Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission File No. 001-34893

 

 

Standard Financial Corp.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   27-3100949

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

2640 Monroeville Boulevard, Monroeville, Pennsylvania 15146

(Address of principal executive offices)

412-856-0363

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 3,413,173 shares, par value $0.01, at May 1, 2012.

 

 

 


Table of Contents

Standard Financial Corp.

Table of Contents

 

  Part I – Financial Information   

ITEM 1.

 

Financial Statements (Unaudited)

     1-20   
 

Consolidated Statements of Financial Condition as of March 31, 2012 and September 30, 2011

  
 

Consolidated Statements of Income for the Three and Six Months Ended March 31, 2012 and 2011

  
 

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended March  31, 2012 and 2011

  
 

Consolidated Statement of Changes in Stockholder’s Equity for the Six Months Ended March  31, 2012

  
 

Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2012 and 2011

  
 

Notes to Consolidated Statements

  

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     21-27   

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     28   

ITEM 4.

 

Controls and Procedures

     28   
  PART II – Other Information   

ITEM 1.

 

Legal Proceedings

     28   

ITEM 1A.

 

Risk Factors

     28   

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     28   

ITEM 3.

 

Defaults Upon Senior Securities

     29   

ITEM 4.

 

Mine Safety Disclosures

     29   

ITEM 5.

 

Other Information

     29   

ITEM 6.

 

Exhibits

     29   
 

Signatures

     30   


Table of Contents

PART I – FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

Standard Financial Corp.

Consolidated Statements of Financial Condition (Unaudited)

(Dollars in thousands)

 

     March 31,
2012
    September 30,
2011
 

ASSETS

    

Cash on hand and due from banks

   $ 1,688      $ 1,869   

Interest-earning deposits in other institutions

     16,554        10,789   
  

 

 

   

 

 

 

Cash and Cash Equivalents

     18,242        12,658   

Investment securities available for sale, at fair value

     63,210        62,946   

Mortgage-backed securities available for sale, at fair value

     44,501        42,808   

Federal Home Loan Bank stock, at cost

     2,610        2,839   

Loans receivable, net of allowance for loan losses of $4,268 and $4,521

     292,663        285,113   

Loans held for sale

     411        100   

Foreclosed real estate

     790        743   

Office properties and equipment, at cost, less accumulated depreciation

     3,905        3,903   

Bank-owned life insurance

     9,959        9,778   

Goodwill

     8,769        8,769   

Core deposit intangible

     603        687   

Prepaid federal deposit insurance

     710        846   

Accrued interest and other assets

     2,924        3,429   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 449,297      $ 434,619   
  

 

 

   

 

 

 

Liabilities

    

Deposits:

    

Demand, regular and club accounts

   $ 190,397      $ 186,235   

Certificate accounts

     140,504        134,087   
  

 

 

   

 

 

 

Total Deposits

     330,901        320,322   

Federal Home Loan Bank advances

     31,636        28,520   

Securities sold under agreements to repurchase

     3,254        2,897   

Advance deposits by borrowers for taxes and insurance

     457        588   

Securities purchased not settled

     1,710        993   

Accrued interest and other expenses

     2,417        2,583   
  

 

 

   

 

 

 

TOTAL LIABILITIES

     370,375        355,903   
  

 

 

   

 

 

 

Stockholders’ Equity

    

Preferred stock, $0.01 par value per share, 10,000,000 shares authorized, none issued

     —          —     

Common stock, $0.01 par value per share, 40,000,000 shares authorized, 3,413,173 and 3,478,173 shares outstanding, respectively

     34        35   

Additional paid-in-capital

     32,456        33,403   

Retained earnings

     47,791        46,475   

Unearned Employee Stock Ownership Plan (ESOP) shares

     (2,720     (2,797

Accumulated other comprehensive income

     1,361        1,600   
  

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

     78,922        78,716   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 449,297      $ 434,619   
  

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

1


Table of Contents

Standard Financial Corp.

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share data)

 

     Three Months Ended March 31,      Six Months Ended March 31,  
     2012      2011      2012      2011  

Interest and Dividend Income

           

Loans, including fees

   $ 3,717       $ 3,955       $ 7,504       $ 7,938   

Mortgage-backed securities

     276         309         550         588   

Investments:

           

Taxable

     176         217         356         455   

Tax-exempt

     204         160         392         300   

Interest-earning deposits

     1         2         13         13   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Interest and Dividend Income

     4,374         4,643         8,815         9,294   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest Expense

           

Deposits

     913         936         1,842         1,960   

Securities sold under agreements to repurchase

     2         4         4         10   

Federal Home Loan Bank advances

     187         292         381         601   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Interest Expense

     1,102         1,232         2,227         2,571   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Interest Income

     3,272         3,411         6,588         6,723   

Provision for Loan Losses

     300         425         600         775   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Interest Income after Provision for Loan Losses

     2,972         2,986         5,988         5,948   
  

 

 

    

 

 

    

 

 

    

 

 

 

Noninterest Income

           

Service charges

     411         384         807         807   

Earnings on bank-owned life insurance

     99         96         200         194   

Net securities gains

     3         —           55         2   

Net loan sale gains

     31         12         43         61   

Annuity and mutual fund fees

     37         35         64         71   

Other income

     10         8         16         17   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Noninterest Income

     591         535         1,185         1,152   
  

 

 

    

 

 

    

 

 

    

 

 

 

Noninterest Expenses

           

Compensation and employee benefits

     1,452         1,357         2,860         2,728   

Data processing

     116         99         223         190   

Premises and occupancy costs

     282         256         539         482   

Core deposit amortization

     42         42         84         84   

Automatic teller machine expense

     79         74         160         150   

Federal deposit insurance

     73         107         148         218   

Contribution to Standard Charitable Foundation

     —           —           —           1,376   

Other operating expenses

     468         426         916         824   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Noninterest Expenses

     2,512         2,361         4,930         6,052   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before Income Tax Expense

     1,051         1,160         2,243         1,048   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income Tax Expense

           

Federal

     235         275         534         147   

State

     34         57         96         55   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Income Tax Expense

     269         332         630         202   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Income

   $ 782       $ 828       $ 1,613       $ 846   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings Per Share:

           

Basic earnings per common share

   $ 0.25       $ 0.26       $ 0.51       $ 0.26   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash dividends paid per common share

   $ 0.045       $ —         $ 0.090       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding

     3,159,423         3,205,902         3,181,000         3,204,075   
  

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying notes to the consolidated financial statements.

 

2


Table of Contents

Standard Financial Corp.

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In thousands)

 

     Three Months Ended March 31,     Six Months Ended March 31,  
     2012     2011     2012     2011  

Net Income

   $ 782      $ 828      $ 1,613      $ 846   

Other comprehensive income (loss):

        

Comprehensive gain (loss) on securities available for sale

     34        119        (305     (1,674

Tax effect

     (12     (40     103        569   

Reclassification adjustment for gains realized in income

     (3     0        (55     (2

Tax effect

     1        0        18        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

     20        79        (239     (1,106
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Comprehensive Income (Loss)

   $ 802      $ 907      $ 1,374      $ (260
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

3


Table of Contents

Standard Financial Corp.

Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

(Dollars in thousands)

 

     Common
Stock
    Additional
Paid-In
Capital
    Retained
Earnings
    Unearned
ESOP
Shares
    Accumulated
Other
Comprehensive
Income (Loss)
    Total
Stockholders’
Equity
 

Balance, September 30, 2011

   $ 35      $ 33,403      $ 46,475      $ (2,797   $ 1,600      $ 78,716   

Net income

     —          —          1,613        —          —          1,613   

Other comprehensive loss

     —          —          —          —          (239     (239

Stock repurchases (65,000 shares)

     (1     (980     —          —          —          (981

Cash dividends ($.09 per share)

     —          —          (297     —          —          (297

Compensation expense on ESOP

     —          33        —          77        —          110   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2012

   $ 34      $ 32,456      $ 47,791      $ (2,720   $ 1,361      $ 78,922   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

4


Table of Contents

Standard Financial Corp.

