SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2003
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Exchange Act) Yes [ ] No [X]
State the number of Shares outstanding of each of the issuer's classes of
common equity, as the latest date:
As of April 28, 2003, there were 1,291,614 shares of the Registrant's
common stock issued and outstanding.
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
1
STATEFED FINANCIAL CORPORATION
Form 10-QSB
Index
Page
PART I. - CONSOLIDATED FINANCIAL INFORMATION Number
Item 1. Financial Statements (Unaudited) 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Controls and Procedures 14
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
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 17 & 18
Exhibit 99.1 19
Exhibit 99.2 21
2
PART I. - CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 2003 AND JUNE 30, 2002
(UNAUDITED)
ASSETS
MARCH 31, 2003 JUNE 30, 2002
Cash and amounts due from depository institutions $ 5,056,704 $ 3,114,682
Investments in certificates of deposit 99,000 99,000
Investment securities available for sale 1,298,881 1,323,918
Loans held for sale 1,092,276 -
Loans receivable, net 86,199,491 84,771,507
Real estate held for sale, net 540,500 540,500
Property acquired in settlement of loans 138,687 364,622
Office property and equipment, net 3,386,682 3,405,720
Federal Home Loan Bank stock, at cost 1,762,200 1,762,200
Accrued interest receivable 536,472 572,414
Accrued and deferred income taxes 239,670 142,046
Other assets 344,256 308,632
----------------- ----------------
TOTAL ASSETS $ 100,694,819 $ 96,405,241
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 77,048,880 $ 66,901,147
Advances from Federal Home Loan Bank 9,000,000 14,000,000
Advances from borrowers for taxes and insurance 29,917 351,422
Accrued interest payable 9,651 174,921
Dividends payable 129,161 127,887
Income taxes payable - 305,231
Other liabilities 256,257 349,063
----------------- ----------------
TOTAL LIABILITIES 86,473,866 82,209,671
----------------- ----------------
Stockholders' equity:
Common stock 17,810 17,810
Additional paid-in capital 8,524,243 8,527,873
Unearned compensation - Employee Stock Ownership Plan (44,211) (85,575)
Accumulated other comprehensive income - unrealized gains
on investment securities available for sale, net of deferred taxes 25,071 27,521
Treasury stock (5,041,185) (5,172,468)
Retained earnings - substantially restricted 10,739,225 10,880,409
----------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 14,220,953 14,195,570
----------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 100,694,819 $ 96,405,241
================= ================
3
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATION
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 2003 AND MARCH 31, 2002
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
--------------------------- ---------------------------
2003 2002 2003 2002
--------------------------- ---------------------------
Interest Income:
Loans $ 1,629,960 $ 1,647,935 $ 4,892,977 $ 5,291,006
Investments & other 22,157 35,955 90,143 203,716
--------------------------- ---------------------------
Total interest income 1,652,117 1,683,890 4,983,120 5,494,722
Interest Expense:
Deposits 644,988 697,834 2,015,162 2,391,352
Borrowings 116,250 193,271 477,973 781,614
--------------------------- ---------------------------
Total interest expense 761,238 891,105 2,493,135 3,172,966
Net interest income 890,879 792,785 2,489,985 2,321,756
Provision for loan losses 63,589 207,500 166,665 385,500
--------------------------- ---------------------------
Net interest income after
provision for loan losses 827,290 585,285 2,323,320 1,936,256
Non-interest Income:
Real estate operations 9,465 6,854 35,534 241,738
Gain on sales of loans 64,325 - 108,031 -
Gain (loss) on sale of investments (1,014) 6,146 (5,530) 6,146
Gain on sale of real estate, net 7,107 231 16,786 638,426
Other 79,900 61,313 199,329 123,588
--------------------------- ---------------------------
Total non-interest income 159,783 74,544 354,150 1,009,898
Non-interest Expense:
Salaries and benefits 405,085 341,045 1,214,826 1,006,587
Real estate operations - 23,369 - 164,417
Occupancy and equipment 146,898 85,179 444,141 259,174
FDIC premiums and OTS assessments 11,180 10,892 32,880 33,185
Data processing 43,611 39,604 128,405 104,024
Other 279,873 160,344 794,313 536,963
--------------------------- ---------------------------
Total non-interest expense 886,647 660,433 2,614,565 2,104,350
--------------------------- ---------------------------
Income (loss) before income taxes 100,426 (604) 62,905 841,804
Income tax expense (benefit) (141,326) (14,960) (180,846) 254,520
--------------------------- ---------------------------
Net income $ 241,752 $ 14,356 $ 243,751 $ 587,284
=========================== ===========================
Basic earnings per share $ 0.19 $ 0.01 $ 0.19 $ 0.47
Diluted earnings per share 0.19 0.01 0.19 0.46
