-----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, AonhVCoYfr6GJxT3y/YJw1Rlq87em+nSvvvAGD7P2g/B6OZ382POE9YzQyXuJX6k XknV72k56Ii8SKwNbTB9RA== 0000810536-97-000008.txt : 19971117 0000810536-97-000008.hdr.sgml : 19971117 ACCESSION NUMBER: 0000810536-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 001-09566 FILM NUMBER: 97720353 BUSINESS ADDRESS: STREET 1: 201 W THIRD ST 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 09/30/97 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 September 30, 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 November 1, 1997, 10,587,618 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 September 30, 1997, December 31, 1996 and September 30, 1996 Consolidated Statements of Operations for the three 4 months and nine months ended September 30, 1997 and 1996 Consolidated Statements of Cash Flows for the nine 5 months ended September 30, 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)
September 30, December 31, September 30, 1997 1996 1996 ------------- ------------ ------------- Assets Cash and cash equivalents $ 92,437 $ 162,402 $ 167,088 Investment securities, available-for-sale (at fair value) 50,165 58,909 106,277 Mortgage-backed securities, available-for-sale (at fair value) 691,550 746,006 758,872 Loans receivable, held-for-sale (fair value of $20,783, $6,238, and $4,330) 20,547 6,195 4,325 Loans receivable, net 3,124,048 3,042,274 3,024,702 Accrued interest and dividends receivable 27,027 26,910 28,951 Real estate 9,386 14,445 18,093 Office properties and equipment, net 9,468 8,944 8,891 Investment in Federal Home Loan Bank (FHLB) stock, at cost 67,504 62,400 61,425 Other assets 12,515 15,367 18,102 ------------- ------------ ------------- $ 4,104,647 $ 4,143,852 $ 4,196,726 ============= ============ ============= Liabilities Deposits $ 1,961,757 $ 1,957,448 $ 2,054,520 FHLB advances and other borrowings 1,287,500 1,294,000 1,236,500 Securities sold under agreements to repurchase 588,839 646,482 659,727 Accrued expenses and other liabilities 54,715 51,372 62,038 ------------- ------------ ------------- 3,892,811 3,949,302 4,012,785 ------------- ------------ ------------- Commitments and Contingent Liabilities Stockholders' Equity Common stock, par value $.01 per share; authorized 25,000,000 shares; issued 11,508,566 11,453,369, and 11,441,117 shares, outstanding 10,585,046, 10,529,849, and 10,517,597 shares 115 115 114 Additional paid-in capital 29,531 28,677 28,524 Retained earnings - substantially restricted 200,452 183,965 177,320 Loan to employee stock ownership plan (2,214) (2,132) (2,599) Treasury stock, at cost, 923,520 shares (11,885) (11,885) (11,885) Unrealized loss on securities available-for-sale, net of taxes (4,163) (4,190) (7,533) ------------- ------------ ------------- 211,836 194,550 183,941 ------------- ------------ ------------- $ 4,104,647 $ 4,143,852 $ 4,196,726 ============= ============ =============
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 Nine Months Ended September 30, September 30, -------------------- ------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Interest income: Interest on loans $ 60,468 $ 57,101 $176,690 $171,551 Interest on mortgage-backed securities 11,993 13,369 36,898 41,934 Interest and dividends on investments 3,090 3,070 9,594 9,905 -------- -------- -------- -------- Total interest income 75,551 73,540 223,182 223,390 -------- -------- -------- -------- Interest expense: Interest on deposits 22,905 24,249 69,770 77,662 Interest on borrowings 28,957 26,031 82,661 75,848 -------- -------- -------- -------- Total interest expense 51,862 50,280 152,431 153,510 -------- -------- -------- -------- Net interest income 23,689 23,260 70,751 69,880 Provision for loan losses 5,000 8,700 16,500 26,700 Net interest income ------- -------- -------- -------- after provision for loan losses 18,689 14,560 54,251 43,180 ------- -------- -------- -------- Other income: Loan and other fees 1,560 1,625 4,564 4,895 Gain on sale of loans 45 18 75 215 Real estate operations, net 106 (166) 1,204 1,082 Other operating income 854 666 2,513 2,047 -------- -------- -------- -------- Total other income 2,565 2,143 8,356 8,239 -------- -------- -------- -------- Non-interest expense 10,784 25,561 33,692 48,314 -------- -------- -------- -------- Earnings (loss) before income taxes 10,470 (8,858) 28,915 3,105 Income tax provision (benefit) 4,499 (3,689) 12,428 1,506 -------- -------- -------- -------- Net earnings (loss) $ 5,971 $ (5,169) $ 16,487 $ 1,599 ======== ======== ======== ======== Earnings (loss) per share $ 0.55 $ (0.49) $ 1.53 $ 0.15 ======== ======== ======== ======== Weighted average shares outstanding for earnings (loss) per share calculation 10,776,883 10,514,193 10,774,144 10,622,149 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. 4 FirstFed Financial Corp. and Subsidiary Consolidated Statements of Cash Flows (Dollars in thousands)