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

     Six Months Ended March 31,  
     2012     2011  

Cash Flows from Operating Activities

    

Net income

   $ 1,613      $ 846   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     211        193   

Provision for loan losses

     600        775   

Amortization of core deposit intangible

     84        84   

Net amortization of premium/discount on securities

     156        186   

Net gain on securities

     (55     (2

Origination of loans held for sale

     (2,008     (2,519

Proceeds from sale of loans held for sale

     1,740        3,041   

Gain on sale of loans held for sale

     (43     (61

Compensation expense on ESOP

     110        107   

Stock contribution to Charitable Foundation

     —          1,176   

Deferred income taxes

     200        (623

Decrease in accrued interest and other assets

     368        190   

Decrease in prepaid Federal deposit insurance

     136        202   

Earnings on bank-owned life insurance

     (200     (194

Decrease in accrued interest payable

     (3     (20

Decrease in other accrued expenses

     (259     —     

Increase in accrued income taxes payable

     156        525   

Other, net

     53        45   
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     2,859        3,951   
  

 

 

   

 

 

 

Cash Flows from Investing Activities

    

Net increase in loans

     (8,770     (6,505

Purchases of investment securities

     (17,458     (19,896

Purchases of mortgage-backed securities

     (7,514     (25,973

Proceeds from maturities/principal repayments/calls of:

    

Investment securities

     11,662        16,816   

Mortgage-backed securities

     5,496        4,334   

Proceeds from sales of investment securities

     6,110        504   

Redemption of Federal Home Loan Bank stock

     277        309   

Purchases of Federal Home Loan Bank stock

     (48     —     

Proceeds from sales of foreclosed real estate

     540        259   

Net purchases of office properties and equipment

     (213     (375
  

 

 

   

 

 

 

Net Cash Used in Investing Activities

     (9,918     (30,527
  

 

 

   

 

 

 

Cash Flows from Financing Activities

    

Net increase (decrease) in demand, regular and club accounts

     4,162        (190

Net increase (decrease) in certificate accounts

     6,417        (1,371

Net increase in securities sold under agreements to repurchase

     357        1,840   

Stock proceeds less conversion expenses

     —          457   

Purchase of ESOP shares

     —          (1,168

Repayments of Federal Home Loan Bank advances

     (2,886     (2,223

Proceeds from Federal Home Loan Bank advances

     6,002        2,413   

Net (decrease) increase in advance deposits by borrowers for taxes and insurance

     (131     60   

Dividends paid

     (297     —     

Stock repurchases

     (981     —     
  

 

 

   

 

 

 

Net Cash Provided (Used) by Financing Activities

     12,643        (182
  

 

 

   

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

     5,584        (26,758

Cash and Cash Equivalents - Beginning

     12,658        38,988   
  

 

 

   

 

 

 

Cash and Cash Equivalents - Ending

   $ 18,242      $ 12,230   
  

 

 

   

 

 

 

Supplementary Cash Flows Information

    

Interest paid

   $ 2,230      $ 2,591   
  

 

 

   

 

 

 

Income taxes paid

   $ 274      $ 300   
  

 

 

   

 

 

 

Supplementary Schedule of Noncash Investing and Financing Activities

    

Foreclosed real estate acquired in settlement of loans

   $ 620      $ 130   
  

 

 

   

 

 

 

Issuance of common stock from stock subscription payable

   $ —        $ 28,759   
  

 

 

   

 

 

 

Issuance of common stock from customer deposit accounts

   $ —        $ 1,201   
  

 

 

   

 

 

 

Issuance of common stock for ESOP plan

   $ —        $ 1,782   
  

 

 

   

 

 

 

Securities purchased not settled

   $ 1,710      $ —     
  

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

5


Table of Contents

STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(1) Consolidation

The accompanying consolidated financial statements include the accounts of Standard Financial Corp. (the “Company”) and its direct and indirect wholly owned subsidiaries, Standard Bank, PaSB (the “Bank”), and Westmoreland Investment Company. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

(2) Basis of Presentation

The accompanying consolidated financial statements were prepared in accordance with instructions to Form 10-Q, and therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles in the United States. All adjustments (consisting of normal recurring adjustments), which, in the opinion of management are necessary for a fair presentation of the financial statements and to make the financial statements not misleading have been included. These financial statements should be read in conjunction with the audited financial statements and the accompanying notes thereto included in the Company’s Annual Report for the fiscal year ended September 30, 2011. The results for the three and six month periods ended March 31, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2012 or any future interim period. Certain amounts in the 2011 financial statements have been reclassified to conform to the 2012 presentation format. These reclassifications had no effect on stockholders’ equity or net income.

 

(3) Recent Accounting Pronouncements

In December 2011, the FASB issued ASU 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate-a Scope Clarification. The amendments in this Update affect entities that cease to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt. Under the amendments in this Update, when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. That is, even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. The amendments in this Update should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods should not be adjusted even if the reporting entity has continuing involvement with previously derecognized in substance real estate entities. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2013, and interim and annual periods thereafter. Early adoption is permitted. This ASU is not expected to have a significant impact on the Company’s financial statements.

In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this Update affect all entities that have financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The requirements amend the disclosure requirements on offsetting in Section 210-20-50. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this Update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. This ASU is not expected to have a significant impact on the Company’s financial statements.

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. In order to defer only those changes in Update 2011-05 that relate to the presentation of reclassification adjustments, the paragraphs in this Update supersede certain pending paragraphs in Update 2011-05. Entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Update 2011-05. All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. Nonpublic entities should begin applying these requirements for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. This ASU is not expected to have a significant impact on the Company’s financial statements.

 

6


Table of Contents

STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(4) Investment Securities

Investment securities available for sale at March 31, 2012 and at September 30, 2011 were as follows (dollars in thousands):

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

March 31, 2012:

          

U.S. government and agency obligations due:

          

Beyond 1 year but within 5 years

   $ 19,993       $ 63       $ (8   $ 20,048   

Beyond 5 years but within 10 years

     4,000         24         —          4,024   

Corporate bonds due:

          

Within 1 year

     252         7         —          259   

Beyond 1 year but within 5 years

     7,002         27         (360     6,669   

Municipal obligations due:

          

Within 1 year

     930         5         —          935   

Beyond 1 year but within 5 years

     2,014         107         —          2,121   

Beyond 5 years but within 10 years

     19,800         935         (5     20,730   

Beyond 10 years

     6,767         312         —          7,079   

Equity securities:

          

CRA Investment Fund

     750         17         —          767   

Freddie Mac common stock

     10         —           —          10   

Common stocks

     485         91         (8     568   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 62,003       $ 1,588       $ (381   $ 63,210   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

September 30, 2011:

          

U.S. government and agency obligations due:

          

Beyond 1 year but within 5 years

   $ 21,493       $ 151       $ —        $ 21,644   

Beyond 5 years but within 10 years

     3,000         10         —          3,010   

Corporate bonds due:

          

Beyond 1 year but within 5 years

     7,255         9         (198     7,066   

Municipal obligations due:

          

Within 1 year

     4,172         15         —          4,187   

Beyond 1 year but within 5 years

     1,270         5         —          1,275   

Beyond 5 years but within 10 years

     14,255         716         —          14,971   

Beyond 10 years

     8,898         649         —          9,547   

Equity securities:

          

CRA Investment Fund

     750         21         —          771   

Freddie Mac common stock

     10         —           (2     8   

Common stocks

     458         36         (27     467   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 61,561       $ 1,612       $ (227   $ 62,946   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

7


Table of Contents

STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(4) Investment Securities (Continued)

 

During the six months ended March 31, 2012, gains on sales of investment securities were $55,000 and proceeds from such sales were $6.1 million. During the six months ended March 31, 2011, gains on sales of investment securities were $2,000 and proceeds from such sales were $504,000.

The following table shows the fair value and gross unrealized losses on investment securities and the length of time that the securities have been in a continuous unrealized loss position at March 31, 2012 and at September 30, 2011 (dollars in thousands):

 

00000000 00000000 00000000 00000000 00000000 00000000
     March 31, 2012  
     Less than 12 Months     12 Months or More     Total  
     Fair
Value
     Gross
Unrealized
Losses
    Fair
Value
     Gross
Unrealized
Losses
    Fair
Value
     Gross
Unrealized
Losses
 

U.S. government and agency obligations

   $ 7,992       $ (8   $ —         $ —        $ 7,992       $ (8

Corporate bonds

     —           —          5,640         (360     5,640         (360

Municipal obligations

     1,691         (5     —           —          1,691         (5

Equity securities

     —           —          72         (8     72         (8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Temporarily

               

Impaired Securities

   $ 9,683       $ (13   $ 5,712       $ (368   $ 15,395       $ (381
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

00000000 00000000 00000000 00000000 00000000 00000000
     September 30, 2011  
     Less than 12 Months     12 Months or More     Total  
     Fair
Value
     Gross
Unrealized
Losses
    Fair
Value
     Gross
Unrealized
Losses
    Fair
Value
     Gross
Unrealized
Losses
 

Corporate bonds

   $ 1,925       $ (74   $ 3,876       $ (124   $   5,801       $ (198

Equity securities

     93         (9     60         (20     153         (29
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Temporarily

               

Impaired Securities

   $ 2,018       $ (83   $ 3,936       $ (144   $   5,954       $ (227
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

At March 31, 2012 and September 30, 2011, the Company held 16 securities at each date in an unrealized loss position. The decline in the fair value of these securities resulted primarily from interest rate fluctuations. The Company does not intend to sell these securities nor is it more likely than not that the Company would be required to sell these securities before its anticipated recovery, and the Company believes the collection of the investment and related interest is probable. Based on the above, the Company considers all of the unrealized losses to be temporary impairment losses.

