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 March 31, 2002
[ ] 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)
13523 University Avenue, Clive, Iowa 50325
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(515) 223-8484
- --------------------------------------------------------------------------------
(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 3, 2002, there were 1,286,870 shares of the Registrant's common
stock issued and outstanding.
1
STATEFED FINANCIAL CORPORATION
Form 10-QSB
Index
Page
PART I. - CONSOLIDATED FINANCIAL INFORMATION Number
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
PART I. - CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 2002 AND JUNE 30, 2001
ASSETS (UNAUDITED)
MARCH 31,2002 JUNE 30, 2001
Cash and amounts due from depository institutions $ 2,341,448 $ 7,278,551
Investments in certificates of deposit 297,000 297,272
Investment securities held-for-sale 1,538,026 1,924,855
Loans receivable, net 83,935,835 87,898,936
Real estate held for investment, net - 2,106,442
Property acquired in settlement of loans 1,688,530 1,320,458
Office property and equipment, net 3,964,823 3,947,620
Federal Home Loan Bank stock, at cost 1,762,200 1,762,200
Accrued interest receivable 598,493 630,166
Other assets 381,815 382,936
-------------- ---------------
TOTAL ASSETS $ 96,508,170 $ 107,549,436
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 67,303,718 $ 62,987,496
Advances from Federal Home Loan Bank 14,000,000 29,185,149
Advances from borrowers for taxes and insurance - 395,032
Accrued interest payable 94,149 170,864
Dividends payable 128,687 127,633
Income taxes: current and deferred 306,518 203,541
Other liabilities 180,136 392,053
-------------- ---------------
TOTAL LIABILITIES 82,013,208 93,461,768
-------------- ---------------
Stockholders' equity:
Common stock $ 17,810 $ 17,810
Additional paid-in capital 8,512,475 8,522,356
Unearned compensation - restricted stock awards (99,806) (143,866)
Unrealized gain on investments 86,986 25,349
Treasury stock (5,087,268) (5,195,834)
Retained earnings - substantially restricted 11,064,765 10,861,853
-------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 14,494,962 14,087,668
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 96,508,170 $ 107,549,436
============== ===============
3
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATION
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 2002 AND MARCH 31, 2001
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
(UNAUDITED) (UNAUDITED)
--------------------- ------------------- ------------------- -------------------
2002 2001 2002 2001
--------------------- ------------------- ------------------- -------------------
Interest Income:
Loans $ 1,647,935 $ 1,993,238 $ 5,291,006 $ 5,939,632
Investments 35,955 61,274 139,970 179,428
Other - 42,296 63,746 106,746
--------------------- ------------------- ------------------- -------------------
Total interest income 1,683,890 2,096,808 5,494,722 6,225,806
Interest Expense:
Deposits 697,834 783,381 2,391,352 2,230,740
Borrowings 193,271 507,703 781,614 1,468,177
--------------------- ------------------- ------------------- -------------------
Total interest expense 891,105 1,291,084 3,172,966 3,698,917
Net interest income 792,785 805,724 2,321,756 2,526,889
Provision for loan losses 207,500 15,000 385,500 33,000
--------------------- ------------------- ------------------- -------------------
Net interest income after
provision for loan losses 585,285 790,724 1,936,256 2,493,889
Non-interest Income:
Real estate operations 6,854 129,039 241,738 391,169
Gain (loss) on sale of investments 6,146 568 6,146 (90,105)
Gain on sale of real estate, net 231 38 638,426 7,847
Other 61,313 26,052 123,588 86,374
--------------------- ------------------- ------------------- -------------------
Total non-interest income 74,544 155,697 1,009,898 395,285
Non-interest Expense:
Salaries and benefits 341,045 479,172 1,006,587 993,651
Real estate operations 23,369 79,765 164,417 224,270
Occupancy and equipment 85,179 60,906 259,174 137,310
FDIC premiums and OTS assessments 10,892 9,407 33,185 28,582
Data processing 39,604 33,262 104,024 92,248
Other 160,344 139,937 536,963 517,159
--------------------- ------------------- ------------------- -------------------
Total non-interest expense 660,433 802,449 2,104,350 1,993,220
--------------------- ------------------- ------------------- -------------------
