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STND > SEC Filings for STND > Form 10-Q on 9-May-2013All Recent SEC Filings

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Form 10-Q for STANDARD FINANCIAL CORP.


9-May-2013

Quarterly Report


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 unaudited consolidated 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, 2013 have remained unchanged from the disclosures presented in the Company's Annual Report on Form 10-K for the year ended September 30, 2012 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, 2012. 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, 2013 and September 30, 2012

General. The Company's total assets decreased $7.1 million, or 1.6%, to $436.3 million at March 31, 2013 from $443.4 million at September 30, 2012. The decrease was due primarily to a $7.5 million decrease in loans receivable, a $5.0 million decrease in cash and cash equivalents and a $5.9 million decrease in mortgage-backed securities. Partly offsetting these decreases were $3.0 million of additional purchases of bank-owned life insurance and an increase of $7.8 million in investment securities during the six months ended March 31, 2013. Total liabilities decreased $3.6 million, or 1.0%, to $359.7 million at March 31, 2013 from $363.3 million at September 30, 2012 due to net deposit outflows of $5.2 million partly offset by a $1.7 million increase in Federal Home Loan Bank advances.


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Cash and Cash Equivalents. Cash and cash equivalents decreased $5.0 million, or 26.6%, to $13.8 million at March 31, 2013 from $18.8 million at September 30, 2012 due mainly to deposit outflows, the purchase of additional bank owned life insurance and investment securities and funds used to repurchase the Company's common stock.

Loans. At March 31, 2013, net loans were $283.6 million, or 65.0% of total assets compared to $291.1 million, or 65.7% of total assets at September 30, 2012. The $7.5 million, or 2.6% decrease, was due primarily to a $6.7 million decline in the one- to four-family residential real estate portfolio as a result of increased loan repayments and sales of longer term fixed rate loan production which exceeded new loan originations held in portfolio.

Investment Securities. Investment securities available for sale increased $7.8 million to $70.5 million at March 31, 2013 from $62.7 million at September 30, 2012. Purchases of $15.0 million of investment securities during the six months ended March 31, 2013 consisted primarily of government agency bonds. The purchases were offset by calls of government agency bonds totaling $7.0 million during the six months ended March 31, 2013.

Mortgage-Backed Securities. The Company's mortgage-backed securities available for sale decreased $5.9 million to $34.1 million at March 31, 2013 from $40.0 million at September 30, 2012 due mainly to repayments of mortgage-backed securities during the six month period.

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 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.

Deposits decreased $5.2 million, or 1.6%, to $325.1 million at March 31, 2013 from $330.3 million at September 30, 2012. The decrease resulted primarily from a $3.8 million, or 2.8%, decrease in certificate of deposit accounts and $1.3 million, or 0.7%, decrease in demand and savings accounts during the six months ended March 31, 2013 due in part to changes in customer investment preferences and seasonal cash usage.

Borrowings. Our borrowings consist of advances from the Federal Home Loan Bank of Pittsburgh and funds borrowed under repurchase agreements. Total borrowings increased $1.8 million, or 6.0%, to $31.9 million at March 31, 2013 from $30.1 million at September 30, 2012. The increase was due primarily to additional Federal Home Loan Bank advances of $7.4 million partly offset by the repayment of $5.6 million of maturing advances during the six months ended March 31, 2013.

Stockholders' Equity. Stockholders' equity decreased $3.5 million, or 4.4%, to $76.6 million at March 31, 2013 from $80.1 million at September 30, 2012. The decrease was due primarily to the repurchase of the Company's common stock totaling $5.0 million partly offset by net income of $1.5 million for the six months ended March 31, 2013.

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. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table 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.


