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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-24082
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STANDARD FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3941870
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
ORGANIZATION OR INCORPORATION)
800 BURR RIDGE PARKWAY 60521
BURR RIDGE, ILLINOIS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(630) 986-4900
(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 16,210,435 shares of common stock, $0.01 par value, as of July 31,
1997.
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STANDARD FINANCIAL, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Statements of Condition as of June 30, 1997
(unaudited) and December 31, 1996............................. 2
Consolidated Statements of Income for the Three Months and Six
Months Ended June 30, 1997 and 1996 (unaudited)............... 3
Consolidated Statement of Stockholders' Equity for the Six
Months Ended June 30, 1997 (unaudited)........................ 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996 (unaudited)............................ 5
Notes to Consolidated Financial Statements (unaudited).......... 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 7
PART II. OTHER INFORMATION
Item 1 Legal Proceedings............................................... 22
Item 2 Changes in Securities........................................... 22
Item 3 Defaults upon Senior Securities................................. 22
Item 4 Submission of Matters to a Vote of Security Holders............. 22
Item 5 Other Information............................................... 22
Item 6 Exhibits and Reports on Form 8-K................................ 22
Signature Page.................................................. 24
1
PART 1--FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
------------ ------------
ASSETS:
Cash................................................................................. $ 24,306 $ 17,464
Interest-bearing deposits at depository institutions................................. 56,639 25,834
------------ ------------
Cash and cash equivalents.......................................................... 80,945 43,298
Investment securities................................................................ 204,152 153,501
Mortgage-backed and related securities............................................... 642,890 651,443
Loans receivable, net................................................................ 1,570,906 1,485,459
Real estate held for sale............................................................ 120 70
Investment in Federal Home Loan Bank stock........................................... 21,693 20,500
Office properties and equipment...................................................... 27,685 27,267
Accrued interest receivable.......................................................... 15,613 15,015
Other assets......................................................................... 10,253 8,236
Excess of cost over net assets of acquired association, less accumulated
amortization........................................................................ 418 432
------------ ------------
Total assets................................................................... $ 2,574,675 $2,405,221
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits............................................................................. $ 1,834,879 $1,719,300
Advances from Federal Home Loan Bank of Chicago...................................... 434,000 385,000
Advance payments by borrowers for taxes and insurance................................ 13,438 11,470
Federal & state income taxes payable................................................. 2,504 1,270
Miscellaneous liabilities............................................................ 12,540 20,103
------------ ------------
Total liabilities.............................................................. 2,297,361 2,137,143
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, 19,129,785 shares
issued, 16,210,435 shares outstanding at June 30, 1997; and 25,000,000 shares
authorized, 19,092,585 shares issued, 16,173,235 outstanding at December 31, 1996... 191 191
Additional paid-in capital........................................................... 190,799 189,460
Unrealized gain, net of income taxes, on securities available-for-sale............... 3,497 2,431
Retained income...................................................................... 136,094 130,437
Treasury stock, at cost (2,919,350 shares at June 30, 1997; 2,919,350 shares at
December 31, 1996).................................................................. (41,085) (41,085)
ESOP shares.......................................................................... (8,976) (9,611)
MRP shares........................................................................... (3,206) (3,745)
------------ ------------
Total stockholders' equity..................................................... 277,314 268,078
------------ ------------
Total liabilities and stockholders' equity..................................... $ 2,574,675 $2,405,221
------------ ------------
------------ ------------
2
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
INTEREST INCOME:
Loans................................................................. $ 27,844 $ 22,583 $ 55,729 $ 42,886
Mortgage-backed and related securities................................ 12,166 13,654 23,752 27,314
Investment securities and interest-bearing deposits................... 3,825 2,316 7,233 5,741
--------- --------- --------- ---------
Total interest income........................................... 43,835 38,553 86,714 75,941
INTEREST EXPENSE:
Deposits.............................................................. 20,948 18,197 40,951 35,620
Borrowings............................................................ 6,643 4,688 12,791 8,658
--------- --------- --------- ---------
Total interest expense.......................................... 27,591 22,885 53,742 44,278
--------- --------- --------- ---------
Net interest income before provision for loan losses.................. 16,244 15,668 32,972 31,663
Provision for loan losses............................................. 450 800 925 1,600
--------- --------- --------- ---------
Net interest income after provision for loan losses................... 15,794 14,868 32,047 30,063
NON-INTEREST INCOME:
Fees for customer services............................................ 958 1,141 1,843 2,226
Net gain(loss) on sales of investments and mortgage-backed
securities........................................................... 0 22 (146) 1,591
Net gain on sales of loans............................................ 254 42 446 70
Other................................................................. 198 237 358 555
--------- --------- --------- ---------
Total non-interest income....................................... 1,410 1,442 2,501 4,442
NON-INTEREST EXPENSE:
Compensation and benefits............................................. 5,370 4,912 10,503 9,948
Occupancy............................................................. 2,182 2,108 4,240 4,187
Federal deposit insurance premiums.................................... 373 967 521 1,915
Marketing............................................................. 518 461 1,034 918
Other general and administrative expenses............................. 1,238 1,777 4,397 3,649
Amortization of excess of cost over net assets of acquired
association.......................................................... 26 22 71 45
--------- --------- --------- ---------
Total non-interest expense...................................... 9,707 10,247 20,766 20,662
--------- --------- --------- ---------
Income before federal and state income taxes.......................... 7,497 6,063 13,782 13,843
Federal and state income taxes........................................ 2,685 2,245 4,886 5,104
--------- --------- --------- ---------
Net income............................................................ $ 4,812 $ 3,818 $ 8,896 $ 8,739
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary earnings per share............................................ $ 0.31 $ 0.25 $ 0.57 $ 0.56
Fully diluted earnings per share...................................... $ 0.30 $ 0.24 $ 0.56 $ 0.55
Dividends declared per share.......................................... $ 0.10 $ 0.08 $ 0.20 $ 0.16
3
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(UNAUDITED)
UNREALIZED
GAIN
COMMON ADDITIONAL ON SEC.
