-----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, WJkKKpKteZ9CF2etNorBWoK38mDDCfeqejNs6LEUiilwNfh7Z1MsQragsesNcsyB xmDks7dzLqXDgKf8ujchGQ== 0000810536-96-000010.txt : 19960816 0000810536-96-000010.hdr.sgml : 19960816 ACCESSION NUMBER: 0000810536-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE 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: 96612723 BUSINESS ADDRESS: STREET 1: 201 W THIRD STREET CITY: DOVER STATE: OH ZIP: 44622 BUSINESS PHONE: 2163647777 MAIL ADDRESS: STREET 1: 201 W THIRD STREET CITY: DOVER STATE: OH ZIP: 44622 10-Q 1 6/30/96 10-Q FILING ===================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 1996 OR TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-9566 FirstFed Financial Corp. (Exact name of registrant as specified in its charter) Delaware 95-4087449 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 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 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 _____ ----- As of August 1, 1996, 10,508,897 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 3 as of June 30, 1996, December 31, 1995 and June 30, 1995 Consolidated Statements of Operations for the three 4 months and six months ended June 30, 1996 and 1995 Consolidated Statements of Cash Flows for the six 5 months ended June 30, 1996 and 1995 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 7 Condition and Results of Operations Part II. Other Information (omitted items are inapplicable) 18 Item 4. Submission of Matters to a Vote of Securities Holders Item 6. Exhibits and Reports on Form 8-K Signatures 19
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FirstFed Financial Corp. and Subsidiary Consolidated Statements of Financial Condition (Dollars in thousands, except per share data) June 30, December 31, June 30, 1996 1995 1995 ---------- ----------- ----------- Assets Cash and cash equivalents $ 79,650 $ 36,878 $ 70,669 Investment securities, available-for-sale (at fair value) 120,776 76,184 - Investment securities, held-to-maturity (fair value of $88,470) - - 89,882 Mortgage-backed securities, available-for-sale (at fair value) 765,555 835,448 - Mortgage-backed securities, held-to-maturity (fair value of $863,035) - - 858,716 Loans receivable, held-for-sale (fair value of $2,929, $7,464, and $33,909) 2,926 7,377 33,790 Loans receivable, net 3,000,483 3,052,403 3,079,538 Accrued interest and dividends receivable 28,196 28,620 28,473 Real estate 20,548 19,821 15,377 Office properties and equipment, net 8,940 8,686 8,863 Investment in Federal Home Loan Bank (FHLB) stock, at cost 60,518 58,935 57,484 Other assets 17,262 15,385 20,419 ---------- ---------- ---------- $4,104,854 $4,139,737 $4,263,211 ========== ========== ========== Liabilities Deposits $2,158,268 $2,205,036 $2,282,287 FHLB advances and other borrowings 1,020,875 942,300 994,600 Securities sold under agreements to repurchase 679,006 724,643 744,797 Accrued expenses and other liabilities 57,939 71,467 53,134 ---------- ---------- ---------- 3,916,088 3,943,446 4,074,818 ---------- ---------- ---------- Commitments and Contingent Liabilities Stockholders' Equity Common stock, par value $.01 per share; authorized 25,000,000 shares; issued 11,432,417 11,410,922, and 11,403,765 shares, outstanding 10,508,897, 10,614,402, and 10,607,245 shares 114 114 114 Additional paid-in capital 28,430 28,212 28,141 Retained earnings - substantially restricted 182,489 175,721 172,889 Loan to employee stock ownership plan (2,566) (2,500) (2,919) Treasury stock, at cost, 923,520, 796,520, and 796,520 shares (11,885) (9,832) (9,832) Unrealized gain (loss) on securities available-for-sale, net of taxes (7,816) 4,576 - ---------- ---------- ---------- 188,766 196,291 188,393 ---------- ---------- ---------- $4,104,854 $4,139,737 $4,263,211 ========== ========== ==========
See accompanying notes to consolidated financial statements. 3
FirstFed Financial Corp. and Subsidiary Consolidated Statements of Operations (Dollars in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Interest income: Interest on loans $ 56,564 $ 57,971 $ 114,450 $ 113,306 Interest on mortgage-backed securities 13,850 14,991 28,565 26,121 Interest and dividends on investments 3,339 3,380 6,835 6,641 ---------- ---------- ---------- ---------- Total interest income 73,753 76,342 149,850 146,068 Interest expense: Interest on deposits 26,245 28,362 53,413 54,349 Interest on borrowings 24,033 29,377 49,817 56,895 ---------- ---------- ---------- ---------- Total interest expense 50,278 57,739 103,230 111,244 ---------- ---------- ---------- ---------- Net interest income 23,475 18,603 46,620 34,824 Provision for loan losses 9,000 8,203 18,000 11,203 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 14,475 10,400 28,620 23,621 ---------- ---------- ---------- ---------- Other income: Loan and other fees 1,641 1,719 3,270 3,310 Gain on sale of loans and mortgage-backed securities 73 426 197 261 Real estate operations, net 452 621 1,248 1,327 Other operating income 657 485 1,381 1,115 ---------- ---------- ---------- ---------- Total other income 2,823 3,251 6,096 6,013 ---------- ---------- ---------- ---------- Non-interest expense 11,287 11,205 22,753 22,882 ---------- ---------- ---------- ---------- Earnings before income taxes 6,011 2,446 11,963 6,752 Income tax provision 2,611 1,100 5,195 3,049 ---------- ---------- ---------- ---------- Net earnings $ 3,400 $ 1,346 $ 6,768 $ 3,703 ========== ========== ========== ========== Earnings per share $ 0.32 $ 0.13 $ 0.64 $ 0.35 ========== ========== ========== ========== Weighted average shares outstanding for earnings per share calculation 10,618,472 10,679,934 10,636,757 10,663,524 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. 4