 

8


Table of Contents

STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(5) Mortgage-Backed Securities

Mortgage-backed securities available for sale at March 31, 2012 and at September 30, 2011 were as follows (dollars in thousands):

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

March 31, 2012:

          

Government pass-throughs:

          

Ginnie Mae

   $ 17,785       $ 149       $ (11   $ 17,923   

Fannie Mae

     21,469         457         (8     21,918   

Freddie Mac

     3,891         260         —          4,151   

Private pass-throughs

     127         —           (1     126   

Collateralized mortgage obligations

     375         8         —          383   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 43,647       $    874       $ (20   $ 44,501   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

September 30, 2011:

          

Government pass-throughs:

          

Ginnie Mae

   $ 19,080       $ 164       $ (52   $ 19,192   

Fannie Mae

     17,358         602         —          17,960   

Freddie Mac

     4,755         316         —          5,071   

Private pass-throughs

     131         —           (1     130   

Collateralized mortgage obligations

     446         9         —          455   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 41,770       $ 1,091       $ (53   $ 42,808   
  

 

 

    

 

 

    

 

 

   

 

 

 

During the six months ended March 31, 2012 and 2011, there were no sales of mortgage-backed securities.

 

9


Table of Contents

STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(5) Mortgage-Backed Securities (Continued)

 

The following table shows the fair value and gross unrealized losses on mortgage-backed securities and the length of time that the securities have been in a continuous unrealized loss position at March 31, 2012 and at September 30, 2011 (dollars in thousands):

 

00000000 00000000 00000000 00000000 00000000 00000000
     March 31, 2012  
     Less than 12 Months     12 Months or More     Total  
     Fair
Value
     Gross
Unrealized
Losses
    Fair
Value
     Gross
Unrealized
Losses
    Fair
Value
     Gross
Unrealized
Losses
 

Ginnie Mae

   $ 4,729       $ (11   $ —         $ —        $   4,729       $ (11

Fannie Mae

     2,402         (8     —           —          2,402         (8

Private pass-throughs

     —           —          126         (1     126         (1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Temporarily

               

Impaired Securities

   $ 7,131       $ (19   $ 126       $ (1   $ 7,257       $ (20
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

00000000 00000000 00000000 00000000 00000000 00000000
     September 30, 2011  
     Less than 12 Months     12 Months or More     Total  
     Fair
Value
     Gross
Unrealized
Losses
    Fair
Value
     Gross
Unrealized
Losses
    Fair
Value
     Gross
Unrealized
Losses
 

Ginnie Mae

   $ 9,961       $ (52   $ —         $ —        $ 9,961       $ (52

Private pass-throughs

     —           —          130         (1     130         (1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Temporarily

               

Impaired Securities

   $ 9,961       $ (52   $ 130       $ (1   $ 10,091       $ (53
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

At March 31, 2012 and September 30, 2011, the Company held 3 mortgage-backed securities at each date in an unrealized loss position. The decline in the fair value of these securities resulted primarily from interest rate fluctuations. The Company does not intend to sell these securities nor is it more likely than not that the Company would be required to sell these securities before its anticipated recovery, and the Company believes the collection of the investment and related interest is probable. Based on the above, the Company considers all of the unrealized losses to be temporary impairment losses.

Mortgage-backed securities with a carrying value of $21.5 million and $25.1 million were pledged to secure repurchase agreements and public fund accounts at March 31, 2012 and at September 30, 2011, respectively.

 

10


Table of Contents

STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(6) Loans Receivable and Related Allowance for Loan Losses

The following table summarizes the primary segments of the loan portfolio as of March 31, 2012 and September 30, 2011 (dollars in thousands):

 

     Real Estate Loans                       
     One-to-four-family
Residential

and
Construction
     Commercial
Real

Estate
     Home Equity
Loans and Lines
of Credit
     Commercial      Other
Loans
     Total  

March 31, 2012:

                 

Total loans before allowance for loan losses

   $ 144,977       $ 90,621       $ 46,712       $ 12,334       $ 2,287       $ 296,931   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Individually evaluated for impairment

   $ —         $ 2,288       $ —         $ 609       $ —         $ 2,897   

Collectively evaluated for impairment

   $ 144,977       $ 88,333       $ 46,712       $ 11,725       $ 2,287       $ 294,034   

September 30, 2011:

                 

Total loans before allowance for loan losses

   $ 141,869       $ 88,096       $ 45,594       $ 11,683       $ 2,392       $ 289,634   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Individually evaluated for impairment

   $ —         $ 3,101       $ —         $ 39       $ —         $ 3,140   

Collectively evaluated for impairment

   $ 141,869       $ 84,995       $ 45,594       $ 11,644       $ 2,392       $ 286,494   

The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. Real estate loans are disaggregated into three categories which include one-to-four family residential (including residential construction loans), commercial real estate (which are primarily first liens) and home equity loans and lines of credit (which are generally second liens). The commercial loan segment consists of loans made for the purpose of financing the activities of commercial customers. Other loans consist of automobile loans, consumer loans and loans secured by savings accounts.

Management evaluates individual loans in the commercial and commercial real estate loan segments for possible impairment if the loan is in nonaccrual status or is risk rated Substandard, Doubtful or Loss and is greater than 90 days past due. Loans are considered to be impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential real estate loans for impairment, unless such loans are part of larger relationship that is impaired, or are classified as a troubled debt restructuring agreement. Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan by loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition. There were no loans considered to be a troubled debt restructuring at March 31, 2012 and September 30, 2011.

 

11


Table of Contents

STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(6) Loans Receivable and Related Allowance for Loan Losses (Continued)

 

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary at March 31, 2012 and September 30, 2011 (dollars in thousands):

 

     Impaired Loans With Allowance      Impaired Loans
Without Allowance
     Total Impaired Loans  
     Recorded
Investment
     Related
Allowance
     Recorded
Investment
     Recorded
Investment
     Unpaid
Principal
Balance
 

March 31, 2012:

              

Commercial real estate

   $ 2,288       $ 686       $ —         $ 2,288       $ 2,288   

Commercial

     609         183         —           609         609   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 2,897       $ 869       $ —         $ 2,897       $ 2,897   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

September 30, 2011:

              

Commercial real estate

   $ 3,101       $ 930       $ —         $ 3,101       $ 3,101   

Commercial

     39         12         —           39         39   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 3,140       $ 942       $ —         $ 3,140       $ 3,140   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the average recorded investment in impaired loans and related interest income recognized for the periods indicated (dollars in thousands):

 

     Three months ended March 31,      Six months ended March 31,  
     2012      2011      2012      2011  

Average investment in impaired loans:

           

Commercial real estate

   $ 2,239       $ 1,384       $ 2,527       $ 1,384   

Commercial

     613         985         421         990   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 2,852       $ 2,369       $ 2,948       $ 2,374   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest income recognized on impaired loans:

           

Accrual basis

   $ —         $ —         $ —         $ —     

The loan rating categories utilized by management generally follow bank regulatory definitions. The special mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a substandard classification. Loans in the substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered substandard. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets (or portions of assets) classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted and are charged off against the loan loss allowance. The pass category includes all loans not considered special mention, substandard, doubtful or loss.

 

12


Table of Contents

STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(6) Loans Receivable and Related Allowance for Loan Losses (Continued)

 

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential real estate loans are included in the pass categories unless a specific action, such as delinquency, bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s commercial loan officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. An annual loan review is performed for all commercial real estate and commercial loans for all commercial relationships greater than $500,000. The Bank engages an external consultant to conduct loan reviews on at least an annual basis. Generally, the external consultant reviews commercial relationships greater than $500,000 and all criticized relationships. Loans in the special mention, substandard or doubtful categories that are collectively evaluated for impairment are given separate consideration in the determination of the loan loss allowance.

