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 December 31, 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 February 7, 1997, there were 789,123 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 December 31, 1996 and June 30, 1996 3
Consolidated Statements of Operations for
the Three Month Periods Ending December 31, 1996
and December 31, 1995 and for the Six Month Periods
ending December 31, 1996 and December 31, 1995 4
Consolidated Statement of Stockholders'
Equity for the Six Months ended December 31, 1996 5
Consolidated Statements of Cash Flows
for the Six Months ended December 31, 1996 and
December 31, 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 13
Signatures 14
2
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND JUNE 30, 1996
PART I. Financial Information
Item 1. Financial Statements
ASSETS (Unaudited)
December 31, 1996 June 30, 1996
----------------- -------------
Cash and amounts due from depository institutions $ 3,098,625 $ 2,564,267
Investments in certificates of deposit 4,436,766 4,439,567
Investment securities 2,181,463 2,347,048
Loans receivable, net 68,005,561 62,708,487
Real estate acquired for development 718,734 385,476
Real estate held for investment, net 1,078,199 1,149,990
Office property and equipment, net 1,439,028 1,464,796
Federal Home Loan Bank stock, at cost 950,000 750,000
Accrued interest receivable 547,363 533,706
Prepaid expenses and other assets 352,794 361,287
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TOTAL ASSETS $82,808,533 $76,704,624
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $48,216,280 $45,731,828
Advances from Federal Home Loan Bank 19,000,000 15,000,000
Advances from borrowers for taxes and insurance 465,575 505,749
Accrued interest payable 3,372 129,833
Dividends payable 78,349 81,349
Income taxes:current and deferred 148,849 138,255
Other liabilities 178,204 189,305
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TOTAL LIABILITIES $68,090,629 $61,776,319
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Stockholders' equity:
Common stock $ 8,905 $ 8,905
Additional paid-in capital 8,397,593 8,376,924
Unearned compensation - restricted stock awards (470,799) (531,989)
Unrealized gain (loss) on investments 10,776 (22,251)
Treasury stock (1,539,113) (1,049,358)
Retained earnings - substantially restricted 8,310,542 8,146,074
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TOTAL STOCKHOLDERS' EQUITY $14,717,904 $14,928,305
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $82,808,533 $76,704,624
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3
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Month Periods Ending December 31, 1996 and 1995
and For the Six Month Periods Ending December 31, 1996 and 1995
Three Months Ended Six Months Ended
December 31 December 31
(Unaudited) (Unaudited)
------------------------------- -------------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Interest Income:
Loans $1,449,030 $1,264,843 $2,843,617 $2,540,458
Investments 122,532 115,213 251,445 221,944
Other 26,335 27,622 52,008 72,325
---------- ---------- ---------- ----------
Total interest income 1,597,897 1,407,678 3,147,070 2,834,727
Interest Expense:
Deposits 626,517 597,543 1,231,861 1,232,907
Borrowings 278,736 180,972 511,561 337,941
---------- ---------- ---------- ----------
Total interest expense 905,253 778,515 1,743,422 1,570,848
Net interest Income 692,644 629,163 1,403,648 1,263,879
Provision for loan losses 6,000 6,000 12,000 12,000
---------- ---------- ---------- ----------
Net interest income after 686,644 623,163 1,391,648 1,251,879
provision for loan losses
Non-interest Income:
Real estate operations 112,995 110,745 211,701 205,261
Gain on sale of real estate 11,004 26,147 11,070 26,147
Other 17,222 14,269 31,441 26,591
---------- ---------- ---------- ----------
Total non-interest income 141,221 151,161 254,212 257,999
Non-interest expense:
Salaries and benefits 208,805 216,144 411,684 430,881
Real estate operations 61,000 56,179 121,995 105,539
Occupancy and equipment 28,824 30,437 55,558 57,837
FDIC premiums and OTS assessments 33,045 32,271 356,577 63,539
Data processing 20,793 18,986 40,808 37,975
Other 84,993 101,853 165,834 165,019
---------- ---------- ---------- ----------
Total non-interest expense 437,460 455,870 1,152,456 860,790
Income before income taxes 390,405 318,454 493,404 649,088
Income tax expense 135,320 110,600 171,140 226,200
---------- ---------- ---------- ----------
Net income $ 255,085 $ 207,854 $ 322,264 $ 422,888
========== ========== ========== ==========
Earnings per share $ 0.34 $ 0.26 $ 0.42 $ 0.53
