income............................................................................... $ 8,739 $ 8,794
Adjustments to reconcile net income to net cash provied by operating activities:
Provision for depreciation............................................................. 1,642 1,595
Provision for loan losses.............................................................. 1,600 770
Amortization of other intangibles...................................................... 58 42
Amortization of cost over net assets of acquired association........................... 45 45
Amortization of premiums and discounts................................................. 814 (1,110)
Amortization of net deferred loan fees................................................. (325) (387)
Release of ESOP shares................................................................. 941 834
Release of MRP shares.................................................................. 515 117
Deferred income taxes.................................................................. 398 (843)
Gain on sale of loans.................................................................. (70) (5)
Proceeds from loan sales............................................................... 39,991 140
Loans originated for sale.............................................................. (8,522) (197)
Gain on sale of securities available-for-sale.......................................... (1,591) (544)
Increase in interest receivable........................................................ (796) (1,753)
Increase in interest payable........................................................... 1,231 1,928
Increase (decrease) in miscellaneous liabilities....................................... (248) 726
Other, primarily other assets.......................................................... (1,182) 211
---------- ----------
Net cash provided by operating activities............................................ 43,240 10,363
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available-for-sale........................ 74,269 66,797
Proceeds from maturity and repayment of investment securities available-for-sale....... 188,859 31,000
Purchases of investment securities available-for-sale.................................. (265,639) (89,817)
Purchases of investment securities held to maturity.................................... 0 (152,088)
Proceeds from maturity and repayment of investment securities held to maturity......... 0 218,785
Repayments of mortgage-backed and related securities held to maturity.................. 126,172 62,276
Purchases of mortgage-backed and related securities held to maturity................... (59,825) (132,442)
Loan principal repayments.............................................................. 123,088 51,296
Loans originated and purchased......................................................... (436,015) (214,957)
Office property and equipment, net..................................................... (1,664) (1,849)
Purchase of Federal Home Loan Bank stock............................................... (5,725) (1,074)
---------- ----------
Net cash used by investing activities................................................ (256,480) (162,073)
FINANCING ACTIVITIES:
Net increase (decrease) in passbook, NOW, and money market deposit accounts............ 11,983 (38,531)
Net increase in certificates of deposit................................................ 119,109 128,951
Premium paid on purchased deposits..................................................... (454) 0
Proceeds of advances from Federal Home Loan Bank 87,000 50,000
Repayments of advances from Federal Home Loan Bank..................................... (12,000) 0
Net increase in advance payments by borrowers.......................................... 3,137 1,494
Options exercised...................................................................... 207 0
Purchase of treasury stock............................................................. (17,874) (7,595)
Dividends paid......................................................................... (2,715) 0
---------- ----------
Net cash provided by financing activities............................................ 188,393 134,319
---------- ----------
Decrease in cash and cash equivalents................................................ (24,847) (17,391)
Cash and cash equivalents at beginning of period......................................... 69,571 76,097
---------- ----------
Cash and cash equivalents at end of period............................................... $ 44,724 $ 58,706
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for interest on:
Deposits............................................................................... $ 34,389 $ 28,924
Borrowings............................................................................. 8,447 1,271
---------- ----------
$ 42,836 $ 30,195
---------- ----------
---------- ----------
Income taxes............................................................................. $ 5,080 $ 5,773
---------- ----------
---------- ----------
Transfer of loans to real estate held for sale........................................... $ 170 $ 422
---------- ----------
---------- ----------
5
STANDARD FINANCIAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of the results for the interim periods presented have been included.
The results of operations and other data for the three and six months ended
June 30, 1996 are not necessarily indicative of results that may be expected for
the entire fiscal year ending December 31, 1996.
The consolidated financial statements include the accounts of Standard
Financial, Inc. (the "Company") and its wholly-owned subsidiaries, Standard
Federal Bank for savings (the "Bank"), and Capital Equities Corporation, and the
Bank's wholly-owned subsidiaries SFB Insurance Agency, Inc., and Standard
Financial Mortgage Corporation (the "Mortgage Company").
(2) EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
common shares and equivalents outstanding utilizing the treasury stock method.
Stock options and shares granted under the Management Recognition and Retention
Plan (the "MRP") represent the common stock equivalents of the Company.
The weighted average number of common shares and equivalents outstanding for
the second quarters of 1996 and 1995 were 15,527,024 and 17,312,000,
respectively. The weighted average number of common shares and equivalents
outstanding for the first six months of 1996 and 1995 were 15,778,257 and
17,350,000 respectively.
(3) COMMITMENTS
The Bank had outstanding lending commitments at June 30, 1996 and December
31, 1995 comprised of the following (in thousands):
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
Unused credit card lines................................. $ 44,995 $ 39,929
Mortgage loans........................................... 99,972 40,523
Equity lines............................................. 5,007 4,229
------------- --------
$ 149,974 $ 84,681
------------- --------
------------- --------
ITEM 2 STANDARD FINANCIAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Standard Financial, Inc. (the "Company") was organized as the holding
company for Standard Federal Bank for savings (the "Bank") in connection with
the Bank's conversion from the mutual to stock form of ownership. On July 28,
1994, the Company issued and sold 18,630,000 shares of its common stock at an
issuance price of $10.00 per share to complete the conversion. Net proceeds to
the Company were $182.5 million after deduction of conversion expenses and
underwriting fees of $3.8 million. The Company used $91.3 million of the net
proceeds to acquire all of the stock of the
6
Bank. The Bank owns a mortgage banking subsidiary which is in the wholesale
mortgage business throughout the Chicago metropolitan area, and an insurance
subsidiary which sells insurance and brokerage services.