Income (loss) before income taxes (604) 143,972 841,804 895,954
Income tax expense (benefit) (14,960) 48,240 254,520 299,766
--------------------- ------------------- ------------------- -------------------
Net income $ 14,356 $ 95,732 $ 587,284 $ 596,188
===================== =================== =================== ===================
Basic earnings per share $ 0.01 $ 0.06 $ 0.47 $ 0.40
Diluted earnings per share 0.01 0.06 0.46 0.40
4
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 2002 AND MARCH 31, 2001
Three Months Ended Nine Months Ended
March 31, March 31,
(Unaudited) (Unaudited)
-------------------------------- ----------------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net income $ 14,356 $ 95,732 $ 587,284 $ 596,188
Other comprehensive income,
net of tax:
Unrealized holding gains on securities
arising during period 53,625 45,326 65,816 189,710
Reclassification adjustment (4,179) - (4,179) (60,750)
Comprehensive income $ 63,802 $ 141,058 $ 648,921 $ 725,148
5
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD MARCH 31, 2002
(UNAUDITED)
Balance - June 30, 2001 $ 14,087,668
Additional paid-in capital (9,881)
Other comprehensive income--unrealized gain on
investment securities, net of deferred income taxes 61,637
Dividends declared (384,376)
Stock options exercised (10,544 shares) 108,570
ESOP common stock released for allocation 44,060
Net income 587,284
-------------
Balance - March 31, 2002 $ 14,494,962
=============
6
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 2002 AND MARCH 31, 2001
CASH FLOWS FROM OPERATING ACTIVITIES MARCH 31, MARCH 31,
2002 2001
--------------- ---------------
Net income $ 587,284 $ 596,188
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 138,632 125,053
Gain on sale of real estate held for investment (638,155) -
Amortization of ESOP 34,176 10,490
Deferred loan fees (111,714) 19,637
Provision for losses on loans 385,500 33,000
Change in:
Accrued interest receivable 31,673 (120,910)
Other assets 1,120 (80,923)
Accrued interest payable (76,714) (53,606)
Current and deferred income tax liability 62,042 (130,013)
Other liabilities (211,916) 126,442
--------------- ---------------
NET CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES $ 201,928 $ 525,358
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in certificates of deposit $ 272 $ -
Maturity of investments in certificates of deposit - 99,337
Proceeds from sale or maturity of available-for-sale investment securities 489,401 496,275
Purchase of FHLB stock - (297,600)
Net (increase) decrease in loans outstanding 3,325,175 (5,399,529)
Proceeds from sale of real estate held for investment 2,744,597 -
Investment in real estate held for investment - (1,923)
Investment in real estate acquired in settlement of loans - 17,324
Purchase of office property and equipment (155,835) (927,813)
--------------- ---------------
NET CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES $ 6,403,610 $ (6,013,929)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 4,316,221 $ 2,958,923
Advances from the Federal Home Loan Bank - 6,000,000
Repayment of advances from the Federal Home Loan Bank (15,185,149) (73,523)
Net decrease in advances from borrowers (398,960) (353,743)
Proceeds from stock options exercised 108,565 193,835
Dividends paid (383,318) (416,402)
Purchase of treasury stock - (264,231)
--------------- ---------------
NET CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES $ (11,542,641) $ 8,044,859
--------------- ---------------
CHANGE IN CASH AND CASH EQUIVALENTS $ (4,937,103) $ 2,556,288
--------------- ---------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 7,278,551 $ 2,477,494
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,341,448 $ 5,033,782
=============== ===============
7
STATEFED FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 2002 AND MARCH 31, 2001
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 "Company"), its
subsidiary, State Federal Savings and Loan Association (the "Bank" or "State
Federal") and the Bank'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, 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. For the three month period, weighted-average
common shares outstanding totaled 1,260,579 at March 31, 2002 and 1,483,396 at
March 31, 2001. For the nine month periods ending March 31, 2002 and March 31,
2001, weighted-average common shares outstanding totaled 1,256,182 and
1,479,703, respectively.