4
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended December 31, 1996
(Unaudited)
Balance - June 30, 1996 $14,928,305
Additional paid in capital 20,669
Net unrealized gain on investment securities 33,027
Dividends declared (157,796)
Repurchase of 31,000 shares treasury stock (503,625)
Stock options exercised (1000 shares) 13,870
ESOP common stock released for allocation 38,690
Amortization of MRP contribution 22,500
Net income 322,264
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Balance December 31, 1996 $14,717,904
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5
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Month Periods Ending December 31, 1996 and December 31, 1995
(Unaudited)
Cash Flows From Operating Activities December 31, 1996 December 31, 1995
- ------------------------------------ ----------------- -----------------
Net Income $ 322,264 $ 422,888
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 58,696 57,848
Amortization of purchase loan discounts (4,048) (8,111)
Amortization of MRP and ESOP 85,729 112,508
Deferred loan fees 28,137 11,667
Provision for losses on loans 12,000 12,000
Change in:
Accrued interest receivable (13,657) (58,784)
Prepaid expenses and other assets 8,493 7,754
Accrued interest payable (126,461) (94,815)
Other Liabilities (507) (81,825)
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NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 370,646 $ 381,130
CASH FLOWS FROM INVESTING ACTIVITIES
Maturity of investment securities $ 200,000 $ --
Maturity of investments in certificates of deposit 2,801 695,245
Purchase of investment securities (201,388) (695,427)
Net increase in loans outstanding (5,333,163) (3,771,683)
Investment in real estate held for development (283,047) (1,526)
Purchase of real estate held for investment (5,150) --
Purchase of office property and equipment (6,198) (18,621)
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NET CASH FLOWS USED BY INVESTING ACTIVITIES $(5,626,145) $(3,792,012)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 2,484,452 $ (356,512)
Advances from the Federal Home Loan Bank 4,000,000 5,000,000
Repayment of advances from the Federal Home Loan Bank -- (2,000,000)
Net decrease in advances from borrowers (40,174) (26,665)
Proceeds from stock options exercised 10,000 31,570
Dividends paid (160,796) (165,333)
Purchase of treasury stock (503,625) (253,750)
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NET CASH FLOWS USED BY FINANCING ACTIVITIES $ 5,789,857 $ 2,229,310
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CHANGE IN CASH AND CASH EQUIVALENTS $ 534,358 $(1,181,572)
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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 $ 3,098,625 $ 2,756,477
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6
STATEFED FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ending
December 31, 1996 and December 31, 1995
and for the Six Month Periods Ending December 31, 1996 and December 31, 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 December 31, 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 792,261 for the three month period ending December 31, 1995
and 761,067 for the three month period ending December 31, 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 December
31, 1996 are as follows:
Amount %
----------------------
Tangible Capital: (Dollars in thousands)
Association's $ 9,489 12.08%
Requirement 1,178 1.50%
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Excess $ 8,311 10.58%
Core Capital:
Association's $ 9,489 12.08%
Requirement 2,356 3.00%
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Excess $ 7,133 9.08%
Risk-Based Capital:
Association's $ 9,741 20.82%
Requirement 3,743 8.00%
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Excess $ 5,998 12.82%
7
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 December 31, 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 December 31, 1996, 31,000
shares were repurchased. A total of 41,000 shares have been repurchased since
January 13, 1996, at a cost of $668,625.
6. Recent Developments
On September 30, 1996 federal legislation was enacted that required the
Savings Association Insurance Fund ("SAIF") be recapitalized with a one-time
assessment on virtually all SAIF-insured institutions, such as the Association,
equal to 65.7 basis points on each $100 of SAIF-insured deposits maintained by
those institutions as of March 31, 1995. The amount of the Association's special
assessment was $291,300, which was paid to the FDIC by November 27, 1996 and
accrued by the Association at September 30, 1996.