The Company's primary business is offering residential first mortgage loans
and consumer financing and providing conveniently located deposit facilities
with transaction, savings and certificate accounts. The Bank's deposit gathering
and lending markets are primarily concentrated in the communities surrounding
its full service offices located in the southwestern and western part of the
city of Chicago and neighboring suburbs in Cook and DuPage counties, Illinois.
At June 30, 1996, the Bank had fourteen full service offices, three of which are
located on the southwest side of the City of Chicago and eleven of which are
located in Chicago's western and southwestern suburbs, and two limited service
offices.
During the first six months of 1996, net income declined slightly to $8.7
million, a 1.1% or $0.1 million decrease over the same period in 1995. This
equated to $0.56 per share for the first six months of 1996 compared to $0.51
per share for the same period in 1995. Total assets of the Company rose to $2.3
billion at June 30, 1996. Capital remained strong at $266.3 million at June 30,
1996, a decrease of $14.6 million from December 31, 1995 as the Company
repurchased 1,210,350 shares of its stock during the six months ended June 30,
1996. The Company paid cash dividends of $0.16 cents per share during this same
period.
At June 30, 1996, total assets of the Company reached $2.275 billion, an
increase of 9.3% from December 31, 1995. During this same period, loans grew to
$1.290 billion or 27.6%, and deposits grew to $1.671 billion or 8.6%. While net
interest income for the first six months of 1996 was up 1.7% from the same
period in 1995 because of volume growth, the net interest margin dropped to
3.00% from 3.48% in the previous year. The high level of pre-payments from
mortgage related products and higher rates paid on the Company's growing deposit
portfolio, caused this tightening of the margin.
During the first six months of 1996, the Company repurchased approximately
1.2 million shares of its common stock, at an average cost of $14.77. Subsequent
to June 30, 1996, the Company received regulatory approval to purchase up to
another 10% of its outstanding stock, through January 24, 1997.
At the end of the quarter, the Company completed the acquisition of a new
branch in the Naperville market. Naperville is located in Chicago's far western
suburbs. The Company acquired $13.0 million in deposits as a result of this
acquisition.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND
JUNE 30, 1995
GENERAL
Net income for the quarter ended June 30, 1996, decreased 15.6% to $3.8
million compared to $4.5 million for the quarter ended June 30, 1995. Earnings
per share for the 1996 quarter was $.25 compared to $.26 in the second quarter
of 1995. The weighted average number of common shares and equivalents
outstanding for the second quarters of 1996 and 1995 were 15,527,024 and
17,312,000 shares, respectively. Net interest income before provision for loan
losses increased $0.2 million or 1.3% to $15.7 million in 1996 compared to $15.5
million in 1995. The provision for loan losses increased $0.2 million to $0.8
million in 1996 from $0.6 million in 1995. The Company's results of operations
depend primarily on its level of net interest income, which is the difference
between interest earned on interest-earning assets, and the interest paid on
interest-bearing liabilities. The Company's earnings also are affected by the
level of its other income, including loan servicing, commitment and origination
fees, gains and losses on sale of loans and investments, as well as its level of
non-interest expenses, including employee compensation and benefits, occupancy
and equipment costs, federal deposit insurance premiums and other general and
administrative expenses. The Company's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in
7
market interest rates, government policies and actions of regulatory
authorities. Non-interest income decreased by $0.2 million or 12.5% to $1.4
million in 1996 from $1.6 million in 1995. Non-interest expense increased by
$0.8 million or 8.5% to $10.2 million in 1996 from $9.4 million in 1995.
INTEREST INCOME
Total interest income increased $5.9 million or 18.0% to $38.6 million for
1996 from $32.7 million for 1995. The increase in interest income was the result
of average earning assets increasing to $2.160 billion in 1996 from $1.775
billion in 1995. Interest income on loans increased $8.4 million or 59.2% to
$22.6 million in 1996 from $14.2 million in 1995. The increase was the result of
growth in average loans outstanding of $528.2 million or 74.2% from $711.9
million in 1995 to $1,240.1 million in 1996. This was partially offset by a
decline in the portfolio yield from 8.00% in 1995 to 7.28% in 1996. Interest
income on mortgage-backed and related securities decreased $1.4 million or 9.7%
to $13.1 million in 1996 from $14.5 million in 1995. This decrease was due both
to a decline in the average volume and a decline in the average yield. Interest
on investment securities decreased by $1.0 million or 29.4% to $2.4 million in
1996 from $3.4 million in 1995. The decrease was due to the average balance of
investment securities decreasing $73.2 million or 35.3% to $134.2 million in
1996 from $207.4 million in 1995. Short-term investment interest income
decreased by $0.3 million to $0.1 million in 1996 from $0.4 million in 1995.
