SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------------------------------------------------------------
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, 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
- ----------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 42-1410788
--------------------------------- -------------------------------
(State of other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) or Number)
519 Sixth Avenue, Des Moines, Iowa 50309
- ------------------------------------------------------------------------------
(Address of principal executive offices)
(515) 282-0236
- ------------------------------------------------------------------------------
(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 12, 1998, there were 1,559,596 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, 1997 and June 30, 1997 3
Consolidated Statements of Operations for the Three
Month Periods Ending December 31, 1997 and December
31, 1996 and for the Six Month Periods ending
December 31, 1997 and December 31, 1996 4
Consolidated Statement of Stockholders'
Equity for the Six Months ended December 31, 1997 5
Consolidated Statements of Cash Flows
for the Six Months ended December 31, 1997 and
December 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
December 31, 1997 and June 30, 1997
PART I. Financial Information
Item 1. Financial Statements
(Unaudited)
December 31, 1997 June 30, 1997
ASSETS
Cash and amounts due from depository institutions $8,845,252 $3,634,086
Investments in certificates of deposit 2,073,825 4,435,425
Investment securities 3,240,743 3,477,168
Loans receivable, net 68,377,526 68,177,746
Real estate acquired for development 210,542 435,484
Real estate held for investment, net 2,264,864 1,933,532
Property acquired in settlement of loans 246,077 333,939
Office property and equipment, net 1,497,143 1,418,982
Federal Home Loan Bank stock, at cost 950,000 950,000
Accrued interest receivable 544,624 567,478
Prepaid expenses and other assets 357,225 314,754
----------- -----------
TOTAL ASSETS $88,607,821 $85,678,594
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $53,147,460 $50,345,972
Advances from Federal Home Loan Bank 19,000,000 19,000,000
Advances from borrowers for taxes and insurance 336,219 490,053
Accrued interest payable 1,431 128,881
Dividends payable 77,872 78,372
Income taxes:current and deferred 200,557 200,327
Other liabilities 199,873 201,982
----------- -----------
TOTAL LIABILITIES $72,963,412 $70,445,587
----------- -----------
Stockholders' equity:
Common stock $8,905 $8,905
Additional paid-in capital 8,452,831 8,398,857
Unearned compensation - restricted stock awards (377,066) (423,576)
Unrealized gain (loss) on investments 138,519 57,462
Treasury stock (1,672,734) (1,560,859)
Retained earnings - substantially restricted 9,093,954 8,752,218
----------- -----------
TOTAL STOCKHOLDERS' EQUITY $15,644,409 $15,233,007
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $88,607,821 $85,678,594
=========== ===========
3
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ending December 31, 1997 and 1996
and For the Six Months Ending December 31, 1997 and 1996
Three Months Ended Six Months Ended
December 31 December 31
(Unaudited) (Unaudited)
-------------------------- ----------------------------
1997 1996 1997 1996
---- ---- ---- ----
Interest Income:
Loans $1,557,121 $1,449,030 $2,988,005 $2,843,617
Investments 130,116 122,532 281,004 251,445
Other 85,383 26,335 136,875 52,008
---------- ---------- ---------- ----------
Total interest income 1,772,620 1,597,897 3,405,884 3,147,070
Interest Expense:
Deposits 713,068 626,517 1,419,115 1,231,861
Borrowings 289,555 278,736 581,555 511,561
---------- ---------- ---------- ----------
Total interest expense 1,002,623 905,253 2,000,670 1,743,422
Net interest Income 769,997 692,644 1,405,214 1,403,648
Provision for loan losses 6,000 6,000 12,000 12,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 763,997 686,644 1,393,214 1,391,648
Non-interest Income:
Real estate operations 105,949 112,995 200,254 211,701
Gain on sale of real estate 1,772 11,004 1,836 11,070
Other 23,400 17,222 58,465 31,441
---------- ---------- ---------- ----------
Total non-interest income 131,121 141,221 260,555 254,212
Non-interest expense:
Salaries and benefits 247,118 208,805 464,342 411,684
Real estate operations 68,458 61,000 131,546 121,995