Dividends declared per common share $ 0.10 $ 0.10 $ 0.30 $ 0.30
4
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 2003 AND MARCH 31, 2002
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
--------------------------------------------------------
2003 2002 2003 2002
--------------------------- ---------------------------
Net income (loss) $ 241,752 $ 14,356 $ 243,751 $ 587,284
Other comprehensive income (loss),
net of tax:
Net change in unrealized gains 1,758 53,625 (2,450) 65,816
Reclassification adjustment 669 (4,179) 3,650 (4,179)
--------------------------------------------------------
Comprehensive income (loss) $ 244,179 $ 63,802 $ 244,951 $ 648,921
============ ============ ============ =============
5
STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED MARCH 31, 2003 AND MARCH 31, 2002
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES March 31, March 31,
2003 2002
----------- -----------
Net income $ 243,751 $ 587,284
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 182,855 138,632
Gain on sale of real estate held for investment - (638,155)
Amortization of ESOP 37,734 34,176
Deferred loan fees 13,619 (111,714)
Loans originated for sale (7,176,050) -
Loans sold 6,072,630 -
Provision for losses on loans 166,665 385,500
Change in:
Accrued interest receivable 35,942 31,673
Other assets (133,248) 1,120
Accrued interest payable (165,270) (76,714)
Current and deferred income tax liability (305,231) 62,042
Other liabilities (92,806) (211,916)
----------- -----------
NET CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES (1,119,409) 201,928
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in certificates of deposit - 272
Proceeds from sale or maturity of available-for-sale investment securities - 489,401
Net (increase) decrease in loans outstanding (1,519,200) 3,325,175
Proceeds from sale of real estate held for investment - 2,744,597
Investment in real estate acquired in settlement of loans 225,935 -
Purchase of office property and equipment (163,817) (155,835)
----------- -----------
NET CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES (1,457,082) 6,403,610
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 10,147,733 4,316,221
Repayment of advances from the Federal Home Loan Bank (5,000,000) (15,185,149)
Net decrease in advances from borrowers (321,505) (398,960)
Proceeds from stock options exercised 77,220 108,565
Dividends paid (384,935) (383,318)
----------- -----------
NET CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES 4,518,513 (11,542,641)
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS 1,942,022 (4,937,103)
CASH AND CASH EQUIVALENTS, beginning of period 3,114,682 7,278,551
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 5,056,704 $ 2,341,448
=========== ===========
6
STATEFED FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2003 AND MARCH 31, 2003
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 2003 AND MARCH 31, 2003
1. BASIS OF PRESENTATIONS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information, instructions for Form 10-QSB and Regulation SB 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 (consisting only of normal
recurring 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, 2002.
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 1,272,767 at March 31, 2003 and 1,260,579 at
March 31, 2002. For the nine month periods ending March 31, 2003 and March 31,
2002, weighted-average common shares outstanding totaled 1,268,208 and
1,256,182, 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, 2003 and March 31, 2002, totaled 1,291,339 and
1,285,427, respectively. For the nine month periods ending March 31, 2003 and
March 31, 2002, weighted-average common shares deemed outstanding for the
purpose of computing diluted earnings per share were 1,285,481 and 1,284,188,
respectively.
At March 31, 2003 there were unexercised options for 36,306 shares of
common stock under the terms of the Company's 1993 Stock Option Plan. There were
17,818, 7,744 and 10,744 options with exercise prices of $5.00, $9.50 and $10.00
per share, respectively. There were 12,744 shares exercised during the nine
months ended March 31, 2003. Had the Company accounted for the 1993 Stock Option
Plan in accordance with SFAS No. 123, the effect on net income and net income
per share would not be material.
7
3. REGULATORY CAPITAL REQUIREMENTS
Pursuant to Federal law, the Bank must meet three separate minimum capital
requirements. The Bank's capital ratios and balances at March 31, 2003 were as
follows:
AMOUNT %
--------- ----------
(Dollars in thousands)
Tangible Capital:
Bank's $ 7,424 7.79 %
Requirement 1,430 1.50
--------- --------
Excess $ 5,994 6.29 %
Core Capital:
Bank's $ 7,424 7.79 %
Requirement 3,814 4.00
--------- --------
Excess $ 3,610 3.79 %
Risk-Based Capital:
Bank's $ 7,924 13.08 %
Requirement 4,846 8.00
--------- --------
Excess $ 3,078 5.08 %
The Bank is considered "well-capitalized" under federal regulations.