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, for the three month
periods ending March 31, 2002 and March 31, 2001, totaled 1,285,427 and
1,505,919, respectively. For the nine month periods ending March 31, 2002 and
March 31, 2001, weighted-average common shares deemed outstanding for the
purpose of computing diluted earnings per share were 1,284,188 and 1,506,194,
respectively.
8
3. REGULATORY CAPITAL REQUIREMENTS
Pursuant to Federal law, the Bank must meet three separate capital
requirements. The Bank's capital ratios and balances at March 31, 2002 were as
follows:
AMOUNT %
--------- -------
(Dollars in thousands)
Tangible Capital:
Bank's $ 6,531 7.16 %
Requirement 1,367 1.50
--------- -------
Excess $ 5,164 5.66 %
Core Capital:
Bank's $ 6,531 7.16 %
Requirement 3,646 4.00
--------- -------
Excess $ 2,885 3.16 %
Risk-Based Capital:
Bank's $ 7,092 11.65 %
Requirement 4,868 8.00
--------- -------
Excess $ 2,224 3.65 %
The Bank is considered "well-capitalized" under federal regulations.
4. STOCK OPTION PLAN
At March 31, 2002 there were unexercised options for 49,050 shares of
common stock under the terms of the Company's 1993 Stock Option Plan. There were
27,562, 10,744 and 10,744 options with exercise prices of $5.00, $9.50 and
$10.00 per share, respectively. There were 10,544 shares exercised during the
nine months ended March 31, 2002.
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 nine-month period ending March 31, 2002, 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 "Bank"). All significant inter-company
transactions and balances are eliminated in consolidation. The Company's results
of operations are primarily dependent on the Bank'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 Bank's net income is
also affected by the level of non-interest income, gains or losses on the sale
of investments, and in fiscal 2002, gains from the sale of real estate, and by
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.
FINANCIAL CONDITION
The Company's total assets at June 30, 2001 and March 31, 2002, totaled
$107.5 million and $96.5 million, respectively. The decrease of $11.0 million
was due primarily to decreases in cash and amounts due from depository
institutions of $4.9 million, net loans receivable of $4.0 million and net real
estate held for investment of $2.1 million.
Cash and amounts due from depository institutions decreased from $7.2
million at June 30, 2001 to $2.3 million at March 31, 2002, or a decrease of
$4.9 million. The decrease was primarily the result of the repayment of Federal
Home Loan Bank advances, partially offset by an increase in deposits and the
repayment of loans receivable.
10
Net loans receivable decreased $4.0 million, from $87.9 million at June 30,
2001 to $83.9 million at March 31, 2002. Due to high refinancing activity,
repayment of principal totaled $22.7 million for the nine month period, while
loan originations totaled $16.2 million and purchased loan participations
totaled $2.3 million.
Net real estate held for investment decreased $2.1 million from June 30,
2001 to March 31, 2002, as a result of the Company's decision to exit property
management by selling its two apartment complexes and focus on core financial
services business.
Total deposits increased by $4.4 million from $62.9 million at June 30,
2001 to $67.3 million at March 31, 2002. The increases in demand deposits and
savings and money market deposits were $2.2 million and $5.6 million,
respectively, offset in part by a decrease in certificates of deposit of $3.4
million.
Total borrowings decreased $15.2 million between the periods ended June 30,
2001 and March 31, 2002. The decrease was the result of repayments of Federal
Home Loan Bank advances.
Total stockholders' equity increased $448,600 from $14.1 million at June
30, 2001 to $14.5 million at March 31, 2002. The increase was primarily the
result of net earnings of $587,000, accounting for employee stock awards and
options of $143,000, and unrealized gains on investment securities of $102,600,
which was partially offset by dividends declared of $384,000.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002
AND MARCH 31, 2001
GENERAL. Net income decreased $81,300 from $95,700 for the three months
ended March 31, 2001, to $14,400 for the three months ended March 31, 2002. The
decrease in net income resulted primarily from a $192,500 increase in the
provision for loan losses. There were also reductions in net interest income of
$12,900, non-interest income of $81,200 and non-interest expense of $142,000.
