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, 2001
[ ] 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 May 8, 2001, there were 1,507,100 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, 2001 and June 30, 2000 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 2001 and 2000 and for the Nine
Months Ended
March 31, 2001 and 2000 4
Consolidated Statements of Comprehensive Income for
the Three Months Ended March 31, 2001 and
2000 and for the Nine Months Ended
March 31, 2001 and 2000 5
Consolidated Statement of Changes In Stockholders'
Equity for the Nine Months Ended March 31, 2001 6
Consolidated Statements of Cash Flows
for the Nine Months Ended March 31, 2001 and 2000 7
Notes to Consolidated Financial Statements 8
Items 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. Other Information 16
Signatures 17
2
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 2001 AND JUNE 30, 2000
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ASSETS (UNAUDITED)
MARCH 31, 2001 JUNE 30, 2000
Cash and amounts due from depository institutions $ 5,033,782 $ 2,477,494
Investments in certificates of deposit 396,355 495,692
Investment securities held-for-sale 1,956,709 2,231,274
Loans receivable, net 91,919,477 86,572,585
Real estate held for investment, net 2,124,714 2,175,785
Property acquired in settlement of loans 1,320,523 1,337,847
Office property and equipment, net 3,821,412 2,965,659
Federal Home Loan Bank stock, at cost 1,762,200 1,464,600
Accrued interest receivable 694,203 573,293
Other assets 471,473 390,550
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TOTAL ASSETS $ 109,500,848 $ 100,684,779
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 56,607,041 $ 53,648,118
Advances from Federal Home Loan Bank 35,210,383 29,283,906
Advances from borrowers for taxes and insurance -- 353,743
Accrued interest payable 86,637 140,243
Dividends payable 150,410 113,220
Income taxes:current and deferred 198,978 296,992
Other liabilities 325,131 198,689
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TOTAL LIABILITIES $ 92,578,580 $ 84,034,911
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Stockholders' equity:
Common stock $ 17,810 $ 17,810
Additional paid-in capital 8,510,231 8,546,501
Unearned compensation - restricted stock awards (159,001) (205,761)
Unrealized gain (loss) on investments 65,131 (124,579)
Treasury stock (2,433,317) (2,362,921)
Retained earnings - substantially restricted 10,921,414 10,778,818
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TOTAL STOCKHOLDERS' EQUITY $ 16,922,268 $ 16,649,868
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 109,500,848 $ 100,684,779
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3
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
AND FOR THE NINE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
------------------- --------------- --------------- ---------------
2001 2000 2001 2000
------------------- --------------- --------------- ---------------
Interest Income:
Loans $ 1,993,238 $1,665,770 5,939,632 $ 4,819,783
Investments 61,274 72,865 179,428 209,171
Other 42,296 12,973 106,746 115,738
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Total interest income $ 2,096,808 $1,751,608 $6,225,806 $ 5,144,692
Interest Expense:
Deposits $ 783,381 $ 666,051 $2,230,740 $ 2,028,266
Borrowings 507,703 308,888 1,468,177 865,020
------------------- --------------- --------------- ---------------
Total interest expense $ 1,291,084 $ 974,939 $3,698,917 $ 2,893,286
Net interest Income $ 805,724 $ 776,669 $2,526,889 $ 2,251,406
Provision for loan losses 15,000 9,000 33,000 27,000
------------------- --------------- --------------- ---------------
Net interest income after
provision for loan losses $ 790,724 $ 767,669 $2,493,889 $ 2,224,406
Non-interest Income:
Real estate operations $ 129,039 $ 127,418 $ 391,169 $ 391,829
Gain / Loss on sale of investments 568 1,941 -90,105 1,941
Gain on sale of real estate 38 34,949 7,847 40,976
Other 26,052 25,454 86,374 79,008
------------------- --------------- --------------- ---------------
Total non-interest income $ 155,697 $ 189,762 $ 395,285 $ 513,754
Non-interest expense:
Salaries and benefits $ 479,172 $ 262,147 $ 993,651 $ 768,465
Real estate operations 79,765 74,514 224,270 237,214
Occupancy and equipment 60,906 43,528 137,310 122,898
FDIC premiums and OTS assessments 9,407 9,761 28,582 40,286
Data processing 33,262 30,677 92,248 78,234
Other 139,937 74,710 517,159 276,972
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Total non-interest expense $ 802,449 $ 495,337 $1,993,220 $ 1,524,069
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Income before income taxes $ 143,972 $ 462,094 $ 895,954 $ 1,214,091
Income tax expense 48,240 154,240 299,766 405,620
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Net income $ 95,732 $ 307,854 $ 596,188 $ 808,471
=================== =============== =============== ===============
Basic earnings per share $ 0.06 $ 0.21 $ 0.40 $ 0.55
Diluted earnings per share $ 0.06 $ 0.21 $ 0.40 $ 0.54
4
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