FirstFed Financial Corp. and Subsidiary Consolidated Statements of Cash Flows (Dollars in thousands) Six Months Ended June 30, ------------------------- 1996 1995 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 6,768 $ 3,703 Adjustments to reconcile net earnings to net cash provided by operating activities: Net change in loans-held-for-sale 4,451 (3,391) Provision for loan losses 18,000 11,203 Valuation adjustments on real estate sold (768) (837) Amortization of fees and discounts (662) (411) Increase in negative amortization (2,257) (4,959) Increase in taxes payable 5,195 3,049 (Increase) decrease in interest and dividends receivable 424 (1,226) Decrease in interest payable (6,289) (5,827) Other (2,479) (917) --------- --------- Total adjustments 15,615 (3,316) --------- --------- Net cash provided by operating activities 22,383 387 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Loans made to customers net of principal collection on loans 1,142 (122,531) Loans repurchased (9,479) (13,662) Proceeds from sales of real estate 41,181 31,729 Proceeds from maturities and principal payments on investment securities 34,123 7,237 Principal reductions on mortgage-backed securities 49,085 22,321 Purchase of investment securities (79,405) (13,095) Treasury stock purchases (2,053) - Other 2,578 2,291 --------- --------- Net cash provided by (used in) investing activities 37,172 (85,710) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net decrease in savings deposits (46,768) (16,627) Net increase in short term borrowings 41,938 375,076 Repayment of long term borrowings (9,000) (240,500) Other (2,953) 2,190 --------- --------- Net cash provided by (used in) financing activities (16,783) 120,139 --------- --------- Net increase in cash and cash equivalents 42,772 34,816 Cash and cash equivalents at beginning of period 36,878 35,853 --------- --------- Cash and cash equivalents at end of period $ 79,650 $ 70,669 ========= =========
See accompanying notes to consolidated financial statements. 5 FirstFed Financial Corp. and Subsidiary Notes to Consolidated Financial Statements 1. The unaudited financial statements included herein have been prepared by the Registrant pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of the Registrant, 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 generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Registrant 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 Registrant'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. Earnings per share were computed by dividing net earnings by the weighted average number of shares of common stock outstanding for the period, plus the effect of stock options, if dilutive. Weighted average shares outstanding for the earnings per share calculation were 10,618,472 for the three months ended June 30, 1996 and 10,679,934 for the three months ended June 30, 1995. Weighted average shares outstanding for the earnings per share calculation were 10,636,757 for the six months ended June 30, 1996 and 10,663,524 for the six months ended June 30, 1995. 3. For purposes of reporting cash flows on the "Consolidated Statement 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. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition At June 30, 1996, FirstFed Financial Corp. (the "Company"), holding company for First Federal Bank of California and its subsidiaries (the "Bank"), had consolidated assets totaling $4.1 billion, compared to $4.1 billion at December 31, 1995 and $4.3 billion at June 30, 1995. The Bank's primary market area is Southern California. For the last two years Southern California has been in the process of recovering from an economic recession which began in the early 1990s. Despite the fact that the region has shown strong gains in retail spending, consumer confidence and employment since 1993, the real estate market remains weakened by lower sales prices. According to the UCLA Business Forecast for California, June, 1996 Report (the "UCLA Report"), a greater than expected outflow of people from California during the period from 1993 to 1995 may have affected demand and may explain why the housing market has taken so long to recover. According to the UCLA Report, first quarter home prices in Los Angeles County were 3% lower than one year ago and 1.6% below the fourth quarter of 1995. The UCLA Report also expresses concern that further reductions in home prices could trigger a new wave of mortgage loan defaults due to negative or very low equity in homes bought in the early 1990s. The