4. STOCK REPURCHASE PLAN
On April 3, 2002, the Company's Board of Directors authorized management to
repurchase up to 64,344 shares of the Company's common stock over the next
twelve months. Through March 31, 2003, the Company has repurchased 8,000 shares,
leaving 56,344 available for repurchase. During the nine-month period ending
March 31, 2003, there were no shares repurchased.
5. COMMITMENTS
The Company has accepted an offer to sell the real estate held for sale.
The expected closing date is June 2003. No material loss is anticipated.
8
PART I. - ITEM 2
STATEFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The accompanying Consolidated Financial Statements include StateFed Financial
Corporation (the "Company") and its wholly owned subsidiary, State Federal
Savings and Loan Association (the "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, gains or losses from the sale of real estate, provision for loan
loss expense, and by its non-interest expenses, such as employee compensation
and benefits, occupancy expenses, and other expenses.
FORWARD-LOOKING STATEMENTS
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, 2002 and March 31, 2003, totaled
$96.4 million and $100.7 million, respectively. The increase of $4.3 million was
due primarily to increases in cash and amounts due from depository institutions
of $2.0 million, loans held for sale of $1.1 million and net loans receivable of
$1.4 million, funded by an increase in deposits and partially offset by a
reduction in advances from the Federal Home Loan Bank.
9
Cash and amounts due from depository institutions increased from $3.1
million at June 30, 2002 to $5.1 million at March 31, 2003, or an increase of
$2.0 million. The increase was primarily the result of increases in deposits
offset by repayment of Federal Home Loan Bank advances and increases in loans
held for sale and net loans receivable.
Loans held for sale were $1.1 million for the period ended March 31, 2003,
as the Bank began originating and selling servicing released single family fixed
rate loans in the secondary market.
Net loans receivable increased $1.4 million, from $84.8 million at June 30,
2002 to $86.2 million at March 31, 2003. Loan originations totaled $25.9 million
for the nine-month period, including $6.1 million in originations subsequently
sold on the secondary market. Due to high refinancing activity, repayment of
principal totaled $18.4 million for the same period.
Total deposits increased by $10.1 million from $66.9 million at June 30,
2002 to $77.0 million at March 31, 2003. There were increases in certificates of
deposit, money market and demand deposits of $7.8 million, $2.7 million and
$458,000, respectively, offset in part by a decrease in statement and passbook
savings deposits of $800,000. Advances from the Federal Home Loan Bank decreased
by $5 million from June 30, 2002 to a total of $9 million at March 31, 2003.
Total stockholders' equity increased slightly by $25,400 to $14.2 million
at March 31, 2003. The increase was primarily the result of net income of
$243,800 and accounting for employee stock ownership plan awards and options of
$169,000, which was partially offset by dividends declared of $385,000 and
unrealized loss net of tax effect on investment securities of $2,500.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2003
AND MARCH 31, 2002
GENERAL. Net income increased $227,400 from $14,400 for the three months
ended March 31, 2002, to $241,800 for the three months ended March 31, 2003. The
increase in net income resulted primarily from increases in net interest income
of $98,100 and non-interest income of $85,200. Non-interest expense increased by
$226,200, but was more than offset by a reduction in the provision for loan
losses of $143,900 and a $126,400 increase in an income tax benefit.
NET INTEREST INCOME. Net interest income increased $98,100 to $890,900 for
the three months ended March 31, 2003 from $792,800 for the three months ended
March 31, 2002.
INTEREST INCOME. Interest income decreased $31,800 to $1.7 million for the
three months ended March 31, 2003. This decrease was primarily the result of
decreases in interest earned on the loan portfolio of $18,000 and investments
and other interest income of $13,800.
The decrease in interest earned on loans receivable resulted primarily from
a decrease in the average yield earned and was partially offset by an increase
in the average loans receivable balance. Investment and other interest income
decreased primarily from decreases in the average yield earned on such balances.
10
INTEREST EXPENSE. Interest expense decreased $129,900 from $891,100 for the
three months ended March 31, 2002 to $761,200 for the three months ended March
31, 2003. This decrease resulted primarily from decreases in interest expense on
deposits of $52,800, and decreases of interest expense on borrowings of $77,000.
