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 March 31, 1997
[ ] 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 Nineth 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 May 12, 1997, there were 783,723 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 March 31, 1997 and June 30, 1996 3
Consolidated Statements of Operations for
the Three Month Periods Ending March 31, 1997
and March 31, 1996 and for the Nine Month Periods
ending March 31, 1997 and March 31, 1996 4
Consolidated Statement of Stockholders'
Equity for the Nine Months ended March 31, 1997 5
Consolidated Statements of Cash Flows
for the Nine Months ended March 31, 1997 and
March 31, 1996 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
MARCH 31, 1997 AND JUNE 30, 1996
ASSETS (Unaudited)
March 31, 1997 June 30, 1996
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Cash and amounts due from depository institutions $ 5,452,737 $ 2,564,267
Investments in certificates of deposit 4,435,365 4,439,567
Investment securities 2,331,342 2,347,048
Loans receivable, net 67,621,258 62,708,487
Real estate acquired for development 1,084,523 385,476
Real estate held for investment, net 1,064,834 1,149,990
Office property and equipment, net 1,424,347 1,464,796
Federal Home Loan Bank stock, at cost 950,000 750,000
Accrued interest receivable 556,928 533,706
Prepaid expenses and other assets 360,237 361,287
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TOTAL ASSETS $ 85,281,571 $ 76,704,624
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 50,661,765 $ 45,731,828
Advances from Federal Home Loan Bank 19,000,000 15,000,000
Advances from borrowers for taxes and insurance 113,510 505,749
Accrued interest payable 68,947 129,833
Dividends payable 79,012 81,349
Income taxes:current and deferred 181,969 138,255
Other liabilities 164,420 189,305
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TOTAL LIABILITIES $ 70,269,623 $ 61,776,319
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Stockholders' equity:
Common stock $ 8,905 $ 8,905
Additional paid-in capital 8,382,836 8,376,924
Unearned compensation - restricted stock awards (447,107) (531,989)
Unrealized gain (loss) on investments 12,344 (22,251)
Treasury stock (1,443,659) (1,049,358)
Retained earnings - substantially restricted 8,498,629 8,146,074
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TOTAL STOCKHOLDERS' EQUITY $ 15,011,948 $ 14,928,305
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,281,571 $ 76,704,624
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3
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Month Periods Ending March 31, 1997 and 1996
and For the Nine Month Periods Ending March 31, 1997 and 1996
Three Months Ended Nine Months Ended
March 31 March 31
(Unaudited) (Unaudited)
----------------------- -----------------------
1997 1996 1997 1996
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Interest Income:
Loans $1,468,590 $1,317,921 $4,312,208 $3,858,379
Investments 123,113 106,371 386,290 328,314
Other 41,322 34,331 81,597 106,656
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Total interest income 1,633,025 1,458,623 4,780,095 4,293,349
Interest Expense:
Deposits 651,425 610,256 1,883,285 1,843,163
Borrowings 278,673 191,548 790,234 529,488
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Total interest expense 930,098 801,804 2,673,519 2,372,651
Net interest Income 702,927 656,819 2,106,576 1,920,698
Provision for loan losses 6,000 6,000 18,000 18,000
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Net interest income after 696,927 650,819 2,088,576 1,902,698
provision for loan losses
Non-interest Income:
Real estate operations 99,637 99,076 311,337 304,337
Gain on sale of real estate 58 2,602 11,129 28,750
Other 21,445 14,670 52,885 41,260
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Total non-interest income 121,140 116,348 375,351 374,347
Non-interest expense:
Salaries and benefits 204,897 211,561 616,581 642,441
Real estate operations 63,625 64,363 183,725 174,248
Occupancy and equipment 32,441 30,558 89,894 84,049
FDIC premiums and OTS assessments 7,600 31,409 364,176 94,948
Data processing 21,188 18,574 61,997 56,549
Other 74,496 74,387 240,330 239,406
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Total non-interest expense 404,247 430,852 1,556,703 1,291,641
Income before income taxes 413,820 336,315 907,224 985,404
Income tax expense 146,720 117,600 317,860 343,800
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Net income $ 267,100 $ 218,715 $ 589,364 $ 641,604
========== ========== ========== ==========
Earnings per share $ 0.35 $ 0.27 $ 0.77 $ 0.81
4
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended March 31, 1997
(Unaudited)
Balance - June 30, 1996 $14,928,305
Additional paid in capital 5,912
Net unrealized gain on investment securities 34,595
Dividends declared (236,809)
Repurchase of 31,000 shares treasury stock (503,625)
Stock options exercised (7638 shares) 109,324
ESOP common stock released for allocation 57,560
Amortization of MRP contribution 27,322
Net income 589,364
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Balance March 31, 1997 $15,011,948
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5
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ending March 31, 1997 and 1996
(Unaudited)
Cash Flows From Operating Activities March 31, 1997 March 31, 1996
- ------------------------------------ -------------- --------------
Net Income $ 589,364 $ 641,604
Adjustments to rconcile net income to
net cash provided by operating activities:
Depreciation 86,823 87,758
Amortization of purchase loan discounts (4,048) (11,619)
