-----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, LWoV8BrwsOkykyMfiSyR1AvwCgeSXwr6AVImmeKJ9ecW/fh7eZYNyIVP2kiXipSt DerS2zL/HXRKBVoWwR1S+A== 0000810536-97-000002.txt : 19970520 0000810536-97-000002.hdr.sgml : 19970520 ACCESSION NUMBER: 0000810536-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97605917 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 3/31/1997 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 March 31, 1997 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 May 1, 1997, 10,560,402 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 March 31, 1997, December 31, 1996 and March 31, 1996 Consolidated Statements of Operations for the 4 three months ended March 31, 1997 and 1996 Consolidated Statements of Cash Flows for the three 5 months ended March 31, 1997 and 1996 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) Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19
2 PART I - FINANCIAL STATEMENTS Item 1. Financial Statements FirstFed Financial Corp. and Subsidiary Consolidated Statements of Financial Condition (Dollars in thousands, except per share data)
March 31, December 31, March 31, 1997 1996 1996 ------------ ----------- ------------ ASSETS Cash and cash equivalents $ 135,623 $ 162,402 $ 148,526 Investment securities, available-for-sale (at fair value) 84,780 69,440 56,071 Mortgage-backed securities, available-for-sale (at fair value) 711,286 735,475 806,441 Loans receivable, held-for-sale (market value of $6,959, $6,238, and $5,307) 6,949 6,195 5,294 Loans receivable, net 3,063,345 3,042,274 3,006,048 Accrued interest and dividends receivable 27,280 26,910 28,031 Real estate 13,223 14,445 26,010 Office properties and equipment, net 9,384 8,944 8,939 Investment in Federal Home Loan Bank (FHLB) stock, at cost 63,408 62,400 59,699 Other assets 14,459 15,367 20,766 ----------- ----------- ----------- $ 4,129,737 $ 4,143,852 $ 4,165,825 =========== =========== =========== LIABILITIES Deposits $ 2,033,787 $ 1,957,448 $ 2,256,643 FHLB advances and other borrowings 1,223,000 1,294,000 936,900 Securities sold under agreements to repurchase 628,921 646,482 706,282 Accrued expenses and other liabilities 48,879 51,372 70,689 ----------- ----------- ----------- 3,934,587 3,949,302 3,970,514 ----------- ----------- ----------- COMMITMENTS AND CONTINGENT LIABILITIES STOCKHOLDER'S EQUITY Common stock, par value $.01 per share; authorized 25,000,000 shares; issued 11,483,922 11,453,369, and 11,420,816 shares, outstanding 10,560,402, 10,529,849, and 10,624,296 shares 115 115 114 Additional paid-in capital 29,147 28,677 28,306 Retained earnings - substantially restricted 189,133 183,965 179,089 Loan to employee stock ownership plan (2,159) (2,132) (2,533) Treasury stock, at cost, 923,520 923,520 and 796,520 shares (11,885) (11,885) (9,832) Unrealized loss on securities available-for-sale, net of taxes (9,201) (4,190) 167 ----------- ----------- ----------- 195,150 194,550 195,311 ----------- ----------- ----------- $ 4,129,737 $ 4,143,852 $ 4,165,825 =========== =========== ===========
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 March 31, --------------------------- 1997 1996 --------- --------- Interest income: Interest on loans $ 57,813 $ 57,886 Interest on mortgage-backed securities 12,636 14,715 Interest and dividends on investments 3,236 3,496 --------- --------- Total interest income 73,685 76,097 --------- --------- Interest expense: Interest on deposits 22,898 27,168 Interest on borrowings 26,755 25,784 --------- --------- Total interest expense 49,653 52,952 --------- --------- Net interest income 24,032 23,145 Provision for loan losses 6,000 9,000 --------- --------- Net interest income after provision for losses 18,032 14,145 --------- --------- Other income: Loan and other fees 1,496 1,629 Gain on sale of loans 5 124 Real estate operations, net 631 796 Other operating income 770 724 --------- --------- Total other income 2,902 3,273 --------- --------- Non-interest expense 11,911 11,466 --------- --------- Earnings before income taxes 9,023 5,952 Income tax provision 3,855 2,584 --------- --------- Net earnings $ 5,168 $ 3,368 ========= ========= Earnings per share $ 0.48 $ 0.32 ========= ========= Weighted average shares outstanding for earnings per share calculation 10,681,815 10,674,779 ========== ==========
See accompanying notes to consolidated financial statements. 4 FirstFed Financial Corp. and Subsidiary Consolidated Statements of Cash Flows (Dollars in thousands)