Bank's asset quality continues to be impacted by the uncertainty and weakness in the Southern California real estate market. The ratio of non-performing assets to total assets was 2.52% as of June 30, 1996, compared to 2.33% at December 31, 1995 and 1.99% at June 30, 1995. Real estate acquired through foreclosure at June 30, 1996 increased 7% from the December 31, 1995 level and 39% from the June 30, 1995 level. Non-performing loans, net of valuation allowances, increased 7% from the December 31, 1995 level and 18% from the June 30, 1995 level. (See "Non-performing Assets" for further discussion.) For the second quarter of 1996, loan charge-offs, net of recoveries, were $9.7 million compared to $10.1 for the second quarter of 1995. For the first six months of 1996, loan charge- offs, net of recoveries, were $17.9 million compared to $20.7 million for the first six months of 1995. Charge-offs during 1996 and 1995 were due primarily to losses on multi-family loans. The Bank's general valuation allowances were $49 million at June 30, 1996 compared to $43 million at December 31, 1995 and $41 million at June 30, 1995. The Bank also maintains valuation allowances for impaired loans which totaled $21 million at June 30, 1996, $26 million at December 31, 1995 and $28 million at June 30, 1995. The Bank's portfolio of loans, including mortgage-backed securities, at June 30, 1996 totaled $3.8 billion, compared to $3.9 billion at December 31, 1995 and $4.0 billion at June 30, 1995. The declines in the loan portfolio are due to principal reductions on loans and mortgage-backed securities in excess of loan originations. Loan originations were $73 million in the second quarter of 1996 compared to $75 million in the second quarter of 1995. Total principal payments were $80 million and $41 million for the second quarter of 1996 and 1995, respectively. For the first six months of 1996, loan originations were $123 million compared to $191 million for the first six months of 1995. Total principal payments were $149 million and $95 million for the first six months of 1996 and 1995, respectively. The Bank primarily focuses on the origination of adjustable rate mortgages which were less in demand by borrowers due to the availability of low-rate fixed rate loans during 1996. The level of loan originations has also been impacted by the Bank's decision to limit multi-family lending. Due to inadequate market pricing for the risks and costs associated with multi-family lending, since 1994, the Bank has originated multi-family loans primarily to finance the sale of its real estate owned. 7 The following table shows the components of the Bank's portfolio of loans and mortgage-backed securities by collateral type as of the dates indicated:
June 30, December 31, June 30, 1996 1995 1995 ----------- ----------- ----------- (Dollars in thousands) REAL ESTATE LOANS: First trust deed residential loans: One unit $1,205,993 $1,217,848 $1,240,590 Two to four units 341,550 350,553 356,510 Five or more units 1,304,150 1,334,570 1,349,876 ---------- ---------- ---------- Residential loans 2,851,693 2,902,971 2,946,976 OTHER REAL ESTATE LOANS: Commercial and industrial 215,301 220,494 231,689 Second trust deeds 18,070 19,416 19,217 Other 2,761 3,206 3,738 ---------- ---------- ---------- Real estate loans 3,087,825 3,146,087 3,201,620 NON-REAL ESTATE LOANS: Manufactured housing 1,710 1,938 2,211 Deposit accounts 1,199 1,104 1,076 Consumer 320 359 426 ---------- ---------- ---------- Loans receivable 3,091,054 3,149,488 3,205,333 LESS: General valuation allowances- loan portfolio 48,630 42,876 40,852 Valuation allowances - impaired loans 21,083 26,101 28,398 Unrealized loan fees 17,932 20,731 22,755 ---------- ---------- ---------- Net loans receivable 3,003,409 3,059,780 3,113,328 FHLMC AND FNMA MORTGAGE- BACKED SECURITIES (at fair value): Secured by single family dwellings 745,016 810,980 832,899 Secured by multi-family dwellings 20,539 24,468 25,817 ---------- ---------- ---------- Mortgage-backed securities 765,555 835,448 858,716 ---------- ---------- ---------- TOTAL $3,768,964 $3,895,228 $3,972,044 ========== ========== ==========
Because the Bank structures mortgage-backed securities with loans from its own portfolio, mortgage-backed securities generally have the same experience with respect to prepayment, repayment, delinquencies and other factors as the remainder of the Bank's loan portfolio. As permitted by a Special Report issued by the Financial Accounting Standards Board in November of 1995 to assist in the implementation and understanding of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"), the Bank reclassified its entire portfolio of mortgage-backed securities to the available-for-sale category from the held-to-maturity category. In accordance with SFAS No. 115, the mortgage-backed securities portfolio was recorded at fair value as of June 30, 1996. A negative fair value adjustment of $7.2 million, net of taxes, was reflected in stockholders' equity as of June 30, 1996. This compares with a positive fair value adjustment of $4.9 million as of December 31, 1995. 