Amortization of MRP and ESOP 94,664 157,680
Deferred loan fees 37,360 18,000
Provision for losses on loans 13,378 14,476
Change in:
Accrued interest receivable (23,222) (102,334)
Prepaid expenses and other assets 1,050 (113,365)
Accrued interest payable (60,886) (48,993)
Other Liabilities 18,829 (116,568)
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NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 753,312 $ 526,639
CASH FLOWS FROM INVESTING ACTIVITIES
Maturity of investment securities $ 200,000 $ --
Maturity of investments in certificates of deposit 4,202 1,192,766
Purchase of investment securities (349,699) (1,162,025)
Sale of investment securities 277,500
Net increase in loans outstanding (4,959,461) (4,603,096)
Investment in real estate held for development (648,836) (10,157)
Purchase of real estate held for investment (5,150) 0
Purchase of office property and equipment (6,279) (21,687)
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NET CASH FLOWS USED BY INVESTING ACTIVITIES $(5,765,223) $(4,326,699)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 4,929,937 $ 68,817
Advances from the Federal Home Loan Bank 4,000,000 4,000,000
Repayment of advances from the Federal Home Loan Bank (1,000,000)
Net decrease in advances from borrowers (392,239) (383,966)
Proceeds from stock options exercised 105,454 58,990
Dividends paid (239,146) (247,408)
Purchase of treasury stock (503,625) (253,750)
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NET CASH FLOWS USED BY FINANCING ACTIVITIES $ 7,900,381 $ 2,242,683
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CHANGE IN CASH AND CASH EQUIVALENTS $ 2,888,470 $(1,557,377)
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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 $ 5,452,737 $ 2,380,672
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6
STATEFED FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ending
March 31, 1997 and March 31, 1996
and for the Nine Month Periods Ending March 31, 1997 and March 31, 1996
(Unaudited)
1. BASIS OF PRESENTATIONS
The foregoing consolidated financial statements are unaudited (with the
exception of the Consolidated Statement 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 March 31, 1997,
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 766,418 for the three month period ending March 31, 1997 and
796,289 for the three month period ending March 3l, l996.
3. REGULATORY CAPITAL REQUIREMENTS
Pursuant to Federal law, savings institutions must meet three separate
capital requirements. The Association's capital ratios and balances at March 31,
1997 are as follows:
Amount %
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Tangible Capital: (Dollars in thousands)
Association's $ 9,079 11.27%
Requirement 1,209 1.50
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Excess $ 7,870 9.77%
Core Capital:
Association's $ 9,079 11.27%
Requirement 2,417 3.00
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Excess $ 6,662 8.27%
Risk-Based Capital:
Association's $ 9,333 19.44%
Requirement 3,840 8.00
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Excess $ 5,493 11.44%
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 March 31, 1997 options for 6,638 shares were exercised.
5. STOCK REPURCHASE PLAN
On January 17, 1997, the Company's Board of Directors authorized
management to repurchase up to 39,174 shares of the Company's common stock over
the next twelve months. During the three month period ending March 31, 1997, no
shares were repurchased.
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 $8.6 million, or 11.2%, from $76.7
million at June 30, 1996 to $85.3 million at March 31, 1997. This increase was
due primarily to an increase in net loans receivable of $4.9 million and an
increase in cash of $2.9 million.
Net loans receivable increased $4.9 million, or 7.8%, from $62.7
million at June 30, 1996 to $67.6 million at March 31, 1997. 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 $4.9 million, or 10.8%, from $45.7 million
at June 30, 1996 to $50.6 million at March 31, 1997. Certificate accounts
increased $5.1 million, and Now accounts increased $110,000, while passbook
accounts decreased $301,000.
Total borrowed funds increased $4.0 million, or 26.7%, from $15.0
million on June 30, 1996 to $19.0 million on March 31, 1997. The Federal Home
Loan Bank borrowings were used primarily to fund the increase in mortgage loans.
Total stockholders' equity increased $83,600 from $14.9 million at June
30, 1996 to $15.0 million at March 31, 1997. The increase was due primarily to
the increase in net income of $589,400, accounting for employee stock awards and
options of $200,100, and a change in net unrealized gains on investment
securities of $34,600, offset by the result of the treasury stock repurchases of
$503,600 and dividends of $236,800.
9
Comparison of Operating Results for the Three Month Periods Ending
March 31, 1997 and March 31, 1996
General. Net income increased $48,400 to $267,100 for the three months
ended March 31, 1997 from $218,700 for the three months ended March 31, 1996.
The increase was primarily the result of an increase in net interest income of
$46,100, an increase in non-interest income of $4,800, and a decrease in
non-interest expense of $26,600, offset by an increase in income tax expense of
$29,100.
Net Interest Income. Net interest income increased $46,100, from
$656,800 for the three months ended March 31, 1996 to $702,900 for the three
months ended March 31, 1997. This increase was the result of an increase in
interest income of $174,400, offset by an increase in interest expense of
$128,300.