Three Months Ended March 31, --------------------------- 1997 1996 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 5,168 $ 3,368 Adjustments to reconcile net earnings to net cash provided by operating activities: Net change in loans-held-for-sale (754) 2,083 Provision for loan losses 6,000 9,000 Valuation adjustments on real estate sold (984) (152) Amortization of fees and discounts (272) (765) Negative amortization on Loans (701) (1,255) Increase in taxes payable 3,855 2,583 (Increase) decrease in interest and dividends receivable (370) 589 Increase in interest payable 2,494 1,723 Other (4,938) (5,423) ----------- ------------ Total adjustments 4,330 8,383 ----------- ------------ Net cash provided by operating activities 9,498 11,751 ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Loans made to customers net of principal collection on loans (32,108) 20,356 Loans repurchased under recourse arrangements (4,561) (7,297) Proceeds from sales of real estate owned 16,294 20,000 Proceeds from maturities and principal payments on investment securities held for sale 12,519 19,913 Principal reduction of mortgage-backed securities held for sale 15,936 21,588 Purchase of investment securities held for sale (28,300) - Other 350 (1,652) ----------- ------------ Net cash provided by (used in) investing activities (19,870) 72,908 ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in savings deposits 76,339 51,607 Net decrease in short term borrowings (88,561) (18,761) Repayment of long term borrowings - (5,000) Other (4,185) (857) ----------- ------------ Net cash provided by (used in) financing activities (16,407) 26,989 ----------- ------------ Net increase (decrease) in cash and cash equivalents (26,779) 111,648 Cash and cash equivalents at beginning of period 162,402 36,878 ----------- ------------ Cash and cash equivalents at end of period $ 135,623 $ 148,526 =========== ============
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. 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 or less. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION At March 31, 1997, 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, 1996 and $4.2 billion at March 31, 1996. The decrease in assets from March 31, 1996 to March 31, 1997 was due primarily to a decline in the balance of mortgage-backed securities which resulted from principal reductions on the underlying loans. The Bank's primary market area is Southern California. Throughout the past year the Southern California economy has continued to improve from the economic recession which began in 1990. According to the UCLA Business Forecast for California, March, 1997 Report (the "UCLA Report"), the state is expected to continue to generate jobs at a rate of over 2% annually which should reduce the unemployment rate to below 6% in 1999 for the first time since 1991. The UCLA Report forecasts that real estate prices, which have already begun to firm, will continue to show gradual improvement over the next three years. Further, the Los Angeles Magazine, in the January, 1997 Real Estate edition, reports trends that "suggest a great deal of pent-up demand" led by strong home sales in the entry-level market. Further, Los Angeles Magazine, in the January, 1997 Real Estate edition, reports trends that "suggest a great deal of pent-up demand" led by strong home sales in the entry-level market. Due to improvement in the real estate market, net loan charge- offs declined to $3.7 million for the first three months of 1997 compared to $8.1 million for the first three months of 1996. The ratio of non-performing assets to total assets was 1.74% as of March 31, 1997, compared to 1.78% at December 31, 1996 and 2.56% at March 31, 1996. (See "Non-performing Assets" for further discussion.) The Bank's general valuation allowances for loans totaled $51.8 million at March 31, 1997 compared to $54.9 million at December 31, 1996 and $46.2 million at March 31, 1996. The Bank also maintains valuation allowances for impaired loans which totaled $13.2 million at March 31, 1997 compared to $12.4 million at December 31, 1996 and $23.9 million at March 31, 1996. Loan originations increased by 94% to $87.7 million in the first three months of 1997 compared $45.3 million in the first three months of 1996. The Bank has successfully expanded its emphasis on loan products originated for its portfolio. The Bank's portfolio of loans and mortgage-backed securities remained at $3.8 billion as of March 31, 1997, December 31, 1996 and March 31, 1996 because principal reductions on loans and and mortgage-backed securities were slightly in excess of loan originations. 7 The following table shows the components of the Bank's portfolio of loans and mortgage-backed securities by collateral type for the periods indicated:
