-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H7Uj9fjj6EwaPFKqGRMiAnFLm/672IGJGV3dFf2bV4SpdFKcwPdmLJj0k4oKNAS5 o5jXmexEE3qJRF1VrxDXOQ== 0000810536-04-000033.txt : 20041109 0000810536-04-000033.hdr.sgml : 20041109 20041109155054 ACCESSION NUMBER: 0000810536-04-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041109 DATE AS OF CHANGE: 20041109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTFED FINANCIAL CORP CENTRAL INDEX KEY: 0000810536 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 954087449 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09566 FILM NUMBER: 041129527 BUSINESS ADDRESS: STREET 1: 401 WILSHIRE BOULEVARD CITY: SANTA MONICA STATE: CA ZIP: 90401-1490 BUSINESS PHONE: 3103196000 MAIL ADDRESS: STREET 1: 401 WILSHIRE BOULEVARD CITY: SANTA MONICA STATE: CA ZIP: 90401 10-Q 1 q0904.txt SEPTEMBER 30, 2004 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 2004 OR | | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 From the Transition Period From ________ to __________ Commission File Number: 1-9566 FIRSTFED FINANCIAL CORP. (Exact name of registrant as specified in its charter) Delaware 95-4087449 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 401 Wilshire Boulevard, Santa Monica, California 90401-1490 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 319-6000 Securities registered pursuant to Section 12(b) of the Act: Common Stock $0.01 par value Title of Class Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | | Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes |X| No | | As of November 1, 2004, 16,441,398 shares of the Registrant's $.01 par value common stock were outstanding. FirstFed Financial Corp. Index Page Part I. Financial Information Item 1. Financial Statements Consolidated Statements of Financial Condition as of 3 September 30, 2004, December 31, 2003 and September 30, 2003 Consolidated Statements of Operations and Comprehensive 4 Earnings for the three and nine months ended September 30, 2004 and 2003 Consolidated Statements of Cash Flows for the nine months 5 ended September 30, 2004 and 2003 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 7 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 Item 4. Controls and Procedures 19 Part II. Other Information (omitted items are inapplicable) Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 20 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21 Exhibits 31.1 Certification of Chief Executive Officer pursuant to 22 Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to 23 Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to 24 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to 25 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
2 PART I - FINANCIAL STATEMENTS Item 1. Financial Statements FirstFed Financial Corp. and Subsidiary Consolidated Statements of Financial Condition (In thousands, except share data) September 30, September 30, 2004 December 31, 2003 (Unaudited) 2003 (Unaudited) --------------- -------------- --------------- ASSETS Cash and cash equivalents $ 40,346 $ 54,318 $ 62,144 Investment securities, available-for-sale (at fair value) 274,419 116,411 63,559 Mortgage-backed securities, available-for-sale (at fair value) 105,811 135,176 151,130 Loans receivable, held-for-sale (fair value $0, $494 and $1,517) -- 492 1,515 Loans receivable, net 5,825,939 4,373,620 4,106,131 Accrued interest and dividends receivable 20,847 16,941 17,205 Real estate owned, net -- 1,324 -- Real estate held for investment 1,606 -- -- Office properties and equipment, net 15,339 10,568 10,418 Investment in Federal Home Loan Bank (FHLB) stock, at cost 123,525 87,775 80,243 Other assets 30,707 28,397 32,782 --------------- -------------- --------------- $ 6,438,539 $ 4,825,022 $ 4,525,127 =============== ============== =============== LIABILITIES Deposits $ 3,251,892 $ 2,538,398 $ 2,504,692 FHLB advances 2,576,200 1,694,000 1,429,000 Securities sold under agreements to repurchase 111,224 122,622 129,220 Accrued expenses and other liabilities 41,044 33,435 41,917 --------------- -------------- --------------- 5,980,360 4,388,455 4,104,829 --------------- -------------- --------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, par value $.01 per share; authorized 100,000,000 shares; issued 23,627,644, 23,543,339 and 23,509,436 shares; outstanding 16,433,048, 17,045,643 and 17,011,740 shares 236 235 235 Additional paid-in capital 38,815 37,733 37,113 Retained earnings - substantially restricted 532,762 483,360 468,199 Unreleased shares to employee stock ownership plan (969) (125) (561) Treasury stock, at cost, 7,194,596, 6,497,696 and 6,497,696 shares (113,776) (85,727) (85,727) Accumulated other comprehensive earnings, net of taxes 1,111 1,091 1,039 --------------- -------------- --------------- 458,179 436,567 420,298 --------------- -------------- --------------- $ 6,438,539 $ 4,825,022 $ 4,525,127 =============== ============== =============== See accompanying notes to consolidated financial statements.