Interest Income. Interest income increased $174,400, from $1.46 million
for the three months ended March 31, 1996 to $1.63 million for the three months
ended March 31, 1997 primarily as a result of an increase in the balance of
interest earning assets and slightly higher interest rates.
Interest Expense. Interest expense increased $128,300 from $801,800 in
the three months ended March 31, 1996 to $930,100 in the three months ended
March 31, 1997. This increase resulted primarily from an increase in borrowed
funds and deposit accounts.
Provision for Loan Losses. The provision for loan losses remained
unchanged in the three months ended March 31, 1997 as compared to the three
months ended March 31, 1996. The provision during the three months ended March
31, 1997 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 $4,800 from $116,400
in the three months ended March 31, 1996 to $121,200 in the three months ended
March 31, 1997. This increase reflects increased income from the Company's real
estate operations as well as increase fee income.
Non-interest Expense. Non-interest expense decreased from $430,800 in
the three months ended March 31, 1996 to $404,200 in the three months ended
March 31, 1997. This decrease of $26,600, or 6.2%, was primarily the result of a
decrease in FDIC insurance premiums of $23,800 and a decrease in salaries and
benefits of $6,700, partially offset by an increase in occupancy and equipment
and data processing expenses.
10
Income Tax Expense. Income tax expense was $146,700 for the three
months ended March 31, 1997 compared to $117,600 for the three months ended
March 31, 1996, an increase of $24,700, primarily due to the increase in net
income.
Comparison of the Nine Month Periods Ending March 31, 1997 and March 31, 1996
General. Net income decreased $52,200 from $641,600 for the nine months
ended March 31, 1996 to $589,400 for the nine months ended March 31, 1997. The
decrease was primarily the result of an increase in non-interest expense of
$265,100 related to the one-time SAIF insurance premium assessment, partially
offset by an increase in net-interest income of $185,900 and a decrease in
income tax expense of $25,900.
Net Interest Income. Net interest income increased $185,900, from
$1,920,700 for the nine months ended March 31, 1996 to $2,106,600 for the nine
months ended March 31, 1997. This increase was primarily the result of an
increase in the balance of average interest earning assets, offset by slightly
higher costs of funds and interest expense associated with increased FHLB
borrowings and deposits.
Interest Income. Interest income increased $486,700, from $4.29 million
for the nine months ended March 31, 1996 to $4.78 million the nine months ended
March 31, 1997. The increase is a result of an increase in the balance of
interest earning assets as well as slightly higher interest rates.
Interest Expense. Interest expense increased $300,900 from $2.37
million in the nine months ended March 31, 1996 to $2.67 million in the nine
months ended March 31, 1997. This resulted from an increase in borrowed funds as
well as an increase in the amount in deposits.
Provision for Loan Losses. The provision for loan losses remained
unchanged in the nine months ended March 31, 1997 as compared to the nine months
ended March 31, 1996. The provision during the nine months ended March 31, 1997
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 $1,000 from $374,300
in the nine months ended March 31, 1996 to $375,300 in the nine months ended
March 31, 1997. The increase was primarily the result of an increase in real
estate operation income of $7,000, and an increase in other non-interest income
of $11,500, offset by a decrease in gains from sale of real estate of $17,700.
Non-interest Expense. Non-interest expense increased from $1.29 million
in the nine months ended March 31, 1996 to $1.56 million in the nine months
ended March 31, 1997. This increase of $265,100 was primarily the result of an
increase in SAIF insurance premiums and OTS assessments of $269,200, a decrease
in loss on sale of real estate, and an increase in real estate operations
11
expense of $9,500, partially offset by a decrease of $25,900 in salaries and
benefit expense. This increase of $269,200 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.
Income Tax Expense. Income tax expense decreased from $343,800 for the
nine months ended March 31, 1996 to $317,900 for the nine months ended March 31,
1997, a decrease of $25,900. 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 before the special assessment.
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 March 31,
1997, the Association's liquidity ratio was 8.84%, 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 March 31, 1997, the
Association exceeded all fully phased-in regulatory capital requirements.
At March 31, 1997, the Association's tangible capital was $9.1 million,
or 11.27%, of adjusted total assets, which is in excess of the 1.5% requirement
by $7.9 million. In addition, at March 31, 1997, the Association had core
capital of $9.1 million, or 11.27%, of adjusted total assets, which exceeds the
3% requirement by $6.7 million. The Association had risk-based capital of $9.3
million at March 31, 1997 or 19.44% of risk-adjusted assets which exceeds the
8.0% risk-based capital requirements by $5.5 million.
Regulatory Developments
Legislation has been proposed that would require 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.
12
STATEFED FINANCIAL CORPORATION
Part II - Other Information
As of March 31, 1997, 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
Exhibit 27 - Financial Data Schedule
(b) The following is a description of the Form 8-K's filed during
the three months ended March 31, 1997:
(1) On February 21, 1997 a current report on Form 8-K was
filed announcing a stock repurchase program.
(2) On May 12, 1997 a current report on Form 8-K was filed
to announcing third quarter earnings
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
President and Chief Executive Officer
Date: /s/
-------------------------- ----------------------------------
Andra K. Black
Executive Vice President and
Chief Financial Officer
14