STOCK COMMON STOCK PAID-IN AVAILABLE- RETAINED TREASURY ESOP
ISSUED AT PAR VALUE CAPITAL FOR-SALE INCOME STOCK SHARES
----------- ------------- ----------- ----------- ----------- ----------- ---------
Balance at January 1, 1997...... 19,093 $ 191 $ 189,460 $ 2,431 $ 130,437 $ (41,085) $ (9,611)
Net income for the period....... 0 0 0 0 8,896 0 0
Dividends paid.................. 0 0 0 0 (3,239) 0 0
Change in unrealized gain, net
of income taxes, on securities
available-for-sale............ 0 0 0 1,066 0 0 0
Options exercised............... 37 0 446 0 0 0 0
Tax Benefit from options
exercise...................... 0 0 131 0 0 0 0
ESOP shares earned.............. 0 0 762 0 0 0 635
MRP shares earned, net.......... 0 0 0 0 0 0 0
----------- ----- ----------- ----------- ----------- ----------- ---------
Balance at June 30, 1997........ 19,130 $ 191 $ 190,799 $ 3,497 $ 136,094 $ (41,085) $ (8,976)
----------- ----- ----------- ----------- ----------- ----------- ---------
----------- ----- ----------- ----------- ----------- ----------- ---------
TOTAL
MRP STOCKHOLDERS'
SHARES EQUITY
--------- -------------
Balance at January 1, 1997...... $ (3,745) $ 268,078
Net income for the period....... 0 8,896
Dividends paid.................. 0 (3,239)
Change in unrealized gain, net
of income taxes, on securities
available-for-sale............ 0 1,066
Options exercised............... 0 446
Tax Benefit from options
exercise...................... 0 131
ESOP shares earned.............. 0 1,397
MRP shares earned, net.......... 539 539
--------- -------------
Balance at June 30, 1997........ $ (3,206) $ 277,314
--------- -------------
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4
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
----------------------------
1997 1996
------------- -------------
OPERATING ACTIVITIES:
Net income.......................................................................... $ 8,896 $ 8,739
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for depreciation.......................................................... 1,432 1,642
Provision for loan losses........................................................... 925 1,600
Amortization of other intangibles................................................... 58 58
Amortization of cost over net assets of acquired association........................ 71 45
Amortization of premiums and discounts.............................................. (698) 814
Amortization of net deferred loan fees.............................................. (105) (325)
Release of ESOP shares.............................................................. 1,397 941
Release of MRP shares............................................................... 539 515
Deferred income taxes............................................................... (915) 398
Gain on sale of loans............................................................... (446) (70)
Proceeds from loan sales............................................................ 47,190 39,991
Loans originated for sale........................................................... (58,222) (8,522)
(Gain) loss on sale of securities available-for-sale................................ 146 (1,591)
Proceeds from sale of other real estate............................................. 84 0
Gain on sale of other real estate................................................... (14) 0
Increase in interest receivable..................................................... (598) (796)
Increase in interest payable........................................................ 747 1,231
Decrease in miscellaneous liabilities............................................... (7,563) (248)
Other, primarily other assets....................................................... 484 (1,182)
------------- -------------
Net cash (used) provided by operating activities................................ (6,592) 43,240
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available-for-sale..................... 29,659 74,269
Proceeds from maturity and repayment of investment securities available-for-sale.... 289,367 188,859
Purchases of investment securities available-for-sale............................... (368,330) (265,639)
Repayments of mortgage-backed and related securities available-for-sale............. 75,608 126,172
Purchases of mortgage-backed and related securities available-for-sale.............. (65,812) (59,825)
Loan principal repayments........................................................... 186,304 123,088
Loans originated and purchased...................................................... (262,409) (436,015)
Office property and equipment, net.................................................. (1,906) (1,664)
Purchase of Federal Home Loan Bank stock............................................ (1,193) (5,725)
------------- -------------
Net cash used by investing activities........................................... (118,712) (256,480)
FINANCING ACTIVITIES:
Net (decrease) increase in passbook, NOW, and money market deposit accounts......... (5,710) 11,983
Net increase in certificates of deposit............................................. 120,543 119,109
Premium paid on purchased deposits.................................................. (57) (454)
Proceeds of advances from Federal Home Loan Bank.................................... 49,000 87,000
Repayments of advances from Federal Home Loan Bank.................................. 0 (12,000)
Net increase in advance payments by borrowers....................................... 1,968 3,137
Options exercised................................................................... 446 207
Purchase of treasury stock.......................................................... 0 (17,874)
Dividends paid...................................................................... (3,239) (2,715)
------------- -------------
Net cash provided by financing activities....................................... 162,951 188,393
------------- -------------
Increase (decrease) in cash and cash equivalents................................ 37,647 (24,847)
Cash and cash equivalents at beginning of period.................................... 43,298 69,571
------------- -------------
Cash and cash equivalents at end of period.......................................... $ 80,945 $ 44,724
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for interest on:
Deposits............................................................................ $ 40,204 $ 34,389
Borrowings.......................................................................... 12,630 8,447
------------- -------------
$ 52,834 $ 42,836
------------- -------------
------------- -------------
Income taxes........................................................................ $ 3,652 $ 5,080
------------- -------------
------------- -------------
Transfer of loans to real estate held for sale...................................... $ 120 $ 170
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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, 1997 are not necessarily indicative of results that may be expected for
the entire year ending December 31, 1997.