The following table presents the classes of the loan portfolio summarized by the aggregate pass and the criticized categories of special mention, substandard and doubtful within the internal risk rating system as of March 31, 2012 and September 30, 2011 (dollars in thousands):

 

     Pass      Special
Mention
     Substandard      Doubtful      Total  

March 31, 2012:

              

First mortgage loans:

              

One-to-four-family residential and construction

   $ 143,517       $ —         $ 1,460       $ —         $ 144,977   

Commercial real estate

     84,261         2,765         3,595         —           90,621   

Home equity loans and lines of credit

     46,673         —           39         —           46,712   

Commercial loans

     11,725         —           609         —           12,334   

Other loans

     2,280         —           7         —           2,287   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 288,456       $ 2,765       $ 5,710       $ —         $ 296,931   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

September 30, 2011:

              

First mortgage loans:

              

One-to-four-family residential and construction

   $ 140,432       $ —         $ 1,437       $ —         $ 141,869   

Commercial real estate

     80,860         2,808         4,428         —           88,096   

Home equity loans and lines of credit

     45,547         —           47         —           45,594   

Commercial loans

     10,645         —           1,038         —           11,683   

Other loans

     2,389         —           —           3         2,392   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 279,873       $ 2,808       $ 6,950       $ 3       $ 289,634   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents

STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(6) Loans Receivable and Related Allowance for Loan Losses (Continued)

 

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of March 31, 2012 and September 30, 2011 (dollars in thousands):

 

     Current      30-59 Days
Past Due
     60-89 Days
Past Due
     Non-Accrual
(90 Days+)
     Total
Loans
 

March 31, 2012:

              

First mortgage loans:

              

One-to-four-family residential and construction

   $ 141,829       $ 1,688       $ —         $ 1,460       $ 144,977   

Commercial real estate

     87,075         1,258         —           2,288         90,621   

Home equity loans and lines of credit

     46,480         170         23         39         46,712   

Commercial loans

     11,650         75         —           609         12,334   

Other loans

     2,270         10         7         —           2,287   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 289,304       $ 3,201       $ 30       $ 4,396       $ 296,931   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

September 30, 2011:

              

First mortgage loans:

              

One-to-four-family residential and construction

   $ 137,935       $ 1,977       $ 521       $ 1,436       $ 141,869   

Commercial real estate

     83,641         1,006         348         3,101         88,096   

Home equity loans and lines of credit

     45,457         68         22         47         45,594   

Commercial loans

     11,563         —           81         39         11,683   

Other loans

     2,386         3         —           3         2,392   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 280,982       $ 3,054       $ 972       $ 4,626       $ 289,634   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors. Management tracks the historical net charge-off activity for the loan segments which may be adjusted for qualitative factors. Pass rated credits are segregated from criticized credits for the application of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors are evaluated using information obtained from internal, regulatory, and governmental sources such as national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint. Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Management utilizes an internally developed spreadsheet to track and apply the various components of the allowance.

 

14


Table of Contents

STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(6) Loans Receivable and Related Allowance for Loan Losses (Continued)

 

The following tables summarize the primary segments of the ALL, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment. Activity in the allowance is presented for the six months ended March 31, 2012 and 2011 (dollars in thousands):

 

     Real Estate Loans                    
     One-to-four-
family
Residential and
Construction
    Commercial
Real

Estate
    Home
Equity Loans
and Lines

of Credit
    Commercial     Other
Loans
    Total  

Balance at September 30, 2011

   $ 682      $ 3,024      $ 173      $ 452      $ 190      $ 4,521   

Charge-offs

     (195     (185     (32     (500     (5     (917

Recoveries

     1        59        —          2        2        64   

Provision

     200        —          —          400        —          600   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

   $ 688      $ 2,898      $ 141      $ 354      $ 187      $ 4,268   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2010

   $ 609      $ 2,460      $ 220      $ 483      $ 217      $ 3,989   

Charge-offs

     (25     (192     —          (46     (18     (281

Recoveries

     12        31        —          3        9        55   

Provision

     312        423        7        14        19        775   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2011

   $ 908      $ 2,722      $ 227      $ 454      $ 227      $ 4,538   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Real Estate Loans                       
     One-to-four-
family
Residential and
Construction
     Commercial
Real

Estate
     Home
Equity Loans
and Lines

of Credit
     Commercial      Other
Loans
     Total  

Evaluated for Impairment:

                 

Individually

   $ —         $ 686       $ —         $ 183       $ —         $ 869   

Collectively

     688         2,212         141         171         187         3,399   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at March 31, 2012

   $ 688       $ 2,898       $ 141       $ 354       $ 187       $ 4,268   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Evaluated for Impairment:

                 

Individually

   $ —         $ 930       $ —         $ 12       $ —         $ 942   

Collectively

     682         2,094         173         440         190         3,579   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at September 30, 2011

   $ 682       $ 3,024       $ 173       $ 452       $ 190       $ 4,521   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The ALL is based on estimates and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the loan portfolio at any given date.

 

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STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(7) Contribution to Standard Charitable Foundation

The Company made a $1.4 million one-time contribution to Standard Charitable Foundation during the quarter ended December 31, 2010 in connection with its stock conversion. This contribution represented $1.2 million or 3.5% of the stock issued on October 6, 2010 and $200,000 in cash. The after tax impact on net income of this one-time contribution was net expense of $908,000 (net of income tax benefit of $468,000).

 

(8) Employee Stock Ownership Plan

The Company established a tax qualified Employee Stock Ownership Plan (“ESOP”) for the benefit of its employees in conjunction with the stock conversion on October 6, 2010. Eligible employees begin to participate in the plan after one year of service and become 20% vested in their accounts after two years of service, 40% after three years of service, 60% after four years of service, 80% after five years of service and 100% after six years of service or, if earlier, upon death, disability or attainment of normal retirement age.

In connection with the stock conversion, the purchase of the 278,254 shares of the Company stock by the ESOP was funded by a loan from the Company through the Bank. Unreleased ESOP shares collateralize the loan payable, and the cost of the shares is recorded as a contra-equity account in the stockholders’ equity of the Company. Shares are released as debt payments are made by the ESOP to the loan. The ESOP’s sources of repayment of the loan can include dividends, if any, on the unallocated stock held by the ESOP and discretionary contributions from the Company to the ESOP and earnings thereon.

Compensation is recognized under the shares released method and compensation expense is equal to the fair value of the shares committed to be released and unallocated ESOP shares are excluded from outstanding shares for purposes of computing earnings per share. Compensation expense related to the ESOP of $110,000 and $107,000 was recognized during the six months ended March 31, 2012 and 2011, respectively.

As of March 31, 2012, the ESOP held a total of 278,254 shares of the Company’s stock, and there were 260,186 unallocated shares. The fair market value of the unallocated ESOP shares was $4.1 million at March 31, 2012.

 

(9) Fair Value of Assets and Liabilities

Fair Value Hierarchy

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

 

Level 1:    Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available. A contractually binding sales price also provides reliable evidence of fair value.
Level 2:    Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that utilize model-based techniques for which all significant assumptions are observable in the market.
Level 3:    Inputs to the valuation methodology are unobservable and significant to the fair value measurement; inputs to the valuation methodology that utilize model-based techniques for which significant assumptions are not observable in the market; or inputs to the valuation methodology that requires significant management judgment or estimation, some of which may be internally developed.

Management maximizes the use of observable inputs and minimizes the use of unobservable inputs when determining fair value measurements. Management reviews and updates the fair value hierarchy classifications of the Company’s assets and liabilities on a quarterly basis.

 

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STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(9) Fair Value of Assets and Liabilities (Continued)

 

Assets Measured at Fair Value on a Recurring Basis

Investment and Mortgage-Backed Securities Available for Sale

Fair values of investment and mortgage-backed securities available for sale were primarily measured using information from a third-party pricing service. This service provides pricing information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data from market research publications. Level 1 securities are comprised of equity securities. As quoted prices were available, unadjusted, for identical securities in active markets, these securities were classified as Level 1 measurements. Level 2 securities were primarily comprised of debt securities issued by government agencies, states and municipalities, corporations, as well as mortgage-backed securities issued by government agencies. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. In cases where there may be limited or less transparent information provided by the Company’s third-party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.

On a quarterly basis, management reviews the pricing information received from the Company’s third-party pricing service. This review process includes a comparison to non-binding third-party broker quotes, as well as a review of market-related conditions impacting the information provided by the Company’s third-party pricing service. Management primarily identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. As of March 31, 2012 and September 30, 2011, management did not make adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets. On a quarterly basis, management also reviews a sample of securities priced by the Company’s third-party pricing service to review significant assumptions and valuation methodologies used. Based on this review, management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted.

