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, 1999
[ ] 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 Number)
of incorporation or organization)
519 Sixth Avenue, Des Moines, Iowa 50309
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(Address of principal executive offices)
(515) 282-0236
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(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
State the number of Shares outstanding of each of the issuer's classes
of common equity, as the latest date:
As of November 11, 1999, there were 1,509,100 shares of the
Registrant's common stock issued and outstanding.
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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, 1999 and June 30, 1999 3
Consolidated Statements of Income for
the Three Months Ending September 30, 1999
and September 30, 1998. 4
Consolidated Statements of Comprehensive Income for
the Three Months Ending September 30, 1999
and September 30, 1998 5
Consolidated Statement of Stockholders'
Equity for the Three Months Ending September 30, 1999 6
Consolidated Statements of Cash Flows
for the Three Months Ending September 30, 1999 and
September 30, 1998 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 17
Signatures 19
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STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1999 and June 30, 1999
ASSETS (Unaudited)
September 30, 1999 June 30, 1999
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Cash and amounts due from depository
institutions $ 4,162,953 $ 8,481,216
Investments in certificates of deposit 685,000 884,300
Investment securities available for sale 2,920,366 1,944,374
Loans receivable, net 75,230,026 72,330,884
Real estate acquired for development 156,608 236,602
Real estate held for investment, net 2,808,506 2,645,245
Property acquired in settlement of loans 1,123,017 1,133,517
Office property and equipment, net 1,169,930 1,188,247
Federal Home Loan Bank stock, at cost 1,147,600 1,147,600
Accrued interest receivable 550,618 536,028
Other assets 272,881 295,695
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TOTAL ASSETS $90,227,505 $90,823,708
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $54,378,141 $54,713,072
Advances from Federal Home Loan Bank 18,854,270 18,877,047
Advances from borrowers for taxes and insurance 47,091 337,371
Accrued interest payable 184,760 133,773
Dividends payable 113,183 114,300
Income taxes: current and deferred 420,883 324,643
Other liabilities 162,259 200,123
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TOTAL LIABILITIES $74,160,587 $74,700,329
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Stockholders' equity:
Common stock $8,905 $ 8,905
Additional paid-in capital 8,536,529 8,526,563
Unearned compensation - restricted stock awards (254,551) (271,290)
Accumulated other comprehensive income-
unrealized gains (losses) on investments,
net of deferred taxes (89,853) 3,803
Treasury stock (2,356,890) (2,234,986)
Retained earnings - substantially restricted 10,222,778 10,090,384
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TOTAL STOCKHOLDERS' EQUITY $16,066,918 $16,123,379
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $90,227,505 $90,823,708
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STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ending September 30, 1999 and 1998
1999 1998
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Interest Income:
Loans $ 1,507,082 $ 1,484,172
Investments 69,812 92,860
Other 86,586 129,051
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Total interest income 1,663,480 1,706,083
Interest Expense:
Deposits 689,939 744,531
Borrowings 274,861 293,954
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Total interest expense 964,800 1,038,485
Net interest income 698,680 667,598
Provision for loan losses 9,000 9,000
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Net interest income after
provision for loan losses 689,680 658,598
Non-interest income:
Real estate operations 136,084 137,909
Other 26,794 23,883
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Total non-interest income 162,878 161,792
Non-interest expense:
Salaries and benefits 241,084 229,289
Real estate operations 79,239 94,945
Occupancy and equipment 38,327 36,695
FDIC premiums and OTS assessments 15,196 15,265
Data processing 20,048 28,701
Other 92,224 88,269
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Total non-interest expense 486,118 493,164
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Income before income taxes 366,440 327,226
Income tax expense 121,240 102,240
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Net income $ 245,200 $ 224,986
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Basic earnings per share $0.17 $0.15
Diluted earnings per share $0.16 $0.15
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STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ending September 30, 1999 and 1998
(Unaudited)
1999 1998
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Net Income $ 245,200 $ 224,986
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on
securities arising during period (93,656) 14,594
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Comprehensive income $ 151,544 $ 239,580
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STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ending September 30, 1999
(Unaudited)
Balance - June 30, 1999 $16,123,379
Additional paid in capital 9,966
Other comprehensive income--unrealized loss on
investment securities, net of deferred income taxes (93,656)
Dividends declared (112,806)
Repurchase of 13,000 shares treasury stock (148,563)