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 Capitol 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 1997 and 1996 were 15,741,202 and 15,527,024,
respectively. The weighted average number of common shares and equivalents
outstanding for the first six months of 1997 and 1996 were 15,656,221 and
15,778,257 respectively.
(3) COMMITMENTS
The Bank had outstanding lending commitments at June 30, 1997 and December
31, 1996 comprised of the following (in thousands):
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
Mortgage loans.............................................. $ 68,436 $ 53,209
Equity lines................................................ 8,576 7,459
------------- -------
$ 77,012 $ 60,668
------------- -------
------------- -------
6
STANDARD FINANCIAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(4) LOANS RECEIVABLE
Loans receivable at June 30, 1997 and December 31, 1996 consisted of the
following:
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
Loans held for sale.............................................. $ 29,950 $ 18,918
Mortgage loans originated:
One-to-four family............................................. 1,394,535 1,361,741
Multifamily.................................................... 11,556 12,634
Commercial..................................................... 7,722 7,322
Mortgage loans and participations purchased, primarily
one-to-four family............................................. 50,763 57,831
------------ ------------
Total mortgage loans............................................. 1,494,526 1,458,446
Consumer loans................................................... 84,428 35,511
------------ ------------
Loans receivable, gross.................................... 1,578,954 1,493,957
Less:
Allowance for losses........................................... (7,825) (6,988)
Undisbursed portions of loan proceeds.......................... 23 (805)
Net deferred loan origination fees............................. (246) (705)
------------ ------------
Loans receivable, net............................................ $ 1,570,906 $1,485,459
------------ ------------
------------ ------------
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 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 parts of the
city of Chicago and neighboring suburbs in Cook and DuPage counties, Illinois.
At June 30, 1997, 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.
7
STANDARD FINANCIAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
During the first six months of 1997, net income increased slightly to $8.9
million, a 2.3% or $0.2 million increase over the same period in 1996. This
equated to $0.57 per share for the first six months of 1997 compared to $0.56
per share for the same period in 1996. Total assets of the Company rose to $2.6
billion at June 30, 1997. Capital remained strong at $277.3 million at June 30,
1997, an increase of $9.2 million from December 31, 1996. The Company paid cash
dividends of $.20 cents per share during this same period.
At June 30, 1997, total assets of the Company reached $2.575 billion, an
increase of 7.1% from December 31, 1996. During this same period, loans grew to
$1.571 billion or 5.8%, and deposits grew to $1.835 billion or 6.7%. While net
interest income for the first six months of 1997 was up 4.1% from the same
period in 1996 because of volume growth, the net interest margin dropped to
2.73% from 3.00% 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 shrinking of the margin.
BUSINESS COMBINATION
The Company and TCF Financial Corporation, a Delaware corporation ("TCF"),
entered into an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated March 16, 1997, providing for the combination of the Company
and TCF (the "Transaction"). For Company stockholders, the Transaction will be
structured as a cash election merger in which the holders of Company Common
Stock will have the right to elect cash, TCF Common Stock or a combination
thereof, subject to certain limitations set forth in the Reorganization
Agreement. At the Effective Time of the Transaction, each outstanding share of
Company Common Stock will be converted into TCF Common Stock, cash or a
combination thereof, based on a value of TCF Common Stock determined over the 30
consecutive trading days ending on the Determination Date (as that term is
defined in the Reorganization Agreement). The Transaction is structured to be
tax-free to Company stockholders except to the extent they receive cash.
Completion of the Transaction is subject to certain conditions, including
(i) approval by the stockholders of the Company, (ii) approval by the Federal
Reserve Board, the Office of the Comptroller of Currency, the Office of Thrift
Supervision and other requisite regulatory authorities, (iii) receipt of
opinions of counsel for the Company and for TCF that the Transaction will be
treated, for federal income tax purposes, as a tax-free reorganization, and (iv)
other conditions to closing customary in transactions of this type.