3 FirstFed Financial Corp. and Subsidiary Consolidated Statements of Operations and Comprehensive Earnings (Dollars in thousands, except per share data) (Unaudited) Three months ended Nine months ended September 30, September 30, ------------------------------ ------------------------------ 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Interest income: Interest on loans $ 60,821 $ 55,774 $ 174,335 $ 169,725 Interest on mortgage-backed securities 777 1,221 2,583 4,277 Interest and dividends on investments 3,401 1,349 7,958 4,593 ------------- ------------- ------------- ------------- Total interest income 64,999 58,344 184,876 178,595 ------------- ------------- ------------- ------------- Interest expense: Interest on deposits 10,485 9,179 27,614 30,433 Interest on borrowings 15,648 12,635 40,696 37,055 ------------- ------------- ------------- ------------- Total interest expense 26,133 21,814 68,310 67,488 ------------- ------------- ------------- ------------- Net interest income 38,866 36,530 116,566 111,107 Provision for loan losses -- -- -- -- ------------- ------------- ------------- ------------- Net interest income after provision for loan losses 38,866 36,530 116,566 111,107 ------------- ------------- ------------- ------------- Other income: Loan servicing and other fees 2,463 2,492 6,928 5,613 Retail office fees 1,411 1,366 4,127 3,663 Gain on sale of loans 5,403 1,689 5,434 2,382 Real estate operations, net (24) (49) 106 315 Other operating income 73 92 232 358 ------------- ------------- ------------- ------------- Total other income 9,326 5,590 16,827 12,331 ------------- ------------- ------------- ------------- Non-interest expense: Salaries and employee benefits 11,066 7,997 29,681 25,026 Occupancy 2,359 2,087 6,438 6,057 Advertising expense 69 68 428 180 Amortization of core deposit intangible 498 499 1,496 1,495 Federal deposit insurance 99 98 289 302 Legal 556 237 1,288 455 Other expense 3,047 2,536 8,707 7,552 ------------- ------------- ------------- ------------- Total non-interest expense 17,694 13,522 48,327 41,067 ------------- ------------- ------------- ------------- Earnings before income taxes 30,498 28,598 85,066 82,371 Income tax provision 12,626 10,395 35,664 33,057 ------------- ------------- ------------- ------------- Net earnings $ 17,872 $ 18,203 $ 49,402 $ 49,314 ============= ============= ============= ============= Net earnings $ 17,872 $ 18,203 $ 49,402 $ 49,314 Other comprehensive earnings (loss), net of taxes 531 (817) 20 (1,162) ------------- ------------- ------------- ------------- Comprehensive earnings $ 18,403 $ 17,386 $ 49,422 $ 48,152 ============= ============= ============= ============= Earnings per share: Basic $ 1.09 $ 1.07 $ 2.95 $ 2.91 ============= ============= ============= ============= Diluted $ 1.06 $ 1.04 $ 2.88 $ 2.84 ============= ============= ============= ============= Weighted average shares outstanding: Basic 16,416,629 16,994,566 16,752,261 16,967,043 ============= ============= ============= ============= Diluted 16,825,386 17,432,285 17,158,980 17,359,014 ============= ============= ============= ============= See accompanying notes to consolidated financial statements.
4 FirstFed Financial Corp. and Subsidiary Consolidated Statements of Cash Flows (In thousands) (Unaudited) Nine months ended September 30, ------------------------------------- 2004 2003 ---------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 49,402 $ 49,314 Adjustments to reconcile net earnings to net cash provided by operating activities: Net change in loans held-for-sale 492 778 Depreciation 837 1,040 Valuation adjustments on real estate sold - (35) Amortization of fees and premiums/discounts 9,506 1,114 Gain on sale of loans (5,400) (1,500) Decrease in servicing asset 90 180 FHLB stock dividends (2,805) (2,768) Change in taxes payable 4,193 11,231 (Increase) decrease in interest and dividends receivable (3,906) 547 Increase (decrease) in interest payable 2,027 (3,238) Amortization of core deposit intangible asset 1,496 1,495 Increase in other assets (7,301) (8,032) Increase in accrued expenses and other liabilities 9,052 2,635 ---------------- ----------------- Total adjustments 8,281 3,447 ---------------- ----------------- Net cash provided by operating activities 57,683 52,761 ---------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Loans made to customers and principal collections on loans (1,432,524) (329,077) Loans purchased (422) (77) Increase in deferred loan costs (28,913) (8,108) Proceeds from sales of real estate owned 1,324 716 Proceeds from maturities and principal payments of investment securities, available-for-sale 40,561 124,149 Principal reductions on mortgage-backed securities, available for sale 28,880 48,566 Purchase of investment securities, available for sale (198,494) (86,240) (Purchases) redemptions of FHLB stock (32,945) 1,253 Purchases of premises and equipment (5,608) (1,116) ---------------- ----------------- Net cash used by investing activities (1,628,141) (249,934) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits 713,494 (22,334) Net increase in short term borrowings 1,062,802 130,947 Net (decrease) increase in long term borrowings (192,000) 105,000 Purchases of treasury stock (28,049) (965) Other 239 1,470 ---------------- ----------------- Net cash provided by financing activities 1,556,486 214,118 ---------------- ----------------- Net (decrease) increase in cash and cash equivalents (13,972) 16,945 Cash and cash equivalents at beginning of period 54,318 45,199 ---------------- ----------------- Cash and cash equivalents at end of period $ 40,346 $ 62,144 ================ ================= See accompanying notes to consolidated financial statements.
5 FirstFed Financial Corp. and Subsidiary Notes to Consolidated Financial Statements (Unaudited) 1. The unaudited consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Company, all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations for the periods covered have been made. Certain information and note disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. The results for the periods covered hereby are not necessarily indicative of the operating results for a full year. 2. Basic earnings per share were computed by dividing net earnings by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share include the effect of stock options, if dilutive. 3. For purposes of reporting cash flows on the "Consolidated Statements of Cash Flows", cash and cash equivalents include cash, overnight investments and securities purchased under agreements to resell which mature within 90 days of the date of purchase. 4. The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, issued in March 2000, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation, establishes accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123. The following table illustrates the effect on net income if the fair-value-based method had been applied to all outstanding and unvested awards in each period. Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ---------------------------- 2004 2003 2004 2003 ------------ ------------- ------------- ------------ (In thousands, except per share data) Net income as reported.................. $ 17,872 $ 18,203 $ 49,402 $ 49,314 Deduction: Total stock-based compensation expense determined under fair-value-based method for all awards, net of tax...... (116) (100) (536) (439) ------------ ------------- ------------- ------------ Pro forma net income.................. 17,756 $ 18,103 $ 48,866 $ 48,875 ============ ============= ============= ============ Earnings per share: Basic: As reported........................... $ 1.09 $ 1.07 $ 2.95 $ 2.91 Pro forma............................. $ 1.08 $ 1.07 $ 2.92 $ 2.88 Diluted: As reported........................... $ 1.06 $ 1.04 $ 2.88 $ 2.84 Pro forma............................. $ 1.06 $ 1.04 $ 2.86 $ 2.82