8 The Bank also reclassified its investment securities portfolio to the available-for-sale category from the held for sale category. A negative fair value adjustment of $653 thousand, net of taxes, was reflected in stockholders' equity as of June 30, 1996. This compares with a $322 thousand negative adjustment as of December 31, 1995. Deposits totaled $2.2 billion at June 30, 1996, comparable to the level at December 31, 1995. Borrowings were $1.7 billion as of June 30, 1996, comparable to the level at December 31, 1995. Asset/Liability Management The one year GAP ratio (the difference between rate-sensitive assets and liabilities repricing within one year or less as a percentage of total assets) was a positive $294 million or 7.16% at the end of the second quarter of 1996. In comparison, the one year GAP ratio was a positive $348 million or 8.40% of total assets as of December 31, 1995 and a positive $390 million or 9.14% as of June 30, 1995. Since over 95% of the Bank's loans adjust based upon monthly changes in the Eleventh District Cost of Funds Index ("COFI Index"), the Bank's one year GAP position varies primarily based upon the remaining terms of its savings and borrowings. The longer the term of the Bank's liabilities, the more positive the one year GAP. The positive one year GAP decreased during the first six months of 1996 due to an increase in short term borrowings. A positive GAP normally benefits a financial institution in times of increasing interest rates. However, the Bank's net interest income typically declines during periods of increasing interest rates because of the three month time lag before changes in the COFI Index can be implemented with respect to the Bank's loans. Capital The Bank's capital as of June 30, 1996 exceeded the minimum amounts required by its primary regulatory agency, the Office of Thrift Supervision ("OTS"). The Bank is required to maintain tangible capital of at least 1.5% of adjusted total assets, core capital of at least 3.0% of adjusted total assets, and risk-based capital of at least 8.0% of risk-weighted assets. The Bank's core and tangible capital ratios were both 5.8% and the risk-based capital ratio was 11.3% at June 30, 1996. These ratios meet the OTS' requirements necessary to be deemed well capitalized. Pursuant to the authorization by the Company's Board of Directors in 1987 to repurchase 10% of the Company's outstanding shares of stock, 127,000 shares were repurchased in the second quarter of 1996 at an average price of $16.17. Based on the number of shares outstanding at December 31, 1987, 137,000 shares remain eligible for repurchase under the program. Results of Operations The Company reported consolidated net earnings of $3.4 million for the second quarter of 1996 compared to net earnings of $1.3 million for the second quarter of 1995. The improved earnings resulted primarily from a 26% increase in net interest income, partially offset by a $1 million increase in the loan loss provision. The Company reported consolidated net earnings of $7 million for the first six months of 1996 compared to $4 million for the same period last year. For the first six months of 1996, the Bank provided $18 million in loan loss provisions compared to $11 million for the first six months of 1995. Loan Loss Provisions Management is unable to predict future levels of loan loss provisions. Among other things, future loan loss provisions are based on the level of loan charge-offs, foreclosure activity, and management's perceptions of the severity and duration of the economic recession in Southern California. 9 Listed below is a summary of the activity in the general valuation allowance and the valuation allowance for impaired loans for the Bank's loan portfolio during the periods indicated:
Six Months Ended June 30, 1996 ------------------------------------ General Impaired Valuation Valuation Allowances Allowances Total ---------- ---------- ---------- (Dollars in thousands) Beginning general valuation allowances $ 42,876 $ 26,101 $ 68,977 Provision for loan losses 9,515 8,485 18,000 Charge-offs: Single family (4,822) (165) (4,987) Multi-family - (12,849) (12,849) Commercial - (489) (489) Non-real estate (157) - (157) ------- -------- -------- Total charge-offs (4,979) (13,503) (18,482) Recoveries 2,827 - 2,827 -------- -------- -------- Net charge-offs (2,152) (13,503) (15,655) -------- -------- -------- Transfers to general valuation allowance for real estate (1,609) - (1,609) -------- -------- -------- Ending general valuation allowances $ 48,630 $ 21,083 $ 69,713 ======== ======== ========
Six Months Ended June 30, 1995 ------------------------------------ General Impaired Valuation Valuation Allowances Allowances Total ---------- ---------- ---------- (Dollars in thousands) Beginning general valuation allowances $ 55,353 $ 23,887 $ 79,240 Provision for loan losses (3,581) 14,784 11,203 Charge-offs: Single family (3,126) 84 (3,042) Multi-family (9,797) (7,391) (17,188) Commercial - (2,966) (2,966) Non-real estate (4) - (4) -------- -------- -------- Total charge-offs (12,927) (10,273) (23,200) Recoveries 2,510 - 2,510 -------- -------- -------- Net charge-offs (10,417) (10,273) (20,690) -------- -------- -------- Transfers to liability account for loans sold with recourse (503) - (503) -------- -------- -------- Ending general valuation allowances $ 40,852 $ 28,398 $ 69,250 ======== ======== ========
