SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22790
STATEFED FINANCIAL CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware 42-1410788
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(State of other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) or Number)
519 Sixth Avenue, Des Moines, Iowa 50309
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(Address of principal executive offices)
(515) 282-0236
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(Issuer's telephone number)
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. Yes [X] No [ ]
State the number of Shares outstanding of each of the issuer's classes
of common equity, as the latest date:
As of November 11, 1996, there were 783,485 shares of the Registrant's
common stock issued and outstanding.
STATEFED FINANCIAL CORPORATION
Form 10-QSB
Index
Financial Information Page No.
Item 1. Consolidated Financial Statements:
Consolidated Statements of Financial Condition
as of September 30, 1996 and June 30, 1996 3
Consolidated Statements of Operations for
the Three Month Periods Ending September 30, 1996
and September 30, 1995 4
Consolidated Statement of Stockholders'
Equity for the Three Months ended September 30, 1996 5
Consolidated Statements of Cash Flows
for the Three Months ended September 30, 1996 and
September 30, 1995 6
Notes to Consolidated Financial Statements 7
Items 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. Other Information 12
Signatures 13
2
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITIONS September 30, 1996 and June 30, 1996
PART 1. Financial Information
Item 1. Financial Statements
ASSETS (Unaudited
September 30, 1996 June 30, 1996
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Cash and amounts due from depository institutions $ 2,899,151 $ 2,564,267
Investments in certificates of deposit 4,438,166 4,439,567
Investment securities 2,365,317 2,347,048
Loans receivable, net 66,304,498 62,708,487
Real estate acquired for development 602,577 385,476
Real estate held for investment, net 1,091,564 1,149,990
Office property and equipment, net 1,452,584 1,464,796
Federal Home Loan Bank stock, at cost 950,000 750,000
Accrued interest receivable 555,556 533,706
Other assets 400,059 361,287
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TOTAL ASSETS $ 81,059,472 $76,704,624
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 46,417,350 $ 45,731,828
Advances from Federal Home Loan Bank 19,000,000 15,000,000
Advances from borrowers for taxes and insurance 111,541 505,749
Accrued interest payable 181,866 129,833
Dividends payable 79,449 81,349
Income Taxes: current and deferred 174,075 138,255
Other liabilities 512,398 189,305
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TOTAL LIABILITIES $66,476,679 $ 61,776,319
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized,
non issued Common stock, $.01 par value $2,000,000 shares
authorized, 789,485 shares outstanding at
9-30-96, 813,485 shares outstanding at 6-30-96
Common stock $ 8,905 $ 8,905
Additional paid-in capital 8,384,591 8,376,924
Unearned compensation - restricted stock awards (501,279) (531,989)
Unrealized loss on investments (4,616) (22,251)
Treasury stock (101,001 shares at cost at 9-30-96,
77,001 shares at cost at 6-30-96) (1,438,613) (1,049,358)
Retained earnings - substantially restricted 8,133,805 8,146,074
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TOTAL STOCKHOLDERS' EQUITY $ 14,582,793 $ 14,928,305
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 81,059,472 $ 76,704,624
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3
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Month Period Ending September 30, 1996 and 1995
Three Months Ended
September 30
(unaudited)
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1996 1995
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Interest Income:
Loans $1,394,587 $1,275,614
Investments $ 128,913 $ 106,731
Other $ 25,672 $ 44,704
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Total interest income $1,549,172 $1,427,049
Interest Expense:
Deposits $ 605,344 $ 635,364
Borrowings $ 232,824 $ 156,969
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Total interest expense $ 838,168 $ 792,333
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Net interest Income $ 711,004 $ 634,716
Provision for loan losses $ 6,000 $ 6,000
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Net interest income after $ 705,004 $ 628,716
provision for loan losses
Non-interest Income:
Real estate operations $ 97,684 $ 94,516
Other $ 14,219 $ 12,321
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Total non-interest income $ 111,903 $ 106,837
Non-interest expense:
Salaries and benefits $ 202,880 $ 214,736
Real estate operations $ 59,906 $ 49,360
Occupancy and equipment $ 26,733 $ 27,401
SAIF special assessment $ 291,331 $ --