The following table presents the assets measured at fair value on a recurring basis as of March 31, 2012 and September 30, 2011 by level within the fair value hierarchy (dollars in thousands):

 

     Quoted Prices in
Active Markets for
Identical Assets

or Liabilities
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total  

March 31, 2012:

           

Investment securities available for sale:

           

U.S. government and agency obligations

   $ —         $ 24,072       $ —         $ 24,072   

Corporate bonds

     —           6,928         —           6,928   

Municipal obligations

     —           30,865         —           30,865   

Equity securities

     1,345         —           —           1,345   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available for sale

     1,345         61,865         —           63,210   

Mortgage-backed securities available for sale

     —           44,501         —           44,501   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring fair value measurements

   $ 1,345       $ 106,366       $ —         $ 107,711   
  

 

 

    

 

 

    

 

 

    

 

 

 

September 30, 2011:

           

Investment securities available for sale:

           

U.S. government and agency obligations

   $ —         $ 24,654       $ —         $ 24,654   

Corporate bonds

     —           7,066         —           7,066   

Municipal obligations

     —           29,980         —           29,980   

Equity securities

     1,246         —           —           1,246   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investment securities available for sale

     1,246         61,700         —           62,946   

Mortgage-backed securities

     —           42,808         —           42,808   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total recurring fair value measurements

   $ 1,246       $ 104,508       $ —         $ 105,754   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(9) Fair Value of Assets and Liabilities (Continued)

 

Assets Measured at Fair Value on a Nonrecurring Basis

The following table presents the assets measured at fair value on a nonrecurring basis as of March 31, 2012 and September 30, 2011 by level within the fair value hierarchy (dollars in thousands):

 

     Quoted Prices in
Active Markets for
Identical Assets

or Liabilities
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total  

March 31, 2012:

           

Foreclosed real estate

   $ —         $ —         $ 790       $ 790   

Impaired loans

           2,028         2,028   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ —         $ —         $ 2,818       $ 2,818   
  

 

 

    

 

 

    

 

 

    

 

 

 

September 30, 2011:

           

Foreclosed real estate

   $ —         $ —         $ 743       $ 743   

Impaired loans

     —              2,198         2,198   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total nonrecurring fair value measurements

   $ —         $ —         $ 2,941       $ 2,941   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Company uses level 3 inputs to determine fair value (dollars in thousands):

 

     Quantitative Information about Level 3 Fair Value  Measurements

March 31, 2012:

   Estimate     

Valuation Techniques

  

Unobservable Input

  

Range
(Weighted Average)

Foreclosed real estate

   $ 790       Appraisal of   

Appraisal adjustments (2)

   0% to - 40% (-25%)
      collateral (1)   

Liquidation expenses (2)

   0% to -10% (-5%)

Impaired loans

   $ 2,028       Appraisal of collateral (1), (3)      

 

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.
(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
(3) Includes qualitative adjustments by management and estimated liquidation expenses.

 

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Table of Contents

STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(9) Fair Value of Assets and Liabilities (Continued)

 

Disclosures about Fair Value of Financial Instruments

The assumptions used below are expected to approximate those that market participants would use in valuing the following financial instruments.

Loans Receivable and Loans Held for Sale

The fair value of the Company’s loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans were first segregated by type such as commercial, real estate, and home equity, and were then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments. The fair value of loans held for sale was estimated based on the price committed to sell the loan in the secondary market.

Certificate Deposit Accounts

The fair values of the Company’s certificate deposit accounts were estimated using discounted cash flow analyses. The discount rates used were based on rates currently offered for deposits with similar remaining maturities. The fair values of the Company’s certificate deposit accounts do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.

Federal Home Loan Bank advances

The fair value of Federal Home Loan Bank advances was calculated using a discounted cash flow approach that applies a comparable FHLB advance rate to the weighted average maturity of the borrowings.

Other Financial Instruments

The carrying amounts reported in the consolidated statements of financial condition approximate fair value for the following financial instruments (level 1): cash on hand and due from banks, interest-earning deposits in other institutions, Federal Home Loan Bank stock, accrued interest receivable, bank-owned life insurance, demand, regular and club accounts, securities sold under agreements to repurchase and accrued interest payable. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as interest and noninterest-bearing demand and regular and club accounts, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity. For financial liabilities such as the Company’s securities sold under agreements to repurchase which are with commercial deposit customers, the carrying amount is a reasonable estimate of fair value due to the short time nature of the agreement.

 

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Table of Contents

STANDARD FINANCIAL CORP.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED)

March 31, 2012

 

(9) Fair Value of Assets and Liabilities (Continued)

 

The following table presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 2012 and September 30, 2011 (dollars in thousands):

 

            Fair Value Measurements  
     Carrying
Amount
     Quoted Prices in
Active Markets for
Identical Assets

or Liabilities
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 

March 31, 2012:

           

Financial Instruments - Assets:

           

Cash on hand and due from banks

   $ 1,688       $ 1,688       $ —         $ —     

Interest-earning deposits in other institutions

     16,554         16,554         —           —     

Investment securities

     63,210         1,345         61,865         —     

Mortgage-backed securities

     44,501         —           44,501         —     

Loans receivable

     292,663         —           —           303,673   

Loans held for sale

     411         —           416         —     

Accrued interest receivable

     1,290         1,290         

Federal Home Loan Bank stock

     2,610         2,610         —           —     

Bank-owned life insurance

     9,959         9,959         —           —     

Financial Instruments - Liabilities:

           

Demand, regular and club accounts

     190,397         190,397         —           —     

Certificate deposit accounts

     140,504         —           —           146,835   

Federal Home Loan Bank advances

     31,636         —           —           32,289   

Securities sold under agreements to repurchase

     3,254         3,254         —           —     

Accrued interest payable

     265         265         —           —     

September 30, 2011:

           

Financial Instruments - Assets:

           

Cash on hand and due from banks

   $ 1,869       $ 1,869       $ —         $ —     

Interest-earning deposits in other institutions

     10,789         10,789         —           —     

Investment securities

     62,946         1,246         61,700         —     

Mortgage-backed securities

     42,808         —           42,808         —     

Loans receivable

     285,113         —           —           297,800   

Loans held for sale

     100         —           102         —     

Accrued interest receivable

     1,337         1,337         

Federal Home Loan Bank stock

     2,839         2,839         —           —     

Bank-owned life insurance

     9,778         9,778         —           —     

Financial Instruments - Liabilities:

           

Demand, regular and club accounts

     186,235         186,235         —           —     

Certificate deposit accounts

     134,087         —           —           140,482   

Federal Home Loan Bank advances

     28,520         —           —           29,500   

Securities sold under agreements to repurchase

     2,897         2,897         —           —     

Accrued interest payable

     268         268         —           —     

 

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Table of Contents
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides further detail to the financial condition and results of operations of the Company. The section should be read in conjunction with the notes and financial statements presented elsewhere in this report.

The Company’s critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2012 have remained unchanged from the disclosures presented in the Company’s Annual Report on Form 10-K for the year ended September 30, 2011 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

Forward-looking statements in this report relating to the Company’s plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The information contained in this report should be read in conjunction with the Company’s most recent annual report filed with the Securities and Exchange Commission on Form 10-K for the year ended September 30, 2011. Investors are cautioned that forward-looking statements include risks and uncertainties that could cause actual results to differ materially from those contemplated by such statements, including without limitation, the effect of regional and national general economic conditions; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; adverse changes in the securities markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate acquired entities, if any; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; changes in our organization, compensation and benefit plans; changes in our financial condition or results of operations that reduce capital available to pay dividends; changes in the financial condition or future prospects of issuers of securities that we own. The Company does not assume any duty to update forward-looking statements.

Standard Financial Corp. is a Maryland corporation that provides a wide array of retail and commercial financial products and services to individuals, families and businesses through ten banking offices located in the Pennsylvania counties of Allegheny, Westmoreland and Bedford and Allegany County, Maryland through its wholly-owned subsidiary Standard Bank.

Comparison of Financial Condition at March 31, 2012 and September 30, 2011

General. The Company’s total assets increased $14.7 million, or 3.4%, to $449.3 million at March 31, 2012 from $434.6 million at September 30, 2011. The increase was due primarily to increases in net loans and cash and cash equivalents. Total liabilities increased $14.5 million, or 4.1%, to $370.4 million at March 31, 2012 from $355.9 million at September 30, 2011. The increase was due primarily to increases in total deposits and Federal Home Loan Bank advances.