AND FOR THE NINE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31 March 31
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2001 2000 2001 2000
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Net income $95,732 $307,854 $596,188 $808,471
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on
securities arising during the period 45,326 (28,450) 189,710 (223,895)
Reclassification adjustment --- 1,295 (60,750) 1,295
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45,326 (27,155) 128,960 (222,600)
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Comprehensive income $141,058 $280,699 $725,148 $585,871
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5
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)
Balance - June 30, 2000 $ 16,649,868
Additional paid in capital (36,270)
Other comprehensive income--unrealized loss on
investment securities, net of deferred income taxes 189,710
Dividends declared (453,592)
Repurchase of 24,700 shares treasury stock (264,231)
Stock options exercised (19,200 shares) 193,835
ESOP common stock released for allocation 46,760
Net income 596,188
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Balance -March 31, 2001 $ 16,922,268
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6
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES MARCH 31, 2001 MARCH 31, 2000
- ------------------------------------ -------------- --------------
Net Income $ 596,188 $ 808,471
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 125,053 125,501
Amortization of purchase loan discounts - (2,677)
Amortization of ESOP 10,490 71,384
Deferred loan fees 19,637 17,250
Provision for losses on loans 14,307 7,672
Change in:
Accrued interest receivable (120,910) (2,984)
Other assets (80,923) 39,733
Accrued interest payable (53,606) (62,383)
Current income tax liability (130,013) 37,205
Other liabilities 126,442 62,677
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NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 506,665 $ 1,101,849
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in certificates of deposit $ - $ -
Maturity of investments in certificates of deposit 99,337 198,484
Purchase of available-for-sale investment securities - (496,062)
Proceeds from sale or maturity of available-for-sale investment securities 496,275 4,040
(Purchase) redemption of FHLB Stock (297,600) -
Net (increase) decrease in loans outstanding (5,380,836) (10,187,463)
Investment in real estate held for development - (813,982)
Investment in real estate held for investment (1,923) 41,310
Investment in real estate acquired in settlement of loans 17,324 (90,276)
Purchase of office property and equipment (927,813) (28,649)
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NET CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES $ (5,995,236) $(11,372,598)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 2,958,923 $ (506,767)
Advances from the Federal Home Loan Bank 6,000,000 4,000,000
Repayment of advances from the Federal Home Loan Bank (73,523) (69,341)
Net decrease in advances from borrowers (353,743) (337,090)
Proceeds from stock options exercised 193,835 65,670
Dividends paid (416,402) (340,253)
Purchase of treasury stock (264,231) (202,313)
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NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES $ 8,044,859 $ 2,609,906
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CHANGE IN CASH AND CASH EQUIVALENTS $ 2,556,288 $ (7,660,843)
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 2,477,494 $ 8,481,216
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,033,782 $ 820,373
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7
STATEFED FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDING MARCH 31, 2001 AND MARCH
31, 2000 AND FOR THE NINE MONTHS ENDING MARCH 31, 2001
AND MARCH 31, 2000
(UNAUDITED)
1. BASIS OF PRESENTATIONS
These consolidated financial statements are unaudited (with the
exception of the Consolidated Statement of Financial Condition for June 30,
2000). These consolidated financial statements were prepared in accordance with
instructions for Form 10-QSB and therefore, do not include all disclosures
necessary for a complete presentation of the statements of financial condition,
statements of income and statements of cash flows in accordance with generally
accepted accounting principles. 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.
These statements should be read in conjunction with the consolidated
financial statements and related notes, which are incorporated by reference in
the Company's Annual Report on Form 10-KSB for the year, ended June 30, 2000.
2. EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share are computed based upon the weighted-average
shares outstanding during the period, less shares in the employee stock
ownership plan (ESOP) that are unallocated and are not committed to be released.
Diluted earnings per share are computed by considering common stocks
outstanding and common shares potentially issuable under the Company's stock
option plan.
The following table presents weighted average shares outstanding used
in the computation of earnings per share.