The Bank also maintains a valuation allowance for loans sold with recourse, recorded as a liability. This allowance was 3.54% of loans sold with recourse as of June 30, 1996, compared to 3.65% as of December 31, 1995 and 3.23% as of June 30, 1995. The balance of loans sold with recourse totaled $239 million, $248 million and $261 million as of June 30, 1996, December 31, 1995 and June 30, 1995, respectively. The Bank has not entered into any new recourse arrangements since 1989. Listed below is a 10 summary of the activity in the valuation allowance for loans sold with recourse during the periods indicated:
Six Months Ended June 30, ------------------------- 1996 1995 ---------- ---------- (Dollars in thousands) Beginning recourse valuation allowances $ 9,050 $ 7,948 Charge-offs (600) - Transfers from valuation allowance - 503 -------- -------- Ending recourse valuation allowances $ 8,450 $ 8,451 ======== ========
The Bank established a general valuation allowance for real estate owned ("REO") during the second quarter of 1996. Listed below is a summary of the activity in the general valuation allowance and the valuation allowance for real estate owned for the six months ended June 30,1996:
REO General REO Valuation Valuation Allowances Allowances Total ---------- ---------- ---------- (Dollars in thousands) Beginning general valuation allowances $ - $ 1,631 $ 1,631 Net transfers from loan general valuation allowance 700 909 1,609 Charge-offs - (1,892) (1,892) -------- -------- -------- Ending general valuation allowances $ 700 $ 648 $ 1,348 ======== ======== ========
Net Interest Income The Company's interest rate margin increased to 2.11% during the first six months of 1996 from 1.51% for the same period of last year. The COFI Index (on a lagged basis) determines the yield on over 95% of the loan portfolio. The Index in effect during the three months and six months ended June 30, 1996 increased .07% and .39% compared to the same periods of the prior year. In addition, the Bank's cost of funds during the three months and six months ended June 30, 1996 dropped by .44% and .22%, respectively, compared to the same periods of the prior year. 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 and borrowings, (iii) the average daily dollar differences, (iv) the 11 interest rate spreads, and (v) the effective net spreads for the periods indicated:
During the Six Months Ended June 30, ------------------------------------ 1996 1995 -------------- --------------- (Dollars In Thousands) Average loans and mortgage-backed securities $ 3,822,478 $ 3,942,472 Average investment securities 169,790 175,742 ----------- ----------- Average interest-earning assets 3,992,268 4,118,214 ----------- ----------- Average savings deposits 2,230,165 2,278,447 Average borrowings 1,684,870 1,787,679 ----------- ----------- Average interest-bearing liabilities 3,915,035 4,066,126 ----------- ----------- Excess of interest-earning assets over interest-bearing liabilities $ 77,233 $ 52,088 =========== =========== Yields earned on average interest earning assets 7.40% 7.01% Rates paid on average interest- bearing liabilities 5.29 5.50 Net interest rate spread 2.11 1.51 Effective net spread1 2.21 1.58 Total interest income $ 147,683 $ 144,340 Total interest expense 103,230 111,244 ----------- ----------- 44,453 33,096 Total other items2 2,167 1,728 ----------- ----------- Net interest income $ 46,620 $ 34,824 =========== ===========
During the Three Months Ended June30, ------------------------------------- 1996 1995 --------------- --------------- (Dollars In Thousands) Average loans and mortgage-backed securities $ 3,799,176 $ 3,966,341 Average investment securities 157,927 177,587 ----------- ----------- Average interest-earning assets 3,957,103 4,143,928 ----------- ----------- Average savings deposits 2,214,194 2,287,592 Average borrowings 1,654,879 1,815,025 ----------- ----------- Average interest-bearing liabilities 3,869,073 4,102,617 ----------- ----------- Excess of interest-earning assets over interest-bearing liabilities $ 88,030 $ 41,311 =========== =========== Yields earned on average interest earning assets 7.34% 7.29% Rates paid on average interest- bearing liabilities 5.21 5.63 Net interest rate spread 2.13 1.66 Effective net spread1 2.24 1.71 Total interest income $ 72,581 $ 75,497 Total interest expense 50,278 57,739 ----------- ----------- 22,303 17,758 Total other items2 1,172 845 ----------- ----------- Net interest income $ 23,475 $ 18,603 =========== ===========