Cash and Cash Equivalents. Cash and cash equivalents increased $5.6 million, or 44.1%, to $18.2 million at March 31, 2012 from $12.7 million at September 30, 2011. During the six months ended March 31, 2012, net deposit inflows were partly offset by a net increase in loans.

Loans. At March 31, 2012, net loans were $292.7 million, or 65.1% of total assets, an increase of $7.6 million from $285.1 million or 65.6% of total assets at September 30, 2011. This increase was primarily due to increases of $3.2 million in the commercial real estate and commercial loan portfolios and $3.1 million in the one- to four-family residential real estate portfolio. We have continued our focus on steadily increasing our commercial real estate loans to better diversify our loan portfolio.

Investment Securities. Investment securities available for sale increased $264,000 to $63.2 million at March 31, 2012 from $62.9 million at September 30, 2011. Purchases of $17.5 million during the six months ended March 31, 2012 consisted primarily of government agency bonds and tax-exempt municipal securities. The purchases were offset by sales of government agency bonds of $6.0 million and calls and maturities of government agency bonds and municipals securities totaling $11.7 million during the six months ended March 31, 2012.

 

Mortgage-Backed Securities. The Company’s mortgage-backed securities available for sale portfolio increased $1.7 million, or 4.0% to $44.5 million at March 31, 2012 from $42.8 million at September 30, 2011. Purchases during the six months ended March 31, 2012 consisted of $7.5 million of mortgage-backed securities offset by repayments on mortgage-backed securities of $5.5 million.

Deposits. We accept deposits primarily from the areas in which our offices are located. We have consistently focused on building broader customer relationships and targeting small business customers to increase our core deposits. We also rely on our enhanced technology and our customer service to attract and retain deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposit accounts consist of savings accounts, certificates of deposit, money market accounts, commercial and regular checking accounts and individual retirement accounts. We do not accept brokered deposits. Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market interest rates, liquidity requirements and our deposit growth goals.

 

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Table of Contents

Our deposits increased $10.6 million, or 3.3%, to $330.9 million at March 31, 2012 from $320.3 million at September 30, 2011. The increase resulted from a $6.4 million, or 4.8%, increase in certificates of deposit and a $4.2 million, or 2.2%, increase in demand and savings accounts during the six months ended March 31, 2012. The increase in certificates of deposit resulted from an increase in longer term certificate products some of which provide the customer an option to increase the interest rate on the certificate in the future.

Borrowings. Our borrowings consist of advances from the Federal Home Loan Bank of Pittsburgh and funds borrowed under repurchase agreements. Total borrowings increased $3.5 million, or 11.1% to $34.9 million at March 31, 2012 from $31.4 million at September 30, 2011. The increase was due primarily to new Federal Home Loan Bank advances totaling $6.0 million partly offset by the repayment of $2.9 million of advances during the six months ended March 31, 2012.

Stockholders’ Equity. Stockholders’ equity increased $206,000 to $78.9 million at March 31, 2012 from $78.7 million at September 30, 2011. The increase was due primarily to net income of $1.6 million partly offset by the repurchase of common stock totaling $981,000 and cash dividends paid totaling $297,000 for the six months ended March 31, 2012.

 

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Table of Contents

Average Balance and Yields

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the tables as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

 

     For the Three Months Ended March 31,  
     2012     2011  
     Average
Outstanding
Balance
    Interest      Yield/
Rate
    Average
Outstanding
Balance
    Interest      Yield/
Rate
 
     (Dollars in thousands)  

Interest-earning assets:

              

Loans

   $ 297,932      $ 3,717         4.99   $ 296,375      $ 3,955         5.34

Investment and mortgage-backed securities

     102,466        656         2.56     95,941        686         2.86

Interest earning deposits

     11,219        1         0.04     11,075        2         0.07
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

     411,617        4,374         4.25     403,391        4,643         4.60
    

 

 

        

 

 

    

Noninterest-earning assets

     27,569             28,878        
  

 

 

        

 

 

      

Total assets

   $ 439,186           $ 432,269        
  

 

 

        

 

 

      

Interest-bearing liabilities:

              

Savings accounts

   $ 110,951        46         0.17   $ 120,524        135         0.45

Certificates of deposit

     139,445        853         2.45     124,134        785         2.53

Money market accounts

     5,750        3         0.21     5,836        3         0.21

Demand and NOW accounts

     68,257        11         0.06     60,946        13         0.09
  

 

 

   

 

 

      

 

 

   

 

 

    

Total deposits

     324,403        913         1.13     311,440        936         1.20

Federal Home Loan Bank advances

     29,707        187         2.52     37,944        292         3.08

Securities sold under agreements to repurchase

     3,261        2         0.25     4,822        4         0.33
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     357,371        1,102         1.23     354,206        1,232         1.39
    

 

 

        

 

 

    

Noninterest-bearing liabilities

     3,048             2,911        
  

 

 

        

 

 

      

Total liabilities

     360,419             357,117        

Stockholders’ equity

     78,767             75,152        
  

 

 

        

 

 

      

Total liabilities and stockholders’ equity

   $ 439,186           $ 432,269        
  

 

 

        

 

 

      

Net interest income

     $ 3,272           $ 3,411      
    

 

 

        

 

 

    

Net interest rate spread (1)

          3.02          3.21

Net interest-earning assets (2)

   $ 54,246           $ 49,185        
  

 

 

        

 

 

      

Net interest margin (3)

          3.18          3.38

Average interest-earning assets to interest-bearing liabilities

     115.18          113.89     

 

(1) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average total interest-earning assets.

 

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Table of Contents
     For the Six Months Ended March 31,  
     2012     2011  
     Average
Outstanding
Balance
    Interest      Yield/ Rate     Average
Outstanding
Balance
    Interest      Yield/ Rate  
     (Dollars in thousands)  

Interest-earning assets:

              

Loans

   $ 294,834      $ 7,504         5.09   $ 294,260      $ 7,938         5.40

Investment and mortgage-backed securities

     102,754        1,298         2.53     95,486        1,343         2.81

Interest earning deposits

     11,460        13         0.23     16,560        13         0.16
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

     409,048        8,815         4.31     406,306        9,294         4.58
    

 

 

        

 

 

    

Noninterest-earning assets

     28,953             28,693        
  

 

 

        

 

 

      

Total assets

   $ 438,001           $ 434,999        
  

 

 

        

 

 

      

Interest-bearing liabilities:

              

Savings accounts

   $ 112,502        109         0.19   $ 121,976        312         0.51

Certificates of deposit

     138,124        1,704         2.47     124,582        1,610         2.58

Money market accounts

     6,263        5         0.16     6,332        8         0.25

Demand and NOW accounts

     67,084        24         0.07     60,358        30         0.10
  

 

 

   

 

 

      

 

 

   

 

 

    

Total deposits

     323,973        1,842         1.14     313,248        1,960         1.25

Federal Home Loan Bank advances

     28,960        381         2.63     37,697        601         3.19

Securities sold under agreements to repurchase

     3,662        4         0.22     4,899        10         0.41
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     356,595        2,227         1.25     355,844        2,571         1.45
    

 

 

        

 

 

    

Noninterest-bearing liabilities

     2,825             4,114        
  

 

 

        

 

 

      

Total liabilities

     359,420             359,958        

Stockholders’ equity

     78,581             75,041        
  

 

 

        

 

 

      

Total liabilities and stockholders’ equity

   $ 438,001           $ 434,999        
  

 

 

        

 

 

      

Net interest income

     $ 6,588           $ 6,723      
    

 

 

        

 

 

    

Net interest rate spread (1)

          3.06          3.13

Net interest-earning assets (2)

   $ 52,453           $ 50,462        
  

 

 

        

 

 

      

Net interest margin (3)

          3.22          3.31

Average interest-earning assets to interest-bearing liabilities

     114.71          114.18     

 

(1) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average total interest-earning assets.

 

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Comparison of Operating Results for the Three Months Ended March 31, 2012 and 2011

General. Net income for the quarter ended March 31, 2012 was $782,000 compared to $828,000 for the quarter ended March 31, 2011, a decrease of $46,000, or 5.6%. The decrease was due primarily to an increase in noninterest expenses of $151,000 and a decrease in net interest income of $139,000, partially offset by a $125,000 decrease in the provision for loan losses, lower income tax expense of $63,000 and higher noninterest income of $56,000.

Net Interest Income. Net interest income for the quarter ended March 31, 2012 was $3.3 million compared to $3.4 million for the quarter ended March 31, 2011. Our net interest rate spread and net interest margin were 3.02% and 3.18%, respectively for the three months ended March 31, 2012 compared to 3.21% and 3.38% for the same period in the prior year.