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                                                       For the Three Months Ended March 31,
                                                  2013                                       2012
                                   Average                                    Average
                                 Outstanding                                Outstanding
                                   Balance       Interest    Yield/ Rate      Balance       Interest    Yield/ Rate
                                                              (Dollars in thousands)
Interest-earning assets:
Loans                           $     291,993   $    3,420          4.69 % $     297,932   $    3,717          4.99 %
Investment and
mortgage-backed securities            102,099          575          2.25 %       102,466          656          2.56 %
Interest earning deposits               8,714            1          0.05 %        11,219            1          0.04 %
Total interest-earning assets         402,806        3,996          3.97 %       411,617        4,374          4.25 %
Noninterest-earning assets             32,061                                     27,569
Total assets                    $     434,867                              $     439,186
Interest-bearing liabilities:
Savings accounts                $     109,432           34          0.12 % $     110,951           46          0.17 %
Certificates of deposit               135,803          785          2.31 %       139,445          853          2.45 %
Money market accounts                   6,880            2          0.12 %         5,750            3          0.21 %
Demand and NOW accounts                72,423           12          0.07 %        68,257           11          0.06 %
Total deposits                        324,538          833          1.03 %       324,403          913          1.13 %
Federal Home Loan Bank
advances                               24,732          128          2.07 %        29,707          187          2.52 %
Securities sold under
agreements to repurchase                3,510            1          0.11 %         3,261            2          0.25 %
Total interest-bearing
liabilities                           352,780          962          1.09 %       357,371        1,102          1.23 %
Noninterest-bearing
liabilities                             3,080                                      3,048
Total liabilities                     355,860                                    360,419
Stockholders' equity                   79,007                                     78,767
Total liabilities and
stockholders' equity            $     434,867                              $     439,186

Net interest income                             $    3,034                                 $    3,272
Net interest rate spread (1)                                        2.88 %                                     3.02 %
Net interest-earning assets
(2)                             $      50,026                              $      54,246
Net interest margin (3)                                             3.01 %                                     3.18 %
Average interest-earning
assets to interest-bearing
liabilities                            114.18 %                                   115.18 %



(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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                                                   For the Six Months Ended March 31,
                                               2013                                  2012
                                   Average                               Average
                                 Outstanding                 Yield/    Outstanding                 Yield/
                                   Balance       Interest     Rate       Balance       Interest     Rate
                                                         (Dollars in thousands)
Interest-earning assets:
Loans                           $     293,933   $    6,883     4.68 % $     294,834   $    7,504     5.09 %
Investment and
mortgage-backed securities            101,816        1,168     2.29 %       102,754        1,309     2.55 %
Interest earning deposits               9,022            3     0.07 %        11,460            2     0.03 %
Total interest-earning assets         404,771        8,054     3.98 %       409,048        8,815     4.31 %
Noninterest-earning assets             31,745                                28,953
Total assets                    $     436,516                         $     438,001
Interest-bearing liabilities:
Savings accounts                $     109,519           71     0.13 % $     112,502          109     0.19 %
Certificates of deposit               136,535        1,595     2.34 %       138,124        1,704     2.47 %
Money market accounts                   6,843            4     0.12 %         6,263            5     0.16 %
Demand and NOW accounts                72,559           26     0.07 %        67,084           24     0.07 %
Total deposits                        325,456        1,696     1.04 %       323,973        1,842     1.14 %
Federal Home Loan Bank
advances                               25,610          282     2.20 %        28,960          381     2.63 %
Securities sold under
agreements to repurchase                3,497            2     0.11 %         3,662            4     0.22 %
Total interest-bearing
liabilities                           354,563        1,980     1.12 %       356,595        2,227     1.25 %
Noninterest-bearing
liabilities                             2,441                                 2,825
Total liabilities                     357,004                               359,420
Stockholders' equity                   79,512                                78,581
Total liabilities and
stockholders' equity            $     436,516                         $     438,001

Net interest income                             $    6,074                            $    6,588
Net interest rate spread (1)                                   2.86 %                                3.06 %
Net interest-earning assets
(2)                             $      50,208                         $      52,453
Net interest margin (3)                                        3.00 %                                3.22 %
Average interest-earning
assets to interest-bearing
liabilities                            114.16 %                              114.71 %



(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, 2013 and 2012

General. Net income for the quarter ended March 31, 2013 was $721,000 compared to $782,000 for the quarter ended March 31, 2012, a decrease of $61,000, or 7.8%. The decrease was primarily the result of a decline in net interest income of $238,000, or 7.3% and higher noninterest expenses of $167,000, or 6.6%. Partially offsetting these items were a lower provision for loan losses of $150,000, or 50.0%, higher noninterest income of $103,000, or 17.4%, and lower income tax expense of $91,000, or 33.8%.

Net Interest Income. Net interest income for the quarter ended March 31, 2012 was $3.3 million compared to $3.0 million for the quarter ended March 31, 2013. Our net interest rate spread and net interest margin were 2.88% and 3.01%, respectively for the three months ended March 31, 2013 compared to 3.02% and 3.18% for the same period in the prior year. The decrease in the net interest rate spread and net interest margin was the result of the yield on interest-earning assets declining more rapidly than the cost of interest-bearing liabilities.