INTEREST EXPENSE
Total interest expense increased by $5.6 million or 32.4% to $22.9 million
in 1996 from $17.3 million in 1995. The increase in interest expense was the
result of an increase in the rates paid on interest-bearing liabilities to 4.77%
in 1996 from 4.51% in 1995, and a 25.5% increase in the average amount of those
liabilities to $1.920 billion in 1996 from $1.530 billion in 1995. The increase
in the rates paid on interest-bearing funds was primarily due to the growth in
borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased to $0.8 million in 1996 from $0.6
million in 1995, an increase of $0.2 million or 33.3%. This increase was
primarily caused by growth in the loan portfolio and charge-offs in the credit
card portfolio, a line of business that the Company will sell in 1996. The
allowance for loan losses at June 30, 1996 was $6.2 million or 0.48% of gross
loans outstanding, compared to $4.8 million or 0.63% of gross loans outstanding
at June 30, 1995. Based on management's evaluation of the loan portfolio, past
loan loss experience and known inherent risks in the portfolio, management
believes that the allowance is adequate.
NON-INTEREST INCOME
Non-interest income decreased $0.2 million to $1.4 million in 1996 from $1.6
million in 1995. The decrease was due to gains on the sale of securities in 1995
which were sold to provide liquidity for the repurchase of shares of the
Company's outstanding stock. In 1996, the Company had $42,000 in gains from the
sale of loans. The Company expects an increase in loan sales in the future due
to increased mortgage loan originations which may result in greater fluctuations
in non-interest income.
NON-INTEREST EXPENSE
Non-interest expense increased by $0.8 million or 8.5% to $10.2 million in
1996 from $9.4 million in 1995. Compensation and employee benefits expense
increased by $0.6 million to $4.9 million in 1996 from $4.3 million in 1995, as
a result of salary increases and increased staffing in the Company's mortgage
origination areas. In addition, the expense related to the MRP was for the full
quarter this year, versus part of the quarter in 1995.
Federal insurance premiums were $1.0 million in 1996 and $0.9 million in
1995. The Bank's deposits are insured by the Savings Association Insurance Fund
(the "SAIF") of the Federal Deposit Insurance Corporation (the "FDIC"). The
ratio of the SAIF's insurance reserves to total SAIF-insured deposits remains
below the statutorily designated reserve ratio of 1.25%. Legislation pending
before Congress would recapitalize the SAIF to the designated reserve ratio by
imposing a special assessment against SAIF-insured institutions in an amount
which, in the aggregate, would increase the ratio of
8
the insurance reserves of the SAIF to 1.25% of total SAIF-insured deposits.
Based on the information currently available to the Company regarding the
pending legislation and the SAIF reserve balance, the Company estimates that
enactment of the legislation as proposed would result in a one-time charge to
the Company estimated to be $13.0 million on pre-tax income for the
recapitalization of the SAIF.
Other general and administrative expenses increased to $1.8 million in 1996
from $1.7 million 1995. A variety of professional fees and outside services
accounted for these increased expenses.
INCOME TAX EXPENSE
Income tax expense decreased $0.3 million to $2.2 million in 1996 from $2.5
million in 1995. The primary reason for the decrease was the decrease of pre-tax
income from $7.0 million to $6.1 million. The effective tax rate for 1996 was
37.0% compared with 36.0% for 1995.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE
30, 1995
GENERAL
Net income for the six months ended June 30, 1996, decreased 1.1% to $8.7
million compared to $8.8 million for the six months ended June 30, 1995.
Earnings per share for the 1996 period increased to $.56 compared to $.51 for
1995. The weighted average number of common shares and equivalents outstanding
for the second quarters of 1996 and 1995 were 15,778,257 and 17,350,000 shares,
respectively. Net interest income before provision for loan losses increased
$1.3 million or 4.3% to $31.7 million in 1996 compared to $30.4 million in 1995.
The provision for loan losses increased $0.8 million to $1.6 million in 1996
from $0.8 million in 1995. Non-interest income increased by $1.7 million or
63.0% to $4.4 million in 1996 from $2.7 million in 1995. Non-interest expense
increased by $2.3 million or 12.5% to $20.7 million in 1996 from $18.4 million
in 1995.
INTEREST INCOME
Total interest income increased $12.8 million or 20.3% to $75.9 million for
1996 from $63.1 million for 1995. The increase in interest income was the result
of average earning assets increasing to $2.109 billion in 1996 from $1.742
billion in 1995. Interest income on loans increased $16.4 million or 61.9% to
$42.9 million in 1996 from $26.5 million in 1995. The increase was the result of
growth in average loans outstanding of $490.9 million or 73.5% from $668.2
million in 1995 to $1,159.1 million in 1996. This was partially offset by a
decline in the portfolio yield from 7.93% in 1995 to 7.40% in 1996. Interest
income on mortgage-backed and related securities decreased $1.1 million or 4.0%
to $26.7 million in 1996 from $27.8 million in 1995. This decrease was due to
the average balance of mortgage-backed securities decreasing $30.2 million or
3.8% to $775.7 million in 1996 from $805.9 million 1995. Interest on investment
securities decreased by $2.5 million or 32.5% to $5.2 million in 1996 from $7.7
million in 1995. The decrease was due to the average balance of investment
securities decreasing $90.9 million or 39.5% to $139.5 million in 1996 from
$230.4 million in 1995. Short-term investment interest income declined to $0.5
million in 1996 from $0.7 million in 1995.