- ------------------------ (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 and miscellaneous interest income). (2) Includes Federal Home Loan Bank Stock and other miscellaneous items. 12 Non-Interest Income Real estate operations produced net gains of $452 thousand and $621 thousand for the second quarter of 1996 and 1995, respectively. For the first six months of 1996 and 1995, real estate operations produced net gains of $1.2 million and $1.3 million, respectively. Gains result primarily from the recovery of excess valuation allowances associated with foreclosed properties sold. A net gain on sale of loans and mortgage-backed securities of $73 thousand and $426 thousand were recognized for the second quarter of 1996 and 1995, respectively. The gain on sale of loans during the second quarter of 1996 was primarily the result of deferred fees recognized on loans sold. For the first six months of 1996, sales of loans and mortgage-backed securities produced a net gain of $197 thousand compared to $261 thousand for the first six months of 1995. The volume of loans sold during the second quarter of 1996 and 1995 was $11 million and $2 million, respectively. During the first six months of 1996 and 1995, the volume of loans sold was $30 million and $2 million, respectively. Non-Interest Expense Non-interest expenses were comparable to prior year amounts during both the three months ended and six months ended June 30. The expense-to-assets ratios increased to 1.09% and 1.10% for the second quarter and first six months of 1996, respectively, from 1.06% and 1.09%, respectively, for the same periods one year ago due to decreases in average assets. Management maintains ongoing programs to monitor the level of non-interest expense incurred by the Company. 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 but establishes a specific interest allowance for each loan which becomes 90 days or more past due or is in foreclosure. Loans on which delinquent interest allowances had been established (non- accrual loans) totaled $102 million at June 30, 1996 compared to $99 million at December 31, 1995 and $92 million at June 30, 1995. The amount of interest that has been reserved for loans 90 days or more delinquent or in foreclosure was $5 million at June 30, 1996, $6 million at December 31, 1995 and $5 million at June 30, 1995. The Bank has debt restructurings which 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 June 30, 1996, the Bank had modified loans totaling $14 million, net of loan loss allowances totaling $5 million. No modified loans were 90 days or more delinquent as of June 30, 1996. Pursuant to Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan", ("SFAS No. 114"), the Bank considers a loan to be impaired when management believes that it is probable that the Bank will be unable 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, which are disclosed net of valuation allowances, include non-accrual major loans (single family loans with an outstanding principal amount greater than or equal to $500,000 and multi-family and commercial real estate loans with an outstanding principal amount greater than or equal to $750,000), modified loans, and major loans less than 90 days delinquent in which full payment of principal and interest is not expected to be received. 13 The following is a summary of impaired loans, net of valuation allowances for impairment, as of the dates indicated:
June 30, December 31, June 30, 1996 1995 1995 -------- -------- -------- (Dollars in thousands) Non-accrual loans $ 33,025 $ 34,503 $ 28,674 Modified loans 7,819 16,573 34,632 Other impaired loans 14,660 35,333 34,136 -------- -------- -------- $ 55,504 $ 86,409 $ 97,442 ======== ======== ========
The Bank evaluates loans for impairment whenever the collectibility of contractual principal and interest payments is questionable. Large groups of smaller balance homogenous loans that are collectively evaluated for impairment, including residential mortgage loans, are not subject to the application of SFAS No. 114. 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 probable of foreclosure, 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. The following summary details loans measured using the fair value method and loans measured based on the present value of expected future cash flows discounted at the effective interest rate of the loan as of the dates indicated:
June 30, December 31, June 30, 1996 1995 1995 --------- -------- -------- (Dollars in thousands) Fair value method $ 48,389 $ 70,414 $ 80,260 Present value method 7,115 15,995 17,182 -------- -------- -------- Total impaired loans $ 55,504 $ 86,409 $ 97,442 ======== ======== ========
Impaired loans for which there were no valuation allowances established totaled $1 million, $9 million and $16 million as of June 30, 1996, December 31, 1995, and June 30, 1995, respectively. See "Results of Operations" for an analysis of activity in the valuation allowance for impaired loans. The table below shows the Bank's net investment in non-performing loans determined to be impaired, by property type, as of the dates indicated:
June 30, December 31, June 30, 1996 1995 1995 --------- --------- -------- (Dollars in thousands) Single family $ 847 $ 1,677 $ 4,593 Multi-family 27,372 32,826 19,491 Commercial 4,806 - 4,590 -------- -------- -------- $ 33,025 $ 34,503 $ 28,674 ======== ======== ========