6 The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2004 and 2003, respectively: no dividend yield in any year; expected volatility of 32% and 34%; risk free interest rates of 4.2% and 3.8%; and expected average lives of 5.5 years in both periods. The weighted-average grant date fair value of options granted during the periods are $15.58 and $11.31 for 2004 and 2003, respectively. The Company has elected to recognize forfeitures in the year they occur. 5. The following table sets forth the net periodic benefit cost attributable to the Company's Supplementary Executive Retirement Plan: Pension Benefits Three months ended Nine months ended September 30, September 30, ----------------------------- ------------------------------ 2004 2003 2004 2003 ------------ ------------- ------------- ------------- (In thousands) Service cost.......................... $ 122,088 $ 111,690 $ 365,210 $ 335,070 Interest cost......................... 151,759 146,542 454,143 439,626 Expected return on plan assets........ -- -- -- -- Amortization of net (gain) loss....... 37,753 29,865 111,052 89,595 Amortization of prior service cost.... 33,661 33,661 100,983 100,983 Amortization of transition obligation/(asset).................. -- -- -- -- ------------ ------------- ------------- ------------- Net periodic benefit cost........... $ 345,261 $ 321,758 $ 1,031,388 $ 965,274 ============ ============= ============= ============= Weighted Average Assumptions Discount rate......................... 6.00% 6.50% 6.00% 6.50% Rate of compensation increase......... 4.00% 4.00% 4.00% 4.00% Expected return on plan assets........ N/A N/A N/A N/A
The Company does not expect any significant changes to the amounts previously disclosed for contributions for benefits payments. 6. Non-interest income for the quarter ended September 30, 2004 increased by approximately $5.4 million as a result of the elimination of the Company's repurchase liability for loans sold with recourse. This change in estimate, which is a non-cash transaction, increased net earnings for the quarter by approximately $3.1 million, after tax, or approximately $0.19 per diluted share. The Bank's portfolio of loans sold with recourse was originated prior to 1990, and the Bank's exposure to loss on these loans has decreased in recent years as the balances have declined. Credit experience has been better than previously estimated, with no charge-offs having occurred on these loans since 1997. Additionally, the continuing escalation of real estate prices in Southern California contributed to the conclusion that the reserve should be reversed. At September 30, 2004, the dollar amount of loans sold with recourse on which the Company had recourse liability totaled $81 million. The maximum potential recourse liability on this portfolio is $15 million. 7. Recent Accounting Pronouncements In December 2003, SFAS Statement No. 132(revised), Employers' Disclosures about Pensions and Other Postretirement Benefits, was issued. Statement 132 (revised) prescribes employers' disclosures about pension plans and other postretirement benefit plans; it does not change the measurement or recognition of those plans. The Statement retains and revises the disclosure requirements contained in the original Statement 132. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. The Statement generally is effective for fiscal years ending after December 15, 2003. The Company's disclosures incorporate the requirements of Statement 132 (revised). 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following narrative is written with the presumption that the users have read or have access to the Company's 2003 Annual Report on Form 10-K, which contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2003, and for the year then ended. Therefore, only material changes in financial condition and results of operations are discussed herein. The Securities and Exchange Commission ("SEC") maintains a web site which contains reports, proxy and information statements, and other information pertaining to registrants that file electronically with the SEC, including the Company. The address is: www.sec.gov. In addition, the Company's periodic and current reports are available free of charge on its website at www.firstfedca.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. Note regarding forward looking statements: This quarterly report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical facts, included in this quarterly report that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. These forward-looking statements are subject to various factors, many of which are beyond the Company's control, which could cause actual results to differ materially from such statements. Such factors include, but are not limited to, the general business environment, interest rate fluctuations that may affect operating margins, the California real estate market, branch openings, competitive conditions in the business and geographic areas in which the Company conducts its business, and regulatory actions. In addition, these forward-looking statements are subject to assumptions as to future business strategies and decisions that are subject to change. The Company makes no guarantee or promises regarding future results and assumes no responsibility to update such forward-looking statements. Financial Condition At September 30, 2004, FirstFed Financial Corp. ("Company"), holding company for First Federal Bank of California and its subsidiaries ("Bank"), had consolidated total assets of $6.4 billion compared to $4.8 billion at December 31, 2003 and $4.5 billion at September 30, 2003. The increase in total assets for the period ended September 30, 2004 compared to December 31, 2003 and September 30, 2003 is primarily attributable to an increase in the loan portfolio to $5.8 billion at September 30, 2004 from $4.4 billion at December 31, 2003 and $4.1 billion at September 30, 2003. Loan originations and purchases were $2.5 billion during the first nine months of 2004 compared to $1.6 billion during the first nine months of 2003. Loan payoffs and principal reductions were $1.1 billion during the first nine months of 2004 compared to $1.3 billion during the first nine months of 2003. Consolidated stockholders' equity at September 30, 2004 was $458.2 million compared to $436.6 million at December 31, 2003 and $420.3 million at September 30, 2003. Stockholders' equity increased $21.6 million during the first nine months of 2004 primarily due to net earnings of $49.4 million offset by stock repurchases of $28.0 million. The Company repurchased 696,600 shares of common stock at an average market price of $40.25 per share during the first nine months of 2004. During the first nine months of 2003, the Company repurchased 33,800 shares of common stock at an average market price of $28.53 per share. The UCLA Anderson Forecast for California ("Forecast") projects continued growth in jobs and personal income during 2004 and continuing into 2005 and 2006. Although real estate prices are at record high levels, demand for housing remains strong due to continued migration to California. Permits for new housing are expected to reach 200,000 units in 2004 and remain strong throughout 2006. According to the Forecast, "it would take something like a big spike in interest rates or a very tough recession to slow building down." 8 Southern California has traditionally been the Bank's primary lending area. In 2004, the Bank expanded its lending operations to Northern California, which accounted for 35% of loan originations during the first nine months. The following table summarizes loan originations and purchases by property type for the periods indicated: Nine months ended September 30, 2004 2003 ------------- ------------- (In thousands) Single family $ 1,976,818 $ 1,201,451 Multi-family and commercial 487,271 377,146 Other (1) 57,218 37,127 ----------- ----------- Total $ 2,521,307 $ 1,615,724 =========== =========== (1) Includes consumer loans and commercial business loans.