If the Reorganization Agreement is terminated under certain circumstances,
the Company would be required to pay TCF a cash termination fee of $15 million.
It is currently anticipated that the Transaction will be consummated during the
third quarter of 1997.
8
STANDARD FINANCIAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND
JUNE 30, 1996
GENERAL
Net income for the quarter ended June 30, 1997, increased 26.3% to $4.8
million compared to $3.8 million for the quarter ended June 30, 1996. Earnings
per share for the 1997 quarter was $0.31 compared to $0.25 in the second quarter
of 1996. The weighted average number of common shares and equivalents
outstanding for the second quarters of 1997 and 1996 were 15,741,202 and
15,527,024 shares, respectively. Net interest income before provision for loan
losses increased $0.5 million or 3.2% to $16.2 million in 1997 compared to $15.7
million in 1996. The provision for loan losses decreased $0.3 million to $0.5
million in 1997 from $0.8 million in 1996. 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 investment securities, 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 market interest rates, government policies and actions
of regulatory authorities. Non-interest income remained flat totaling $1.4
million in both 1997 and 1996. Non-interest expense decreased by $0.5 million or
4.9% to $9.7 million in 1997 from $10.2 million in 1996.
INTEREST INCOME
Total interest income increased $5.2 million or 13.5% to $43.8 million for
1997 from $38.6 million for 1996. The increase in interest income was the result
of average earning assets increasing to $2.451 billion in 1997 from $2.160
billion in 1996. Interest income on loans increased $5.2 million or 23.0% to
$27.8 million in 1997 from $22.6 million in 1996. The increase was the result of
growth in average loans outstanding of $303.4 million or 24.5% from $1.240
billion in 1996 to $1.543 billion in 1997. This was partially offset by a
decline in the portfolio yield from 7.28% in 1996 to 7.22% in 1997. Interest
income on mortgage-backed and related securities decreased $1.5 million or 10.9%
to $12.2 million in 1997 from $13.7 million in 1996. This decrease was due to a
decline in the average volume. This decrease was partially offset by an increase
in yield from 7.20% in 1996 to 7.39% in 1997. Interest on investment securities
increased by $1.4 million or 77.8% to $3.2 million in 1997 from $1.8 million in
1996. The increase was due to the average balance of investment securities
increasing $73.0 million or 54.4% to $207.2 million in 1997 from $134.2 million
in 1996, and an increase in the portfolio yield from 5.49% in 1996 to 6.17% in
1997. Short-term investment interest income decreased by $0.2 million to $0.3
million in 1997 from $0.1 million in 1996.
INTEREST EXPENSE
Total interest expense increased by $4.7 million or 20.5% to $27.6 million
in 1997 from $22.9 million in 1996. The increase in interest expense was the
result of an increase in the rates paid on interest-bearing liabilities to 5.01%
in 1997 from 4.77% in 1996, and a 14.8% increase in the average amount of those
liabilities to $2.204 billion in 1997 from $1.920 billion in 1996. This volume
growth came from certificates of deposit and borrowings. The increase in the
rates paid on interest-bearing funds was primarily due to the growth in
borrowings.
9
STANDARD FINANCIAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
PROVISION FOR LOAN LOSSES
The provision for loan losses decreased to $0.5 million in 1997 from $0.8
million in 1996, a decrease of $0.3 million or 37.5%. The allowance for loan
losses at June 30, 1997 was $7.8 million or 0.49% of gross loans outstanding,
compared to $7.0 million or 0.48% of gross loans outstanding at December 31,
1996. 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 remained flat at $1.4 million in both 1997 and 1996. In
1997, the Company had $254,000 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 decreased by $0.5 million or 4.9% to $9.7 million in
1997 from $10.2 million in 1996. Compensation and employee benefits expense
increased by $0.5 million or 10.2% to $5.4 million in 1997 from $4.9 in 1996.
The Company accrued $0.7 million in expense relating to the Employee Stock
Ownership Plan (the "ESOP") in 1997, up from the $0.5 million expensed for the
ESOP in 1996. Under generally accepted accounting principles ("GAAP"), expense
under the ESOP reflects the market value of shares to participants. The
difference between the market value and the cost of shares released, which
equaled $0.4 million in 1997, is reflected as an increase in additional paid-in
capital.
Federal insurance premiums were $0.4 million in 1997 and $1.0 million in
1996. The decline in this expense was the result of a reduction in rates charged
by the Federal Deposit Insurance Corporation (the "FDIC").
Other general and administrative expenses decreased to $1.2 million in 1997
from $1.8 million 1996. Loan origination expenses were down due to reduced loan
originations during the quarter.
INCOME TAX EXPENSE
Income tax expense increased $0.5 million to $2.7 million in 1997 from $2.2
million in 1996. The primary reason for the increase was the increase of pre-tax
income from $6.1 million to $7.5 million. The effective tax rate for 1997 was
35.8% compared with 37.0% for 1996.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE
30, 1996
GENERAL
Net income for the six months ended June 30, 1997, increased 2.3% to $8.9
million compared to $8.7 million for the six months ended June 30, 1996.