NET INTEREST INCOME. Net interest income decreased $12,900, from $805,700
for the three months ended March 31, 2001 to $792,800 for the three months ended
March 31, 2002. This decrease was the result of decreases of $412,900 in
interest income and $400,000 in interest expense.
INTEREST INCOME. Interest income decreased $412,900 from $2.1 million for
the three months ended March 31, 2001 to $1.7 million for the three months ended
March 31, 2002. This decrease was primarily the result of decreases in interest
earned on the loan portfolio of $345,300, investments of $25,300 and other
interest earned of $42,300.
The decrease in interest earned on loans receivable resulted from a
decrease in the average rate and, to a lesser extent, a decrease in the average
loans receivable balance. Investment and other interest income decreased
primarily from decreases in the average balances of investments and other
interest earning assets.
11
INTEREST EXPENSE. Interest expense decreased $400,000 from $1,291,000 for
the three months ended March 31, 2001 to $891,000 for the three months ended
March 31, 2002. This decrease resulted primarily from decreases in interest
expense on borrowings of $314,400, and decreases of interest expense on deposits
of $85,500. The decrease in interest expense resulted primarily from the
repayment of Federal Home Loan Bank advances and a decrease in the average rate
paid on deposit accounts from the prior period.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased $192,500
from $15,000 for the three months ended March 31, 2001 to $207,500 for the three
months ended March 31, 2002. The increase was primarily related to three
participation loans totaling $1.5 million. The servicer has started foreclosure
proceedings on two of these loans and the remaining credit has been
restructured. The provision during the three months ended March 31, 2002 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, 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 $81,200 from $155,700 in
the three months ended March 31, 2001 to $74,500 in the three months ended March
31, 2002. The decrease was primarily due to a $122,200 decrease in income from
real estate operations, which in previous periods had been generated by the two
apartment complexes that the Company sold during the quarter ended December 31,
2001. The decrease was offset by a $35,300 increase in other non-interest
income, which consists primarily of fee income, and a $5,600 gain on the sale of
investments.
NON-INTEREST EXPENSE. Non-interest expense decreased from $802,400 in the
three months ended March 31, 2001 to $660,400 in the three months ended March
31, 2002. This decrease of $142,000 was primarily the result of decreases in
salaries and benefits expense of $138,100 and a decrease in real estate
operations expense of $56,400. The salaries and benefits expense for the three
month period ended March 31, 2001 included a one-time expense associated with
the retirement of the Company's former Chairman of the Board. The decrease was
offset by increases in occupancy and equipment, FDIC premiums and OTS
assessments, data processing and other operating expenses of $24,300, $1,500,
$6,300 and $20,400, respectively.
INCOME TAX EXPENSE. Income tax expense decreased $63,200 for the three
months ended March 31, 2002, when compared to the three months ended March 31,
2001, due to a reduction in taxable income.
COMPARISON OF THE NINE MONTH PERIODS ENDED MARCH 31, 2002 AND MARCH 31, 2001
GENERAL. Net income was $587,300 for the nine months ended March 31, 2002
as compared to $596,200 for the nine months ended March 31, 2001.
NET INTEREST INCOME. Net interest income decreased $205,100 from $2.5
million for the nine months ended March 31, 2001 to $2.3 million for the nine
months ended March 31, 2002.
12
There were reductions in total interest income and total interest expense. The
$731,100 reduction in total interest income was comprised of decreases in
interest on loans, investments and other interest earned in the amounts of
$648,600, $39,500 and $43,000, respectively. An increase in interest paid on
deposits of $160,600 was more than offset by a reduction in interest paid on
borrowings of $686,600, resulting in a $526,000 decrease in total interest
expense.