INTEREST EXPENSE
Total interest expense increased by $11.5 million or 35.1% to $44.3 million
in 1996 from $32.8 million in 1995. The increase in interest expense was the
result of a 24.4% increase in the average amount of interest-bearing liabilities
to $1.864 billion in 1996 from $1.498 billion in 1995 and an increase in the
rates paid on those liabilities to 4.75% in 1996 from 4.37% in 1995. The
increase in the rates paid on interest-bearing funds was primarily due to the
growth in borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased to $1.6 million in 1996 from $0.8
million in 1995, an increase of $0.8 million or 100.0%. This increase was
primarily caused by growth in the loan portfolio and charge-offs in the credit
card portfolio, a line of business that the Company will sell in 1996.
9
NON-INTEREST INCOME
Non-interest income increased $1.7 million or 63.0% to $4.4 million in 1996
from $2.7 million in 1995. The increase was due to gains on the sale of
securities which were sold to provide liquidity for the repurchase of shares of
the Company's outstanding stock and mortgage loan originations.
NON-INTEREST EXPENSE
Non-interest expense increased by $2.3 million or 12.5% to $20.7 million in
1996 from $18.4 million in 1995. Compensation and employee benefits expense
increased by $1.4 million to $9.9 million in 1996 from $8.5 million in 1995.
Normal salary increases and the absence of a mortgage banking subsidiary in
1995, accounted for much of this increase. In addition, the expense related to
the MRP was for the full year in 1996, versus a little over a month in 1995.
Federal insurance premiums were $1.9 million in 1996 and $1.7 million in
1995, as a result of growth in insured deposits.
Other general and administrative expenses increased to $3.6 million in 1996
from $3.3 million 1995. A variety of professional fees and outside services
accounted for these increased expenses.
INCOME TAX EXPENSE
Income tax expense increased $0.1 million to $5.1 million in 1996 from $5.0
million in 1995. The effective tax rate for 1996 was 36.9% compared with 36.2%
for 1995.
COMPARISON OF CHANGES IN FINANCIAL CONDITION
At June 30, 1996, total consolidated assets of the Company were $2.275
billion, an increase of $0.194 billion or 9.3% as compared to assets of $2.081
billion at December 31, 1995.
Cash and cash equivalents decreased $24.9 million or 35.8% from $69.6
million at December 31, 1995, to $44.7 million at June 30, 1996. The decrease
was due to investing the funds in higher yielding mortgage loans.
Investment securities increased $1.7 million or 1.2% from $137.8 million at
December 31, 1995, to $139.5 million at June 30, 1996.
Mortgage-backed and related securities decreased $71.3 million or 8.9% from
$804.0 million at December 31, 1995, to $732.7 million at June 30, 1996,
primarily because proceeds were used to fund the growth of the Company's
mortgage loan portfolio.
Loans receivable increased $279.3 million or 27.6% from $1,010.8 million at
December 31, 1995, to $1,290.1 million at June 30, 1996. The increase in loans
receivable was due to the expansion of the Company's correspondent mortgage loan
origination network during the period. During the first two quarters of 1996,
the Company originated or purchased $444.5 million in loans compared to $215.2
million during 1995. The Company purchases loans from correspondents.
Correspondents are mortgage bankers and brokers that originate loans for the
Company using rates and underwriting guidelines that the Company sets. The
correspondents are paid a fee for loans that are acquired. The Company
underwrites all loans and only funds those that meet its underwriting standards.
As mortgage loan production grows, the Company intends to increase the amount of
loans sold and will retain the loan servicing to generate additional fee income.
Deposits increased by $0.132 billion or 8.6% from $1.539 billion at December
31, 1995 to $1.671 billion at June 30, 1996. This increase is the result of
growth in the certificate of deposit portfolio. The Company continues to utilize
various marketing strategies to promote specific deposit products and to acquire
or expand targeted customer deposits.
Borrowings increased 31.9% to $310.0 million at June 30, 1996, from $235.0
million at December 31, 1995. The Company's increased borrowings from the
Federal Home Loan Bank (the FHLB') were utilized to fund the growth of loans.
10
INTEREST RATE SENSITIVITY
The Company manages its exposure to interest rate risk by emphasizing the
origination or purchase of adjustable rate mortgage ("ARM") loans and
mortgage-backed securities and the purchase of investments with a short term to
maturity for its portfolio. The Company also seeks to match the maturities of
assets with deposits and Federal Home Loan Bank ("FHLB") borrowings. Management
believes that investing in ARM loans and mortgage-backed securities, although
possibly sacrificing short-term profits compared to the yields obtainable
through fixed rate investments, reduces the Company's exposure to the risk of
interest rate fluctuations and thereby enhances long-term profitability. The
Company's portfolio of mortgage-backed and related securities has net
unamortized premiums of $5.8 million. If prepayments accelerate, the
amortization of the premium will increase and lower the net yield of the
securities over its remaining life. The majority of the collateralized mortgage
obligation ("CMO") portfolio was purchased at a discount and therefore does not
have the risk of acceleration of premium amortization.
At June 30, 1996, total interest-bearing liabilities maturing or repricing
within one year exceeded total interest-earning assets maturing or repricing in
the same time period by $157.8 million. This represented a negative cumulative
one year gap ratio of 6.9%. Thus, during periods of falling interest rates, it
is expected that the cost of interest-bearing liabilities would fall more
quickly than the yield on interest-earning assets, which would positively affect
net interest income. In periods of rising interest rates, the opposite affect on
net interest income is expected. The Company's one-year gap ratio at December
31, 1995, was a negative 2.3%.