FDIC premiums and OTS assessments $ 32,201 $ 31,268
Data processing $ 20,016 $ 18,989
Other $ 80,841 $ 63,165
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Total non-interest expense $ 713,908 $ 404,919
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Income before income taxes $ 102,999 $ 330,634
Income tax expense $ 35,820 $ 115,600
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Net income $ 67,179 $ 215,034
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Earnings per share $ 0.09 $ 0.27
4
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY
For the Three Months Ended September 30, 1996
(Unaudited)
Balance - June 30, 1996 $14,928,305
Additional paid in capital $ 7,667
Net unrealized gain on investment securities $ 17,635
Dividends declared $ (79,448)
Repurchase of 25,000 shares treasury stock $ (403,125)
Stock options exercised (1000 shares) $ 13,870
ESOP common stock released for allocation $ 19,460
Amortization of MRP contribution $ 11,250
Net income $ 67,179
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Balance September 30, 1996 $14,582,793
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5
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Month Periods Ending September 30, 1996 and September 30, 1995
(Unaudited)
Cash Flows From Operating Activities September 30, 1996 September 30, 1995
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Net Income $ 67,179 $ 215,034
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation $ 28,786 $ 28,737
Amortization of purchase loan discounts $ (3,203) $ (3,821)
Amortization of MRP and ESOP $ 42,247 $ 54,130
Deferred loan fees $ (928) $ 130
Provision for losses on loans $ 6,000 $ 6,000
Change in:
Accrued interest receivable $ (21,850) $ (53,717)
Prepaid expenses and other assets $ (38,772) $ (34,930)
Accrued interest payable $ 52,033 $ 54,893
Other Liabilities $ 358,913 $ 39,489
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NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 490,405 $ 305,945
CASH FLOWS FROM INVESTING ACTIVITIES
Additional investment in other institutions'
certificates of deposit $ - $ -
Maturity of investments in certificates of deposit $ 1,401 $ 495,691
Purchase of investment securities $ (200,634) $ (600,555)
Net increase in loans outstanding $(3,597,880) $(1,138,937)
Investment in real estate held for development $ (166,890) $ (14,701)
Purchase of real estate held for investment $ (5,150) $ -
Purchase of office property and equipment $ (3,208) $ (8,594)
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NET CASH FLOWS USED BY INVESTING ACTIVITIES $(3,972,361) $(1,267,096)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 685,522 $ (891,492)
Advances from the Federal Home Loan Bank $ 4,000,000 $ 1,000,000
Repayment of advances from the Federal Home Loan Bank $ - $ -
Net decrease in advances from borrowers $ (394,208) $ (352,474)
Proceeds from stock options exercised $ 10,000 $ 31,570
Dividends paid $ (81,349) $ (83,259)
Purchase of treasury stock $ (403,125) $ (253,750)
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NET CASH FLOWS USED BY FINANCING ACTIVITIES $ 3,816,840 $ (549,405)
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CHANGE IN CASH AND CASH EQUIVALENTS $ 334,884 $(1,510,556)
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CASH AND CASH EQUIVALENTS, beginning of period $ 2,564,267 $ 3,938,049
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CASH AND CASH EQUIVALENTS, end of period $ 2,899,151 $ 2,427,493
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6
STATEFED FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ending
September 30, 1996 and September 30, 1995
(Unaudited)
1. BASIS OF PRESENTATIONS
The foregoing consolidated financial statements are unaudited (with the
exception of the Consolidated Statements of Financial Condition for June 30,
1996). However, in the opinion of management, all adjustments necessary for a
fair presentation of the consolidated financial statements have been included.
Results for any interim period are not necessarily indicative of results
expected for the year. The interim consolidated financial statements include the
accounts of StateFed Financial Corporation (the "Corporation"), its subsidiary,
State Federal Savings and Loan Association (the "Association" or "State
Federal") and the Association's subsidiary, State Service Corporation.
2. EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of Common Stock is computed by dividing net income
for the period by the weighted average number of common stock and common stock
equivalents outstanding during the three month period ending September 30, 1996,
plus the shares that would be issued assuming the conversion of dilutive stock
options. The weighted average number of shares used in the earnings per share
computations were 772,475 for the three month period ending September 30, 1996.