INTEREST INCOME. Interest income decreased $731,000 from $6.2 million for
the nine months ended March 31, 2001 to $5.5 million the nine months ended March
31, 2002. The change was primarily due to decreases in interest earned on the
loan portfolio of $648,600, interest earned on investments of $39,500 and other
interest earned of $43,000. The interest on loans decreased primarily as a
result of a decrease in the yield earned on the loan portfolio and, to a lesser
extent, the decrease in outstanding loans receivable. The decrease in income on
investments was primarily due to the decrease in the average yield. The decrease
in income on other interest earned was primarily the result of a decrease in the
average balance outstanding and, to a lesser extent, the decrease in the average
yield.
INTEREST EXPENSE. Interest expense decreased $526,000 from $3.7 million in
the nine months ended March 31, 2001 to $3.2 million in the nine months ended
March 31, 2002. This decrease was primarily due to decreases in interest paid on
Federal Home Loan Bank advances of $686,600, offset by a $160,600 increase in
interest paid on deposits. The decrease in interest paid on borrowings was due
to a decrease in the average balance of Federal Home Loan Bank advances and to a
lesser extent the average rate paid on advances. The increase in interest paid
on deposits was primarily the result of an increase in the balance of deposits.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the nine
months ended March 31, 2002, and March 31, 2001, were $385,500 and $33,000,
respectively. The increase of $352,500 was related primarily to three
participation loans totaling $1.5 million. The servicer has started foreclosure
proceedings on two of these loans and the remaining credit has been
restructured. The provision during the nine months ended March 31, 2002 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, 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 $614,600 from $395,300
for the nine months ended March 31, 2001 to $1,010,000 for the nine months ended
March 31, 2002. The increase was primarily due to a net gain on the sale of real
estate held for investment of $630,600, which was the result of the sale of the
Company's two apartment complexes in order to focus on its core financial
services business. There was also an increase in other non-interest income of
$37,200, which can mainly be attributed to increases in fee income. The increase
was partially offset by a decrease in real estate operations income of $149,400.
Loss on the sale of investments for the nine month period ending March 31, 2001
was $90,105 versus a gain on the sale of investments of $6,100 for the nine
month period ending March 31, 2002.
NON-INTEREST EXPENSE. Non-interest expense increased from $2.0 million in
the nine months ended March 31, 2001 to $2.1 million in the nine months ended
March 31, 2002. This
13
increase of $111,100 was primarily the result of increases in costs associated
with the Company's new location in Clive, which opened during March, 2001.
INCOME TAX EXPENSE. Income tax expense decreased from $299,700 for the nine
months ended March 31, 2001 to $254,500 for the nine months ended March 31,
2002, a decrease of $45,200. The decrease was primarily due to the decrease in
taxable income.
LIQUIDITY AND CAPITAL RESOURCES. The Office of Thrift Supervision regulations
require the Bank 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 Bank may rely, if necessary, to fund
deposit withdrawals and other short-term funding needs. The Bank's regulatory
liquidity at March 31, 2002 was 4.19%. 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.
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, 2002, the
Bank exceeded all fully phased-in regulatory capital requirements.
At March 31, 2002, the Bank's tangible equity capital was $6.6 million, or
7.16%, of tangible assets, which exceeded the 1.5% requirement by $5.2 million.
In addition, at March 31, 2002, the Bank had core capital of $6.6 million, or
7.16%, of adjusted total assets, which exceeded the 4% requirement by $2.9
million. The Bank had total risk-based capital of $7.1 million at March 31,
2002, or 11.65%, of risk-weighted assets which exceeded the 8.0% risk-based
capital requirements by $2.2 million. The Bank is considered "well-capitalized"
under federal regulations.
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
Bank. As a result of the prompt corrective action provisions of federal law,
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.
14
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, 2002:
1. February 12, 2002, a current report on Form 8-K was filed
announcing second quarter earnings.
2. February 13, 2002, a current report on Form 8-K was filed
reflecting quarterly financial information.
3. March 21, 2002, a current report on Form 8-K was filed
announcing a dividend declaration.
15
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 3, 2002 /s/ Craig A. Wood
------------------------------ --------------------------------
Craig A. Wood
Executive Vice President
Date: May 3, 2002 /s/ Andra K. Black
------------------------------ --------------------------------
Andra K. Black
Executive Vice President and CFO
16