The following table summarizes loan originations and purchases by loan type for the periods indicated: Nine months ended September 30, 2004 2003 ------------ ------------- (In thousands) Adjustable: 12MAT $ 703,389 $ 517,334 CODI 1,656,298 472,794 COFI 79,496 129,041 Prime 57,860 37,127 Libor 932 -- Fixed 3,723 61,363 Hybrid (1) 19,609 398,065 ----------- ----------- Total $ 2,521,307 $ 1,615,724 =========== ===========
(1) These loan types are adjustable rate loans with initial fixed interest rate periods ranging from 3 to 7 years. At September 30, 2004, 89.1% of the Bank's loan portfolio was invested in adjustable rate products. Loans that adjust monthly based on the 12-month average of the 3-Month Certificate of Deposit Index ("CODI") comprised 37.3% of the loan portfolio. Loans that adjust monthly based on the 12-month average U.S. Treasury Security rate ("12MAT") comprised 25.2% of the loan portfolio. Loans that adjust monthly based on the FHLB Eleventh District Cost of Funds Index ("COFI") comprised 23.6% of the loan portfolio. The remaining 3.0% of the adjustable rate loan portfolio varies based on changes in the Prime Rate and the London Inter-Bank Offering Rate ("LIBOR") and other indices. The Bank's non-performing assets to total assets ratio was 0.02% as of September 30, 2004, compared to 0.10% as of December 31, 2003 and 0.12% as of September 30, 2003. (See "Non-performing Assets" for further discussion.) The Bank recorded net loan recoveries of $231 thousand and $443 thousand for the third quarter and first nine months of 2004, respectively. For the comparable periods last year, the Bank recorded no loan charge-offs during the third quarter of 2003 and net loan recoveries of $25 thousand during the first nine months of 2003, respectively. Allowances for loan losses (including general valuation allowances and valuation allowances for impaired loans) totaled $76.2 million or 1.29% of gross loans at September 30, 2004. This compares with $75.7 million or 1.70% at December 31, 2003 and $75.7 million or 1.81% at September 30, 2003. 9 The following table shows the components of the Bank's portfolio of loans (including loans held for sale) and mortgage-backed securities by collateral type as of the dates indicated: September 30, December 31, September 30, 2004 2003 2003 --------------- -------------- --------------- (In thousands) REAL ESTATE LOANS First trust deed residential loans One-to-four units $ 3,727,516 $ 2,456,971 $ 2,134,608 Five or more units 1,703,413 1,547,771 1,585,646 --------------- -------------- --------------- Residential loans 5,430,929 4,004,742 3,720,254 OTHER REAL ESTATE LOANS Commercial and industrial 313,475 345,273 382,531 Second trust deeds 6,018 7,281 6,342 Construction 19,028 9,053 7,263 --------------- -------------- --------------- Real estate loans 5,769,450 4,366,349 4,116,390 NON-REAL ESTATE LOANS: Deposit accounts 526 649 616 Commercial business loans 55,742 34,424 26,914 Consumer 57,940 49,738 45,772 --------------- -------------- --------------- Loans receivable 5,883,658 4,451,160 4,189,692 LESS: General valuation allowances - loan portfolio 75,681 75,238 75,248 Valuation allowances - impaired loans 496 496 496 Deferred loan origination fees (costs), net (18,458) 1,314 6,302 --------------- -------------- --------------- Net loans receivable 5,825,939 4,374,112 4,107,646 FHLMC AND FNMA MORTGAGE-BACKED SECURITIES (at fair value): Secured by single family dwellings 99,667 128,465 143,850 Secured by multi-family dwellings 6,144 6,711 7,280 --------------- -------------- --------------- Mortgage-backed securities 105,811 135,176 151,130 --------------- -------------- --------------- TOTAL $ 5,931,750 $ 4,509,288 $ 4,258,776 =============== ============== ===============
The mortgage-backed securities portfolio, classified as available-for-sale, was recorded at fair value as of September 30, 2004. An unrealized gain of $684 thousand, net of taxes, was recorded in stockholders' equity as of September 30, 2004. This compares to net unrealized gains of $965 thousand as of December 31, 2003 and $1.1 million as of September 30, 2003. The investment securities portfolio, classified as available-for-sale, was recorded at fair value as of September 30, 2004. An unrealized gain of $427 thousand, net of taxes, was reflected in stockholders' equity as of September 30, 2004. This compares to net unrealized gains of $126 thousand as of December 31, 2003 and unrealized losses of $37 thousand as of September 30, 2003. Asset/Liability Management Market risk is the risk of loss from adverse changes in market prices and interest rates. The Bank's market risk arises primarily from the interest rate risk inherent in its lending and liability funding activities. 10 The Bank's net interest income typically improves during periods of decreasing interest rates because there is a three-month time lag before changes in COFI, and a two-month time lag before changes in 12MAT, CODI and LIBOR, can be implemented with respect to the Bank's adjustable rate loans Thus during periods immediately following interest rate decreases the Bank's cost of funds tends to decrease faster than the yield earned on its adjustable rate loan portfolio. The reverse is true during rising rate environments and the Bank's net interest income typically decreases if there is no growth in earning assets. The composition of the Bank's financial instruments that are subject to market risk has not changed materially since December 31, 2003. The one year GAP (the difference between rate-sensitive assets and liabilities repricing within one year or less) was a positive $411.4 million or 6.39% of total assets at September 30, 2004. In comparison, the one year GAP was a positive $666.1 million or 13.8% of total assets at December 31, 2003. The decrease in GAP at September 30, 2004 from December 31, 2003 is attributable to an increase in short-term borrowings. Capital Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and percentages of total capital to assets. The Bank met the standards necessary to be deemed well capitalized under the applicable regulatory requirements. The following table summarizes the Bank's actual capital and required capital as of September 30, 2004: Tangible Core Risk-based Capital Capital Capital ----------- ------------ ------------- (Dollars in thousands) Actual Capital: Amount $ 429,701 $ 429,701 $ 474,583 Ratio 6.68% 6.68% 13.33% Minimum required capital: Amount $ 96,448 $ 257,194 $ 284,784 Ratio 1.50% 4.00% 8.00% Well capitalized required capital: Amount $ -- $ 321,493 $ 355,980 Ratio --% 5.00% 10.00%
During the first nine months of 2004, the Company repurchased 696,900 shares of common stock at an average market price of $40.25 per share. During the first nine months of 2003, the Company repurchased 33,800 shares of common stock at an average market price of $28.53 per share. The Board of Directors authorized the repurchase of 820,302 additional shares on July 22, 2004, which brought the shares available for repurchase as of November 1, 2004 to 1,472,079 or 9% of total common shares outstanding. 11 Loan Loss Allowances Listed below is a summary of activity in the Bank's general valuation allowance and the valuation allowance for impaired loans during the periods indicated: Nine Months Ended September 30, 2004 -------------------------------------------- General Impaired Valuation Valuation Allowances Allowances Total -------------- ------------- ---------- (In thousands) Balance at December 31, 2003 $ 75,238 $ 496 $ 75,734 Recoveries 443 -- 443 -------------- ------------- ---------- Balance at September 30, 2004 $ 75,681 $ 496 $ 76,177 ============== ============= ==========