3. REGULATORY CAPITAL REQUIREMENTS
Pursuant to Federal law, savings institutions must meet three separate
capital requirements. The Association's capital ratios and balances at September
30, 1996 are as follows:
Amount %
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Tangible Capital: (Dollars in thousands)
Association's $10,145 13.19%
Requirement 1,154 1.50%
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Excess $ 8,991 11.69%
Core Capital:
Associations' $10,145 13.19%
Requirement 2,308 3.00%
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Excess $ 7,837 10.19%
Risk-Based Capital:
Association's $10,391 22.74%
Requirement 3,656 8.00%
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Excess $ 6,735 14.74%
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4. STOCK OPTION PLAN
During the company's annual meeting held in October, 1994, the
stockholders ratified the StateFed Financial Corporation 1993 stock option plan.
Under the terms of stock option plan, options to purchase shares of the
company's stock at $10 per share were granted. Options for 85,692 were granted
under the plan and there were 17,192 shares reserved for future grants. During
the three months ended September 30, 1996 options for 1,000 shares were
exercised.
5. STOCK REPURCHASE PLAN
On January 13, 1996, the Company's Board of Directors authorized
management to repurchase up to 41,000 shares of the Company's common stock over
the next twelve months. During the three month period ending September 30, 1996,
25,000 shares were repurchased. As of November 8, 1996, 41,000 shares have been
repurchased since January 13, 1996, for a cost of $668,625.
6. REGULATORY DEVELOPMENTS
The deposits of savings associations, such as State Federal, are
presently insured by the SAIF, which together with the BIF, are the two
insurance funds administered by the FDIC. Financial institutions which are
members of the BIF are experiencing substantially lower deposit insurance
premiums because the BIF has achieved its required level of reserves while the
SAIF has not yet achieved its required reserves. In order to help eliminate this
disparity and any competitive disadvantage due to disparate deposit insurance
premium schedules, legislation to recapitalize the SAIF was enacted in
September, 1996.
The legislation requires a special one-time assessment of approximately
65.7 cents per $100 of SAIF insured deposits held by the one-time special
assessment will result in a tax affected charge to earnings of approximately
$189,000 during the quarter ended September 30, 1996. The legislation is
intended to fully recapitalize the SAIF fund so that commercial bank and thrift
deposits will be charged the same FDIC premiums beginning October 1, 1996. As of
such date deposit insurance premiums for highly rated institutions, such as the
Bank, have been eliminated.
The Bank however, will continue to be subject to an assessment to fund
repayment of the FICO obligations. It is anticipated that the FICO assessment
for SAIF insured institutions will be 6.5 cents per $100 of deposits while BIF
insured institutions will pay 1.3 cents per $100 of deposits until the year 2000
when the assessment will be imposed at the same rate on all FDIC insured
institutions.
8
PART I ITEM 2
STATEFED FINANCIAL CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The accompanying Consolidated Financial Statements include StateFed
Financial Corporation (the "Company") and its wholly owned subsidiary, State
Federal Savings and Loan Association (the "Association"). All significant
inter-company transactions and balances are eliminated in consolidation. The
Company's results of operations are primarily dependent on the Association's net
interest margin, which is the difference between interest income earned on
interest-earning assets and interest expense paid on interest-bearing
liabilities. The Association's net income is also affected by the level of its
non-interest expenses, such as employee compensation and benefits, occupancy
expenses, and other expenses.
Financial Condition
The Company's total assets increased $4.4 million, from $76.7 million
at June 30, 1996 to $81.1 million at September 30, 1996. This increase was due
primarily to an increase in loans receivable of $3.6 million, an increase in
cash and amounts due from depository institutions of $335,000, an increase in
real estate acquired for development of $217,000, and an increase in Federal
Home Loan Bank stock of $200,000.
Net loans receivable increased $3.6 million, from $62.7 million at June
30, 1996 to $66.3 million at September 30, 1996. The increase in the loan
portfolio occurred as a result of an increase in loan originations comprised of
adjustable rate mortgage loans and fixed-rate, 15-year term, mortgage loans.