Stock options exercised (3,096 shares) 26,659
ESOP common stock released for allocation 16,739
Net income 245,200
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Balance - September 30, 1999 $16,066,918
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STATEFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ending September 30, 1999 and September 30, 1998
(Unaudited)
September 30, September 30,
1999 1998
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Cash Flows From Operating Activities
Net Income $ 245,200 $ 224,985
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 41,809 39,168
Amortization of ESOP 26,706 45,578
Deferred loan fees 2,046 (13,410)
Provision for losses on loans 9,000 9,000
Change in:
Accrued interest receivable (14,590) 27,786
Other Assets 22,814 (75,131)
Accrued interest payable 50,987 58,468
Current income tax liability 96,240 102,240
Other Liabilities (37,863) (116,732)
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NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 442,348 $ 301,952
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in certificates of deposit $ --- $ ---
Maturity of investments in certificates of deposit 198,430 526
Purchase of available-for-sale
investment securities (1,068,779) ---
Proceeds from sale or maturity of
available-for-sale investment securities --- 76,574
(Purchase) redemption of FHLB Stock --- (198,600)
Net (increase) decrease in loans outstanding (2,910,188) 311,094
Investment in real estate held for investment (180,960) ---
Investment in real estate held for development 79,994 (4,725)
Investment in real estate acquired in settlement
of loans 10,500 (697)
Purchase of office property and equipment (5,792) (7,440)
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NET CASH FLOWS PROVIDED BY INVESTING
ACTIVITIES $(3,876,795) $ 176,732
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (334,931) $ (160,895)
Repayment of advances from the Federal
Home Loan Bank (22,776) (21,481)
Net decrease in advances from borrowers (290,280) (291,937)
Dividends paid (113,925) (78,295)
Purchase of treasury stock (121,904) (209,063)
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NET CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES $ (883,816) $ (761,670)
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CHANGE IN CASH AND CASH EQUIVALENTS $(4,318,263) $ (282,985)
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CASH AND CASH EQUIVALENTS, beginning of period $ 8,481,216 $ 9,445,404
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CASH AND CASH EQUIVALENTS, end of period $ 4,162,953 $ 9,162,418
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STATEFED FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ending
September 30, 1999 and September 30, 1998
(Unaudited)
1. BASIS OF PRESENTATIONS
These consolidated financial statements are unaudited (with the exception
of the Consolidated Statement of Financial Condition for June 30, 1999). 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,
1999.
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
1,459,591 at September 30, 1999 and 1,493,089 at September 30, 1998.
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 1,497,935 at
September 30, 1999 and 1,541,737 at September 30, 1998.
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, 1999 are as follows:
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Amount %
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(Dollars in thousands)
Tangible Capital:
Association's $7,446 8.86%
Requirement 1,260 1.50
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Excess $6,186 7.36%
Core Capital:
Association's $7,446 8.86%
Requirement 2,520 3.00
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Excess $4,926 5.86%
Risk-Based Capital:
Association's $7,696 14.19%
Requirement 4,339 8.00
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Excess $3,357 6.19%
Tier 1 Risk-Based Capital:
Association's $7,446 13.73%
Requirement 3,360 4.00
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Excess $4,086 9.73%
4. STOCK OPTION PLAN
At June 30, 1999 there were unexercised options for 69,902 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 3,096
options exercised during the three months ended September 30, 1999.
5. STOCK REPURCHASE PLAN
On May 24, 1999, the Company's Board of Directors authorized management to
repurchase up to 77,450 shares of the Company's common stock over the next
twelve months. During the three-month period ending September 30, 1999, 13,000
shares were repurchased. As of November 11, 1999, 45,500 shares have been
repurchased since May 24, 1999, at a cost of $518,250.
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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.
Financial Condition
The Company's total assets decreased $600,000, from $90.8 million at June
30, 1999 to $90.2 million at September 30, 1999. This decrease was due primarily
to a decrease in cash and amounts due
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from depository institutions of $4.3 million and a decrease in investments in
certificates of $199,300, partially offset by an increase in net loans
receivable of $2.9 million, an increase in investment securities
available-for-sale of $976,000 and an increase in real estate held for
investment of $163,300.
Cash and amounts due from depository institutions decreased $4.3 million,
from $8.5 million at June 30, 1999 to $4.2 million at September 30, 1999. The
decrease in cash and amounts due from depository institutions occurred primarily
as a result of an increase in net loan receivable of $2.9 million, an increase
in investment securities available-for-sale of $976,000 and a decrease in
deposits of $335,000.