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. On certain modified loans where the Bank does not believe 14 that it will receive all amounts due under the original contractual loan terms, the Bank records an allowance for interest received. Listed below is additional information concerning the Bank's impaired loans for the periods indicated:
June 30, December 31, June 30, 1996 1995 1995 -------- -------- -------- (Dollars in thousands) Average recorded investment $ 52,815 $ 83,307 $ 94,009 Interest income recognized: Accrual method of accounting $ 34 $ - $ (481) Cash basis method of accounting $ 509 $ 1,311 $ 2,058
Asset Quality The following table sets forth certain asset quality ratios of the Bank at the dates indicated:
June 30, December 31, June 30, 1996 1995 1995 ------ ------ ------ Non-Performing Loans to Loans Receivable (1) 2.66% 2.44% 2.18% Non-Performing Assets to Total Assets (2) 2.52% 2.33% 1.99% Loan Loss Allowances to Non-Performing Loans (3) 66.96% 65.62% 68.52% General Loss Allowances to Assets with Loss Exposure (4) 1.56% 1.35% 1.27% General Loss Allowances to Total Assets with Loss Exposure (5) 1.70% 1.52% 1.41%
------------------------------------ (1) Non-performing loans are net of valuation allowances related to those loans. Loans receivable exclude mortgage-backed securities and are before deducting unrealized loan fees, 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 valuation allowances for non-performing loans and general valuation allowances but excluding general valuation allowances for loans sold by the Bank with full or limited recourse. Non-performing loans are before deducting valuation allowances related to those loans. (4) The Bank's general valuation allowances, excluding general valuation allowances for loans sold with full or limited recourse. The Bank's assets with loss exposure include primarily loans and real estate owned, but exclude mortgage-backed securities. (5) The Bank's general valuation allowances, including general valuation allowances for loans sold with full or limited recourse. Assets with loss exposure include the Bank's portfolio plus loans sold with recourse, but exclude mortgage-backed securities. 15 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). An analysis of non- performing assets follows as of the dates indicated:
June 30, December 31, June 30, 1996 1995 1995 --------- --------- --------- (Dollars in thousands) Real estate owned: Single family $ 10,339 $ 7,252 $ 5,839 Multi-family 9,712 9,827 8,641 Commercial 1,080 2,544 773 Other - 78 - --------- --------- --------- Total real estate owned 21,131 19,701 15,253 --------- --------- --------- Non-accrual loans: Single family 24,187 25,991 20,410 Multi-family 70,064 69,579 60,242 Commercial 7,201 3,313 10,846 Other 192 220 409 Less: Valuation allowances (1) (19,427) (22,159) (22,124) --------- --------- --------- Total non-accrual loans 82,217 76,944 69,783 --------- --------- --------- Total non-performing assets $ 103,348 $ 96,645 $ 85,036 ========= ========= ========= Non-Performing Assets to Total Assets 2.52% 2.33% 1.99% ==== ==== ====
- ------------------------------------ (1) Includes valuation allowances for impaired loans and loss allowances on other non-performing loans requiring fair value adjustments. Real estate owned at June 30, 1996 increased 7% compared to December 31, 1995 and 39% compared to June 30, 1995. Real estate owned increased compared to December 31, 1995 and June 30, 1995 primarily due to higher foreclosures on single family loans. Management continues to dedicate significant attention to the quick resolution and disposition of foreclosed properties. Sales of foreclosed real estate totaled $21 million and $20 million during the second quarter of 1996 and 1995, respectively. For the first six months of 1996 and 1995, sales of foreclosed real estate totaled $41 million and $32 million, respectively. Non-accrual loans, net of valuation allowances, increased 7% compared to the level at December 31, 1995. The increase was due to increased delinquencies on commercial properties. The 18% increase since the second quarter of 1995 was due to an increase in single family and multi-family non-accrual loans. However, non-accrual commercial real estate loans decreased during this period. The Bank had potential problem loans totalling $32 million at June 30, 1996 which are not included in the above numbers. Sources of Funds External sources of funds include savings deposits from several sources, advances from the Federal Home Loan Bank of San Francisco ("FHLB"), securitized borrowings and unsecured term funds. 16 Savings deposits are accepted from retail savings branches, the telemarketing department, and national deposit brokers. Excluding $18 million and $37 million in interest credits during the second quarter and first six months of 1996, respectively, total savings deposits decreased by $117 million and $84 million during the second quarter and first six months of 1996, respectively. 