Nine Months Ended September 30, 2003 -------------------------------------------- General Impaired Valuation Valuation Allowances Allowances Total -------------- ------------- ---------- (In thousands) Balance at December 31, 2002 $ 75,223 $ 496 $ 75,719 Charge-offs: Single family (52) -- (52) Multifamily (8) -- (8) Other - non-real estate (32) -- (32) -------------- ------------- ---------- Total charge-offs (92) -- (92) Recoveries 117 -- 117 -------------- ------------- ---------- Net recoveries 25 -- 25 -------------- ------------- ---------- Balance at September 30, 2003 $ 75,248 $ 496 $ 75,744 ============== ============= ==========
The Bank maintains a general valuation allowance for loan losses due to the inherent risks in the loan portfolio that have yet to be specifically identified. The Bank's loan portfolio is stratified based on factors affecting the perceived level and concentration of risk, such as type of collateral, level of loan documentation, the borrowers credit rating, year of origination, original loan-to-value ratio and geographic location. The appropriate level of general valuation allowance is calculated by applying reserve factors to the balance of assets on which the Bank has loss exposure. These reserve factors represent the expected likelihood of default multiplied by the expected rate of loss. The expected rates of loss and default are based on the Bank's historical loss experience and adjusted for current conditions and trends in the Bank's lending areas. Based on this methodology, the Bank did not record a provision for loan losses during the first nine months of 2004 or for any period in 2003. Loans that require a reduced level of documentation at origination are an increasing percentage of the Bank's loan portfolio. On "Stated Income/Stated Asset" (SISA) loans, the borrower includes information on his/her level of income and assets that is not subject to verification by the Bank. For "No Income/No Asset" (NINA) loans, the borrower is not required to submit information on his/her level of income or assets. At September 30, 2004, approximately 45% of the Bank's single family loan portfolio was composed of either NINA or SISA loans. This was an increase from approximately 32% of the Bank's single family loan portfolio being NINA or SISA at December 31, 2003. The Bank's portfolios of multifamily and other real estate loans all require full documentation by the borrowers. 12 The Bank attempts to mitigate the inherent risk of making reduced documentation loans by evaluating the other credit characteristics of the loans, such as the creditworthiness of the borrower and the loan to value ratio at the origination date. One measure of the creditworthiness of the borrower is the borrower's FICO score, which is a standardized credit scoring system developed by Fair Isaac & Co. The Bank's portfolio of single family loans had a weighted average FICO score at date of origination of 708. The weighted average loan to value ratio at date of origination for the single family portfolio was approximately 72% at September 30, 2004. Results of Operations The Company reported consolidated net earnings of $17.9 million or $1.06 per diluted share of common stock for the third quarter of 2004 compared to net earnings of $18.2 million or $1.04 per diluted share for the third quarter of 2003. Net earnings for the third quarter of 2004 included income of $3.1 million or $0.19 per diluted share from the elimination of the Bank's repurchase liability for loans sold with recourse. Net earnings for the third quarter of 2003 included $870 thousand or $0.05 per diluted share for a reduction in the same liability. Additionally, income tax expense for the third quarter of 2003 was reduced by $1.6 million or $0.09 per diluted share due to a change in the California tax method of accounting for bad debts. Net earnings for the first nine months of 2004 were $49.4 million or $2.88 per diluted common share compared to $49.3 million or $2.84 per diluted common share for the first nine months of 2003. Net earnings for the first nine months of 2004 include $907 thousand or $0.05 per diluted share for interest received from the California Franchise Tax Board in settlement of amended returns for tax years 1993 to 1998. Net Interest Income Net interest income increased by 6% during the third quarter of 2004 compared to the third quarter of 2003, but decreased by 3% compared to the second quarter of 2004. Although the interest rate spread dropped to 2.55% during the third quarter of 2004 from 3.17% during the third quarter of 2003, net interest income increased due to a 31% growth in average interest-earning assets. However, net interest income fell compared to the second quarter of 2004 because the 12% growth in average interest-earning assets was not sufficient to compensate for a 26 basis point decrease in interest spread. The average earning assets yield dropped 14 basis points primarily due to the time-lag inherent in adjustable rate loans. The cost of funds increased by 12 basis points due to higher short-term interest rates. Net interest income increased by 5% to $116.6 million during the first nine months of 2004 compared to $111.1 million for the first nine months of 2003. The increase is attributable to a 22% increase in average interest-earning assets which was offset by a 49 basis point decline in interest rate spreads. The decline in spread is attributable to the yield on interest-earning assets declining more rapidly than the cost of funds. The yield on average earning assets decreased by 90 basis points during the first nine months of 2004 compared to the prior year while the cost of funds decreased by only 41 basis points. Funding costs started to increase during the first nine months of 2004 due to three interest rate increases by the Federal Reserve during this period. 13 The following table sets forth: (i) the average daily dollar amounts of and average yields earned on loans, mortgage-backed securities and investment securities, (ii) the average daily dollar amounts of and average rates paid on savings deposits and borrowings, (iii) the average daily dollar differences, (iv) the interest rate spreads, and (v) the effective net spreads for the periods indicated: During the Nine Months Ended September 30, ------------------------------- 2004 2003 ------------ --------------- (Dollars in thousands) Average loans and mortgage-backed securities $ 4,968,365 $ 4,137,904 Average investment securities 242,345 123,176 ------------ --------------- Average interest-earning assets 5,210,710 4,261,080 ------------ --------------- Average savings deposits 2,798,348 2,502,758 Average borrowings 2,136,130 1,500,810 ------------ --------------- Average interest-bearing liabilities 4,934,478 4,003,568 ------------ --------------- Excess of interest-earning assets over interest-bearing liabilities $ 276,232 $ 257,512 ============ =============== Yields earned on average interest-earning assets 4.61% 5.51% Rates paid on average interest-bearing liabilities 1.84 2.25 Interest rate spread 2.77 3.26 Effective net spread (1) 2.86 3.40 Total interest income $ 180,160 $ 176,089 Total interest expense 68,096 67,560 ------------ --------------- 112,064 108,529 Total other items (2) 4,502 2,578 ------------ --------------- Net interest income $ 116,566 $ 111,107 ============ ===============
