SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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)
13523 University Avenue, Clive, Iowa 50325
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(Address of principal executive offices)
(515) 223-8484
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(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
State the number of Shares outstanding of each of the issuer's classes
of common equity, as the latest date:
As of November 9, 2001, there were 1,279,526 shares of the Registrant's
common stock issued and outstanding.
STATEFED FINANCIAL CORPORATION
Form 10-QSB
Index
Financial Information Page No.
Item 1. Consolidated Financial Statements:
Consolidated Statements of Financial Condition
as of September 30, 2001 and June 30, 2001 3
Consolidated Statements of Income for
the Three Months Ending September 30, 2001
and September 30, 2000 4
Consolidated Statements of Comprehensive Income for
the Three Months Ending September 30, 2001
and September 30, 2000 5
Consolidated Statement of Stockholders'
Equity for the Three Months Ending September 30, 2001 6
Consolidated Statements of Cash Flows
for the Three Months Ending September 30, 2001 and
September 30, 2000 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. Other Information 14
Signatures 16
2
STATEFED FINANCIAL CORPORATION
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2001 AND JUNE 30, 2001
ASSETS (UNAUDITED)
SEPTEMBER 30, 2001 JUNE 30, 2001
Cash and amounts due from depository institutions $ 4,437,378 $ 7,278,551
Investments in certificates of deposit 297,198 297,272
Investment securities available for sale 1,934,005 1,924,855
Loans receivable, net 86,892,060 87,898,936
Real estate held for investment, net 2,088,236 2,106,442
Property acquired in settlement of loans 43,779 1,320,458
Office property and equipment, net 3,909,846 3,947,620
Federal Home Loan Bank stock, at cost 1,762,200 1,762,200
Accrued interest receivable 599,592 630,166
Other assets 377,103 382,936
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TOTAL ASSETS $ 102,341,397 $ 107,549,436
======================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 66,656,449 $ 62,987,496
Advances from Federal Home Loan Bank 20,500,000 29,185,149
Advances from borrowers for taxes and insurance - 395,032
Accrued interest payable 247,335 170,864
Dividends payable 127,733 127,633
Income taxes:current and deferred 269,918 203,541
Other liabilities 391,486 392,053
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TOTAL LIABILITIES $ 88,192,921 $ 93,461,768
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Stockholders' equity:
Common stock $ 17,810 $ 17,810
Additional paid-in capital 8,533,116 8,522,356
Unearned compensation - restricted stock awards (128,941) (143,866)
Accumulated other comprehensive income-
unrealized gains (losses) on investments, net of deferred taxes 34,533 25,349
Treasury stock (5,185,534) (5,195,834)
Retained earnings - substantially restricted 10,877,492 10,861,853
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TOTAL STOCKHOLDERS' EQUITY $ 14,148,476 $ 14,087,668
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 102,341,397 $ 107,549,436
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3
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ending September 30, 2001 and 2000
(Unaudited)
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2001 2000
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Interest Income:
Loans $ 1,845,983 $ 1,920,884
Investments 48,694 61,162
Other 55,609 27,421
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Total interest income 1,950,286 2,009,467
Interest Expense:
Deposits 853,512 675,186
Borrowings 355,821 456,291
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Total interest expense 1,209,333 1,131,477
Net interest income 740,953 877,990
Provision for loan losses 24,000 9,000
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Net interest income after
provision for loan losses 716,953 868,990
Non-interest income:
Real estate operations 127,810 127,745
Other 28,747 28,760
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Total non-interest income 156,557 156,505
Non-interest expense:
Salaries and benefits 325,787 240,863
Real estate operations 80,996 79,879
Occupancy and equipment 74,631 37,878
FDIC premiums and OTS assessments 9,407 9,548
Data processing 33,064 28,700
Other 139,013 143,750
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Total non-interest expense 662,898 540,618
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Income before income taxes 210,612 484,877
Income tax expense 67,240 160,786
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Net income $ 143,372 $ 324,091
============= =============
Basic earnings per share $ 0.11 $ 0.22
Diluted earnings per share $ 0.11 $ 0.22
4
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ending September 30, 2001 and 2000
(Unaudited)
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2001 2000
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Net Income $ 143,372 $ 324,091
Other comprehensive income,
net of tax:
Unrealized holding gains (losses) on
securities arising during period $ 9,184 2,478
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Comprehensive income $ 152,556 $ 326,569
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5