Net loans receivable increased $2.9 million, from $72.3 million at June 30,
1999 to $75.2 million at September 30, 1999. Repayment of principal totaled $2.7
million for the three-month period, while loan origination's totaled $3.5
million and purchased loans totaled $2.1 million for the same period.
Total deposits decreased by $335,000 from $54.7 million at June 30, 1999 to
$54.4 million at September 30, 1999. Passbook accounts decreased $420,000 and
certificates accounts decreased $764,000, while money market fund accounts
increased $819,000 and NOW accounts increased $30,000.
Total stockholders' equity decreased $56,500 from $16.12 million at June
30, 1999 to $16.07 million September 30, 1999. The decrease was primarily the
result of the cost to repurchase the Company's stock of $148,600, dividends
declared of $112,800, and a decrease in unrealized gain (loss) on investment
securities of $93,700, partially offset by the result of net earnings of
$245,200 and accounting for employee stock awards and options of $53,400.
Comparison of Operating Results for the Three Month Periods Ending September 30,
1999 and September 30, 1998
General. Net income increased $20,200 to $245,200 for the three months
ended September 30, 1999 from $225,000 for the three months ended September 30,
1998. The increase in net income was primarily due to an increase in net
interest income of $31,100 and a decrease in non-interest expense of $7,000,
partially offset by an increase in income tax expense of $19,000.
Net Interest Income. Net interest income increased $31,100 from $667,600
for the three months ended September 30, 1998 to $698,700 for the three months
ended September 30, 1999. This increase was primarily the result of a decrease
in interest expense of $73,700, offset by an increase in interest income of
$42,600.
Interest Income. Interest income decreased $42,600, from $1.71 million for
the three months ended September 30, 1998 to $1.66 million for the three months
ended September 30, 1999, as a result of a decrease in other interest earned of
$42,500 as well as a decrease in interest on investments of $23,000, partially
offset by an increase in interest earned on the loan portfolio of $22,900. Other
interest income decreased primarily because of a decrease in the balance of
other interest earning assets.
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Interest Expense. Interest expense decreased $73,700 from $1.04 million in
the three months ended September 30, 1998 to $964,800 in the three months ended
September 30, 1999. This decrease resulted primarily from a decrease in interest
paid on deposits of $54,600 and a decrease in interest paid on borrowings of
$19,100. The average interest rate on deposits and borrowings decreased slightly
from the prior period.
Provision for Loan Losses. The provision for loan losses remained unchanged
in the three months ended September 30, 1999 as compared to the three months
ended September 30, 1998. The provision during the three months ended September
30, 1999 was based on management's analysis of the allowance for loan losses.
The Company will continue to monitor its allowance for loan losses and make
future additions to the allowance through the provision for loan losses as
economic conditions dictate. Although the Company maintains its allowance for
loan losses at a level which it considers to be adequate to provide for
potential losses, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required for future periods.
Non-interest Income. Non-interest income increased $1,100 from $161,800 in
the three months ended September 30, 1998 to $162,900 in the three months ended
September 30, 1999. The increase was the result of an increase $2,900 in other
income, offset by a decrease in income from real estate operations of $1,800.
Non-interest Expense. Non-interest expense decreased from $493,200 in the
three months ended September 30, 1998 to $486,100 in the three months ended
September 30, 1999. This decrease of $7,100 was primarily the result of a
decrease of $15,700 in real estate operation expense and a decrease of $8,700 in
data processing expense, partially offset by an increase of $11,800 for salaries
and benefits and an increase of $4,000 in other non-interest expense.
Income Tax Expense. Income tax expense was $121,200 for the three months
ended September 30, 1999 compared to $102,200 for the three months ended
September 30, 1998, an increase of $19,000, primarily due to the increase in
taxable income.
Liquidity and Capital Resources. The Company's primary sources of funds are
deposits, principal and interest payments on loans, FHLB Des Moines advances,
and funds provided by operations. While scheduled loan repayments and maturity
of short-term investments are a relatively predictable source of funds; deposit
flows are greatly influenced by general interest rates, economic conditions, and
competition. Current Office of Thrift Supervision regulations require the
company to maintain cash and eligible investments in an amount equal to at least
4% of customer accounts and short-term borrowings to assure its ability to meet
demands for withdrawals and repayment of short-term borrowings. As of September
30, 1999, the Association's liquidity ratio was 13.52%, which exceeded the
minimum regulatory requirement on such date.
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.
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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, 1999,
the Association exceeded all fully phased-in regulatory capital requirements.