Interest and Dividend Income. Total interest and dividend income decreased by $378,000, or 8.6%, to $4.0 million for the three months ended March 31, 2013 compared to the same period in the prior year. The decrease was primarily due to a decrease in the average yield on interest-earning assets. The average yield on interest-earning assets decreased to 3.97% for the three months ended March 31, 2013 from 4.25% for the same period in the prior year. Additionally, average interest-earning assets decreased to $402.8 million for the three months ended March 31, 2013 from $411.6 million for the same period in 2012.

Interest income on loans decreased $297,000, or 8.0%, to $3.4 million for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The average yield on loans receivable decreased to 4.69% for the three months ended March 31, 2013 from 4.99% 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 decreased by $5.9 million, or 2.0%, to $292.0 million for the three months ended March 31, 2013 from $297.9 million for the same period in the prior year resulting from increased loan repayments.

Interest income on investment and mortgage-backed securities decreased by $81,000, or 12.3%, to $575,000 for the three months ended March 31, 2013 from $656,000 for the same period in the prior year. This decrease was due to a decrease in the average yield earned on investments and mortgage-backed securities to 2.25% for the three months ended March 31, 2013 from 2.56% 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.

Interest Expense. Total interest expense decreased by $140,000, or 12.7%, to $962,000 for the three months ended March 31, 2013 from $1.1 million for the same period in the prior year. This decrease in interest expense was primarily due to a decrease in the average cost of interest-bearing liabilities to 1.09% for the three months ended March 31, 2013 from 1.23% for the same prior year period. Additionally, the average balance of interest-bearing liabilities decreased $4.6 million, or 1.3%, to $352.8 million for the three months ended March 31, 2013 from $357.4 million for the same period in the prior year.

Interest expense on deposits decreased by $80,000, or 8.8%, to $833,000 for the three months ended March 31, 2013 from $913,000 for the same period in the prior year. The average cost of deposits declined from 1.13% for the three months ended March 31, 2012 to 1.03% for the three months ended March 31, 2013. The continued low level of market interest rates enabled us to reduce the rates of interest paid on deposit products.

Interest expense on Federal Home Loan Bank advances decreased $59,000, or 31.6%, to $128,000 for the three months ended March 31, 2013 from $187,000 for the same period in the prior year. The average balance of advances decreased $5.0 million, or 16.7%, to $24.7 million for the three months ended March 31, 2013 compared to the same period in the prior year. In addition, the average cost of advances decreased to 2.07% for the quarter ended March 31, 2013 from 2.52% for the quarter ended March 31, 2012 as higher rate advances matured and were repaid.

Provision for Loan Losses. The provision for loan losses decreased by $150,000 to $150,000 for the three months ended March 31, 2013 from $300,000 for the same period in the prior year due in part to an improvement in delinquency trends. Non-performing loans at March 31, 2013 were $2.7 million or 0.96% of total loans, $4.0 million or 1.34% of total loans at September 30, 2012 and $4.4 million or 1.48% of total loans at March 31, 2012. The provision that was recorded was 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. See "Non-Performing and Problem Assets" for additional information.

Noninterest Income. Noninterest income increased $103,000, or 17.4%, to $694,000 for the three months ended March 31, 2013 from $591,000 for the same period in 2012. The increase was due mainly to higher net loan sale gains of $36,000 resulting from a higher volume of loan sales, increased earnings on bank-owned life insurance of $26,000 and higher annuity and mutual fund fees of $17,000.

Noninterest Expenses. Noninterest expenses increased by $167,000, or 6.6%, to $2.7 million for the three months ended March 31, 2013 compared to the same period in the prior year. Compensation and employee benefits increased $160,000 for the quarter ended March 31, 2013 compared to the same period in the prior year due to general cost increases in personnel expenses and stock award expense for the grants of stock options and restricted stock that were made on July 26, 2012.


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Income Tax Expense. The Company recorded a provision for income tax of $178,000 for the three months ended March 31, 2013 compared to $269,000 for the three months ended March 31, 2012. The effective tax rate was 19.8% for the three months ended March 31, 2013 and 25.6% for the three months ended March 31, 2012, which was lower due in part to a higher level of nontaxable income.