(1) The effective net spread is a fraction, the denominator of which is the average dollar amount of interest-earning assets, and the numerator of which is net interest income (excluding stock dividends, interest from the FTB and miscellaneous interest income). (2) Includes Federal Home Loan Bank Stock dividends, interest from the FTB and other miscellaneous interest income. Non-Interest Income and Expense Loan servicing and other fees were $2.5 million and $6.9 million for the third quarter and first nine months of 2004, respectively, compared to $2.5 million and $5.6 million for the same periods of the prior year. Because a greater number of loans subject to prepayment fees were paid off, loan prepayment fees grew to $2.2 million and $5.8 million for the third quarter and first nine months of 2004 compared to $2.0 million and $4.0 million for the same periods last year. Gain on sale of loans was $5.4 million for both the third quarter and first nine months of 2004 resulting from the elimination the Bank's repurchase liability for loans sold with recourse. Because loan balances have declined, credit experience has been better than previously estimated and no charge-offs have occurred on these loans since 1997, the Bank eliminated its repurchase liability for loans sold with recourse. Additionally, the age of the loans and the continuing escalation of real estate prices in Southern California contributed to the conclusion that the reserve should be reversed. Gains of $1.7 million and $2.4 million for the third quarter and first nine months of 2003 include a $1.5 million partial reversal of the recourse liability. Real estate operations resulted in net losses of $24 thousand during the third quarter of 2004 compared to net losses of $49 thousand for the same period last year. Real estate operations resulted in net gains of $106 thousand during the first nine months of 2004 compared to net gains of $315 thousand for the same period last year. Real estate operations normally include gains and losses on the sale of foreclosed properties as well as rental income and operating expense during the holding period of these foreclosed properties. 14 Non-interest expense increased to $17.7 million and $48.3 million, respectively, for the third quarter and first nine months of 2004 from $13.5 million and $41.1 million, respectively, from the third quarter and first nine months of 2003. The increase in non-interest expense during the third quarter and first nine months of 2004 resulted from higher incentive-based compensation related to loan volume and legal costs. Year to date results during 2004 include a $395 thousand first quarter loss from a vendor defalcation. The ratio of non-interest expense to average total assets fell to 1.18% during the third quarter of 2004 from 1.20% for the third quarter of 2003. On a year-to-date basis, the ratio of non-interest expense to total assets fell to 1.17% for the first nine months of 2004 from 1.24% for the first nine months of 2003. The decreased ratios during 2004 are attributable to asset growth. Non-accrual, Past Due, Modified and Restructured Loans The Bank accrues interest earned but uncollected for every loan without regard to its contractual delinquency status and establishes a specific interest allowance for each loan which becomes 90 days or more past due or in foreclosure. Loans requiring delinquent interest allowances (non-accrual loans) totaled $1.4 million at September 30, 2004 compared to $3.3 million at December 31, 2003 and $5.2 million at September 30, 2003. The amount of interest allowance for loans 90 days or more delinquent or in foreclosure was $190 thousand, $227 thousand, and $303 thousand as of September 30, 2004, December 31, 2003, and September 30, 2003, respectively. The Bank allows loan restructurings that result from temporary modifications of principal and interest payments. Under these arrangements, loan terms are typically reduced to no less than a monthly interest payment required under the note. Any loss of revenues under the modified terms would be immaterial to the Bank. Generally, if the borrower is unable to return to scheduled principal and interest payments at the end of the modification period, foreclosure proceedings are initiated. As of September 30, 2004, the Bank had net modified loans totaling $2.4 million. No modified loans were 90 days or more delinquent as of September 30, 2004. The Bank considers a loan impaired when management believes that it is probable that the Bank will not be able to collect all amounts due under the contractual terms of the loan. Estimated impairment losses are recorded as separate valuation allowances and may be subsequently adjusted based upon changes in the measurement of impairment. Impaired loans, disclosed net of valuation allowances, include non-accrual major loans (commercial business loans with an outstanding principal amount greater than or equal to $500 thousand and single-family loans greater than or equal to $750 thousand, and income property loans with an outstanding principal amount greater than or equal to $1.5 million), modified loans, and major loans less than 90 days delinquent in which full payment of principal and interest is not expected to be received. The following is a summary of impaired loans, net of valuation allowances for impairment, as of the dates indicated: September 30, December 31, September 30, 2004 2003 2003 --------------- -------------- --------------- (In thousands) Non-accrual loans $ -- $ 1,782 $ 1,312 Modified loans -- 1,488 1,508 --------------- -------------- --------------- $ -- $ 3,270 $ 2,820 =============== ============== ===============
15 The Bank evaluates loans for impairment whenever the collectibility of contractual principal and interest payments is questionable. When a loan is considered impaired the Bank measures impairment based on the present value of expected future cash flows (over a period not to exceed 5 years) discounted at the loan's effective interest rate. However, if the loan is "collateral-dependent" or foreclosure is probable, impairment is measured based on the fair value of the collateral. When the measure of an impaired loan is less than the recorded investment in the loan, the Bank records an impairment allowance equal to the excess of the Bank's recorded investment in the loan over its measured value. All impaired loans were measured using the fair value method as of September 30, 2004, December 31, 2003 and September 30, 2003, respectively. Impaired loans for which valuation allowances had been established totaled $496 thousand at September 30, 2004, December 31, 2003 and September 30, 2003. Impaired loans for which there were no valuation allowances established totaled $0 at September 30, 2004, $3.3 million at December 31, 2003 and $2.8 million at September 30, 2003. See "Results of Operations" for an analysis of activity in the valuation allowance for impaired loans. Cash payments received from impaired loans are recorded in accordance with the contractual terms of the loan. The principal portion of the payment is used to reduce the principal balance of the loan, whereas the interest portion is recognized as interest income. The average net investment in impaired loans was $0 for the quarter ended September 30, 2004, $3.6 million for the quarter ended December 31, 2003 and $4.5 million for the quarter ended September 30, 2003. The amount of interest income recognized on the cash basis for impaired loans during the quarters ended September 30, 2004 and September 30, 2003 was $0 and $18 thousand, respectively. Interest