Weighted Average Shares Outstanding: For the three months For the nine months
ended March 31, 2001 ended March 31, 2001
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Basic earnings per share 1,483,396 1,479,703
Fully diluted earnings per share 1,505,919 1,506,194
For the three months For the nine months
ended March 31, 2000 ended March 31, 2000
Weighted Average Shares Outstanding:
--------------------------- ------------------------------
Basic earnings per share 1,464,029 1,461,353
Fully diluted earnings per share 1,488,665 1,493,467
8
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,
2001 are as follows:
AMOUNT %
---------------------------------
Tangible Capital: (Dollars in thousands)
Association's $ 8,936 8.71%
Requirement 1,539 1.50%
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Excess $ 7,397 7.21%
Core Capital:
Association's $ 8,936 8.71%
Requirement 3,079 3.00%
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Excess $ 5,857 5.71%
Risk-Based Capital:
Association's $ 9,209 13.53%
Requirement 5,443 8.00%
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Excess $ 3,766 5.53%
Tier 1 Risk-Based Capital:
Association's $ 8,936 13.13%
Requirement 4,105 4.00%
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Excess $ 4,831 9.13%
4. STOCK OPTION PLAN
At March 31, 2001 there were unexercised options for 42,106 shares of
common stock under the terms of the StateFed Financial Corporation 1993 Stock
Option Plan. The options have an exercise price of $5.00 per share. There were
19,200 shares exercised during the nine months ended March 31, 2001.
5. STOCK REPURCHASE PLAN
On February 21, 2001, the Company's Board of Directors authorized
management to repurchase up to 75,580 shares of the Company's common stock over
the next six months. During the three month period ending March 31, 2001, 7,500
shares were repurchased. As of March 31, 2001 a total of 7,500 shares have been
repurchased since February 21, 2001, at a cost of $83,906.
9
6. CONCENTRATIONS OF CREDIT RISK, COMMITMENTS AND FINANCIAL
INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Association grants residential real estate, consumer and commercial
loans to borrowers located primarily in Polk and surrounding counties in Iowa.
No significant changes in geographic distribution of the loan portfolio occurred
from December 31, 2000 to March 31, 2001.
The Association is a defendant in various legal actions arising from
normal business activities. Management believes the ultimate liability, if any,
resulting from these actions will not materially affect the Association's
financial position or results of operations.
The Association is party to financial instruments with
off-balance-sheet risk in the normal course of business to meet financing needs
of its customers, for which management follows the same credit policy as is
followed for loans recorded in the financial statements. The Association's
exposure to credit loss in case of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments.
10
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.
When used in this Form 10-QSB and in future filings with the SEC, in
the Company's press releases or other public or shareholder communications, as
well as in oral statements made by the executive officers of the Company or its
primary subsidiary, the words or phrases "will likely result," "are expected
to," "will continue," "is anticipated," "estimated," "project" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties, including, among other things,
changes in economic conditions in the Company's market area, changes in policies
by regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area and competition, that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect its
financial performance and could cause its actual results for future periods to
differ materially from any opinions or statements expressed with respect to
future periods in any current statements.
FINANCIAL CONDITION
The Company's total assets increased $8.8 million, or 8.7%, from $100.7
million at June 30, 2000 to $109.5 million at March 31, 2001. This increase was
due primarily to increases of $5.3 million in net loans receivable, $2.6 million
in cash and amounts due from depository institutions, $856,000 in net office
property and equipment, and $298,000 in Federal Home Loan Bank stock, at cost,
which were partially offset by decreases in investment securities held-for-sale
of $275,000 and investments in certificate of deposits of $99,000.
11
Net loans receivable increased $5.3 million, or 6.1%, from $86.6 million at June
30, 2000 to $91.9 million at March 31, 2001. The increase in the loan portfolio
occurred as a result of an increase in loan originations comprised primarily of
fixed-rate mortgage loans on residential properties.
Total deposits increased $3.0 million, or 5.6%, from $53.6 million at
June 30, 2000 to $56.6 million at March 31, 2001. The increases in demand
deposits, savings and money market deposits, and certificate of deposits were
$484,000, $179,000 and $2.3 million, respectively.
Total stockholders' equity increased $272,400 from $16,649,900 at June
30, 2000 to $16,922,300 at March 31, 2001. The increase was due primarily, to
net income of $596,200, accounting for employee stock awards and options of
$204,300, and unrealized gains on investment securities of $189,700, which was
partially offset by dividends declared of $453,600 and the cost to repurchase
the Company's stock of $264,200.