Comparison of Operating Results for the Six Months Ended March 31, 2013 and 2012

General. Net income for the six months ended March 31, 2013 was $1.5 million compared to $1.6 million for the six months ended March 31, 2012, a decrease of $138,000, or 8.6%. The decrease was primarily the result of a decline in net interest income of $514,000, or 7.8% and higher noninterest expenses of $194,000, or 3.9%. Partially offsetting these items were a lower provision for loan losses of $225,000, or 37.5%, higher noninterest income of $195,000, or 16.5%, and lower income tax expense of $150,000, or 23.8%.

Net Interest Income. Net interest income for the six months ended March 31, 2013 was $6.1 million compared to $6.6 million for the six months ended March 31, 2012. Our net interest rate spread and net interest margin were 2.86% and 3.00%, respectively for the six months ended March 31, 2013 compared to 3.06% and 3.22% for the same period in the prior year. The decrease in the net interest rate spread and net interest margin was the result of the yield on interest-earning assets declining more rapidly than the cost of interest-bearing liabilities.

Interest and Dividend Income. Total interest and dividend income decreased by $761,000, or 8.6%, to $8.1 million for the six months ended March 31, 2013 compared to the same period in the prior year. The decrease was due primarily to a decrease in the average yield on interest-earning assets. The average yield on interest-earning assets decreased to 3.98% for the six months ended March 31, 2013 from 4.31% for the same period in the prior year. Average interest-earning assets decreased to $404.8 million for the six months ended March 31, 2013 from $409.0 million for the same period in the prior year.

Interest income on loans decreased $621,000, or 8.3%, to $6.9 million for the six months ended March 31, 2013 due to a decrease in the average yield on loans. The average yield on loans receivable decreased to 4.68% for the six months ended March 31, 2013 from 5.09% 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.

Interest income on investment and mortgage-backed securities decreased by $141,000, or 10.8%, to $1.2 million for the six months ended March 31, 2013 from $1.3 million for the same period in the prior year. This decrease was due in part to a decrease in the average yield earned on investments and mortgage-backed securities to 2.29% for the six months ended March 31, 2013 from 2.55% 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. Additionally, the average balance of investment and mortgage-backed securities decreased by $938,000, or 0.9%, to $101.8 million for the six months ended March 31, 2013 from $102.8 million for the same period in the prior year.

Interest Expense. Total interest expense decreased by $247,000, or 11.1%, to $2.0 million for the six months ended March 31, 2013 from $2.2 million for the same period in the prior year. This decrease in interest expense was due primarily to a decrease in the average cost of interest-bearing liabilities to 1.12% for the six months ended March 31, 2013 from 1.25% for the same prior year period. The average balance of interest-bearing liabilities of $354.6 million for the six months ended March 31, 2013 declined $2.0 million, or 0.6%, from $356.6 million for the six months ended March 31, 2012.

Interest expense on deposits decreased by $146,000, or 7.9%, to $1.7 million for the six months ended March 31, 2013 from $1.8 million for the same period in the prior year. The average cost of deposits declined from 1.14% for the six months ended March 31, 2012 to 1.04% for the six months ended March 31, 2013. 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 deposits which increased $1.5 million, or 0.5%, to $325.5 million for the six months ended March 31, 2013 from the same period in the prior year.

Interest expense on Federal Home Loan Bank advances decreased $99,000, or 26.0%, to $282,000 for the six months ended March 31, 2013 from $381,000 for the same period in the prior year. The average balance of advances decreased $3.4 million, or 11.6%, to $25.6 million for the six months ended March 31, 2013 compared to the same period in the prior year. In addition, the average cost of advances decreased to 2.20% for the six months ended March 31, 2013 from 2.63% for the six months ended March 31, 2012 as higher rate advances matured and were repaid.

Provision for Loan Losses. The provision for loan losses decreased by $225,000 to $375,000 for the six months ended March 31, 2013 from $600,000 for the same period in the prior year due in part to an improvement in delinquency trends. Non-performing loans at March 31, 2013 were $2.7 million or 0.96% of total loans, $4.0 million or 1.34% of total loans at September 30, 2012 and $4.4 million or 1.48% of total loans at March 31, 2012. The provision that was recorded was sufficient, in management's judgment, to bring the allowance for loan losses to a level that reflects the losses inherent in our loan portfolio . . .

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