As a result of the SAIF recapitalization, the FDIC amended its regulation
concerning the insurance premiums payable by SAIF-insured institutions.
Effective January 1, 1997, the SAIF insurance premium will range from 0 to 27
basis points per $100 of domestic deposits. Additionally, the FDIC has imposed a
Financing Corporation (FICO) assessment on SAIF-assessable deposits for the
first semi-annual period of 1997 equal to 6.48 basis points per $100 of domestic
deposits, as compared to a FICO assessment on Bank Insurance Fund (BIF)
assessable deposit equal to 1.30 basis points per $100 of domestic for the same
period.
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 $6.1 million, or 8.0%, from $76.7
million at June 30, 1996 to $82.8 million at December 31, 1996. This increase
was due primarily to an increase in net loans receivable of $5.3 million and an
increase in cash of $500,100.
Net loans receivable increased $5.3 million, or 8.5%, from $62.7 million at
June 30, 1996 to $68.0 million at December 31, 1996. The increase in the loan
portfolio occurred as a result of an increase in loan originations comprised
primarily of adjustable rate mortgage loans and fixed-rate mortgage loans on
residential properties.
Total deposits increased by $2.5 million, or 5.4%, from $45.7 million at June
30, 1996 to $48.2 million at December 31, 1996.
Certificate accounts increased $2.4 million, money market fund accounts
increased $200,000, Now accounts increased $110,000, while passbook accounts
decreased $200,000.
Total borrowed funds increased $4.0 million, or 26.7%, from $15.0 million on
June 30, 1996 to $19.0 million on December 31, 1996. The Federal Home Loan Bank
borrowings were used primarily to fund the increase in mortgage loans.
Total stockholders' equity decreased $210,400 from $14.9 million at June 30,
1996 to $14.7 million at December 31, 1996. The decrease was primarily the
result of treasury stock repurchase of $503,600 and dividends of $157,800,
offset by net income of $322,300, accounting for employee stock awards and
options of $95,700, and a change in net unrealized gains on investment
securities of $33,000.
9
Comparison of Operating Results for the Three Month Periods Ending December 31,
1996 and December 31, 1995
General. Net income increased $47,200 to $255,100 for the three months ended
December 31, 1996 from $207,900 for the three months ended December 31, 1995.
The increase was primarily the result of an increase in net interest income of
$63,400 and a decrease in non-interest expense of $18,400, offset by a decrease
in non-interest income of $9,900 and an increase in income tax expense of
$24,700.
Net Interest Income. Net interest income increased $63,400, or 10.1%, from
$629,200 for the three months ended December 31, 1995 to $692,600 for the three
months ended December 31, 1996. This increase was primarily the result of a
$184,200 increase in interest earned on loans receivable, offset by a $29,00
increase in interest paid on savings deposits and a $97,800 increase in interest
paid on borrowed funds.
Interest Income. Interest income increased $190,200, to $1,597,900 for the
three months ended December 31, 1996 to $1,407,700 for the three months ended
December 31, 1995 as a result of an increase in the loan origination volume.
Interest Expense. Interest expense increased $126,800 from $778,500 in the
three months ended December 31, 1995 to $905,300 in the three months ended
December 31, 1996. This increase resulted primarily from an increase in interest
paid on the borrowed funds and, to a lesser extent, an increase in interest paid
on savings deposits.
Provision for Loan Losses. The provision for loan losses remained unchanged
in the three months ended December 31, 1996 as compared to the three months
ended December 31, 1995. The provision during the three months ended December
31, 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 decreased $9,900 from $151,100 in
the three months ended December 31, 1995 to $141,200 in the three months ended
December 31, 1996,primarily as a result of a decrease in the gain on sale of
real estate.
Non-interest Expense. Non-interest expense decreased from $455,900 in the
three months ended December 31, 1995 to $437,500 in the three months ended
December 31, 1996 This decrease of $18,400, or 4.0%, was primarily the result of
a decrease in other non-interest expense of $16,900 and a decrease in salaries
and benefits of $7,400, partially offset by an increase in real estate
operations expense of $4,800.