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ending September 30, 2001 and 2000
(Unaudited)
Balance - June 30, 2001 $ 14,087,668
Additional paid in capital 10,760
Other comprehensive income--change in unrealized gains
(losses) on investment securities, net of deferred income taxes 9,184
Dividends declared (127,733)
Stock options exercised (1,000 shares) 10,300
ESOP common stock released for allocation 14,925
Net income 143,372
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Balance - September 30, 2001 $ 14,148,476
===============
6
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ending September 30, 2001 and 2000
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
- ------------------------------------ ------------------ ------------------
Net Income $ 143,372 $ 324,091
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 32,579 42,410
Amortization of ESOP 25,685 25,703
Deferred loan fees (6,900) 10,393
Provision for losses on loans (7,216) 9,000
Change in:
Accrued interest receivable 30,574 (38,237)
Other Assets 5,833 (13,623)
Accrued interest payable 76,471 11,219
Current income tax liability 66,377 129,375
Other Liabilities (567) (28,178)
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NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 366,208 $ 472,153
CASH FLOWS FROM INVESTING ACTIVITIES
Maturity of investments in certificates of deposit $ 74 $ 124
Proceeds from sale or maturity of available-for-sale investment securities 34 250,034
(Purchase) redemption of FHLB Stock - (98,800)
Net (increase) decrease in loans outstanding 1,020,992 (3,009,143)
Investment in real estate held for investment - (1,923)
Investment in real estate acquired in settlement of loans 1,276,679 3,412
Purchase of office property and equipment 23,401 (428,064)
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NET CASH FLOWS USED BY INVESTING ACTIVITIES $ 2,321,180 $ (3,284,360)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 3,668,953 $ 141,180
Advances from the Federal Home Loan Bank - 2,000,000
Repayment of advances from the Federal Home Loan Bank (8,685,149) (24,150)
Net decrease in advances from borrowers (395,032) (353,743)
Dividends paid (127,633) (113,220)
Proceeds from sale of treasury stock 10,300 8,707
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NET CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES $ (5,528,561) $ 1,658,774
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CHANGE IN CASH AND CASH EQUIVALENTS $ (2,841,173) $ (1,153,433)
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 7,278,551 $ 2,477,494
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,437,378 $ 1,324,061
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7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ending
September 30, 2001 and September 30, 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,
2001). 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 "Corporation"), 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, which ended June 30,
2001.
2. EARNINGS PER SHARE OF COMMON STOCK
Basic earnings per share is computed based upon the weighted-average
shares outstanding during the period, less shares in the ESOP that are
unallocated and not committed to be released. Weighted-average common shares
outstanding totaled 1,251,422 at September 30, 2001 and 1,472,235 at September
30, 2000.
Diluted earnings per share is computed by considering common shares
outstanding and dilutive potential common shares to be issued under the
Company's stock option plan. Weighted-average common shares deemed outstanding
for the purpose of computing diluted earnings per share totaled 1,281,809 at
September 30, 2001 and 1,500,170 at September 30, 2000.
8
3. REGULATORY CAPITAL REQUIREMENTS
Pursuant to Federal law, savings institutions must meet four separate
capital requirements. The Association's capital ratios and balances at September
30, 2001 are as follows:
AMOUNT %
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(Dollars in thousands)
Tangible Capital:
Association's $6,181 6.46%
Requirement 1,435 1.50
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Excess $4,746 4.96%
Core Capital:
Association's $6,181 6.46%
Requirement 3,827 4.00
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Excess $2,354 2.46%
Risk-Based Capital:
Association's $6,649 10.58%
Requirement 5,025 8.00
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Excess $1,624 2.58%
4. STOCK OPTION PLAN
At June 30, 2001 there were unexercised options for 59,594 shares of
common stock under the terms of the StateFed Financial Corporation 1993 Stock
Option Plan. The options have an exercise price of $5 per share. There were
1,000 options exercised during the three months ended September 30, 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 September 30, 2001,
there were no shares repurchased.
9
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.
The Company does not undertake--and specifically declines any
obligation--to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
10
FINANCIAL CONDITION
The Company's total assets decreased $5.2 million, from $107.5 million
at June 30, 2001 to $102.3 million at September 30, 2001. This decrease was due
primarily to decreases in cash and cash equivalents of $2.8 million, net loans
receivable of $1.0 million and property acquired in settlement of loans of $1.3
million.