Occupancy and equipment 25,931 28,824 55,160 55,558
FDIC premiums and OTS assessments 9,938 33,045 19,876 356,577
Data processing 21,009 20,793 43,059 40,808
Other 113,059 84,993 188,575 165,834
---------- ---------- ---------- ----------
Total non-interest expense 485,513 437,460 902,558 1,152,456
---------- ---------- ---------- ----------
Income before income taxes 409,605 390,405 751,211 493,404
Income tax expense 136,565 135,320 253,730 171,140
---------- ---------- ---------- ----------
Net income $273,040 $255,085 $497,481 $322,264
========== ========== ========== ==========
Earnings per share $0.18 $0.17 $0.33 $0.22
Earnings per share-assuing dilution $0.18 $0.17 $0.32 $0.21
4
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended December 31, 1997
(Unaudited)
Balance - June 30, 1997 $15,233,007
Additional paid in capital 53,974
Net unrealized gain on investment securities 81,056
Dividends declared (155,745)
Repurchase of 5,000 shares treasury stock (111,875)
ESOP common stock released for allocation 36,875
Amortization of MRP contribution 9,636
Net income 497,481
-----------
Balance December 31, 1997 $15,644,409
===========
5
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Month Periods Ending December 31, 1997 and December 31, 1996
(Unaudited)
December 31, 1997 December 31, 1996
----------------- -----------------
Cash Flows From Operating Activities
Net Income $ 497,481 $ 322,264
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 40,263 58,696
Amortization of purchase loan discounts (7,738) (4,048)
Amortization of MRP and ESOP 100,484 85,729
Deferred loan fees (6,388) 28,137
Provision for losses on loans 5,623 12,000
Change in:
Accrued interest receivable 22,854 (13,657)
Prepaid expenses and other assets (42,471) 8,493
Accrued interest payable (127,450) (126,461)
Other Liabilities (1,879) (507)
----------- ------------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 480,779 $ 370,646
CASH FLOWS FROM INVESTING ACTIVITIES
Maturity of investments in certificates of deposit $2,361,600 $2,801
Purchase of investment securities (632,518) (201,388)
Proceeds from maturiting investment securities 950,000 200,000
Net increase in loans outstanding (191,277) (5,333,163)
Investment in real estate held for development 224,942 (283,047)
Investment in real estate acquired in settlement of loans 87,862 --
Purchase of real estate held for investment (347,016) (5,150)
Purchase of office property and equipment (102,740) (6,198)
----------- ------------
NET CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES $2,350,853 $(5,626,145)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $2,801,488 $ 2,484,452
Advances from the Federal Home Loan Bank 11,000,000 4,000,000
Repayment of advances from the Federal Home Loan Bank (11,000,000) --
Net decrease in advances from borrowers (153,834) (40,174)
Proceeds from stock options exercised -- 10,000
Dividends paid (156,245) (160,796)
Purchase of treasury stock (111,875) (503,625)
----------- ------------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES $2,379,534 $ 5,789,857
----------- ------------
CHANGE IN CASH AND CASH EQUIVALENTS $5,211,166 $ 534,358
----------- ------------
CASH AND CASH EQUIVALENTS, beginning of period $3,634,086 $ 2,564,267
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $8,845,252 $ 3,098,625
=========== =============
6
STATEFED FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ending December 31, 1997 and December 31, 1996
And for the Six Months Ending December 31, 1997 and December 31, 1996
(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, 1997). 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 "Company"), 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
The Company has adopted Statement of Financial Accounting Standard No.
123, "Earnings Per Share" for periods ending after December 15, 1997. This new
Statement simplifies the standards for computing earnings per share (EPS) and
makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
and requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation. The Statement also requires restatement of all prior-period EPS
data presented.
The following data shows the amounts used in computing earnings per share
and the effect on income and the weighted average number of shares of dilutive
potential common stock. The number of shares used in the calculations for the
periods reflect the 1-for-1 stock split on October 31, 1997.