At September 30, 1999, the Association's tangible equity capital was $7.4
million, or 8.86%, of tangible assets, which is in excess of the 1.5%
requirement by $6.2 million. In addition, at September 30, 1999, the Association
had core capital of $7.4 million, or 8.86%, of adjusted total assets, which
exceeds the 3% requirement by $4.9 million. The Association had total risk-based
capital of $7.7 million at September 30, 1999, or 14.19%, of risk-weighted
assets which exceeds the 8.0% risk-based capital requirements by $3.4 million.
The Association had tier I risk-based capital of $7.4 million, or 13.73%, of
risk-weighted assets which exceeds the 4.0% capital requirement by $4.1 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, 1999, 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.
Impact of Year 2000
General. The year 2000 ("Y2K") issue confronting the Company and its
suppliers, customers, customers' suppliers and competitors centers on the
inability of computer systems to recognize the year 2000. Many existing computer
programs and systems originally were programmed with six digit dates that
provided only two digits to identify the calendar year in the date field. With
the impending new millennium, these programs and computers will recognize "00"
as the year 1900 rather than the year 2000.
Financial institution regulators recently have increased their focus upon
Y2K compliance issues and have issued guidance concerning the responsibilities
of senior management and directors. The Federal Financial Institutions
Examination Council ("FFIEC") has issued several interagency statements on Y2K
Project Management Awareness. These statements require financial institutions
to, among other things, examine the Y2K implications of their reliance on
vendors and with respect to data exchange and the
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potential impact of the Y2K issue on their customers, supplies and borrowers.
These statements also require each federally regulated financial institution to
survey its exposure, measure risk and prepare a plan to address the Y2K issue.
In addition, the federal banking regulators have issued safety and soundness
guidelines to be followed by insured depository institutions, such as the
Company, to assure resolution of any Y2K problems. The federal banking agencies
have asserted that Y2K testing and certification is a key safety and soundness
issue in conjunction with regulatory examinations and, thus, that an
institution's failure to address appropriately the Y2K issue could result in
supervisory action, including the reduction of the institution's supervisory
ratings, the denial of applications for approval of mergers or acquisitions, or
the imposition of civil money penalties.
Risk. Like most financial institutions service providers, the Company and
its operations may be significantly affected by the Y2K issue due to its
dependence on technology and date-sensitive data. Computer software and hardware
and other equipment, both within and outside the Company's direct control and
third parties with whom the Company electronically or operationally interfaces
(including without limitation its customers and third party vendors) are likely
to be affected. If computer systems are not modified in order to be able to
identify the year 2000, many computer applications could fail or create
erroneous results. As a result, many calculations which rely on date field
information, such as interest, payment or due dates and other operating
functions, could generate results which are significantly misstated, and the
Company could experience an inability to process transactions, prepare
statements or engage in similar normal business activities. Likewise, under
certain circumstances, a failure to adequately address the Y2K issue could
adversely effect the viability of the Company's suppliers and creditors and the
creditworthiness of its borrowers. Thus, if not adequately addressed, the Y2K
issue could result in a significant adverse impact on the Company's operations
and, in turn, its financial condition and results of operations.
State of Readiness. During November 1997, the Company formulated its plan
to address the Y2K issue. Since that time, the Company has taken the following
steps:
o Established senior management advisory and review responsibilities;
o Completed a Company-wide inventory of applications and system
software;
o Completed renovation and testing of the Company's mission-critical
systems;
o Built an internal tracking database for application and vendor
software;
o Developed compliance plans and schedules for all lines of business;
o Monitored vendor compliance verification;
o Provided awareness and education activities for employees through
existing internal communication channels;
o Continued a process to respond to customer inquires as well as help
educate customers on the Y2K issue.
o Completed a detailed contingency plan in the event of interruptions of
service from our outside vendors and service providers.
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The following paragraphs summarize the phases of the Company's Y2K plan:
Awareness Phase. The Company formally established a Y2K plan headed by
a senior manager, and a project team was assembled for management of the
Y2K project. The project team created a plan of action that includes
milestones, budget estimates, strategies, and methodologies to track and
report the status of the project. Members of the project team also attended
conferences and information sharing sessions to gain more insight into the
Y2K issue and potential strategies for addressing it. This phase is
complete.