March 31, December 31, March 31, 1997 1996 1996 ----------- ------------ ----------- (Dollars in thousands) REAL ESTATE LOANS: First trust deed residential loans: One unit $ 1,305,199 $ 1,279,267 $ 1,196,701 Two to four units 344,855 342,230 344,867 Five or more units 1,266,426 1,277,634 1,320,392 ----------- ----------- ----------- Residential loans 2,916,480 2,899,131 2,861,960 OTHER REAL ESTATE LOANS: Commercial and industrial 208,795 210,953 216,415 Second trust deeds 17,259 17,497 18,712 Other 6,392 2,137 3,038 ----------- ----------- ----------- Real estate loans 3,148,926 3,129,718 3,100,125 NON-REAL ESTATE LOANS: Manufactured housing 1,414 1,480 1,853 Deposit accounts 1,132 1,042 1,140 Consumer 90 236 292 ----------- ----------- ----------- Loans receivable 3,151,562 3,132,476 3,103,410 LESS: General valuation allowances- loan portfolio 51,821 54,900 46,152 Valuation allowances - impaired loans 13,217 12,350 23,936 Unrealized loan fees 16,230 16,757 21,980 ----------- ----------- ----------- Net loans receivable 3,070,294 3,048,469 3,011,342 FHLMC AND FNMA MORTGAGE- BACKED SECURITIES: Secured by single family dwellings 692,391 715,286 783,212 Secured by multi-family dwellings 18,895 20,189 23,229 ----------- ----------- ----------- Mortgage-backed securities 711,286 735,475 806,441 ----------- ----------- ----------- TOTAL $ 3,781,580 $ 3,783,944 $ 3,817,783 =========== =========== ===========
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. The mortgage-backed securities portfolio was classified as available for sale as of March 31, 1997 in accordance with Statement of Financial Accounting Standards No. 115. A negative fair value adjustment of $8.9 million, net of taxes, was reflected in stockholders' equity as of March 31, 1997. This represents a $4.8 million increase from the negative $4.1 million adjustment at December 31, 1996. The investment securities portfolio, classified as available-for- sale, was recorded at fair value as of March 31, 1997. A negative fair value adjustment of $335 thousand, net of taxes, was reflected in stockholders' equity as of March 31, 1997. This represents a $207 thousand increase from the negative $128 thousand adjustment at December 31, 1996. 8 Asset/Liability Management The one year GAP (the difference between rate-sensitive assets and liabilities repricing within one year or less) was a positive $215 million or 5.22% of total assets at the end of the first quarter of 1997. In comparison, the one year GAP ratio was a positive $240 million or 5.80% of total assets as of December 31, 1996 and a positive $308 million or 7.39% of total assets as of March 31, 1996. Since over 96% 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. A positive GAP normally benefits a financial institution in times of increasing interest rates. However, because there is a three month time lag before changes in the COFI Index can be implemented with respect to the Bank's loans, the Bank's net interest income typically declines during periods of increasing interest rates. Capital Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and percentages of total capital to risk-weighted assets. The most recent notification from the OTS indicated that the Bank was well capitalized under the applicable regulatory requirements. The following table summarizes the Bank's actual capital and required capital as of March 31, 1997:
Tangible Core Risk-based Capital Capital Capital -------- ------- ---------- Actual Capital: Amount $242,665 $242,665 $270,158 Ratio 5.85% 5.85% 11.58% Minimum required capital: Amount $ 62,173 $124,346 $188,594 Ratio 1.50% 3.00% 8.00% Well capitalized required capital: Amount - $207,243 $235,255 Ratio - 5.00% 10.00%