Total deposits increased by $686,000, from $45.7 million at June 30,
1996 to $46.4 million at September 30, 1996, largely as a result of the
acceptance of $1,000,000 in brokered deposits. Certificate accounts increased
$907,000, money market fund accounts increased $71,000, offset by a decrease of
$223,000 in passbooks accounts and a decrease of $70,000 in NOW accounts.
Total borrowed funds increased $4.0 million, or 26.67%, from $15.0
million on June 30, 1996 to $19.0 million on September 30, 1996. The Federal
Home Loan Bank borrowings were used primarily to fund the increase in mortgage
loans.
Total stockholders' equity decreased $345,000 from $14,928,000 at June
30, 1996 to $14,583,000 at September 30, 1995. The decrease was primarily the
result of the cost of $403,000 to repurchase the Company's stock, partially
offset by net earnings of $67,000 for the three month period ending September
30, 1996.
Comparison of Operating Results for the Three Month Periods Ending September 30,
1996 and September 30, 1995
General. Net income decreased $147,800 to $67,200 for the three months
ended September 30, 1996 from $215,000 for the three months ended September 30,
1995. The decrease in net income was primarily due to an increase in
non-interest expense of $309,000, primarily as a result of a one-time special
assessment on
9
SAIF insured deposits (See Note #6, Regulatory Developments"), partially offset
by a $80,000 decrease in income tax expense and an increase in net interest
income of $76,300.
Net Interest Income. Net interest income increased $76,300, or 12.02%
from $634,700 for the three months ended September 30, 1995 to $711,000 for the
three months ended September 30, 1996. This increase was primarily the reresult
of an increase in interest income of $122,000 offset by an increase in interest
expense of $45,600.
Interest Income. Interest income increased $122,000, from $1.4 million
for the three months ended September 30, 1995 to $1.5 million for the three
months ended September 30, 1996, as a result of an increase in interest earned
on the loan portfolio of $119,000 as well as an increase in interest on
investments of $22,000, partially offset by a decrease in other interest income
of $19,000.
Interest Expense. Interest expense increased $45,800 from $792,300 in
the three months ended September 30, 1995 to $838,200 in the three months ended
September 30, 1996. This increase resulted from a an increase in interest paid
on borrowed funds of $75,800, offset by a decrease in interest paid on deposits
of $30,000.
Provision for Loan Losses. The provision for loan losses remained
unchanged in the three months ended September 30, 1996 as compared to the three
months ended September 30, 1995. The provision during the three months ended
September 30, 1996 was based on management's analysis of the allowance for loan
losses. The Company will continue to monitor its allowance for loan losses and
make future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Company maintains its allowance for
loan losses at a level which it considers to be adequate to provide for
potential losses, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required for future periods.
Non-interest Income. Non-interest income increased from $106,800 in the
three months ended September 30, 1995 to $111,900 in the three months ended
September 30, 1996. The $5,100 increase was the result of an increase in income
from real estate operations of $3,200 and an increase of $1,900 in other income.
Non-interest Expense. Non-interest expense increased from $404,900 in
the three months ended September 30, 1995 to $713,900 in the three months ended
September 30, 1996 This increase of $309,000, was primarily the result of an
increase in SAIF assessment expense of $291,300 due to legislation requiring
SAIF insured associations to pay a one-time special assessment of 65.7 cents per
$100 of SAIF insured deposits at March 31, 1995.
Income Tax Expense. Income tax expense was $35,800 for the three
months ended September 30, 1996 compared to $115,600 for the three months ended
September 30, 1995, a decrease of $79,800, primarily due to the tax deduction on
the $291,300 special assessment of $102,000.
Liquidity and Capital Resources. The Company's primary sources of funds
are deposits, principal and interest payments on loans, FHLB Des Moines
advances, and funds provided by operations. While scheduled loan repayments and
maturity of short-term investments are a relatively predictable source of funds,
deposit flows are greatly influenced by general interest rates, economic
conditions, and competition. Current Office of Thrift Supervision regulations
require the bank to maintain cash and eligible investments in an amount equal to
at least 5% of customer accounts and short-term borrowings to assure its ability
to meet demands for withdrawals and repayment of short-term borrowings. As of
September 30, 1996, the Association's liquidity ratio was 5.25%, which exceeded
the minimum regulatory requirement on such date.