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, partially offset by an increase in the
average deposit balance.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased $143,900
from $207,500 for the three months ended March 31, 2002 to $63,600 for the three
months ended March 31, 2003. The decrease was due to a stabilization of problem
assets. The charge to the provision during the quarter ended March 31, 2003 was
primarily related to one loan. 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 probable 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 $85,200 from $74,500 in
the three months ended March 31, 2002 to $159,800 in the three months ended
March 31, 2003. The increase was primarily due to the gain on the sales of loans
of $64,300, as the Bank began originating and selling loans in the secondary
market during the quarter ended December 31, 2002. There were also increases in
the net gain on sale of real estate of $6,900, income from real estate
operations of $2,600 and other non-interest income of $18,600, which consists
primarily of fee income. There was a loss of $1,000 on the sale of investments
for the quarter ended March 31, 2003 versus a gain of $6,100 during the quarter
ended March 31, 2002.
NON-INTEREST EXPENSE. Non-interest expense increased from $660,400 in the
three months ended March 31, 2002 to $886,600 in the three months ended March
31, 2003. This increase of $226,200 was primarily the result of increases in
other non-interest expense of $119,500, salaries and benefits expense of
$64,000, occupancy and equipment expense of $61,700, and data processing expense
of $4,000. The increases in other non-interest expense were primarily due to
increases in audit and consulting expense and marketing and advertising expense,
related to improving efficiency, increase market awareness and expansion of
products and services. Salaries and benefits expense was primarily related to
commissions paid to loan originators, as the Bank began originating and selling
mortgages in the secondary market during the quarter ended December 31, 2002.
The increase in occupancy and equipment expense was due to the increased costs
associated with the Clive office and the expansion of the mortgage lending
department. The increases were partially offset by a $23,400 decrease in real
estate operations expense related to the two apartment complexes sold by the
Company during fiscal 2002.
INCOME TAX EXPENSE. Income tax (benefit) was ($141,300) for the three
months ended March 31, 2003, an increase of $126,400 when compared to the three
months ended March 31, 2002, due to tax refunds received from prior years'
amended tax returns and the settlement of tax contingencies.
11
COMPARISON OF THE NINE MONTHS ENDED MARCH 31, 2003 AND MARCH 31, 2002
GENERAL. Net income was $243,800 for the nine months ended March 31, 2003
as compared to $587,300 for the nine months ended March 31, 2002.
NET INTEREST INCOME. Net interest income increased $168,200 from $2.3
million for the nine months ended March 31, 2002 to $2.5 million for the nine
months ended March 31, 2003. There were reductions in total interest income and
total interest expense. The $511,600 reduction in total interest income was
comprised of decreases in interest on loans of $398,000 and investment and other
interest income of $113,600. There was also a decrease in interest paid on
deposits of $376,200, in addition to a reduction in interest paid on borrowings
of $303,600, resulting in a $679,800 decrease in total interest expense.
INTEREST INCOME. Interest income decreased $511,600 from $5.5 million for
the nine months ended March 31, 2002 to $5.0 million for the nine months ended
March 31, 2003. The change was primarily due to decreases in interest earned on
the loan portfolio of $398,000 and interest earned on investments and other of
$113,600. The interest on loans decreased primarily as a result of a decrease in
the yield earned on the loan portfolio. The decrease in income on investments
and other was primarily due to the decrease in the average yield earned on the
balance of interest-bearing deposits held at other depository institutions and
investments held for sale.