Income Tax Expense. Income tax expense was $135,300 for the three months
ended December 31, 1996 compared to $110,600 for the three months ended December
31, 1995, an increase of $24,700 or 22.3%. This increase was primarily due to
the increase in net income.
10
Comparison of the Six Month Periods Ending December 31, 1996 and December 31,
1995
General. Net income decreased $100,600 from $422,900 for the six months ended
December 31, 1995 to $322,300 for the six months ended December 31, 1996. The
decrease was primarily the result of an increase in non-interest expense of
$291,700, partially offset by an increase in net-interest income of $139,800 and
a decrease in income tax expense of $55,100.
Net Interest Income. Net interest income increased $139,800, or 11.1%, from
$1.3 million for the six months ended December 31, 1995 to $1.4 million for the
six months ended December 31, 1996. This increase was primarily the result of an
increase in loan interest income, offset by an increase in interest paid on
borrowed funds.
Interest Income. Interest income increased $312,400, or 11.0% from $2.83
million for the six months ended December 31, 1995 to $3.15 million the six
months ended December 31, 1996. The increase was primarily the result of an
increase in loan originations.
Interest Expense. Interest expense increased $172,600 from $1.57 million in
the six months ended December 31, 1995 to $1.74 million in the six months ended
December 31, 1996. This resulted from an increase in borrowed funds used to fund
increased loan demand.
Provision for Loan Losses. The provision for loan losses remained unchanged
in the six months ended December 31, 1996 as compared to the six months ended
December 31, 1995. The provision during the six months ended December 31, 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 decreased $3,800 from $258,000 in
the six months ended December 31, 1995 to $254,200 in the six months ended
December 31, 1996. The decrease was primarily the result of a decrease of
$15,000 in gain on sale of real estate, offset by an increase of $6,400 in real
estate operations and an increase of $4,800 in other non-interest income.
Non-interest Expense. Non-interest expense increased from $860,800 in the six
months ended December 31, 1995 to $1,152,500 in the six months ended December
31, 1996. This increase of $291,700 was primarily the result of an increase in
FDIC premiums and OTS assessments of $293,100, and an increase in real estate
operations expense of $16,400, partially offset by a decrease of $19,200 in
salaries and benefit expense. This increase of $291,700 in FDIC premiums and OTS
assessments 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 in order to recapitalize the SAIF.
11
Income Tax Expense. Income tax expense decreased from $226,200 for the six
months ended December 31, 1995 to $171,100 for the six months ended December 31,
1996, a decrease of $55,100. The decrease was primarily due to the tax deduction
on the $291,300 special assessment of $102,000, partially offset by an increase
in taxes on the increase in net income.
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 December
31, 1996, the Association's liquidity ratio was 5.13%, which exceeded the
minimum regulatory requirement on such date.
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 December 31, 1996, the
Association exceeded all fully phased-in regulatory capital requirements.
At December 31, 1996, the Association's tangible capital was $9.5 million, or
12.08%, of adjusted total assets, which is in excess of the 1.5% requirement by
$8.3 million. In addition, at December 31, 1996, the Association had core
capital of $9.5 million, or 12.08%, of adjusted total assets, which exceeds the
3% requirement by $7.1 million. The Association had risk-based capital of $9.7
million at December 31, 1996 or 20.82% of risk-adjusted assets which exceeds the
8.0% risk-based capital requirements by $6.0 million.
12
STATEFED FINANCIAL CORPORATION
Part II - Other Information
As of December 31, 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
Not applicable.
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 December 31, 1996.
(1) On February 6, 1997 a current report on Form 8-K was filed to
announcing second quarter earnings and stock repurchase.
13
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: /s/ John F. Golden
----------------------------- ----------------------------------
John F. Golden
President and Chief Executive Officer
Date: /s/ Andra K. Black
----------------------------- ----------------------------------
Andra K. Black
Executive Vice President and
Chief Financial Officer
14