10
The Company uses its capital resources principally to meet its ongoing
commitments, to fund maturing certificates of deposits and loan commitments,
maintain its liquidity, and meet its foreseeable short- and long term needs. The
Company expects to be able to fund or refinance, on a timely basis, its material
commitments and long-term liabilities.
Regulatory standards impose the following capital requirements: a
risk-based capital standard expressed as a percent of risk adjusted assets, a
leverage ratio of core capital to total adjusted assets, and a tangible capital
ratio expressed as a percent of total adjusted assets. As of September 30, 1995,
the Association exceeded all fully phased-in regulatory capital requirements.
At September 30, 1996, the Association's tangible capital was $10.1
million, or 13.19%, of adjusted total assets, which is in excess of the 1.5%
requirement by $9.0 million. In addition, at September 30, 1996, the Association
had core capital of $10.1 million, or 13.19%, of adjusted total assets, which
exceeds the 3% requirement by $7.8 million. The Association had risk-based
capital of $10.4 million at September 30, 1996 or 22.74 of risk-adjusted assets
which exceeds the 8.0% risk-based capital requirements by $6.7 million.
As required by Federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. the OTS has proposed that only those savings associations rated
a composite one (the highest rating) under the MACRO rating system for savings
associations will be permitted to operate at or near the regulatory minimum
leverage ratio of 3%. All other savings associations will be required to
maintain a minimum leverage ratio of 3% plus at least an additional 100 to 200
basis points. The OTS will assess each individual savings association through
the supervisory process on a case-by-case basis to determine the applicable
requirement. No assurance can be given as to the final form of any such
regulation, the date of its effectiveness or the requirement applicable to the
Association. As a result of the prompt corrective action provisions of federal
law discussed below, however, a savings association must maintain a core capital
ratio of at least 4% to be considered adequately capitalized unless its
supervisory condition is such to allow it to maintain a 3% ratio.
As part of the legislation, the Congress is considering requiring all
federal thrift institutions, such as the Bank to either convert to a national
bank or a state-chartered depository institution by January 1, 1998. In
addition, the Company would no longer be regulated as a thrift holding company,
but rather as a bank holding company. The OTS also would be abolished and its
functions transferred among the other federal banking regulators.
Certain aspects of the legislation remain to be resolved and therefore
no assurance can be given as to whether or in what form the legislation will be
enacted or its effect on the Company and the Bank.
11
STATEFED FINANCIAL CORPORATION
Part II - Other Information
As of September 30, 1996, management is not aware of any current
recommendations by regulatory authorities which, if they were to be implemented,
would have or are reasonably likely to have a material adverse effect on the
Company's liquidity, capital resources of operations.
Item 1 - Legal Proceedings
Not applicable.
Item 2 - Changes in Securities
Not applicable.
Item 3 - Defaults upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to Vote of Security Holders
(a) The annual meeting of stockholders was held on October 24, 1996
(b) The matters approved by stockholders at the annual meeting and
the number of votes cast for, against, or withheld (as well as the number of
abstentions and broker non-votes) as to each matter are set forth below:
Election of the following Directors for a three year term:
For Withheld Broker Non-Votes
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John F. Golden 682,562 5568 0
Kevin Kruse 682,595 5535 0
Ratification of Vroman, McGowan, Hurst, Clark & Smith, PC as auditors for the
Company for the fiscal year ending June 30, 1996.
For 682,430
Against 5,500
Abstain 200
Broker Non-Votes 0
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Not applicable.
(b) The following is a description of the Form 8-K's filed during
the three months ended September 30, 1996.
On November 14, 1996, a current report on Form 8-K was filed to
announce first quarter earnings.
12
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STATEFED FINANCIAL CORPORATION
Registrant
Date: November 11, 1996 /s/ John F. Golden
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John F. Golden
President and Chief Executive Officer
Date: November 11, 1996 /s/ Andra K. Black
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Andra K. Black
Executive Vice President and
Chief Financial Officer
13