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 generally offered by the Bank and other depository institutions, the Bank will seek funds from the lowest cost source until the relative costs change. As the cost of funds, operating margins and net earnings of the Bank associated with each source of funds are generally comparable, the Bank does not deem the impact of its use of any one of the specific sources of funds at a given time to be material. Deposits accepted by retail savings branches decreased by $21 million and $10 million during the second quarter and first six months of 1996, respectively. The Bank has increased its promotional efforts at retail branches in order to counter increased competition for customer deposits in Southern California. Retail deposits comprised 69% of total savings deposits as of June 30, 1996. Telemarketing deposits decreased by $44 million and $69 million during the second quarter and first six months of 1996, respectively. 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 rates available to investors on alternative investments. Telemarketing deposits comprised 8% of total deposits at June 30, 1996. Deposits acquired from national brokerage firms ("brokered deposits") decreased by $52 million and $5 million during the second quarter and first six months of 1996, respectively. The Bank has used brokered deposits for over 10 years and considers these deposits a stable source of funds. 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. At June 30, 1996, brokered deposits comprised 23% of total deposits. Total borrowings increased by $57 million during the second quarter of 1996 due to net payoffs of $28 million in borrowings under reverse repurchase agreements and $1 million in unsecured term funds offset by $86 million in additional advances from the FHLB. Total borrowings increased by $33 million during the first six months of 1996 due to net payoffs of $46 million in borrowings under reverse repurchase agreements offset by $19 million in additional unsecured term funds and $60 million in additional advances from the FHLB. Internal sources of funds include both principal payments and payoffs on loans and mortgage-backed securities, loan sales, and positive cash flows from operations. Principal payments include amortized principal and prepayments which are a function of real estate activity and the general level of interest rates. Total principal payments were $80 million and $149 million for the second quarter and first six months of 1996, respectively. This compares with principal payments of $41 million and $95 million for the second quarter and first six months of 1995, respectively. Loan sales increased to $11 million and $30 million for the second quarter and the first six months of 1996, respectively, compared with loan sales of $2 million for both the second quarter and first six months of 1995 due to an increase in the amount of saleable product originated. 17 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Securities Holders On April 24, 1996 the Company held its Annual Meeting of Stockholders for the purpose of voting on two proposals. The following are the matters voted on at the meeting and the votes cast for, against or withheld, and abstentions as to each such matter. There were no broker non-votes as to these matters. 1) Election of Directors
For Against Abstain --------- ----------- --------- William A. Ouchi 8,544,852 92,962 0 William P. Rutledge 8,544,852 92,962 0 Charles F. Smith 8,565,217 92,577 0
2) Ratification of KPMG Peat Marwick LLP as independent public auditors for the Company for 1995. For: 8,582,194 Against: 35,801 Abstain: 19,799 Item 6. Exhibits and Reports on Form 8-K a) Exhibits (3.) Certificate of Incorporation and By Laws filed as Exhibit (1)(a) to Form 8-A dated June 4, 1987 and incorporated by reference. (4.1) Shareholders' Rights Agreement filed as Exhibit 1 to Form 8-A, dated November 2, 1988 and incorporated by reference. (4.2) Indenture filed as Exhibit 4 to Amendment No. 3 to Form S-3 dated September 20, 1994 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) Bonus Plan filed as Exhibit 10(iii)(A)(2) to Form 10 dated November 2, 1993 and incorporated by reference. (10.3) Supplemental Executive Retirement Plan dated January 16, 1986 and filed as Exhibit 10.5 to Form 10-K for the fiscal year ended December 21, 1992 and incorporated by reference. (11.1) Computation of earnings per share. Part I hereof is incorporated by reference. b) Reports on Form 8-K No reports on Form 8-K were filed during the period ended June 30, 1996. 18 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: August 14, 1996 By /s/ WILLIAM MORTENSEN --------------------- William S. Mortensen Chairman of the Board and Chief Executive Officer By /s/ JAMES GIRALDIN ------------------ James P. Giraldin Chief Financial Officer and Executive Vice President 19 EX-27 2
9 This schedule contains summary financial information extracted from the Company's Consolidated Statements of Operations and Consolidated Statements of Financial Condition and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1996 JUN-30-1996 79,650 0 0 0 886,331 0 0 3,003,409 48,630 4,104,854 2,158,268 1,599,881 57,939 100,000 0 0 114 188,652 4,104,584 143,015 6,835 0 149,850 53,413 103,230 46,620 18,000 0 22,753 11,963 11,963 0 0 6,768 0.64 0.64 2.21 82,217 0 0 31,709 42,876 22,187 4,323 48,630 48,630 0 0
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