Certain shortcomings are inherent in the method of analysis presented in the
following table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. The interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as ARM loans and mortgage-backed and
related securities, have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. In addition, the proportion of
ARM loans and mortgage-backed and related securities in the Company's portfolio
could decrease in future periods if market interest rates remain at or decrease
below current levels due to refinance activity. Further, in the event of a
change in interest rates, prepayment and early withdrawal levels would likely
deviate significantly from those assumed in the table. Finally, the ability of
many borrowers to service their debt may decrease in the event of an interest
rate increase.
11
STANDARD FINANCIAL, INC. & SUBSIDIARIES
INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES
RATE SENSITIVITY
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
MORE THAN ONE MORE THAN
WITHIN THREE FOUR TO TWELVE YEAR TO THREE THREE YEARS OVER FIVE
MONTHS MONTHS YEARS TO FIVE YEARS YEARS TOTAL
--------------- --------------- --------------- ------------- ------------- -------------
Interest-earning assets (1):
Mortgage loans (2):
Fixed..................... $ 6,695 $ 20,106 $ 53,778 $ 56,992 $ 71,354 $ 208,925
Variable.................. 11,007 130,718 338,807 511,514 77,000 1,069,046
Consumer loans (2).......... 13,149 848 2,967 1,696 2,294 20,954
Mortgage-backed and related
securities: 0
Fixed..................... 1,604 3,257 9,722 9,769 13,087 37,439
Variable.................. 155,899 423,720 101,268 14,418 0 695,305
Investment securities and
other assets (3)........... 99,329 48,323 9,497 19,074 3,862 180,085
--------------- --------------- --------------- ------------- ------------- -------------
Total................... 287,683 626,972 516,039 613,463 167,597 2,211,754
Interest-bearing
liabilities:
Deposits (4):
Now accounts.............. 4,769 14,306 38,150 38,150 18,848 114,223
Passbook savings
accounts................. 15,508 46,523 124,062 124,062 61,289 371,444
Money market deposit
accounts................. 79,962 0 0 0 0 79,962
Certificates of deposit... 301,505 584,895 172,378 29,916 80 1,088,774
Borrowings (5).............. 25,000 0 125,000 135,000 25,000 310,000
--------------- --------------- --------------- ------------- ------------- -------------
Total................... 426,744 645,724 459,590 327,128 105,217 1,964,403
--------------- --------------- --------------- ------------- ------------- -------------
Excess (deficiency) of
interest-earning assets
over interest-bearing
liabilities................ $ (139,061) $ (18,752) $ 56,449 $ 286,335 $ 62,380 $ 247,351
--------------- --------------- --------------- ------------- ------------- -------------
--------------- --------------- --------------- ------------- ------------- -------------
Cumulative excess
(deficiency) of
interest-earning assets
over interest-bearing
liabilities................ $ (139,061) $ (157,813) $ (101,364) $ 184,971 $ 247,351
--------------- --------------- --------------- ------------- -------------
--------------- --------------- --------------- ------------- -------------
Cumulative excess
(deficiency) of
interest-earning assets
over interest-bearing
liabilities as a % of total
assets..................... (6.11)% (6.94)% (4.46)% 8.13% 10.87%
12
- ------------------------
1) Adjustable and floating rate assets are included in the earlier of the
period in which interest rates are next scheduled to adjust or the period in
which they are due, and fixed rate assets are included in the periods in
which they are scheduled to be repaid based on scheduled amortization. For
fixed rate mortgage loans and mortgage-backed and related securities, an
annual prepayment rate of 13% was used, which management believes accurately
reflects the Company's historical experiences.
2) Balances have been reduced for unearned discounts.
3) Amounts shown reflect the repricing of inverse floating rate securities
during the indicated period. Such securities have rates which reset in the
opposite direction of interest rates and thus are reflected as a reduction
in total assets repricing in that period. When inverse floating rate
securities mature, the amount shown for such period reflects the principal
amount of such security plus the negative effect of repricing in prior
periods.
4) Although the Company's NOW accounts and passbook savings accounts generally
are subject to immediate withdrawal, management considers a certain amount
of such accounts to be core deposits having significantly longer effective
maturities based on the Company's retention of such deposits in changing
interest rate environments. NOW accounts and passbook savings accounts are
assumed to be withdrawn at annual rates of 16.7%, which management believes
accurately reflects the Company's expected historical experience. If all of
the Company's NOW accounts and passbook savings accounts had been assumed to
be subject to repricing within one year, the one-year cumulative deficiency
of interest-earning assets to interest-bearing liabilities would have been
$562.4 million or 24.7% of total assets.
5) Adjustable and floating rate borrowings are included in the period in which
their interest rates are next scheduled to adjust rather than in the period
in which they are due.
13
ASSET QUALITY
The Company regularly reviews its assets to determine that the allowance for
loan losses is adequate. The review consists of a comparison of the allowance
for loan losses to historical loss experience while incorporating the impact of
any classified loan. Management also reviews its allowance adequacy in light of
the outlook for the general economy and regulatory environment.
The following table sets forth information regarding non-performing loans,
investments and real estate owned at the dates indicated.