Assessment Phase. The Company's strategies were further developed with
respect to how the objectives of the Y2K plan would be achieved, and aY2K
business risk assessment was made to quantify the extent of the Company's
Y2K exposure. A corporate inventory (which is periodically updated as new
technology is acquired and as systems progress through subsequent phases)
was developed to identify and monitor Y2K readiness for information systems
(hardware, software, utilities and vendors) as well as environmental
systems (security systems, facilities, etc.). Systems were prioritized
based on business impact and available alternatives. Mission critical
systems supplied by vendors were researched to determine Y2K readiness. If
Y2K-ready versions were not available, the Company began identifying
functional replacements, which were either upgradable or currently
Y2K-ready, and a formal plan was developed to repair, upgrade or replace
all mission critical systems. This phase is complete.
The Company also contacted its most significant borrowers informing
them of the Y2K issue. Because the Company's loan portfolio is primarily
real estate-based and is diversified with regard to individual borrowers
and types of businesses, and the Company's primary market area is not
significantly dependent on one employer or industry, the Company does not
expect any significant or prolonged Y2K-related difficulties that will
affect net earnings or cash flow. As part of the current credit approval
process, all new and renewed loans are evaluated for Y2K risk.
Renovation Phase. The Company's corporate inventory revealed that Y2K
upgrades were available for all vendor supplied mission critical systems,
and all these Y2K-ready versions have been delivered and placed into
production and have entered the validation process.
Validation Phase. The validation phase is designed to test the ability
of hardware and software to accurately process date sensitive data. The
Company has completed the validation testing of each mission critical
system. During the validation testing process, no significant Y2K problems
were identified relating to any modified or upgraded mission-critical
systems.
Implementation Phase. The Company's plan calls for putting Y2K-ready
code into production before having actually completed Y2K validation
testing. Y2K-ready modified or upgraded versions have been installed and
placed into production with respect to all mission-critical systems.
Company Resources Invested. The Company's Y2K project team has
completed the task of ensuring that all systems across the Company are
identified, analyzed for Y2K compliance, corrected, if
- 15-
<PAGE>
necessary, tested, and changes put into service. The Y2K project team
members represent all functional areas of the Company, including branches,
data processing, loan administration, accounting, item processing and
operations, compliance, internal audit, human resources, and marketing. The
team is headed by a vice president who reports directly to a member of the
Company's senior management team. The Company's board of Directors oversees
the Y2K plan and provides guidance and resources to, and received quarterly
updates from, the Y2K project team.
The Company expenses all costs associated with the required system
changes as those costs are incurred, and such costs are being funded
through operating cash flows. The Company does not anticipate incurring
significant additional expense to implement additional corrective actions.
Contingency Plans. During the assessment phase, the Company began to
develop back-up contingency plans for each of its mission-critical systems.
Virtually all of the Company's mission-critical systems are dependent upon
third party vendors or service providers. These vendors have been monitored
and all have provided evidence of their efforts to comply with the Y2K
problem. All that we consider as our primary providers have appeared to
have resolved any Y2K problems that they may have had, with the exception
of some of the public utilities, which have issued statements periodically
through the local press. As a backup plan to the possibility of electrical
service being interrupted, the Company has made arrangements to have an
electrical generator on site large enough to totally power one of the
branch offices. All other venders and suppliers that we consider part of
our mission-critical systems have provided statements of assurance and have
shown due diligence as to their own readiness. The Company has also put
into place provisions to have additional currency available and will have
limitations on withdrawals in the event of aggressive pressures on the
Company's cash on hand.
- 16 -
<PAGE>
STATEFED FINANCIAL CORPORATION
Part II - Other Information
As of September 30, 1999, 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 20, 1999
(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
John F. Golden 1,187,836 22,960 00
Kevin J. Kruse 1,184,216 26,580 00
Ratification of McGowen, Hurst, Clark & Smith, PC as auditors for the Company
for the fiscal year ending June 30, 1999:
For 1,206,136
Against 4,660
Abstain 0
Broker Non-Votes 0
Accordingly, Directors Wood and Winegar were reelected to the Board and the
selection of McGowen, Hurst, Clark & Smith, PC was ratified by the shareholders.
Item 5 - Other Information
None
- 17 -
<PAGE>
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, 1999:
1. On November 12, 1999, a current report on Form 8-K was filed
to announce first quarter earnings.
- 18 -
<PAGE>
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: November 12, 1999 /s/ John F. Golden
------------------- -------------------------------------
John F. Golden
President and Chief Executive Officer
Date: November 12, 1999 /s/ Andra K. Black
------------------- -------------------------------------
Andra K. Black
Executive Vice President and
Chief Financial Officer
- 19 -
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the quarterly
report on Form 10-QSB for the fiscal quarter ended September 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<S> <C>
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