RESULTS OF OPERATIONS
The operating results of the Company are affected by general economic
conditions monetary and fiscal policies of federal agencies and regulatory
policies at agencies regulating financial institutions and their holding
companies. The Company's cost of funds is influenced by interest rates on
competing investments and general market rates of interest. Lending activities
are influenced by demand for real estate loans and other types of loans, which
in turn are affected by the interest rates at which such loans are made, general
economic conditions, and the availability of funds for lending activities.
The Association's net income is primarily dependent on its net interest
income, which is the difference between interest income generated on
interest-earning assets and expense incurred on interest-bearing liabilities.
Net interest income is affected by the interest rate environment and the volume
and composition of interest-earning assets and interest-bearing liabilities. Net
income is also affected by provisions for losses on loans, service charges,
gains or losses on sales of assets, other income, non-interest expense and
income taxes.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND
MARCH 31, 2000
GENERAL. Net income decreased $212,100 from $307,800 for the three
months ended March 31, 2000, to $95,700 for the three months ended March 31,
2001. The decrease resulted primarily from increases in non-interest expense
(which primarily was due to a one-time expense associated with the retirement of
the Company's Chairman of the Board, recently announced) and to a lesser extent
with the opening of a new branch office, and a small decrease in non-interest
income. The decrease was partially offset by an increase of $23,100 in net
interest income after provision for loan losses and a decrease of $106,000 in
income tax expense.
12
NET INTEREST INCOME. Net interest income increased $29,100, or 3.7%,
from $776,600 for the three months ended March 31, 2000 to $805,700 for the
three months ended March 31, 2001. This increase was the result of an increase
in interest income of $345,200, which was partially offset by an increase in
interest expense of $316,100.
INTEREST INCOME. Interest income increased $345,200 from $1.8 million
for the three months ended March 31, 2000 to $2.1 million for the three months
ended March 31, 2001 This increase was primarily the result of an increase in
interest earned on the loan portfolio of $327,500, and other interest earned of
$29,300, which was partially offset by a decrease in income from interest earned
on investments of $11,600. The interest on loans increased primarily as a result
of an increase in outstanding loans receivable and to a lesser extent the yield
earned on the loan portfolio. Other interest income increased as a result of an
increase in the balance of interest bearing deposit accounts. The decrease in
income on the investment portfolio was primarily due to the maturity of
certificate of deposits and the sale of investment securities.
INTEREST EXPENSE. Interest expense increased $316,100 from
$975,000 in the three months ended March 31, 2000 to $1.3 million for the three
months ended March 31, 2001. This increase resulted primarily from increases in
interest paid on deposits and borrowings of $117,300 and $198,800, respectively.
The increase in interest paid on deposits was primarily the result of an average
rate increase on deposit balances and to a lesser extent on the average
outstanding balances. The increase in interest paid on borrowings was due to the
increase in the average balance of Federal Home Loan Bank.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased
$6,000 from $9,000 in the three months ended March 31, 2000 to $15,000 for the
three months ended March 31, 2001. The provision during the three months ended
March 31, 2001 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 $34,100 from
$155,700 in the three months ended March 31, 2001 to $189,800 in the three
months ended March 31, 2000, which primarily resulted from a $34,900 decrease in
the gain on sale of real estate.
NON-INTEREST EXPENSE. Non-interest expense increased from $495,300 in
the three months ended March 31, 2000 to $802,400 in the three months ended
March 31, 2001. This increase of $307,100, was primarily the result of increases
in salaries and benefits expense of $217,000 (primarily due to a one-time
expense associated with the retirement of the Company's Chairman of the Board),
an increase in real estate operations expense of $5,300, an increase in data
processing expense of $2,600, increases in occupancy and equipment and other
operating expenses of $17,400 and $65,200, respectively (primarily due to costs
associated with opening of a new branch office).
13
INCOME TAX EXPENSE. Income tax expense was $48,200 for the three months
ended March 31, 2001 compared to $154,200 for the three months ended March 31,
2000, a decrease of $106,000, primarily due to the decrease in taxable income.
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000
GENERAL. Net income decreased $212,300 from $808,500 for the nine
months ended March 31, 2000 to $596,200 for the nine months ended March 31,
2001. The decrease was primarily the result of a increase in non-interest
expenses of $469,200 (which was primarily due to a one-time expense associated
with the retirement of the Company's Chairman of the Board, and expenses
incurred as a result of an unsuccessful proxy fight launched by the Krause
Gentle Corporation during last year's annual meeting, and to a lesser extent
with the opening of a new branch office) and a decrease in non-interest income
of $118,500, which was partially offset by an increase in net interest income
after provisions for loan losses of $269,500, and a decrease in income tax
expense of $105,900.