Pursuant to the Board of Directors' authorization in 1987, the Company may repurchase up to 10% of its outstanding shares of common stock as of December 31, 1987. The Company repurchased 127,000 shares during 1996 at an average price of $16.17 per share. No shares were repurchased during the first quarter of 1997. As of March 31, 1997, 137,000 shares remained eligible for repurchase. RESULTS OF OPERATIONS The Company reported consolidated net earnings of $5.2 million for the first quarter of 1997 compared to net earnings of $3.4 million for the first quarter of 1996. The improved earnings resulted primarily from a $3.0 million decrease in the loan loss provision and an $887 thousand increase in net interest income, $486 thousand of which was interest received on California tax refunds. 9 For the first three months of 1997, loan charge-offs, net of recoveries, were $3.7 million compared to $8.1 million for the first three months of 1996. The lower charge-off levels in 1997 resulted primarily from fewer valuation allowances established on single family and multi-family loans as a result of more stable real estate prices compared to the first quarter of 1996. (See "Non-performing Assets" for further discussion.) Loan Loss Provisions Due to improving real estate conditions in Southern California, $6.0 million was provided for loan losses in the first quarter of 1997 compared to $9.0 million in the first quarter of 1996. 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 economic trends in Southern California. 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:
Three Months Ended March 31, 1997 ----------------------------------------------- General Impaired Valuation Valuation Allowance Allowance Total ------------- ------------- -------------- (Dollars in thousands) Balance at December 31, 1996 $ 54,900 $ 12,350 $ 67,250 Provision for loan losses 3,874 2,126 6,000 Charge-offs: Single family (1,858) (3) (1,861) Multi family (1,705) (1,256) (2,961) ---------- ---------- ---------- Total charge-offs (3,563) (1,259) (4,822) Recoveries 844 - 844 ---------- ---------- ---------- Net charge-offs (2,719) (1,259) (3,978) Transfer to valuation allowance for loans sold with recourse (4,234) - (4,234) ---------- ---------- ---------- Balance at March 31, 1997 $ 51,821 $ 13,217 $ 65,038 ========== ========== ==========
Three Months Ended March 31, 1996 ---------------------------------------------- General Impaired Valuation Valuation Allowance Allowance Total ------------- ------------ ------------- (Dollars in thousands) Balance at December 31, 1995 $ 42,876 $ 26,101 $ 68,977 Provision for loan losses 4,552 4,448 9,000 Charge-offs: Single family (3,238) (165) (3,403) Multi-family - (6,448) (6,448) Non-real estate (170) - (170) ---------- --------- ---------- Total charge-offs (3,408) (6,613) (10,021) Recoveries 2,132 - 2,132 ---------- --------- ---------- Net charge-offs (1,276) (6,613) (7,889) ---------- --------- ---------- Balance at March 31, 1996 $ 46,152 $ 23,936 $ 70,088 ========== ========= ==========
10 The Bank also maintains a valuation allowance for loans sold with recourse, recorded as a liability. This allowance was 5.74% of loans sold with recourse as of March 31, 1997, compared to 3.64% as of December 31, 1996 and 3.64% as of March 31, 1996. The balance of loans sold with recourse totaled $224.7 million, $230.8 million and $241.8 million as of March 31, 1997, December 31, 1996 and March 31, 1996, respectively. The Bank has not entered into any new recourse arrangements since 1989. Listed below is a summary of the activity in the valuation allowance for loans sold with recourse during the periods indicated:
Three Months Ended March 31, -------------------------------- 1997 1996 -------- -------- (Dollars in thousands) Balance at beginning of period $ 8,398 $ 9,050 Charge-offs - (259) Recoveries 268 - Transfers from general loan valuation allowance 4,234 - -------- -------- Balance at end of period $ 12,900 $ 8,791 ======== ========
The following table summarizes the activity in the general valuation allowance for real estate acquired by foreclosure for the quarter ended March 31, 1997 (dollars in thousands):
Balance at December 31, 1996 $ 520 Provision for losses 125 Charge-offs (244) -------- Balance at March 31, 1997 $ 401 ========
There was no general valuation allowance for real estate acquired by foreclosure during the quarter ended March 31, 1996. The Company's interest rate margin was the same for the three month periods ended March 31, 1997 and 1996 at 2.09%. The Eleventh District Cost of Funds Index (on a lagged basis) determines the yield on over 96% of the Bank's loan portfolio and was 0.26% lower during the first three months of 1997 compared to the same period of 1996. A lower balance in non-performing loans and a higher yielding investment portfolio offset the reduction in the loan yield. In addition, the Bank's cost of funds was 0.16% lower in the first quarter of 1997 than in the first quarter of 1996. 11 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 interest rate spreads, and (v) the effective net spreads for the periods indicated.