Interest and Dividend Income. Total interest and dividend income of $4.4 million for the three months ended March 31, 2012 decreased $269,000 compared to the same period in the prior year. The decrease was due to a decrease in the average yield on interest-earning assets, partially offset by an increase in the average balance of interest-earning assets. The average yield on interest-earning assets decreased to 4.25% for the three months ended March 31, 2012 from 4.60% for the same period in the prior year. Average interest-earning assets increased by $8.2 million, or 2.0% to $411.6 million for the three months ended March 31, 2012 from $403.4 million for the same period in 2011.

Interest income on loans decreased $238,000, or 6.0%, to $3.7 million for the three months ended March 31, 2012 due primarily to a decrease in the average yield on loans. The average yield on loans receivable decreased to 4.99% for the three months ended March 31, 2012 from 5.34% for the same period in the prior year. The decrease in average yield was primarily attributable to our variable rate loans adjusting downward as prime and short-term interest rates remained low as well as the origination of new loans in a generally lower interest rate environment and repayment/refinance of higher rate loans. Average loans receivable increased by $1.5 million, or 0.5%, to $297.9 million for the three months ended March 31, 2012 from $296.4 million for the same period in the prior year.

Interest income on investment and mortgage-backed securities decreased by $30,000, or 4.4%, to $656,000 for the three months ended March 31, 2012 from $686,000 for the same period in the prior year. This decrease was due primarily to a decrease in the average yield earned on investments and mortgage-backed securities to 2.56% for the three months ended March 31, 2012 from 2.86% for the same period in the prior year due to new investments added in a lower interest rate environment and variable rate investments that adjusted downward. This decrease was partially offset by an increase in the average balance of investment and mortgage-backed securities, which increased by $6.6 million, or 6.9%, to $102.5 million for the three months ended March 31, 2012 from $95.9 million for the same period in the prior year.

Interest Expense. Total interest expense decreased by $130,000, or 10.6%, to $1.1 million for the three months ended March 31, 2012 from $1.2 million for the same period in the prior year. This decrease in interest expense was due to a decrease in the average cost of interest-bearing liabilities to 1.23% for the three months ended March 31, 2012 from 1.39% for the prior year period. Partially offsetting this decrease in interest expense was as an increase in the average balance of interest-bearing liabilities of $3.2 million, or 0.9%, to $357.4 million for the three months ended March 31, 2012 from $354.2 million for the same period in the prior year.

Interest expense on deposits decreased by $23,000, or 2.5%, to $913,000 for the three months ended March 31, 2012 from $936,000 for the same period in the prior year. The average cost of deposits declined from 1.20% for the three months ended March 31, 2011 to 1.13% for the three months ended March 31, 2012. The continued low level of market interest rates enabled us to reduce the rates of interest paid on deposit products. Partially offsetting this decrease in interest expense on deposits was an increase in the average balance of certificates of deposit which increased $15.3 million, or 12.3%, to $139.4 million for the three months ended March 31, 2012 from $124.1 million for the same period in 2011.

Interest expense on Federal Home Loan Bank advances decreased $105,000, or 36%, to $187,000 for the three months ended March 31, 2012 from $292,000 for the same period in the prior year. The average balance of advances decreased $8.2 million or 21.7% to $29.7 million for the three months ended March 31, 2012 compared to the same period in the prior year. In addition, the average cost of advances decreased to 2.52% for the quarter ended March 31, 2012 from 3.08% for the quarter ended March 31, 2011 as higher rate advances matured and were repaid.

Provision for Loan Losses. The provision for loan losses decreased by $125,000, or 29.4%, to $300,000 for the three months ended March 31, 2012 from $425,000 for the same period in 2011. Non-performing loans at March 31, 2012 were $4.4 million or 1.48% of total loans, $4.6 million or 1.60% of total loans at September 30, 2011 and $2.9 million or 0.97% of total loans at March 31, 2011. The provision that was recorded is sufficient, in management’s judgment, to bring the allowance for loan losses to a level that reflects the losses inherent in our loan portfolio relative to loan mix, economic conditions and historical loss experience. Management believes, to the best of their knowledge, that all known losses as of the balance sheet dates have been recorded.

Noninterest Income. Noninterest income increased $56,000, or 10.5%, to $591,000 for the three months ended March 31, 2012 from $535,000 for the same period in the prior year due mainly to higher service charges on deposits and higher net loan sale gains.

 

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Noninterest Expenses. Noninterest expenses increased by $151,000, or 6.4%, to $2.5 million for the three months ended March 31, 2012 compared to the same period in 2011. The increase was due primarily to higher compensation and employee benefits and other operating expenses due primarily to general cost increases and additional staffing in the lending area.

Income Tax Expense. The Company recorded a provision for income tax of $269,000 for the three months ended March 31, 2012 compared to $332,000 for the three months ended March 31, 2011 due to lower income before taxes. The effective tax rates were 25.6% and 28.6% for the three months ended March 31, 2012 and 2011, respectively.

Comparison of Operating Results for the Six Months Ended March 31, 2012 and 2011

General. Net income for the six months ended March 31, 2012 was $1.6 million compared to $846,000 for the six months ended March 31, 2011. Net income for the six months ended March 31, 2011 included a $1.4 million one-time contribution to Standard Charitable Foundation ($908,000 after tax impact). This contribution represented $1.2 million or 3.5% of the stock issued on October 6, 2010 and $200,000 in cash. Excluding the one-time charitable contribution, net income decreased $141,000 for the six months ended March 31, 2012 compared to the same period in the prior year due primarily to an increase in noninterest expenses of $254,000 and a decrease in net interest income of $135,000, partially offset by a lower provision for loan losses of $175,000.

Net Interest Income. Net interest income for the six months ended March 31, 2012 was $6.6 million compared to $6.7 million for the six months ended March 31, 2011. Our net interest rate spread and net interest margin were 3.06% and 3.22%, respectively for the six months ended March 31, 2012 compared to 3.13% and 3.31% for the same period in the prior year.

Interest and Dividend Income. Total interest and dividend income of $8.8 million for the six months ended March 31, 2012 decreased $479,000 compared to the same period in the prior year. The decrease was due to a decrease in the average yield on interest-earning assets, partially offset by an increase in the average balance of interest-earning assets. The average yield on interest-earning assets decreased to 4.31% for the six months ended March 31, 2012 from 4.58% for the same period in the prior year. Average interest-earning assets increased by $2.7 million, or 0.7% to $409.0 million for the six months ended March 31, 2012 from $406.3 million for the same period in 2011.

Interest income on loans decreased $434,000, or 5.5%, to $7.5 million for the six months ended March 31, 2012 due primarily to a decrease in the average yield on loans. The average yield on loans receivable decreased to 5.09% for the six months ended March 31, 2012 from 5.40% for the same period in the prior year. The decrease in average yield was primarily attributable to our variable rate loans adjusting downward as prime and short-term interest rates remained low as well as the origination of new loans in a generally lower interest rate environment and repayment/refinance of higher rate loans. Average loans receivable increased by $574,000, or 0.2%, to $294.8 million for the six months ended March 31, 2012 from $294.3 million for the same period in the prior year.

Interest income on investment and mortgage-backed securities decreased by $45,000, or 3.4%, to $1.3 million for the six months ended March 31, 2012 from the same period in the prior year. This decrease was due primarily to a decrease in the average yield earned on investments and mortgage-backed securities to 2.53% for the six months ended March 31, 2012 from 2.81% for the same period in the prior year due to new investments added in a lower interest rate environment and variable rate investments that adjusted downward. This decrease was partially offset by an increase in the average balance of investment and mortgage-backed securities, which increased by $7.3 million, or 7.6%, to $102.8 million for the six months ended March 31, 2012 from $95.5 million for the same period in the prior year.

Interest Expense. Total interest expense decreased by $344,000, or 13.4%, to $2.2 million for the six months ended March 31, 2012 from $2.6 million for the same period in the prior year. This decrease in interest expense was due to a decrease in the average cost of interest-bearing liabilities to 1.25% for the six months ended March 31, 2012 from 1.45% for the prior year period. Partially offsetting this decrease was an increase in average interest-bearing liabilities of $751,000, or 0.2%, to $356.6 million for the six months ended March 31, 2012 from $355.8 million for the same period in the prior year.