NET INTEREST INCOME. Net interest income increased $276,000, or 12.5%,
from $2.2 million for the nine months ended March 31, 2000 to $2.5 million for
the nine months ended March 31, 2001. This increase was primarily the result of
an increase in interest on loans receivable of $1.1 million, which was partially
offset by decreases in investments and other interest income of $29,700 and
$9,000, respectively. The increase was also offset by increases in interest
expense on deposits of $202,500 and on borrowings of $603,100.
INTEREST INCOME. Interest income increased $1.1 million from $5.1
million for the nine months ended March 31, 2000 to $6.2 million the nine months
ended March 31, 2001. The interest on loans increased primarily as a result of
an increase in outstanding loans receivable and to a lesser extent the yield
earned on the loan portfolio. The decrease in income on the investment portfolio
was primarily due to the maturity of certificates of deposit and the sale of
securities held for sale. The decrease in other interest income was primarily
the result of the decrease in the average balances of interest-bearing deposits
held at other depository institutions.
INTEREST EXPENSE. Interest expense increased $805,600 from $2.9 million
in the nine months ended March 31, 2000 to $3.7 million in the nine months ended
March 31, 2001. This increase was primarily due to increases in interest expense
on deposits and on borrowings of $202,500 and $603,100, respectively. The
increase in interest paid on deposits was primarily the result of an average
rate increase on deposit balances. The increase in interest paid on borrowings
was due to an increase in the average balance of Federal Home Loan Bank
advances.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased
$6,000 from $27,000 for the nine months ended March 31, 2000 to $33,000 for the
nine months ended March 31, 2001. The provision during the nine months ended
March 31, 2001 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.
14
NON-INTEREST INCOME. Non-interest income decreased $118,500 from
$513,800 in the nine months ended March 31, 2000 to $395,300 in the nine months
ended March 31, 2001. The decrease was primarily the result of a $92,000
decrease in gain on sale of investments, a decrease in gain on sale of real
estate and real estate operations of $33,100 and $700, respectively. The
decrease was partially offset by an increase in other non-interest income of
$7,300.
NON-INTEREST EXPENSE. Non-interest expense increased from $1.5 million
in the nine months ended March 31, 2000 to $2.0 million in the nine months ended
March 31, 2001. This increase of $469,200 was primarily the result of increases
in salaries and benefit expenses, other non-operating expenses and occupancy and
equipment expense of $225,200, $240,200 and $14,400, respectively (which was
primarily due to a one-time expense associated with the retirement of the
Company's Chairman of the Board, expenses incurred as a result of an
unsuccessful proxy fight launched by the Krause Gentle Corporation during last
year's annual meeting, and to a lesser extent with the opening of a new branch
office) and an increase of $14,000 in data processing expense. These increases
were partially offset by decreases in real estate operations expense and FDIC
premiums and OTS assessments expense of $12,900 and $11,700, respectively.
INCOME TAX EXPENSE. Income tax expense decreased from $405,600 for the
nine months ended March 31, 2000 to $299,700 for the nine months ended March 31,
2001, a decrease of $105,900. The decrease was primarily due to the decrease in
taxable 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 that
will assure its ability to meet demands for withdrawals and repayment of
short-term borrowings. On March 31, 2001, the Association's average liquidity
ratio was 8.65%, which management considers adequate to meet expected needs for
the foreseeable future.
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, 2001, the
Association exceeded all fully phased-in regulatory capital requirements.
At March 31, 2001, the Association's tangible capital was $8.9 million,
or 8.71%, of adjusted total assets, which is in excess of the 1.5% requirement
by $7.4 million. In addition, at March 31, 2001, the Association had core
capital of $8.9 million, or 8.71%, of adjusted total assets, which exceeds the
3% requirement by $5.9 million. The Association had risk-based capital of $9.2
million at March 31, 2001, or 13.53%, of risk-adjusted assets, which exceeds the
8.0% risk-based capital requirements by $3.8 million.
15
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
(b) The following is a description of the Form 8-K's filed during the
three months ended March 31, 2001:
(1) March 2, 2001, a current report on Form 8-K was filed
announcing second quarter earnings.
16
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STATEFED FINANCIAL CORPORATION
Registrant
Date: May 10,2001 /s/ Craig A. Wood
--------------------- -----------------------------------
Craig A. Wood
Co-President
Date: May 10, 2001 /s/ Andra K. Black
--------------------- -----------------------------------
Andra K. Black
Co-President and Chief Financial Officer
17