Three Months Ended March 31, ----------------------------- 1997 1996 ----------- ------------ (Dollars In thousands) Average loans and mortgage-backed securities $ 3,785,302 $ 3,852,566 Average investment securities 167,209 181,653 ------------ ------------ Average interest-earning assets 3,952,511 4,034,219 ------------ ------------ Average savings deposits 1,986,081 2,246,137 Average borrowings 1,865,609 1,714,861 ------------ ------------ Average interest-bearing liabilities 3,851,690 3,960,998 ------------ ------------ Excess of interest-earning assets over interest-bearing liabilities $ 100,821 $ 73,221 ============ ============ Yields earned on average interest earning assets 7.29% 7.45% Rates paid on average interest- bearing liabilities 5.20 5.36 Net interest rate spread 2.09 2.09 Effective net spread (1) 2.23 2.18 Total interest income $ 72,085 $ 75,102 Total interest expense 49,653 52,952 ------------ ------------ 22,432 22,150 Total other items (2) 1,600 995 ------------ ------------ Net interest income $ 24,032 $ 23,145 ============ ============
(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, including interest on California tax refunds. NON-INTEREST INCOME AND EXPENSE Real estate operations produced net gains of $631 thousand and $796 thousand for the first quarter of 1997 and 1996, respectively. Gains result primarily from the recovery of excess valuation allowances associated with foreclosed properties sold. A net gain on sale of loans of $5 thousand and $124 thousand was recognized for the first quarter of 1997 and 1996, respectively. The volume of loans sold during the first quarter of 1997 and 1996 was $1.2 million and $14.5 million, respectively. Total non-interest expense increased by 4% during the first quarter of 1997 to $11.9 million compared to $11.5 million for the prior year period. Expenses increased as a result of compensation-related items associated with the Bank's development of new business products and servicies as well as certain costs associated with 12 evaluating new data processing and occupancy requirements. The expense-to-assets ratio was 1.15% of average assets for the first quarter of 1997, up from 1.10% for the same quarter of last year. 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 $71.8 million at March 31, 1997 compared to $72.6 million at December 31, 1996 and $98.4 million at March 31, 1996. The amount of interest that has been reserved for loans 90 days or more delinquent or in foreclosure was $4.3 million at March 31, 1997, $4.2 million at December 31, 1996 and $4.5 million at March 31, 1996. 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 March 31, 1997, the Bank had modified loans totaling $13.5 million, net of loan loss allowances totaling $3.9 million. One modified loan, with an unpaid principal balance of $113 thousand, was 90 days or more delinquent as of March 31, 1997. Pursuant to Statement of Financial Accounting Standards No. 114 ("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. The following is a summary of impaired loans, net of valuation allowances for impairment, for the periods indicated:
March 31, December 31, March 31, 1997 1996 1996 --------- ----------- --------- (Dollars in thousands) Non-accrual loans $ 22,959 $ 20,052 $ 29,895 Modified loans 6,628 5,996 11,274 Other impaired loans 18,226 11,586 37,076 ---------- ---------- ---------- $ 47,813 $ 37,634 $ 78,245 ========== ========== ==========
The increase as of March 31, 1997 compared to December 31, 1996 was due to the designation of three multi-family residential loans as impaired during the quarter. 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. 13 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 a probable 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 impaired 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 for the periods indicated:
March 31, December 31, March 31, 1997 1996 1996 --------- ----------- --------- (Dollars in thousands) Fair value method $ 43,750 $ 34,642 $ 59,753 Present value method 4,063 2,992 18,492 --------- --------- --------- Total impaired loans $ 47,813 $ 37,634 $ 78,245 ========= ========= =========
Impaired loans for which there were no valuation allowances established totaled $6.7 million, $4.1 million and $4.4 million as of March 31, 1997, December 31, 1996, and March 31, 1996, 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 periods indicated:
March 31, December 31, March 31, 1997 1996 1996 ---------- ----------- --------- (Dollars in thousands) Single family $ 3,272 $ 2,002 $ 825 Multi-family 18,102 17,417 25,540 Commercial 1,585 633 3,530 ---------- ----------- --------- $ 22,959 $ 20,052 $ 29,895 ========== =========== =========
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 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:
March 31, December 31, March 31, 1997 1996 1996 ---------- ------------ ---------- (Dollars in thousands) Average recorded investment $ 46,559 $ 36,632 $ 77,435 Interest income recognized on impaired loans $ 574 $ 445 $ 1,164
14 ASSET QUALITY The following table sets forth certain asset quality ratios of the Bank at the periods indicated:
March 31, December 31, March 31, 1997 1996 1996 -------- ----------- -------- Non-Performing Loans to Loans Receivable (1) 1.85% 1.89% 2.61% Non-Performing Assets to Total Assets (2) 1.74% 1.78% 2.56% Loan Loss Allowances to Non-Performing Loans (3) 90.78% 94.27% 64.66% General Loss Allowances to Assets with Loss Exposure (4) 1.63% 1.73% 1.48% General Loss Allowances to Total Assets with Loss Exposure (5) 1.90% 1.86% 1.63%