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
JUNE 30 MARCH 31 DECEMBER 31 SEPTEMBER 30 JUNE 30
1996 1996 1995 1995 1995
--------- --------- ------------ ------------ ---------
Non-accrual mortgage loans........................ $ 2,556 $ 2,417 $ 2,795 $ 3,566 $ 3,200
Non-accrual consumer loans........................ 358 367 411 416 510
--------- --------- ------------ ------------ ---------
Total non-performing loans.................... 2,914 2,784 3,206 3,982 3,710
Net real estate held for sale..................... 0 170 180 392 422
Non-accrual mortgage-backed and related
securities....................................... 7,373 7,877 8,508 9,164 9,758
--------- --------- ------------ ------------ ---------
Total non-performing assets................... $ 10,287 $ 10,831 $ 11,894 $ 13,538 $ 13,890
--------- --------- ------------ ------------ ---------
--------- --------- ------------ ------------ ---------
Allowance for loan losses......................... $ 6,218 $ 5,589 $ 5,048 $ 4,862 $ 4,830
Total non-performing assets to total assets....... 0.45% 0.50% 0.57% 0.69% 0.74%
Total non-performing loans to gross loans......... 0.22% 0.24% 0.31% 0.46% 0.49%
Allowance for loan losses to total non-performing
loans............................................ 213.38% 200.75% 157.45% 122.10% 130.19%
Total non-performing mortgage-backed and related
securities to gross mortgage-backed and related
securities....................................... 1.01% 0.99% 1.06% 1.09% 1.18%
14
AVERAGE BALANCE SHEET
The following tables set forth certain information relating to the Company's
consolidated average statements of condition and the consolidated statements of
income for the periods indicated and reflects the average yield on assets and
average cost of liabilities for those periods. Such yields and costs are derived
by dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. Average balances are derived principally
from average daily balances and include non-accruing loans. The yields and costs
include fees which are considered adjustments to yields. Interest income on
non-accruing loans is reflected in the period it is collected and not in the
period it is earned. In the opinion of management, such amounts are not material
to net interest income or net change in net interest income in any period.
Non-accrual loans are included in the average balances and do not have a
material effect on the average yield.
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
ASSETS:
1996 1995
---------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
---------- --------- ----------- ---------- --------- -----------
Interest-earning assets:
Short term investments............................... $ 8,735 $ 119 5.45% $ 24,053 $ 362 6.02%
Investment securities................................ 134,189 2,406 7.17% 207,410 3,443 6.64%
Mortgage-backed and related securities............... 758,120 13,089 6.91% 819,380 14,499 7.08%
Loans receivable..................................... 1,240,105 22,583 7.28% 711,864 14,238 8.00%
Investment in Federal Home Loan Bank stock........... 18,527 356 7.69% 12,591 204 6.48%
---------- --------- ----------- ---------- --------- -----------
Total interest-earning assets...................... 2,159,676 38,553 7.14% 1,775,298 32,746 7.38%
Non-interest-earning assets............................ 61,612 71,431
---------- ----------
Total assets....................................... $2,221,288 $1,846,729
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts......................................... $ 98,661 $ 506 2.05% $ 95,243 $ 478 2.01%
Money market deposit accounts........................ 79,787 615 3.08% 81,145 673 3.32%
Passbook savings accounts............................ 371,297 2,325 2.50% 386,592 2,418 2.50%
Certificates of deposit.............................. 1,066,048 14,751 5.53% 890,721 12,564 5.64%
Borrowings........................................... 303,890 4,688 6.17% 76,374 1,133 5.93%
---------- --------- ----------- ---------- --------- -----------
Total interest-bearing liabilities................. 1,919,683 22,885 4.77% 1,530,075 17,266 4.51%
Non-interest-bearing liabilities....................... 34,521 34,641
---------- ----------
Total liabilities.................................. 1,954,204 1,564,716
Stockholders' equity................................... 267,084 282,013
---------- ----------
Total liabilities and stockholders' equity......... $2,221,288 $1,846,729
---------- ----------
---------- ----------
Net interest income before provision for loan losses... $ 15,668 2.37% $ 15,480 2.87%
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Net yield on earning assets............................ 2.90% 3.49%
Ratio of interest-earning assets to interest-bearing
liabilities........................................... 1.13x 1.16x
15
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
ASSETS:
1996 1995
---------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
---------- --------- ----------- ---------- --------- -----------
Interest-earning assets:
Short term investments............................... $ 19,280 $ 521 5.40% $ 25,234 $ 732 5.80%
Investment securities................................ 139,469 5,205 7.46% 230,428 7,681 6.67%
Mortgage-backed and related securities............... 775,679 26,749 6.90% 805,898 27,818 6.90%
Loans receivable..................................... 1,159,112 42,886 7.40% 668,184 26,500 7.93%
Investment in Federal Home Loan Bank stock........... 15,903 580 7.29% 12,262 388 6.33%
---------- --------- ----------- ---------- --------- -----------
Total interest-earning assets...................... 2,109,443 75,941 7.20% 1,742,006 63,119 7.25%
Non-interest-earning assets............................ 60,786 71,727
---------- ----------
Total assets....................................... $2,170,229 $1,813,733
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts......................................... $ 98,578 $ 1,005 2.04% $ 93,622 $ 946 2.02%
Money market deposit accounts........................ 80,281 1,246 3.10% 82,711 1,348 3.26%
Passbook savings accounts............................ 369,410 4,625 2.50% 393,036 4,889 2.49%
Certificates of deposit.............................. 1,034,845 28,744 5.56% 865,873 23,669 5.47%
Borrowings........................................... 281,258 8,658 6.16% 63,187 1,917 6.07%
---------- --------- ----------- ---------- --------- -----------
Total interest-bearing liabilities................. 1,864,372 44,278 4.75% 1,498,429 32,769 4.37%
Non-interest-bearing liabilities....................... 36,043 34,393
---------- ----------
Total liabilities.................................. 1,900,415 1,532,822