Cash and amounts due from depository institutions decreased $2.8
million, from $7.28 million at June 30, 2001 to $4.44 million at September 30,
2001. The decrease in cash and cash equivalents was the result of the repayment
of Federal Home Loan Bank advances, partially offset by an increase in deposits
and the repayment of loans receivable.
Net loans receivable decreased $1.0 million, from $87.9 million at June
30, 2001 to $86.9 million at September 30, 2001. Repayment of principal totaled
$6.5 million for the three-month period, while loan origination's totaled $5.1
million for the same period.
Total deposits increased by $3.7 million from $63.0 million at June 30,
2001 to $66.7 million at September 30, 2001. During the three-month period
ending September 30, 2001, certificates of deposit increased $2.96 million,
money market fund accounts increased $488,000, checking deposits increased
$157,000 and savings accounts increased $65,000.
Total stockholders' equity increased $60,800 from $14.09 million at
June 30, 2001 to $14.15 million September 30, 2001. The increase was primarily
the result of net earnings of $143,372, accounting for employee stock awards and
options of $36,000,and an increase in unrealized loss on investment securities
of $9,200, which was partially offset by dividends declared of $127,700.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTH PERIODS ENDING SEPTEMBER 30,
2001 AND SEPTEMBER 30, 2000
GENERAL. Net income decreased $180,700 from $324,100 for the three
months ended September 30, 2000 to $143,400 for the three months ended September
30, 2001. The decrease in net income was primarily due to a decrease in net
interest income of $137,000, and by increases in provision for loan losses and
non-interest expense of $15,000 and $122,300, respectively, partially offset by
a decrease of $93,600 in income tax expense.
NET INTEREST INCOME. Net interest income decreased $137,000 from
$878,000 for the three months ended September 30, 2000 to $741,000 for the three
months ended September 30, 2001. The decrease was due primarily to an increase
in interest expense on deposits of $178,300 resulting from an increase in
deposits, and to a lesser extent a decrease in total interest income of $59,200,
partially offset by a decrease in interest expense on Federal Home Loan Bank
advances of $100,500 due to the repayment of advances.
INTEREST INCOME. Interest income decreased $59,200 from $2.0 million
for the three months ended September 30, 2000 to $1.95 million for the three
months ended September 30, 2001. Interest income on loans and investments
decreased $75,000 and $12,400, respectively, and was partially offset by an
increase in other interest income of $28,200.
11
The decrease in interest earned on loans receivable resulted from a decrease in
the average loans receivable balances, and a decrease in interest rates.
Interest on investments decreased primarily from a decrease in the investment
portfolio. Other interest income increased primarily from an increase in the
balance of other interest earning assets.
INTEREST EXPENSE. Interest expense increased $77,800 from $1.13 million
in the three months ended September 30, 2000 to $1.21 million in the three
months ended September 30, 2001. This increase resulted primarily from an
increase of interest paid on deposits of $178,300 and was partially offset by a
decrease in interest paid on borrowings of $100,500. The increase of interest
expense on deposits was primarily due to an increase in the balance of deposit
accounts from the prior period. The decrease in borrowings resulted primarily
from the repayment of Federal Home Loan Bank advances and the average rate paid
on the advances from the prior period.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the three
months ended September 30, 2001 was $24,000, an increase of $15,000 as compared
to $9,000 the three months ended September 30, 2000. The increase was related
primarily to increases in the level of non-performing loans. The provision
during the three months ended September 30, 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 based on the condition of the loan portfolio,
analysis of specific loans, regulatory comments and if economic conditions
dictate. Although the Company maintains its allowance for loan losses at a level
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 was $156,600 for the three
months ended September 30, 2001 and $156,500 for the three months ended
September 30, 2000.
NON-INTEREST EXPENSE. Non-interest expense increased from $540,600 in
the three months ended September 30, 2000 to $662,900 in the three months ended
September 30, 2001. The increase of $122,300 for the September 2001 quarter
compared with the same quarter in September 2000 was primarily due to costs
associated with the company's new location in Clive, which opened during March,
2001.
INCOME TAX EXPENSE. Income tax expense was $67,200 for the three
months ended September 30, 2001 compared to $160,800 for the three months ended
September 30, 2000, a decrease of $93,600, primarily due to the decrease in
taxable income.
LIQUIDITY AND CAPITAL RESOURCES. The Office of Thrift Supervision
regulations require the Association to maintain a safe and sound level of liquid
assets. Such assets may include United States Treasury, federal agency, and
other investments having maturities of five years or less and are intended to
provide a source of relatively liquid funds upon which the Association may rely,
if necessary, to fund deposit withdrawals and other short-term funding needs.