Three Months Ended Six Months Ended
December 31 December 31
------------------------------- -------------------------------
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
Net income - available to common
stockholders in the computation of basic
earnings per share and diluted earnings
per share $ 273,040 $ 255,085 $ 497,181 $ 322,264
Weighted average number of common
hares used in basic earnings per share 1,481,791 1,479,942 1,484,241 1,491,410
Effect of dilutive stock options 62,465 44,073 58,277 42,375
============ =========== =========== ===========
Weighted average number of common
shares and dilutive potential common
stock used in diluted earnings per share 1,544,256 1,524,015 1,542,518 1,533,785
============ =========== =========== ===========
7
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, 1997 are as follows:
Amount %
-----------------------
Tangible Capital: (Dollars in thousands)
Association's $ 8,876 10.66%
Requirement 1,248 1.50%
------- -------
Excess $ 7,628 9.16%
Core Capital:
Association's $ 8,876 10.66%
Requirement 2,497 3.00%
------- ------
Excess $ 6,379 7.66%
Risk-Based Capital:
Association's $ 9,103 18.94%
Requirement 3,844 8.00%
------- ------
Excess $ 5,259 10.94%
4. STOCK OPTION PLAN
During the company's annual meeting held in October, 1994, the
stockholders ratified the Company's 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, 1997 no options were exercised.
5. STOCK REPURCHASE PLAN
On January 17, 1997, the Company's Board of Directors authorized
management to repurchase up to 39,000 shares of the Company's common stock
over the next twelve months. During the three month period ending December 31,
1997, no shares were repurchased. A total of 11,400 shares have been
repurchased since January 17, 1997, at a cost of $229,605.
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 or State Federal"). 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 $2.9 million, or 3.4%, from
$85.7 million at June 30, 1997 to $88.6 million at December 31, 1997. This
increase was due primarily to an increase in cash of $5.2 million, partially
offset by a decrease in investments in certificates of deposit of $2.4
million.
Net loans receivable increased $200,000, from $68.2 million at June
30, 1997 to $68.4 million at December 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 $2.8 million, or 5.6%, from $50.3 million
at June 30, 1997 to $53.1 million at December 31, 1997. Certificate accounts
increased $2.5 million, money market fund accounts increased $161,000, Now
accounts increased $395,600, while passbook accounts decreased $209,000.
Total stockholders' equity increased $411,400 from $15.2 million at
June 30, 1997 to $15.6 million at December 31, 1997. The increase was
primarily to net income of $497,500, amortization of employee stock awards and
options of $100,500, and a change in net unrealized gain on investments
securities of $8l,100, offset by the result of treasury stock repurchase of
$111,900 and dividends of $155,800.
9
Comparison of Operating Results for the Three Months Ending December 31, 1997
and December 31, 1996
General. Net income increased $17,900 to $273,000 for the three
months ended December 31, 1997 from $255,100 for the three months ended
December 31, 1996. The increase was primarily the result of an increase in net
interest income of $77,400, partially offset by an increase in non-interest
expense of $48,100, a decrease in non-interest income of $10,100, and an
increase in income tax expense of $1,200.
Net Interest Income. Net interest income increased $77,400, or 11.2%,
from $692,600 for the three months ended December 31, 1996 to $770,000 for the
three months ended December 31, 1997. This increase was primarily the result
of a $108,100 increase in interest earned on loans receivable, an increase of
$59,100 in other interest, and an increase of $7,600 in interest earned on
investments, offset by a $86,600 increase in interest paid on savings deposits
and a $10,800 increase in interest paid on borrowed funds.
Interest Income. Interest income increased $174,700, to $1,772,600
for the three months ended December 31, 1997 to $1,597,900 for the three
months ended December 31, 1996 as a result of an increase in net loans
receivable.
Interest Expense. Interest expense increased $97,400 from $905,200 in
the three months ended December 31, 1996 to $1,002,600 in the three months
ended December 31, 1997 . This increase resulted primarily from an increase in
interest paid on deposits and, to a lesser extent, an increase in interest
paid on borrowed funds.
Provision for Loan Losses. The provision for loan losses remained
unchanged in the three months ended December 31, 1997 as compared to the three
months ended December 31, 1996. The provision during the three months ended
December 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 decreased $10,100 from
$141,200 in the three months ended December 31, 1996 to $131,100 in the three
months ended December 31, 1997, primarily as a result of a decrease in the
gain on sale of real estate.