Nine Months Ended September 30, ----------------------- 1997 1996 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 16,487 $ 1,599 Adjustments to reconcile net earnings to net cash provided by operating activities: Net change in loans-held-for-sale (14,352) 3,052 Provision for loan losses 16,500 26,700 Valuation adjustments on real estate sold (148) (1,360) Amortization of fees and discounts (1,127) (1,076) Increase in negative amortization (1,961) (3,099) Increase in taxes payable 12,428 1,506 Increase in interest and dividends receivable (117) (331) Increase (decrease) in interest payable 1,345 (11,037) Other 5,994 11,383 ---------- ---------- Total adjustments 18,562 25,738 ---------- ---------- Net cash provided by operating activities 35,049 27,337 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Loans made to customers net of principal collection on loans (129,720) (42,242) Loans repurchased (6,166) (11,404) Proceeds from sales of real estate 49,926 58,918 Principal reductions on mortgage-backed securities 54,965 38,067 Proceeds from maturities and principal payments on investment securities 36,626 66,791 Purchase of investment securities (28,400) (79,405) Purchase of FHLB stock (2,186) - Treasury stock purchases - (2,053) Other (646) 2,620 ---------- ---------- Net cash provided by (used in) investing activities (25,601) 31,292 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in savings deposits 4,309 (150,516) Net increase (decrease) in short term borrowings (14,143) 238,284 Repayment of long term borrowings (50,000) (9,000) Payment of prior period taxes and interest to IRS (12,638) - Other (6,941) (7,187) ---------- ---------- Net cash provided by (used in) financing activities (79,413) 71,581 ---------- ---------- Net increase (decrease) in cash and cash equivalents (69,965) 130,210 Cash and cash equivalents at beginning of period 162,402 36,878 ---------- ---------- Cash and cash equivalents at end of period $ 92,437 $ 167,088 ========== ==========
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 of the date of purchase. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition At September 30, 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, equal to the level at December 31, 1996 and slightly less than the $4.2 billion level at September 30, 1996. The Bank's primary market area is Southern California which, according to the UCLA Forecast for California, September 1997 Report, is nearing the end of its fourth year of economic expansion following the substantial job losses during 1990 to 1993. The unemployment rate in California is predicted to average 6.2% for 1997 and to decline to 5.5% by the year 2000. Real estate values in Los Angeles County are expected to increase by 4.2% in 1997, 4.9% in 1998 and 5.2% in 1999. This represents substantial improvement from the declines of 4.4% in 1995, 6.8% in 1994 and 8.2% in 1993. Consistent with the improvement in the Southern California economy and real estate market, the ratio of non-performing assets to total assets dropped to 1.20% as of September 30, 1997 from 1.78% at December 31, 1996 and 2.15% at September 30, 1996. Compared to the levels one year ago, non-performing loans, net of valuation allowances, decreased 45% and foreclosed real estate decreased 47%. (See "Non-performing Assets" for further discussion.) The Bank's general valuation allowances for loans and real estate totaled $58.4 million or 1.79% of total loans and real estate owned with loss exposure at September 30, 1997. This compares with $55.4 million or 1.74% as of December 31, 1996 and $49.9 million or 1.57% at September 30, 1996. The Bank also maintains valuation allowances for impaired