Earnings per share for the 1997 period increased to $0.57 compared to $0.56 for
1996. The weighted average number of common shares and equivalents outstanding
for first six months of 1997 and 1996 were 15,656,221 and 15,778,257 shares,
respectively. Net interest income before provision for loan losses increased
$1.3 million or 4.1% to $33.0 million in 1997 compared to $31.7 million in 1996.
The provision for loan losses decreased $0.7 million to $0.9 million in 1997
from $1.6 million in 1996. Non-interest income decreased by $1.9 million or
43.2% to $2.5 million in 1997 from
10
STANDARD FINANCIAL, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
$4.4 million in 1996. Non-interest expense increased by $0.1 million or 0.5% to
$20.8 million in 1997 from $20.7 million in 1996.
INTEREST INCOME
Total interest income increased $10.8 million or 14.2% to $86.7 million for
1997 from $75.9 million for 1996. The increase in interest income was the result
of average earning assets increasing to $2.413 billion in 1997 from $2.109
billion in 1996. Interest income on loans increased $12.8 million or 29.8% to
$55.7 million in 1997 from $42.9 million in 1996. The increase was the result of
growth in average loans outstanding of $364.9 million or 31.5% from $1.159
billion in 1996 to $1.524 billion in 1997. This was partially offset by a
decline in the portfolio yield from 7.40% in 1996 to 7.31% in 1997. Interest
income on mortgage-backed and related securities decreased $3.5 million or 12.8%
to $23.8 million in 1997 from $27.3 million in 1996. This decrease was due to
the average balance of mortgage-backed and related securities decreasing $119.8
million or 15.4% to $655.9 million in 1997 from $775.7 million 1996. This was
partially offset by an increase in portfolio yield from 7.04% in 1996 to 7.24%
in 1997. Interest on investment securities increased by $1.3 million or 28.3% to
$5.9 million in 1997 from $4.6 million in 1996. The increase was due to the
average balance of investment securities increasing $48.6 million or 34.8% to
$188.1 million in 1997 from $139.5 million in 1996. Short-term investment
interest income increased to $0.6 million in 1997 from $0.5 million in 1996.
INTEREST EXPENSE
Total interest expense increased by $9.4 million or 21.2% to $53.7 million
in 1997 from $44.3 million in 1996. The increase in interest expense was the
result of a 16.2% increase in the average amount of interest-bearing liabilities
to $2.166 billion in 1997 from $1.864 billion in 1996 and an increase in the
rates paid on those liabilities to 4.96% in 1997 from 4.75% in 1996. The
increase in the rates paid on interest-bearing funds was primarily due to the
growth in borrowings and certificates of deposit.
PROVISION FOR LOAN LOSSES
The provision for loan losses decreased to $0.9 million in 1997 from $1.6
million in 1996, a decrease of $0.7 million or 43.8%.
11
NON-INTEREST INCOME
Non-interest income decreased $1.9 million or 43.2% to $2.5 million in 1997
from $4.4 million in 1996. In 1996, the Company recorded $1.6 million in gains
from the sale of investments and mortgage-backed securities, versus a $0.1
million loss in 1997.
NON-INTEREST EXPENSE
Non-interest expense increased by $0.1 million or 0.5% to $20.8 million in
1997 from $20.7 million in 1996. Compensation and employee benefits expense
increased by $0.6 million to $10.5 million in 1997 from $9.9 million in 1996.
Federal insurance premiums were $0.5 million in 1997 and $1.9 million in
1996, as a result of a reduction in rates charged by the Federal Deposit
Corporation (the "FDIC").
Other general and administrative expenses increased to $4.4 million in 1997
from $3.6 million 1996. A variety of professional fees and outside services
accounted for these increased expenses.
INCOME TAX EXPENSE
Income tax expense decreased $0.2 million to $4.9 million in 1997 from $5.1
million in 1996. The effective tax rate for 1997 was 35.5% compared with 36.9%
for 1996.
COMPARISON OF CHANGES IN FINANCIAL CONDITION
At June 30, 1997, total consolidated assets of the Company were $2.6
billion, an increase of $0.2 billion or 8.3% as compared to assets of $2.4
billion at December 31, 1996.
Cash and cash equivalents increased $37.6 million or 86.8% from $43.3
million at December 31, 1996, to $80.9 million at June 30, 1997.
Investment securities increased $50.7 million or 33.0% from $153.5 million
at December 31, 1996, to $204.2 million at June 30, 1997. The Company has been
investing in short term securities in anticipation of the upcoming merger with
TCF.
Mortgage-backed and related securities decreased $8.5 million or 1.3% from
$651.4 million at December 31, 1996, to $642.9 million at June 30, 1997,
primarily because proceeds were used to fund the growth of the Company's
mortgage loan portfolio.
Loans receivable increased $85.4 million or 5.8% from $1.485 billion at
December 31, 1996, to $1.571 billion at June 30, 1997. During the first two
quarters of 1997, the Company originated or purchased $320.6 million in loans
compared to $444.5 million during the first six months of 1996. 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 $115.6 billion or 6.7% from $1.719 billion at December
31, 1996 to $1.835 billion at June 30, 1997. This increase was 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 12.7% to $434.0 million at June 30, 1997, from $385.0
million at December 31, 1996. The Company's increased borrowings from the
Federal Home Loan Bank (the "FHLB") were utilized to fund the growth of loans.