Non-interest Expense. Non-interest expense increased from $437,500 in
the three months ended December 31, 1996 to $485,500 in the three months ended
December 31, 1997. This increase of $48,000, or 11.0%, was primarily the
result of a increase in other non-interest expense of $28,100, an increase in
salaries and benefits of $38,400, and an increase in real estate operations of
$7,000, partially offset by a decrease in FDIC premiums and OTS assessments of
$23,100 and a decrease in occupancy and equipment expenses of $2,900.
10
Income Tax Expense. Income tax expense was $136,600 for the three
months ended December 31, 1997 compared to $135,300 for the three months ended
December 31, 1996, an increase of $1,300. This increase was primarily due to
the increase in net income.
Comparison of the Six Months Ending December 31, 1997 and December 31, 1996
General. Net income increased $175,200 from $322,300 for the six
months ended December 31, 1996 to $497,500 for the six months ended December
31, 1997. The increase was primarily the result of an decrease in non-interest
expense of $249,900 and an increase in non-interest income of $6,300,
partially offset by an increase in income tax expense of $82,600.
Net Interest Income. Net interest income was $1.4 million for the six
months ended December 31, 1996 and for the six months ended December 31, 1997.
An increase in loan interest income was offset by an increase in interest paid
on deposits.
Interest Income. Interest income increased $258,800, or 8.2% from
$3.1 million for the six months ended December 31, 1996 to $3.4 million the
six months ended December 31, 1997. The increase was primarily the result of
an increase in loan originations.
Interest Expense. Interest expense increased $257,000 from $1.7
million in the six months ended December 31, 1996 to $2.0 million in the six
months ended December 31, 1997. This resulted primarily from an increase in
deposits.
Provision for Loan Losses. The provision for loan losses remained
unchanged in the six months ended December 31, 1997 as compared to the six
months ended December 31, 1996 . The provision during the six months ended
December 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 $6,300 from
$254,200 in the six months ended December 31, 1996 to $260,500 in the six
months ended December 31, 1997. The increase was primarily the result of an
increase of $27,000 in other non-interest income, offset by a decrease of
$11,500 in real estate operations and a decrease of $9,200 in gain on sale of
real estate.
11
Non-interest Expense. Non-interest expense decreased from $1.2
million in the six months ended December 31, 1996 to $902,600 in the six
months ended December 31, 1997. This decrease of $249,900 was primarily the
result of a decrease in FDIC premiums and OTS assessments of $336,700,
partially offset by an increase of $52,700 in salaries and benefit expense, an
increase of $22,700 in other expense, and an increase of $9,600 in real estate
operations expense. The decrease of $336,700 in FDIC premiums and OTS
assessments was primarily the result of a SAIF assessment of $291,300 due to
legislation requiring SAIF insured associations to pay a one-time special
assessment during the six month period in 1996.
Income Tax Expense. Income tax expense increased from $171,100 for
the six months ended December 31, 1996 to $253,700 for the six months ended
December 31, 1997, an increase of $82,600. The increase was primarily due to
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. Management believes the company has
adequate liquidity to meet foreseeable needs.
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, 1997 , the Association exceeded all fully phased-in regulatory capital
requirements.
At December 31, 1997, the Association's tangible capital was $8.9
million, or 10.66%, of adjusted total assets, which is in excess of the 1.5%
requirement by $7.6 million. In addition, at December 31, 1997, the
Association had core capital of $8.9 million, or 10.66%, of adjusted total
assets, which exceeds the 3% requirement by $6.4 million. The Association had
risk-based capital of $9.1 million at December 31, 1997 or 18.94% of
risk-adjusted assets which exceeds the 8.0% risk-based capital requirements by
$5.3 million.
As of December 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.
12
STATEFED FINANCIAL CORPORATION
Part II - Other Information
---------------------------
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
(99.1) Current report on Form 8-K for press release announcing the
second quarter earnings.
(b) The following is a description of the Form 8-K's filed during
the three months ended December 31, 1997:
(1) On October 21, 1997 a current report on Form 8-K was filed to
announce the 1-for-1 stock split.
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: February 14, 1998 /s/
-------------------------------- -------------------------------------
John F. Golden
President and Chief Executive Officer
Date: Februar14, 1998 /s/
-------------------------------- -------------------------------------
Andra K. Black
Executive Vice President and
Chief Financial Officer
14