Stockholders' equity................................... 269,814 280,911
---------- ----------
Total liabilities and stockholders' equity......... $2,170,229 $1,813,733
---------- ----------
---------- ----------
Net interest income before provision for loan losses... $ 31,663 2.45% $ 30,350 2.88%
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Net yield on earning assets............................ 3.00% 3.48%
Ratio of interest-earning assets to interest-bearing
liabilities........................................... 1.13x 1.16x
16
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
AT JUNE 30, 1996
(DOLLARS IN THOUSANDS)
ASSETS:
BALANCE YIELD/COST
------------- ---------
Interest-earning assets:
Short term investments............................................................... $ 22,094 5.32%
Investment securities................................................................ 139,464 6.39%
Mortgage-backed and related securities............................................... 732,744 7.07%
Loans receivable..................................................................... 1,298,925 7.61%
Investment in Federal Home Loan Bank stock........................................... 18,527 6.75%
------------- ---------
Total interest earning assets...................................................... 2,211,754 7.32%
Non-interest-earning assets............................................................ 62,782
-------------
Total assets....................................................................... $ 2,274,536
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts......................................................................... $ 81,074 2.00%
Money market deposit accounts........................................................ 79,962 3.14%
Passbook savings accounts............................................................ 371,444 2.53%
Certificates of deposit.............................................................. 1,088,774 5.63%
Borrowings........................................................................... 310,000 5.98%
------------- ---------
Total interest-bearing liabilities................................................. 1,931,254 4.83%
Non-interest-bearing liabilities....................................................... 76,988
-------------
Total liabilities.................................................................. 2,008,242
Stockholders' equity................................................................... 266,294
-------------
Total liabilities and stockholders' equity......................................... $ 2,274,536
-------------
-------------
Net interest income before provision for loan losses................................... 2.49%
---------
---------
17
CAPITAL COMPLIANCE
Office of Thrift Supervision (the "OTS") regulations require the Bank to
comply with the following minimum capital standards: a leverage (or core
capital) requirement consisting of a minimum ratio of core capital (which, as
defined by the OTS, is comprised primarily of stockholders' equity) to total
assets of 3%; a tangible capital requirement consisting of a minimum ratio of
tangible capital (defined as core capital minus all intangible assets other than
a specified amount of purchased mortgage servicing rights) to total assets of
1.5%; and a risk-based capital requirement, consisting of a minimum ratio of
total capital to total risk-weighted assets of 8%, with at least 50% of total
capital consisting of core capital.
At June 30, 1996, the Bank exceeded all regulatory minimum capital
requirements. The following table sets forth information relating to the Bank's
regulatory capital compliance at that date.
EXCESS OF
REGULATORY ACTUAL BANK BANK ACTUAL
REQUIREMENTS CAPITAL CAPITAL OVER
---------------------- ------------------------ REGULATORY
AMOUNT PERCENT AMOUNT PERCENT REQUIREMENTS
--------- ----------- ----------- ----------- -------------
Risk-based........................................... $ 71,185 8.00% $ 200,849 22.57% $ 129,664
Leverage (core)...................................... 66,599 3.00 194,631 8.77 128,032
Tangible............................................. 33,298 1.50 194,563 8.76 161,265
The capital requirements described above are minimum requirements. Higher
capital requirements will be required by the OTS if warranted by the particular
circumstances or risk profile of an individual institution. For example, OTS
regulations provide that additional capital may be required to take adequate
account of the risks posed by concentrations of credit, nontraditional
activities and the institution's ability to manage such risks. Further, the OTS
may require an institution to maintain additional capital to account for its
interest rate risk ("IRR") exposure. Under OTS regulations, the OTS quantifies
each institution's level of IRR exposure based on data reported by the
institution to the OTS, using a model designed to measure the change in the net
present value of the institution's assets, liabilities and off-balance sheet
positions resulting from a hypothetical 200 basis point increase or decrease in
interest rates. IRR exposure, as measured by the OTS, is used as the basis for
determining whether the institution must hold additional risk-based capital to
account for IRR. The Bank has not been required by the OTS to maintain capital
in excess of the minimum regulatory requirements set forth above.
LIQUIDITY
The Company's primary sources of funds are deposits, principal and interest
payments on loans, mortgage-backed and related securities and investment
securities, and advances from the FHLB and other borrowed funds. While scheduled
maturities of investments and amortization of loans are predictable sources of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The Bank is required to maintain an average daily balance of liquid assets
and short-term liquid assets as a percentage of net withdrawable deposits plus
short-term borrowings as defined by OTS regulations. This requirement which may
vary at the direction of the OTS depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and short-term borrowings. The
minimum required liquidity and short-term liquidity ratios are currently 5% and
1%, respectively. The Bank's liquidity ratios were 6.87% at June 30, 1996 and
8.92% at December 31, 1995. The Bank's short-term liquidity ratios were 2.67% at
June 30, 1996 and 5.28% at December 31, 1995. Excess funds are generally
invested in high quality, short-term marketable investments and federal funds.
In the event that the Bank should require funds beyond its ability to generate
them internally, additional sources of funds are available through the use of
advances from the Company, the FHLB, and other commercial banking sources.