(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 loan portfolio and real estate owned 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. An analysis of non-performing assets as of the periods indicated follows:
March 31, December 31, March 31, 1997 1996 1996 ---------- ------------ ---------- (Dollars in thousands) Real estate acquired by foreclosure: Single family $ 8,897 $ 6,840 $ 9,112 Multi-family 3,806 7,339 13,797 Commercial 809 673 2,806 Other - - 177 -------- --------- --------- Total real estate acquired by foreclosure 13,512 14,852 25,892 -------- --------- --------- Non-accrual loans: Single family 21,652 25,602 26,248 Multi-family 46,913 44,754 65,661 Commercial 3,246 2,223 6,278 Other 21 - 223 Less: Valuation allowances (1) (13,385) (13,522) (17,482) -------- --------- --------- Total non-performing loans 58,447 59,057 80,928 -------- --------- --------- Total non-performing assets $ 71,959 $ 73,909 $ 106,820 ======== ========= =========
(1) Includes valuation allowances for impaired loans and loss allowances on other non-performing loans requiring fair value adjustments. Real estate acquired by foreclosure at March 31, 1997 decreased 9% compared to December 31, 1996 and 48% compared to March 31, 1996. Real estate acquired by foreclosure decreased compared to the previous quarter and the same period last year as a result of a decline in new foreclosed properties. Management continues to dedicate significant attention to the quick resolution and disposition of foreclosed properties. Sales of foreclosed real estate totaled $16.3 million and $20.0 million during the first quarter of 1997 and 1996, respectively. Non-accrual loans, net of valuation allowances, decreased slightly compared to the level at December 31, 1996 and decreased 28% compared to the March 31, 1996 level. During the first quarter of 1997, the reduction in single-family non accrual loans was partly offset by an increase in multi-family non-accrual loans. The decrease in non-accrual loans since the first quarter of 1996 is primarily due to a decline in multi-family loan delinquencies. 16 SOURCES OF FUNDS External sources of funds include deposits from several sources, advances from the Federal Home Loan Bank of San Francisco ("FHLB"), securitized borrowings and unsecured term funds. Deposits are accepted from retail savings branches, a telemarketing department, and national deposit brokers. Excluding $16.8 million in interest credits during the first quarter of 1997, total savings deposits increased by $59.5 million during the first three months of 1997. 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 branches decreased by $1.2 million during the first three months of 1997. 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 72.3% of total savings deposits as of March 31, 1997. Telemarketing deposits increased by $16.5 million during the first three months of 1997. These accounts 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 6.4% of total deposits at March 31, 1997. Deposits acquired from national brokerage firms ("brokered deposits") increased by $44.2 million during the first three months of 1997. 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 March 31, 1997, brokered deposits comprised 21.3% of total deposits. Total borrowings decreased by $88.6 million during the first three months of 1997 due to net payoffs of $92.0 million in FHLB advances and $17.6 in borrowings under reverse repurchase agreements, offset by $21.0 million in additional unsecured term funds. 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 $70.6 million for the first quarter of 1997. This compares with principal payments of $69.4 million for the first quarter of 1996. Loan sales decreased to $1.2 million for the first quarter of 1997 compared with loan sales of $14.5 million for the first quarter of 1996 due to a decrease in the amount of saleable product originated. 17 PART II - OTHER INFORMATION 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. (10.4) Form of Change in Control Employment Agreement effective September 26, 1996 filed as Exhibit 10.4 to Form 10-Q for the quarter ended September 30, 1996 and incorporated by reference. (10.5) Form of Directors Stock Incentive Plan effective January 1, 1997 filed as Appendix A to Proxy Statement dated March 18, 1997 for Annual Meeting of Stockholders 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 March 31, 1997. 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: May 14, 1997 By /s/ BABETTE E. HEIMBUCH ----------------------- Babette E. Heimbuch President and Chief Executive Officer By /s/ DOUGLAS J. GODDARD ---------------------- Douglas J. Goddard Chief Financial Officer and Executive Vice President 19 EX-27 2
9 This schedule contains summary financial information extracted from the company's Consolidated Statement of Operations and Consolidated Statements of Financial Condition and is qualified in its entirety by reference to such financial statements. 0000810536 FIRSTFED FINANCIAL CORP. 1000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 28,623 107,000 0 0 796,066 0 0 3,070,294 65,038 4,129,737 2,033,787 1,801,921 48,879 50,000 0 0 115 195,035 4,129,737 70,449 3,239 0 73,685 22,898 49,653 24,032 6,000 0 11,911 9,032 9,032 0 0 5,168 .48 .48 2.23 58,447 0 6,628 26,774 75,648 4,663 953 77,938 77,938 0 0
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