12
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 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 $5.9 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, 1997, total interest-bearing liabilities maturing or repricing
within one year exceeded total interest-earning assets maturing or repricing in
the same time period by $413.9 million. This represented a negative cumulative
one year gap ratio of 17.1%. 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, 1996, was a negative 7.86%.
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.
13
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES RATE SENSITIVITY
JUNE 30, 1997
(UNAUDITED)
MORE THAN
WITHIN FOUR TO MORE THAN THREE YEARS
THREE TWELVE ONE YEAR TO TO FIVE OVER FIVE
MONTHS MONTHS THREE YEARS YEARS YEARS TOTAL
--------- --------- ----------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
Interest-earning assets(1):
Mortgage loans(2):
Fixed..................................... $ 5,416 $ 16,260 $ 43,873 $ 48,805 $ 57,731 $ 172,085
Variable.................................. 46,637 122,940 504,164 611,401 37,299 1,322,441
Consumer loans(2)......................... 375 1,277 9,557 58,302 14,917 84,428
Mortgage-backed and related securities:
Fixed..................................... 894 2,687 5,403 5,411 13,161 27,556
Variable.................................. 139,270 420,131 55,481 452 0 615,334
Investment securities and other
assets(3)............................... 171,840 6,017 21,842 82,785 0 282,484
--------- --------- ----------- ----------- ----------- ---------
Total................................... 364,432 569,312 640,320 807,156 123,108 2,504,328
Interest-bearing liabilities:
Deposits(4):
Now accounts.............................. 4,349 13,046 34,789 34,789 17,186 104,160
Passbook savings accounts................. 14,504 43,511 116,028 116,028 57,319 347,390
Money market deposit accounts............. 71,562 0 0 0 0 71,562
Certificates of deposit................... 201,334 999,357 76,362 16,181 99 1,293,333
Borrowings................................ 0 25,000 274,000 110,000 25,000 434,000
--------- --------- ----------- ----------- ----------- ---------
Total................................... 291,748 1,080,914 501,180 276,999 99,605 2,250,445
--------- --------- ----------- ----------- ----------- ---------
Excess(deficiency) of interest-earning
assets over interest-bearing
liabilities............................. $ 72,684 $(511,602) $ 139,140 $ 530,157 $ 23,503 $ 253,883
--------- --------- ----------- ----------- ----------- ---------
--------- --------- ----------- ----------- ----------- ---------
Cumulative excess(deficiency) of interest-
earning assets over interest-bearing
liabilities............................. $ 72,684 $(438,918) $(299,778) $ 230,380 $ 253,883
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
Cumulative excess(deficiency) of interest-
earning assets over interest-bearing
liabilities as a % of total assets...... 2.82% (17.05)% (11.64)% 8.95% 9.86%
- ------------------------------
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
$790.1 million or 30.7% of total assets.
14
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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,
investment securities and real estate owned at the dates indicated.
JUNE 30, MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
1997 1997 1996 1996 1996
--------- ----------- ------------ ------------- ---------
Non-accrual mortgage loans........................ $ 5,593 $ 5,258 $ 4,362 $ 3,649 $ 2,556
Non-accrual consumer loans........................ 15 24 0 0 358
--------- ----------- ------------ ------------- ---------
Total non-performing loans...................... 5,608 5,282 4,362 3,649 2,914
Net real estate held for sale..................... 120 160 70 70 0
Non-accrual mortgage-backed and related
securities...................................... 10,223 10,386 11,138 12,123 7,373
--------- ----------- ------------ ------------- ---------
Total non-performing assets..................... $ 15,951 $ 15,828 $ 15,570 $ 15,842 $ 10,287
--------- ----------- ------------ ------------- ---------
--------- ----------- ------------ ------------- ---------
Allowance for loan losses......................... $ 7,825 $ 7,401 $ 6,988 $ 6,559 $ 6,218
Total non-performing assets to total assets....... 0.62% 0.64% 0.65% 0.68% 0.45%
Total non-performing loans to gross loans......... 0.36% 0.35% 0.30% 0.26% 0.22%
Allowance for loan losses to total non-performing
loans........................................... 139.53% 140.12% 160.20% 179.75% 213.38%
Total non-performing mortgage-backed and related
securities to gross mortgage-backed and related
securities...................................... 1.57% 1.57% 1.71% 1.76% 1.01%
15
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
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.