Interest expense on deposits decreased by $118,000, or 6.0%, to $1.8 million for the six months ended March 31, 2012 from $2.0 million for the same period in the prior year. The average cost of deposits declined from 1.25% for the six months ended March 31, 2011 to 1.14% for the six months ended March 31, 2012. The continued low level of market interest rates enabled us to reduce the rates of interest paid on deposit products. Partially offsetting this decrease in interest expense on deposits was an increase in the average balance of certificates of deposit which increased $13.5 million, or 10.9%, to $138.1 million for the six months ended March 31, 2012 from $124.6 million for the same period in 2011.

Interest expense on Federal Home Loan Bank advances decreased $220,000 or 36.6%, to $381,000 for the six months ended March 31, 2012 from $601,000 for the same period in the prior year. The average balance of advances decreased $8.7 million or 23.2% to $29.0 million for the six months ended March 31, 2012 compared to the same period in the prior year. In addition, the average cost of advances decreased to 2.63% for the six months ended March 31, 2012 from 3.19% for the six months ended March 31, 2011 as higher rate advances matured and were repaid.

Provision for Loan Losses. The provision for loan losses decreased by $175,000, or 22.6%, to $600,000 for the six months ended March 31, 2012 from $775,000 for the same period in 2011. The provision that was recorded is sufficient, in management’s

 

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judgment, to bring the allowance for loan losses to a level that reflects the losses inherent in our loan portfolio relative to loan mix, economic conditions and historical loss experience. Management believes, to the best of their knowledge, that all known losses as of the balance sheet dates have been recorded.

Noninterest Income. Noninterest income increased $33,000, or 2.9%, to $1.2 million for the six months ended March 31, 2012 compared to the same period in the prior year due mainly to higher net securities gains partially offset by lower net loan sale gains.

Noninterest Expenses. Noninterest expenses decreased by $1.1 million, or 18.5%, to $4.9 million for the six months ended March 31, 2012 compared to the same period in the prior year. The decrease was due to a $1.4 million one-time contribution to Standard Charitable Foundation during the six months ended March 31, 2011. Excluding the one-time charitable contribution, noninterest expenses increased $254,000 or 5.4% due primarily to increases in compensation and employee benefits and other operating expenses as a result of general cost increases and additional staffing in the lending area.

Income Tax Expense. The Company recorded a provision for income tax of $630,000 for the six months ended March 31, 2012 compared to $202,000 for the six months ended March 31, 2011. The tax effect of the charitable foundation contribution for the six months ended March 31, 2011 was a benefit of $468,000.

Non-Performing and Problem Assets

There were no loans in arrears 90 days or more and still accruing interest. Loans in arrears 90 days or more or in process of foreclosure (non-accrual loans) were as follows:

 

     Number of
Loans
     Amount      Percentage
of Loans
Receivable
 
     (Dollars in thousands)  

March 31, 2012

     27       $ 4,396         1.48

September 30, 2011

     26         4,626         1.60   

At March 31, 2012 and September 30, 2011, the Company had impaired loans totaling $2.9 million and $3.1 million, respectively. The largest impaired loan at both dates was a $1.1 million loan representing a 6% interest in a participation loan which was secured by commercial real estate and a mall in West Virginia. Foreclosure on this loan was initiated by the participating banks but a declaration of bankruptcy by the borrower has caused a delay in this process. The second largest impaired loan at both dates was a $700,000 loan which was secured by commercial real estate and a restaurant in Maryland. The borrower on this loan has declared bankruptcy which also delayed foreclosure proceedings.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations. Our primary sources of funds consist of deposit inflows, loan repayments, advances from the Federal Home Loan Bank of Pittsburgh, repurchase agreements and maturities, principal repayments and the sale of available-for-sale securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee, under the direction of our Chief Financial Officer, is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we have enough sources of liquidity to satisfy our short- and long-term liquidity needs as of March 31, 2012.

At March 31, 2012, we had $14.7 million in loan commitments outstanding, $13.0 million of which were for commercial loans and $1.7 million of which were for one- to four-family residential loans. In addition to commitments to originate loans, we had $12.7 million in unused lines of credit to borrowers and $295,000 in undisbursed funds for construction loans in process. Certificates of deposit due within one year of March 31, 2012 totaled $34.0 million, or 10.8% of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including loan and securities sales, repurchase agreements and Federal Home Loan Bank advances.

Current regulatory requirements specify that the Bank and similar institutions must maintain leverage capital equal to 4% of adjusted total assets and risk-based capital equal to 8% of risk-weighted assets. The Federal Deposit Insurance Corporation (“FDIC”) may require higher core capital ratios if warranted, and institutions are to maintain capital levels consistent with their risk exposures. The FDIC reserves the right to apply this higher standard to any insured financial institution when considering an institution’s capital adequacy. At March 31, 2012, Standard Bank was in compliance with all regulatory capital requirements with leverage and risk-based capital ratios of 12.77% and 20.39%, respectively, and was considered “well capitalized” under regulatory guidelines.

 

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Table of Contents
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.

 

ITEM 4. Controls and Procedures

The Company’s management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures, as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

 

ITEM 1. Legal Proceedings

At March 31, 2012, the Company is not involved in any pending legal proceedings other than non-material legal proceedings undertaken in the ordinary course of business.

 

ITEM 1A. Risk Factors

Not applicable to smaller reporting companies.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of common stock of the Company during the indicated periods.

 

Period

   Total Number
of Shares
Purchased
     Average
Price Paid
Per Share
     Total Number of
Shares
Purchased as Part
of Publicly Announced
Plans or Programs
     Maximum number
of Shares
That May Yet Be
Purchased Under the
Plans or Programs (1)
 

January 1-31, 2012

     —         $ —           —           292,000   

February 1-29, 2012

     10,000         15.39         10,000         282,000   

March 1-31, 2012

     —           —           —           282,000   
  

 

 

    

 

 

    

 

 

    

Totals

     10,000       $ 15.39         10,000         282,000   
  

 

 

    

 

 

    

 

 

    

 

(1) On October 20, 2011, the Company announced that the Board of Directors authorized the repurchase of up to 347,000 shares, or approximately 10%, of the Company’s outstanding common stock. The stock repurchase program may be carried out through open market purchases, block trades, negotiated private transactions and pursuant to a plan adopted in accordance with Rule 10b5-1 of the SEC’s rules. The stock will be repurchased on an ongoing basis and will be subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital and the Company’s financial performance.

 

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Table of Contents
ITEM 3. Defaults Upon Senior Securities

Not Applicable

 

ITEM 4. Mine Safety Disclosures

Not Applicable

 

ITEM 5. Other Information

 

(a) Not Applicable

 

(b) Not Applicable

 

ITEM 6 Exhibits

 

    3.1    Articles of Incorporation of Standard Financial Corp.*
    3.2    Bylaws of Standard Financial Corp.*
    4    Form of Common Stock Certificate of Standard Financial Corp.*
  10.1    Form of Standard Bank, PaSB Employee Stock Ownership Plan*
  10.2    Form of Standard Financial Corp. and Standard Bank, PaSB Three-Year Employment Agreement*
  10.3    Form of Standard Financial Corp. and Standard Bank, PaSB Two-Year Employment Agreement*
  10.4    Form of Standard Bank, PaSB Change in Control Agreement*
  10.5    Form of Phantom Stock Agreement for Officers*
  10.6    Form of Phantom Stock Agreement for Directors*
  10.7    Chief Financial Officer Performance Based Compensation Plan*
  10.8    Chief Commercial Lending Officer Performance Based Compensation Plan*
  10.9    Non-Compete Agreement between Standard Bank, PaSB and David C. Mathews*
  31.1    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31.2    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS    XBRL Instance Document **
101.SCH    XBRL Taxonomy Extension Schema Document **
101.CAL    XBRL Taxonomy Calculation Linkbase Document **
101 DEF    XBRL Taxonomy Extension Definition Linkbase Document **
101 LAB    XBRL Taxonomy Label Linkbase Document **
101.PRE    XBRL Taxonomy Presentation Linkbase Document **

 

* Incorporated by reference to the Registration Statement on Form S-1 of Standard Financial Corp. (File No. 333-167579), originally filed with the Securities and Exchange Commission on June 17, 2010, as amended.
** We have attached these documents formatted in XBRL (Extensible Business Reporting Language) as Exhibit 101 to this report. We advise users of this data that pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

STANDARD FINANCIAL CORP.

 

Signatures

  

Title

 

Date

/s/ Timothy K. Zimmerman

   President, Chief Executive Officer and Director (Principal Executive Officer)   May 10, 2012
Timothy K. Zimmerman     

/s/ Colleen M. Brown

   Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)   May 10, 2012
Colleen M. Brown     

 

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