The Company's cash flows are comprised of three primary classifications:
cash flows from operating activities, investing activities and financing
activities. Net cash provided by operating activities,
18
consisting of the results of operations of the Company, adjusted primarily for
non-cash amortization of expenses and changes in assets and liabilities were,
$43.2 million and $10.4 million for the first six months of 1996 and 1995,
respectively. Net cash used in investing activities, consisting of purchases and
maturities of investments, changes in the level of mortgage loans, and payment
for property and equipment, were $256.5 million and $162.1 million for the first
six months of 1996 and 1995, respectively. Net cash provided by financing
activities, consisting primarily of changes in deposit and escrow accounts and
changes in borrowed funds, were $188.4 million and $134.3 million for the first
six months of 1996 and 1995, respectively.
At June 30, 1996, the Company had outstanding loan commitments of $150.0
million and anticipates that it will have sufficient funds available to meet
these commitments. Certificates of deposit which are scheduled to mature in one
year or less from June 30, 1996, totaled $886.4 million. Management believes
that a significant portion of such deposits will remain with the Company based
upon prior experience with such deposits.
19
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
PART II -- OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or its
subsidiaries are a party other than ordinary routine litigation incidental to
their respective businesses.
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULT UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was convened on April 18, 1996.
At the meeting, John A. Brdecka, Albert M. Petkus and Thomas M. Ryan were
elected to serve as Class II directors (term expires in 1999). Continuing as
Class I directors (term expires in 1998) are Stasys J. Baras, Fred V. Gwyer,
M.D. and George W. Lane. Continuing as Class III directors (term expires in
1997) are David H. Mackiewich, Tomas A. Kisielius, M.D. and Sharon Reese
Dalenberg. The stockholders also approved proposals amending the Stock Option
Plan, amending the Stock Option Plan for Outside Directors, and amending the
Management Recognition and Retention Plan and Trust.
There were 16,693,489 issued and outstanding shares of Common Stock at the
time of the annual meeting. The voting on the above described items was as
follows:
BROKER
ELECTION OF DIRECTORS FOR WITHHELD NON-VOTE
- --------------------------------------------------------------------------- ------------- --------- ---------
John A. Brdecka............................................................ 14,223,724 346,515 176,777
Albert M. Petkus........................................................... 14,277,952 292,287 176,777
Thomas M. Ryan............................................................. 14,252,639 317,600 176,777
BROKER
FOR NOT FOR ABSTAIN NON-VOTE TOTAL
------------- ----------- --------- --------- -------------
Proposal to amend the Stock Option Plan....... 12,811,953 1,620,438 88,674 225,951 14,747,016
Proposal to amend the Stock Option Plan for
Outside Directors............................ 12,536,112 1,850,152 134,801 225,951 14,747,016
Proposal to amend the Management Recognition
and Retention Plan and Trust................. 12,690,231 1,722,304 108,530 225,951 14,747,016
The stockholders also voted to ratify the appointment of the Company's
external auditors, Ernst & Young LLP.
ITEM 5 OTHER INFORMATION
John A. Brdecka resigned as a director of the Company for personal reasons
during the second quarter.
20
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement Re Computation of Per Share Earnings
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
PRIMARY 1996 1995 1996 1995
- ------------------------------------------------------------------- --------- --------- --------- ---------
Average shares outstanding......................................... 15,088 17,255 15,382 17,321
Net effect of the assumed exercise of stock options -- based on the
treasury stock method using average market price.................. 310 42 292 21
Net effect of the assumed exercise of MRP's -- based on the
treasury stock method using average market price.................. 129 15 104 8
--------- --------- --------- ---------
Average common & common stock equivalents.......................... 15,527 17,312 15,778 17,350
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income......................................................... $ 3,818 $ 4,503 $ 8,739 $ 8,794
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share................................................. $ 0.25 $ 0.26 $ 0.56 $ 0.51
--------- --------- --------- ---------
--------- --------- --------- ---------
FULLY DILUTED
- -------------------------------------------------------------------
Average shares outstanding......................................... 15,088 17,255 15,382 17,321
Net effect of the assumed exercise of stock options -- based on the
treasury stock method using average market price or period end
market price, whichever is higher................................. 420 68 421 34
Net effect of the assumed exercise of MRP's -- based on the
treasury stock method using average market price or period end
market price, whichever is higher................................. 152 22 134 11
--------- --------- --------- ---------
Average common & common stock equivalents.......................... 15,660 17,345 15,937 17,366
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income......................................................... $ 3,818 $ 4,503 $ 8,739 $ 8,794
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share................................................. $ 0.24 $ 0.26 $ 0.55 $ 0.51
--------- --------- --------- ---------
--------- --------- --------- ---------
(b) Reports on Form 8-K
On July 8, 1996, the Company filed a current report on Form 8-K dated July
3, 1996, to report on Item 5, Other Events, certain information regarding the
completion of a stock repurchase of 847,250 shares of its common stock.
On August 1, 1996, the Company filed a current report on Form 8-K dated July
31, 1996, to report on Item 5, Other Events, certain information regarding the
regulatory approval to further repurchase common stock.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STANDARD FINANCIAL, INC.
(REGISTRANT)
Date: August 7, 1996 /s/ DAVID H. MACKIEWICH
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David H. Mackiewich
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(Duly Authorized Officer)
Date: August 7, 1996 /s/ THOMAS M. RYAN
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Thomas M. Ryan
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
22