INTEREST EXPENSE. Interest expense decreased $679,800 from $3.2 million in
the nine months ended March 31, 2002 to $2.5 million in the nine months ended
March 31, 2003. This decrease was primarily due to decreases in interest paid on
Federal Home Loan Bank advances of $303,600 and interest paid on deposits of
$376,200. The decrease in interest paid on borrowings was due to a decrease in
the average balance of Federal Home Loan Bank advances. The decrease in interest
paid on deposits was the result of a decrease in the average rate paid on the
balance of deposits.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the nine
months ended March 31, 2003 as compared to the nine months ended March 31, 2002,
were $166,700 and $385,500, respectively. The decrease of $218,800 was based on
management's analysis of the allowance for loan losses during the nine months
ended March 31, 2003. The charge to provision for loan losses was related
primarily to two significant participation loans secured by five properties and
a loan secured by commercial real estate. Three of the five properties that
secured the two participation loans have been sold. The two other properties are
being marketed by the servicer. 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 probable 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 $655,700 from $1,009,900
for the nine months ended March 31, 2002 to $354,200 for the nine months ended
March 31, 2003. The decrease was primarily due to a reduction in net gain on the
sale of real estate held for investment
12
of $621,600, which mostly consisted of a $630,600 net gain on the sale of the
Company's two apartment complexes, recorded during the nine month period ended
March 31, 2002. There was also a decrease in real estate operations income of
$206,200, which had been generated by the two apartment complexes in previous
periods. Gain on the sale of loans was $108,000, as the Bank began originating
and selling loans in the secondary market during the nine month period ended
March 31, 2003. Other non-interest income increased $75,700, and was primarily
due to increases in fee income for the period ended March 31, 2003, as compared
to the same period ended March 31, 2002. There was a $5,500 loss on the sale of
investments during the nine month period ended March 31, 2003, as compared to a
gain on the sale of investments of $6,100 during the nine month period ended
March 31, 2002.
NON-INTEREST EXPENSE. Non-interest expense increased from $2.1 million for
the nine months ended March 31, 2002 to $2.6 million for the nine months ended
March 31, 2003. This increase of $510,200 was primarily the result of increases
in other non-interest expense of $257,400, salaries and benefits of $208,200,
occupancy and equipment expense of $184,900, and data processing expense of
$24,400, which were partially offset by a decrease in real estate operations
expense of $164,400. Other non-interest expense increases were primarily due to
increases in audit and consulting expense and marketing and advertising expense,
related to improving efficiency, increase market awareness and expansion of
products and services. The increase in salaries and benefits was primarily
related to commissions paid to loan originators, as the Bank began originating
and selling mortgages in the secondary market. The increase in occupancy and
equipment expense was due to the increased costs associated with the Clive
office and the expansion of the mortgage lending department. Data processing
expense increased primarily due to the addition of telephone banking services
for our customers, provided by our data processor. The reduction in real estate
operations expense was related to the two apartment complexes that the Company
sold during the nine month period ended March 2002.
INCOME TAX EXPENSE. Income tax (benefit) was ($181,000) for the nine months
ended March 31, 2003 compared to an income tax expense of $254,500 for the nine
months ended March 31, 2002. This expense reduction was due to a decrease in net
income, tax refunds received from prior periods' amended tax returns and
settlement of tax contingencies.
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, 2003 was 6.8%. 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
13
adjusted assets, and a tangible capital ratio expressed as a percent of total
adjusted assets. As of March 31, 2003, the Bank exceeded regulatory capital
requirements.
At March 31, 2003, the Bank's tangible equity capital was $7.4 million, or
7.79%, of tangible assets, which exceeded the 1.5% requirement by $6.0 million.
In addition, at March 31, 2003, the Bank had core capital of $7.4 million, or
7.79%, of adjusted total assets, which exceeded the 4% requirement by $3.6
million. The Bank had total risk-based capital of $7.9 million at March 31,
2003, or 13.08%, of risk-weighted assets which exceeded the 8.0% risk-based
capital requirements by $3.1 million. The Bank is considered "well-capitalized"
under federal regulations.
PART I. - ITEM 3
CONTROLS AND PROCEDURES
With the participation and under the supervision of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, and
within 90 days of the filing date of this quarterly report, the Company's Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the design and operation of the Company's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14(c) and 15(d)-14(c)) and, based on their
evaluation, have concluded that the disclosure controls and procedures are
effective. There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective action with regard to
significant deficiencies and material weaknesses.
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
None
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, 2003:
1. February 18, 2003, a current report on Form 8-K was filed
reflecting quarterly financial information.
2. March 12, 2003, 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 14, 2003 /s/ Randall C. Bray
------------------------- ------------------------------------
Randall C. Bray
Chairman and President
Date: May 14, 2003 /s/ Andra K. Black
------------------------- ------------------------------------
Andra K. Black
Executive Vice President and CFO
16
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Randall C. Bray, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of StateFed
Financial Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly represent in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
identified in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosures controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared.
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Sate"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
By: /s/ Randall C. Bray
--------------------
Name: Randall C. Bray
Chairman of the Board and President
May 14, 2003
17
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Andra K. Black, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of StateFed
Financial Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly represent in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
identified in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosures controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared.
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Sate"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
c. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
d. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
By: /s/ Andra K. Black
---------------------------
Name: Andra K. Black
Chief Financial Officer and Executive Vice President
May 14, 2003
18