The Association's regulatory liquidity at September 30, 2001 was 7.94%.
The Company's primary sources of funds consist of deposits, FHLB advances,
repayments of loans, interest earned on investments and funds provided by
operations. Management believes that loan repayments and other sources of funds
will be adequate to meet the Company's foreseeable liquidity needs.
12
The Company uses its capital resources principally to meet its ongoing
commitments, to fund maturing certificates of deposits and loan commitments,
maintain its liquidity, and meet its foreseeable short- and long term needs. The
Company expects to be able to fund or refinance, on a timely basis, its material
commitments and long-term liabilities.
Regulatory standards impose the following capital requirements: a
risk-based capital standard expressed as a percent of risk adjusted assets, a
leverage ratio of core capital to total adjusted assets, and a tangible capital
ratio expressed as a percent of total adjusted assets. As of September 30, 2001,
the Association exceeded all fully phased-in regulatory capital requirements.
At September 30, 2001, the Association's tangible equity capital was
$6.2 million, or 6.46%, of tangible assets, which is in excess of the 1.5%
requirement by $4.7 million. In addition, at September 30, 2001, the Association
had core capital of $6.2 million, or 6.46%, of adjusted total assets, which
exceeds the 4% requirement by $2.4 million. The Association had total risk-based
capital of $6.6 million at September 30, 2001, or 10.58%, of risk-weighted
assets which exceeds the 8.0% risk-based capital requirements by $1.6 million.
As required by Federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. the OTS has proposed that only those savings associations rated
a composite one (the highest rating) under the MACRO rating system for savings
associations will be permitted to operate at or near the regulatory minimum
leverage ratio of 3%. all other savings associations will be required to
maintain a minimum leverage ratio of 3% plus at least an additional 100 to 200
basis points. The OTS will assess each individual savings association through
the supervisory process on a case-by-case basis to determine the applicable
requirement. No assurance can be given as to the final form of any such
regulation, the date of its effectiveness or the requirement applicable to the
Association. As a result of the prompt corrective action provisions of federal
law discussed below, however, a savings association must maintain a core capital
ratio of at least 4% to be considered adequately capitalized unless its
supervisory condition is such to allow it to maintain a 3% ratio.
REGULATORY DEVELOPMENTS
As of September 30, 2001, management is not aware of any current recommendations
by regulatory authorities which, if they were to be implemented, would have or
are reasonable likely to have a material adverse effect on the Company's
liquidity, capital resources of operations.
13
STATEFED FINANCIAL CORPORATION
PART II - OTHER INFORMATION
As of September 30, 2001, 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 or operations.
Item 1- Legal Proceedings
-----------------
Not applicable.
Item 2 - Changes in Securities
---------------------
Not applicable.
Item 3 - Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4 - Submission of Matters to Vote of Security Holders
-------------------------------------------------
(a) The annual meeting of stockholders was held on October 24, 2001.
(b) The matters approved by stockholders at the annual meeting and
the number of votes cast for, against, or withheld (as well as
the number of abstentions and broker non-votes) as to each matter
are set forth below.
Election of the following Directors to a three year term:
FOR WITHHELD BROKER NON-VOTES
--- -------- ----------------
Craig A. Wood 973,830 80,600 0
Harry A. Winegar 1,016,630 37,800 0
William T. Nassif 1,026,830 27,600 0
Ratification of McGowen, Hurst, Clark & Smith, PC as auditors for the Company
for the fiscal year ending June 30, 2002:
For 1,053,480
Against 900
Abstain 50
Broker Non-Votes 0
Accordingly, Directors Wood, Winegar, and Nassif were reelected to the Board and
the selection of McGowen, Hurst, Clark & Smith, PC was ratified by the
shareholders.
14
Item 5 - Other Information
------------------
None
Item 6 - Exhibits and Reports On Form 8-K
--------------------------------
(a) Exhibits
Not applicable.
(b) The following is a description of the Form 8-K's filed during the
three months ended September 30, 2001:
1. On September 7, 2001, a current report on Form 8-K was filed
reflecting quarterly financial information.
15
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/ Craig A. Wood
--------------------------- -------------------------------------
Craig A. Wood
Co-President
Date: /s/ Andra K. Black
---------------------------- ------------------------------------
Andra K. Black
Co-President and Chief Financial Officer
16