1997 1996
------------------------------------- -------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
--------- ----------- ------------- --------- ----------- -------------
(DOLLARS IN THOUSANDS)
ASSETS:
Interest-earnings assets:
Short term investments......................... $ 20,679 $ 274 5.30% $ 8,735 $ 119 5.45%
Investment securities.......................... 207,231 3,198 6.17% 134,189 1,841 5.49%
Mortgage-backed and related securities......... 658,404 12,166 7.39% 758,120 13,654 7.20%
Loans receivable............................... 1,543,492 27,844 7.22% 1,240,105 22,583 7.28%
Investment in Federal Home Loan Bank stock..... 21,309 353 6.63% 18,527 356 7.69%
--------- ----------- --- --------- ----------- ---
Total interest-earning assets.............. 2,451,115 43,835 7.15% 2,159,676 38,553 7.14%
Non-interest-earning assets.................... 61,792 61,612
--------- ---------
Total assets............................... $2,512,907 $2,221,288
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts................................... $ 105,773 $ 527 1.99% $ 98,661 $ 506 2.05%
Money market deposit accounts.................. 74,280 575 3.10% 79,787 615 3.08%
Passbook savings accounts...................... 353,073 2,210 2.50% 371,297 2,325 2.50%
Certificates of deposit........................ 1,243,039 17,636 5.68% 1,066,048 14,751 5.53%
Borrowings..................................... 428,000 6,643 6.21% 303,890 4,688 6.17%
--------- ----------- --- --------- ----------- ---
Total interest-bearing liabilities......... 2,204,165 27,591 5.01% 1,919,683 22,885 4.77%
Non-interest-bearing liabilities............... 34,727 34,521
--------- ---------
Total liabilities.......................... 2,238,892 1,954,204
Stockholders' equity........................... 274,015 267,084
--------- ---------
Total liabilities and stockholders'
equity................................... $2,512,907 $2,221,288
--------- ---------
--------- ---------
Net interest income before provision for loan
losses....................................... $ 16,244 2.14% $ 15,668 2.37%
----------- --- ----------- ---
----------- --- ----------- ---
Net yield on earning assets.................... 2.65% 2.90%
Ratio of interest-earning assets to
interest-bearing liabilities................. 1.11x 1.13x
16
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1997 1996
-------------------------------------- --------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
------------ --------- ------------- ------------ --------- -------------
(DOLLARS IN THOUSANDS)
ASSETS:
Interest-earning assets:
Short term investments...................... $ 23,940 $ 648 5.41% $ 19,280 $ 521 5.40%
Investment securities....................... 188,137 5,890 6.26% 139,469 4,640 6.65%
Mortgage-backed and related securities...... 655,887 23,752 7.24% 775,679 27,314 7.04%
Loans receivable............................ 1,524,021 55,729 7.31% 1,159,112 42,886 7.40%
Investment in Federal Home Loan Bank
stock..................................... 20,905 695 6.65% 15,903 580 7.29%
------------ --------- --- ------------ --------- ---
Total interest-earning assets........... 2,412,890 86,714 7.19% 2,109,443 75,941 7.20%
Non-interest-earning assets................. 59,969 60,786
------------ ------------
Total assets............................ $ 2,472,859 $ 2,170,229
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts................................ $ 103,603 $ 1,041 2.01% $ 98,578 $ 1,005 2.04%
Money market deposit accounts............... 73,775 1,152 3.12% 80,281 1,246 3.10%
Passbook savings accounts................... 350,450 4,410 2.52% 369,410 4,625 2.50%
Certificates of deposit..................... 1,222,433 34,348 5.62% 1,034,845 28,744 5.56%
Borrowings.................................. 415,244 12,791 6.16% 281,258 8,658 6.16%
------------ --------- --- ------------ --------- ---
Total interest-bearing liabilities...... 2,165,505 53,742 4.96% 1,864,372 44,278 4.75%
Non-interest-bearing liabilities............ 35,648 36,043
------------ ------------
Total liabilities....................... 2,201,153 1,900,415
Stockholders' equity........................ 271,706 269,814
------------ ------------
Total liabilities and stockholders'
equity................................ $ 2,472,859 $ 2,170,229
------------ ------------
------------ ------------
Net interest income before provision for
loan losses............................... $ 32,972 2.23% $ 31,663 2.45%
--------- --- --------- ---
--------- --- --------- ---
Net yield on earning assets................. 2.73% 3.00%
Ratio of interest-earning assets to
interest-bearing liabilities.............. 1.11x 1.13x
17
STANDARD FINANCIAL, INC. AND SUBSIDIARIES
NET INTEREST MARGIN
AT JUNE 30, 1997
(UNAUDITED)
BALANCE YIELD/COST
------------ -------------
(DOLLARS IN THOUSANDS)
ASSETS:
Interest-earning assets:
Short term investments.................................................................. $ 56,639 5.83%
Investment securities................................................................... 204,152 6.15%
Mortgage-backed and related securities.................................................. 642,890 7.16%
Loans receivable........................................................................ 1,578,954 7.47%
Investment in Federal Home Loan Bank stock.............................................. 21,693 6.75%
------------ ---
Total interest-earning assets....................................................... 2,504,328 7.24%
Non-interest-earning assets............................................................. 70,347
------------
Total assets........................................................................ $ 2,574,675
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
NOW accounts............................................................................ $ 104,160 2.00%
Money market deposit accounts........................................................... 71,562 3.15%
Passbook savings accounts............................................................... 347,390 2.53%
Certificates of deposit................................................................. 1,293,333 5.68%
Borrowings.............................................................................. 434,000 6.12%
------------ ---
Total interest-bearing liabilities.................................................. 2,250,445 5.03%
Non-interest-bearing liabilities........................................................ 46,916
------------
Total liabilities................................................................... 2,297,361
Stockholders' equity.................................................................... 277,314
------------
Total liabilities and stockholders' equity.......................................... $ 2,574,675
------------
------------
Net interest income before provision for loan losses.................................... 2.21%
---
---
18
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, 1997, 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 BANK ACTUAL
REQUIREMENTS ACTUAL BANK CAPITAL CAPITAL OVER
---------------------- ----------------------- REGULATORY
AMOUNT PERCENT AMOUNT PERCENT REQUIREMENTS
--------- ----------- ---------- ----------- -------------
Risk-based............................................... $ 89,638 8.00% $ 215,814 19.26% $ 126,176
Leverage (core).......................................... 75,517 3.00% 207,989 8.26% 132,472
Tangible................................................. 37,752 1.50% 207,571 8.25% 169,819
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 10.64% at June 30, 1997 and
7.46% at December 31, 1996. The Bank's short-term liquidity ratios were 6.60% at
June 30, 1997 and 4.50% at December 31, 1996. 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
19
activities and financing activities. Net cash (used in) provided by operating
activities, consisting of the results of operations of the Company, adjusted
primarily for non-cash amortization of expenses and changes in assets and
liabilities were, ($6.6) million and $43.2 million for the first six months of
1997 and 1996, 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 $118.7 million and $256.5
million for the first six months of 1997 and 1996, respectively. Net cash
provided by financing activities, consisting primarily of changes in deposit and
escrow accounts and changes in borrowed funds, were $163.0 million and $188.4
million for the first six months of 1997 and 1996, respectively.