income recognized under the accrual basis for the quarters ended September 30, 2004 and September 30, 2003 was $0 and $18 thousand, respectively. Asset Quality The following table sets forth certain asset quality ratios of the Bank at the periods indicated: September 30, December 31, September 30, 2004 2003 2003 --------------- -------------- --------------- Non-performing loans to gross loans receivable (1) 0.02% 0.08% 0.12% Non-performing assets to total assets (2) 0.02% 0.10% 0.12% Loan loss allowances to non-performing loans (3) 5,560% 2,266% 1,447% General loss allowances to gross loans receivable (4) 1.29% 1.70% 1.81% -------------------------- (1) Non-performing loans are net of valuation allowances related to those loans. Loans receivable are before deducting deferred loan origination fees (costs), general valuation allowances and valuation allowances for impaired loans. (2) Non-performing assets are net of valuation allowances related to those assets. (3) The Bank's loan loss allowances, including any valuation allowances for non-performing loans, impaired loans and the general valuation allowance. Non-performing loans are before deducting valuation allowances related to those loans. (4) The Bank's general valuation allowances plus the allowance for impaired loans as a percentage of gross loans receivable before deducting deferred loan origination fees (costs), general valuation allowances and valuation allowances for impaired loans.
16 Non-performing Assets The Bank defines non-performing assets as loans delinquent over 90 days (non-accrual loans), loans in foreclosure and real estate acquired by foreclosure (real estate owned). The following is an analysis of non-performing assets as of the periods indicated: September 30, December 31, September 30, 2004 2003 2003 ---------------- -------------- ----------------- (In thousands) Real estate owned: Single family $ -- $ 1,324 $ -- ---------------- -------------- ----------------- Total real estate owned -- 1,324 -- ---------------- -------------- ----------------- Non-accrual loans: Single family 1,364 3,326 5,224 Other 6 16 12 ---------------- -------------- ----------------- Total non-accrual loans 1,370 3,342 5,236 ---------------- -------------- ----------------- Total non-performing assets $ 1,370 $ 4,666 $ 5,236 ================ ============== =================
Real estate owned and non-accrual loans, while varying slightly from quarter to quarter, have remained at very low levels for the last few years. Historically, single family non-performing loans have been attributable to factors such as layoffs and decreased incomes. Historically, multi-family and commercial non-performing loans have been attributable to factors such as declines in occupancy rates, employment rates and rental values. Sources of Funds External sources of funds include savings and checking deposits from several sources, advances from the Federal Home Loan Bank of San Francisco ("FHLB"), and collateralized borrowings. Savings and checking deposits are accepted from retail banking offices, telemarketing sources, and national deposit brokers. The cost of funds, operating margins and net earnings of the Bank associated with brokered and telemarketing deposits are generally comparable to the cost of funds, operating margins and net earnings of the Bank associated with retail deposits, FHLB borrowings and repurchase agreements. As the cost of each source of funds fluctuates from time to time, based on market rates of interest offered by the Bank and other depository institutions, the Bank selects funds from the lowest cost source until the relative costs change. To diversify its funding sources, the Bank is considering securitizing additional loans for use as collateral for reverse repurchase agreements. Total savings deposits increased by $493.2 million and $713.5 million during the third quarter and first nine months of 2004, respectively. The increase in deposits for the third quarter of 2004 is primarily attributable to an increase in deposits acquired from national brokerage firms ("brokered deposits"). Brokered deposits increased by $477.3 million and $642.9 million during the third quarter and first nine months of 2004, respectively. In order to fund loan originations, the Bank increased its use of brokered deposits during the third quarter and the first nine months of 2004. Brokered deposits comprised 20%, 0% and 0% of total deposits at September 30, 2004, December 31, 2003 and September 30, 2003, respectively. Because the Bank has sufficient capital to be deemed "well capitalized" under the standards established by the Office of Thrift Supervision, it may solicit brokered funds without special regulatory approval. Deposits accepted by retail banking offices increased by $22.8 million and $50.7 million during the third quarter of 2004 and first nine months of 2004, respectively. Retail and business deposits comprised 79%, 99% and 99% of total deposits as of September 30, 2004, December 31, 2003 and September 30, 2003, respectively. 17 Telemarketing deposits decreased by $6.9 million during the third quarter of 2004 and increased by $19.9 million during the first nine months of 2004. These deposits are normally large deposits from pension plans, managed trusts and other financial institutions. These deposit levels fluctuate based on the attractiveness of the Bank's rates compared to returns available to investors on alternative investments. Telemarketing deposits comprised 1%, 1% and 1% of total deposits at September 30, 2004, December 31, 2003 and September 30, 2003, respectively. Total borrowings increased by $393.2 million and $870.8 million during the third quarter and first nine months of 2004, respectively, due to a $407.2 million and $882.2 million net increase in borrowings from the FHLB and net decreases of $14.0 million and $11.4 million in reverse repurchase agreements. The Bank used FHLB advances during the third quarter and first nine months of 2004 to fund asset growth. Internal sources of funds include both principal payments and payoffs on loans and mortgage-backed securities, loan sales, and positive cash flow from operations. Principal payments include amortized principal and prepayments that are a function of lending activity and the general level of interest rates. Loan payoffs and principal reductions were $1.1 billion during the first nine months of 2004 compared to $1.3 billion during the first nine months of 2003. The decrease is primarily attributable to reduced payoff activity as fewer borrowers refinanced existing loans into new loans at lower rates. The volume of loans sold totaled $280 thousand and $3.3 million during the third quarter and first nine months of 2004, respectively, compared to $19.1 million and $81.2 million, respectively for the same periods of 2003. The decrease in loans sold from the comparable periods is attributable to the Bank's efforts to originate adjustable rate loans for its portfolio. Loan sale activity also varies based upon borrower demand for 15-year and 30-year fixed rate loans, which the Bank only originates for sale in the secondary market. 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Asset/Liability Management" on page 9 hereof for Quantitative and Qualitative Disclosures About Market Risk. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Under SEC rules, the Company is required to maintain disclosure controls and procedures designed 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 SEC's rules and forms. Within the 90-day period prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. The Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, supervised and participated in the evaluation. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that as of the evaluation date, the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are effective in alerting management to material information that may be required to be included in the Company's public filings. In designing and evaluating the disclosure controls and procedures, management recognizes that any such controls and procedures can provide only reasonable assurance as to the control objectives. Management is required to apply its judgment in evaluating the cost-benefit relationship of such controls and procedures. Changes in Internal Controls There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, and there has not been any corrective action with regard to significant deficiencies and material weaknesses. 19 PART II - OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None Item 6. Exhibits and Reports on Form-8K (a) Exhibits (3.1) Restated Certificate of Incorporation filed as Exhibit 3.1 to Form 10-K for the fiscal year ended December 31, 1999 and incorporated by reference. (3.2) Bylaws filed as Exhibit 3.2 to Form 10-Q dated August 12, 2002 and incorporated by reference. (4.1) Amended and Restated Rights Agreement dated as of September 25, 1998, filed as Exhibit 4.1 to Form 8-A/A, dated September 25, 1998 and incorporated by reference. (10.1) Deferred Compensation Plan filed as Exhibit 10.3 to Form 10-K for the fiscal year ended December 31, 1983 and incorporated by reference. (10.2) Supplemental Executive Retirement Plan dated January 16, 1986 filed as Exhibit 10.5 to Form 10-K for the fiscal year ended December 31, 1992 and incorporated by reference. (10.3) Change of Control Agreement effective September 26, 1996 filed as Exhibit 10.4 to Form 10-Q for the Quarter ended September 30, 1996 and Amendment filed as Exhibit 10.3 10.4 for change of control to Form 10-Q for the Quarter ended March 31, 2001 and incorporated by reference. (10.4) 1997 Non-employee Directors Stock Incentive Plan filed as Exhibit 1 to Form S-8 dated August 12, 1997 and Amendment filed as Exhibit 10.5 to Form 10-Q for the Quarter ended March 31, 2001, and incorporated by reference. (21) Registrant's sole subsidiary is First Federal Bank of California, a federal savings bank. (31.1) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (31.2) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (32.1) Certification of Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (32.2) Certification of Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K The Company filed current reports on Form 8-K during the quarter ended September 30, 2004 on the following dates: July 23, 2004, August 19, 2004, September 9, 2004, and September 22, 2004. These reports are related to the release of the Company's disclosure of certain other financial data and earnings release. The Form 8-K filed on September 9, 2004 related to changes in the registrant's certifying accountant. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRSTFED FINANCIAL CORP. ------------------------ Registrant Date: November 9, 2004 By: /s/ Douglas J. Goddard ---------------------- Douglas J. Goddard Chief Financial Officer and Executive Vice President 21 EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Babette Heimbuch, certify that: (1) I have reviewed this quarterly report on Form 10-Q of FirstFed Financial Corp.; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; (4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over the financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15D-15(f) for the registrant and have: (i) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (ii) Designed such internal control over financial reporting, or caused such disclosure controls and procedures to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; (iii) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (iv) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred in the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and (5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons fulfilling the equivalent function): (i) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (ii) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting and (6) The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal control over financial reporting or in other factors that could significantly affect internal control over financial reporting subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated this 9th day of November 2004. By: /s/ Babette E. Heimbuch ----------------------- Babette E. Heimbuch Chief Executive Officer 22 EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Douglas Goddard, certify that: (1) I have reviewed this quarterly report on Form 10-Q of FirstFed Financial Corp.; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; (4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over the financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15D-15(f) for the registrant and have: (i) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (ii) Designed such internal control over financial reporting, or caused such disclosure controls and procedures to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals; (iii) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (iv) Disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred in the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and (5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons fulfilling the equivalent function): (i) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (ii) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting and (6) The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal control over financial reporting or in other factors that could significantly affect internal control over financial reporting subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated this 9th day of November 2004. By: /s/ Douglas Goddard ------------------- Douglas Goddard Chief Financial Officer 23 EXHIBIT 32.1 CEO CERTIFICATION The undersigned, as Chief Executive Officer hereby certifies, to the best of her knowledge and belief, that: (1) the Form 10-Q of FirstFed Financial Corp. (the "Company") for the quarterly period ended September 30, 2004 (the "Report ") accompanying this certification fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for such period. This certification is made solely for purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act of 2003, 18 U.S.C. Section 1350. FIRSTFED FINANCIAL CORP. ------------------------ Registrant Date: November 9, 2004 By: /s/ Babette E. Heimbuch ----------------------- Babette E. Heimbuch Chief Executive Officer 24 EXHIBIT 32.2 CFO CERTIFICATION The undersigned, as Chief Financial Officer hereby certifies, to the best of her knowledge and belief, that: (1) the Form 10-Q of FirstFed Financial Corp. (the "Company") for the quarterly period ended September 30, 2004 (the "Report ") accompanying this certification fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for such period. This certification is made solely for purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act of 2003, 18 U.S.C. Section 1350. FIRSTFED FINANCIAL CORP. ------------------------ Registrant Date: November 9, 2004 By: /s/ Douglas J. Goddard ---------------------- Douglas J. Goddard Chief Financial Officer and Executive Vice President 25 -----END PRIVACY-ENHANCED MESSAGE-----