At June 30, 1997, the Company had outstanding loan commitments of $77.0
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, 1997, totaled $1.201 billion. Management believes
that a significant portion of such deposits will remain with the Company based
upon prior experience with such deposits.
RECENT REGULATORY DEVELOPMENTS
The Committee on Banking and Financial Services of the U.S. House of
Representatives has approved legislation that would eliminate the federal thrift
charter by requiring each federal thrift to convert to a national or state bank
within two years following enactment of the legislation. Any federal thrift that
failed to convert to a bank within such two year period would, by operation of
law, become a national bank as of the second anniversary of the enactment of the
legislation. Assuming the proposed combination of the Company and TCF is
consummated as provided in the Reorganization Agreement, this aspect of the
pending legislation will have no impact on the Company and its subsidiaries.
The proposed legislation would also allow bank holding companies to engage
in a wider range of nonbanking activities, including greater authority to engage
in securities and insurance activities. The expanded powers generally would be
available to a bank holding company only in the bank holding company and its
bank subsidiaries of the bank holding company had received at least a
"satisfactory" rating under the Community Reinvestment Act. The proposed
legislation would also impose various restrictions on transactions between the
depository institution subsidiaries of bank holding companies and their nonbank
affiliates. These restrictions are intended to protect the depository
institutions from the risks of the new nonbanking activities permitted to such
affiliates.
At this time, the Company is unable to predict whether the proposed
legislation will be enacted and therefore, is unable to predict the impact such
legislation may have on the operations of the Company and the Bank.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This report may contain certain forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Company and its subsidiaries include, but
are not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal polices of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or
20
composition of the loan or investment portfolios, demand for loan products,
deposit flows, competition, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles, polices and guidelines. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements. Further information concerning the
Company and its business, including additional factors that could materially
affect the Company's financial results, is included in the Company's filings
with the Securities and Exchange Commission.
21
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
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement Re Computation of Per Share Earnings
27.1 Financial Data Schedule
22
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
PRIMARY
Average shares outstanding............................................ 14,844 15,088 14,816 15,382
Net effect of the assumed exercise of stock options--based on the
treasury stock method using average market price.................... 735 310 692 292
Net effect of the assumed exercise of MRP's--based on the treasury
stock method using average market price............................. 162 129 148 104
--------- --------- --------- ---------
Average common & common stock equivalents............................. 15,741 15,527 15,656 15,778
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income............................................................ $ 4,813 $ 3,818 $ 8,896 $ 8,739
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share.................................................... $ 0.31 $ 0.25 $ 0.57 $ 0.56
--------- --------- --------- ---------
--------- --------- --------- ---------
FULLY DILUTED
Average shares outstanding............................................ 14,844 15,088 14,816 15,382
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................................... 769 420 776 421
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................................................. 168 152 162 134
--------- --------- --------- ---------
Average common & common stock equivalents............................. 15,781 15,660 15,754 15,937
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income............................................................ $ 4,813 $ 3,818 $ 8,896 $ 8,739
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share.................................................... $ 0.30 $ 0.24 $ 0.56 $ 0.55
--------- --------- --------- ---------
--------- --------- --------- ---------
(b) Reports on Form 8-K
None
23
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 13, 1997 /s/ DAVID H. MACKIEWICH
--------------------------------------------
DAVID H. MACKIEWICH
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 13, 1997 /s/ THOMAS M. RYAN
--------------------------------------------
THOMAS M. RYAN
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
24
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 13, 1997
--------------------------------------------
DAVID H. MACKIEWICH
Chairman of the Board,
President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 13, 1997
--------------------------------------------
THOMAS M. RYAN
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
25