loans which totaled $11.5 million at September 30, 1997, $12.4 million at December 31, 1996 and $17.0 million at September 30, 1996. Loan charge-offs decreased to $860 thousand and $9.8 million for the third quarter and first nine months of 1997, respectively, from $11.8 million and $29.7 million for same periods of 1996, respectively. The Bank's portfolio of loans, including mortgage-backed securities, remained at $3.8 billion at September 30, 1997 consistent with the levels at December 31, 1996 and September 30, 1996. Loan originations were $128.9 million and $340.7 million for the third quarter and first nine months of 1997, respectively, compared to $101.1 million and $223.8 million for the third quarter and first nine months of 1996, respectively. Principal reductions on loans and mortgage-backed securities were $86.8 million and $237.0 million for the third quarter and first nine months of 1997, respectively, compared to $67.9 million and $217.0 million for the third quarter and first nine months of 1996, respectively. 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. No new mortgage-backed securities were created with the Bank's loans during 1996 or 1997. The mortgage-backed securities portfolio, classified as available- for-sale, was recorded at fair value as of September 30, 1997. An unrealized loss of $3.8 million, net of taxes, was reflected in stockholders' equity as of September 30, 1997. This compares to a $4.1 million unrealized loss recorded as of December 31, 1996. 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:
September 30, December 31, September 30, 1997 1996 1996 ------------- ------------ ------------- (Dollars in thousands) REAL ESTATE LOANS: First trust deed residential loans: One unit $ 1,418,091 $ 1,279,267 $ 1,247,016 Two to four units 346,971 342,230 341,590 Five or more units 1,238,887 1,277,634 1,289,167 ------------- ------------ ------------- Residential loans 3,003,949 2,899,131 2,877,773 OTHER REAL ESTATE LOANS: Commercial and industrial 202,735 210,953 211,626 Second trust deeds 15,928 17,497 17,782 Other 6,364 2,137 2,427 ------------- ------------ ------------- Real estate loans 3,228,976 3,129,718 3,109,608 NON-REAL ESTATE LOANS: Manufactured housing 1,197 1,480 1,563 Deposit accounts 1,313 1,042 1,270 Consumer 111 236 231 ------------- ------------ ------------- Loans receivable 3,231,597 3,132,476 3,112,672 LESS: General valuation allowances- loan portfolio 57,900 54,900 49,248 Valuation allowances - impaired loans 11,456 12,350 16,965 Unrealized loan fees 17,646 16,757 17,432 ------------- ------------ ------------- Net loans receivable 3,144,595 3,048,469 3,029,027 FHLMC AND FNMA MORTGAGE- BACKED SECURITIES (at fair value): Secured by single family dwellings 672,687 715,286 727,577 Secured by multi-family dwellings 18,863 20,189 20,270 ------------- ------------ ------------- Mortgage-backed securities 691,550 735,475 747,847 ------------- ------------ ------------- TOTAL $ 3,836,145 $ 3,783,944 $ 3,776,874 ============= ============ =============
The investment securities portfolio, classified as available-for- sale, was recorded at fair value as of September 30, 1997. An unrealized loss of $347 thousand, net of taxes, was reflected in stockholders' equity as of September 30, 1997. This adjustment represented a $219 thousand increase over the $128 thousand unrealized loss recorded as of December 31, 1996. 8 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 $210.7 million or 5.13% of total assets at September 30, 1997. In comparison, the one year GAP ratio was a positive $240.4 million or 5.80% of total assets as of December 31, 1996 and a positive $198.6 million or 4.73% as of September 30, 1996. More than 95% of its loans adjust monthly based upon changes in the Eleventh District Cost of Funds Index ("COFI Index"). Therefore, the Bank's one year GAP generally varies based upon the extent by which the maturities of its deposits and borrowings exceed one year. 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 Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and percentage of total capital to risk-weighted assets. The most recent notification from the OTS indicates 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 September 30, 1997:
Tangible Core Risk-based Capital Capital Capital -------- --------- ----------- (Dollars in thousands) Actual Capital: Amount $253,351 $ 253,351 $ 282,051 Ratio 6.16% 6.16% 12.06% Minimum required capital: Amount $ 61,669 $ 123,339 $ 188,013 Ratio 1.50% 3.00% 8.00% Well capitalized required capital: Amount - $ 205,565 $ 234,794 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 that were outstanding as of December 31, 1987. The Company repurchased 127,000 shares during 1996 at an average price of $16.17 per share. Total shares repurchased as of September 30, 1997 were 923,520 at an average price of $12.87. No shares were repurchased during the first nine months of 1997. As of September 30, 1997, 137,000 shares remained eligible for repurchase. Results of Operations The Company reported consolidated net earnings of $6.0 million for the third quarter of 1997 compared to a net loss of $5.2 million for the third quarter of 1996. Results for the third quarter of 1996 included an $8.7 million after tax accrual of a special assessment by the Federal Deposit Insurance Corporation ("FDIC"). Excluding the special assessment, the Company would have recorded net earnings of $3.5 million during the third quarter of 1996. The improved earnings, excluding the special assessment, resulted primarily from a decrease in the provision for loan losses to $5.0 million for the third quarter of 1997 from $8.7 million for the third quarter of 1996. 9 The Company reported consolidated net earnings of $16.5 million for the first nine months of 1997 compared to $1.6 million for the same period last year. After adjusting for the special assessment, net earnings for the first nine months of 1996 would have been $10.3 million. The provision for loan losses for the first nine months of 1997 was $16.5 million compared to $26.7 million for the first nine months 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 perception of the economic climate in Southern California. Loan Loss Allowances 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:
Nine Months Ended September 30, 1997 ----------------------------------------------- General Impaired Valuation Valuation Allowances Allowances Total ---------- ---------- --------- (Dollars in thousands) Balance at December 31, 1996 $ 54,900 $ 12,350 $ 67,250 Provision for loan losses 9,519 6,981 16,500 Charge-offs: Single family (4,759) (179) (4,938) Multi-family (2,659) (6,954) (9,613) Commercial (471) (616) (1,087) Non real estate (21) - (21) ---------- ---------- --------- Total charge-offs (7,910) (7,749) (15,659) Recoveries 3,785 - 3,785 Adjustments and reclassifications 1,840 (126) 1,714 ---------- ---------- --------- Net charge-offs (2,285) (7,875) (10,160) ---------- ---------- --------- Transfers to general valuation allowance for loans sold with recourse (4,234) - (4,234) ---------- ---------- --------- Balance at September 30, 1997 $ 57,900 $ 11,456 $ 69,356 ========== ========== =========
Nine Months Ended September 30, 1996 ----------------------------------------------- General Impaired Valuation Valuation Allowances Allowances Total ---------- ---------- --------- (Dollars in thousands) Balance at December 31, 1995 $ 42,876 $ 26,101 $ 68,977 Provision for loan losses 16,584 10,116 26,700 Charge-offs: Single family (9,269) (165) (9,434) Multi-family (2,477) (17,865) (20,342) Commercial - (1,222) (1,222) Non-real estate (164) - (164) ---------- ---------- --------- Total charge-offs (11,910) (19,252) (31,162) Recoveries 4,070 4,070 ---------- ---------- --------- Net charge-offs (7,840) (19,252) (27,092) ---------- ---------- --------- Transfers to general valuation allowance for real estate (700) - (700) Transfers to REO valuation allowance (1,672) - (1,672) ---------- ---------- --------- Balance at September 30, 1996 $ 49,248 $ 16,965 $ 66,213 ========== ========== =========
10 The Bank also maintains a valuation allowance for loans sold with recourse, recorded as a liability. This allowance was 5.89% of loans sold with recourse as of September 30, 1997, compared to 3.64% as of December 31, 1996 and 3.76% as of September 30, 1996. The balance of loans sold with recourse totaled $219.9 million, $230.8 million and $235.6 million as of September 30, 1997, December 31, 1996 and September 30, 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:
Nine Months Ended September 30, ------------------------------- 1997 1996 ---------- ---------- (Dollars in thousands) Balance at beginning of period $ 8,398 $ 9,050 Transfers from general loan valuation allowance 4,234 - Charge-offs (70) (191) Recoveries 392 - ---------- ---------- Balance at end of period $ 12,954 $ 8,859 ========== ==========
The following table summarizes the activity in the general valuation allowance for real estate acquired by foreclosure for the periods indicated:
Nine Months Ended September 30, ------------------------------- 1997 1996 ---------- ---------- (Dollars in thousands) Balance at beginning of period $ 520 $ - Provision for losses 1,046 - Charge-offs (1,066) - Transfers from general loan valuation allowance - 700 ---------- ---------- Balance at end of period $ 500 $ 700 ========== ==========
Net Interest Income The Company's interest rate margin increased to 2.15% for the third quarter of 1997 from 2.11% for the third quarter of last year despite a 0.09% increase in the Bank's cost of funds during the same period. The COFI Index (on a lagged basis) determines the yield on over 95% of the loan portfolio and the Index in effect during the three months ended September 30, 1997 increased 0.02% compared to same period of the prior year. Also, a decline in loans delinquent greater than 90 days had a positive effect on the loan yield during the period. On a year-to-date basis, the Company's interest rate margin increased to 2.11% from 2.10% for the same period of last year due to a slight decrease in the Bank's cost of funds. 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: 11
During the Nine Months Ended September 30, ------------------------------------------- 1997 1996 ------------ ------------ (Dollars In Thousands) Average loans and mortgage-backed securities $ 3,804,603 $ 3,811,785 Average investment securities 162,725 167,647 ------------ ------------ Average interest-earning assets 3,967,328 3,979,432 ------------ ------------ Average savings deposits 1,983,330 2,171,076 Average borrowings 1,876,446 1,719,048 ------------ ------------ Average interest-bearing liabilities 3,859,776 3,890,124 ------------ ------------ Excess of interest-earning assets over interest-bearing liabilities $ 107,551 $ 89,308 ============ ============ Yields earned on average interest earning assets 7.37% 7.37% Rates paid on average interest- bearing liabilities 5.26 5.27 Net interest rate spread 2.11 2.10 Effective net spread (1) 2.25 2.23 Total interest income $ 219,212 $ 220,183 Total interest expense 152,196 153,510 ------------ ------------ 67,016 66,673 Total other items (2) 3,735 3,207 ------------ ------------ Net interest income $ 70,751 $ 69,880 ============ ============
During the Three Months Ended September 30, ------------------------------------------- 1997 1996 ------------ ------------ (Dollars In Thousands) Average loans and mortgage-backed securities $ 3,824,892 $ 3,783,920 Average investment securities 159,755 163,360 ------------ ------------ Average interest-earning assets 3,984,647 3,947,280 ------------ ------------ Average savings deposits 1,933,402 2,052,676 Average borrowings 1,936,304 1,787,403 ------------ ------------ Average interest-bearing liabilities 3,869,706 3,840,079 ------------ ------------ Excess of interest-earning assets over interest-bearing liabilities $ 114,941 $ 107,201 ============ ============ Yields earned on average interest earning assets 7.46% 7.33% Rates paid on average interest- bearing liabilities 5.31 5.22 Net interest rate spread 2.15 2.11 Effective net spread(1) 2.30 2.25 Total interest income $ 74,287 $ 72,434 Total interest expense 51,853 50,280 ------------ ------------ 22,434 22,154 Total other items(2) 1,255 1,106 ------------ ------------ Net interest income $ 23,689 $ 23,260 ============ ============
(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 and Expense Real estate operations produced a net gain of $106 thousand for the third quarter of 1997 and a net loss of $166 thousand for the third quarter of 1996. For the first nine months of 1997 and 1996, real estate operations produced net gains of $1.2 million and $1.1 million, respectively. Gains result primarily from the recovery of excess valuation allowances associated with foreclosed properties sold. Gain on the sale of loans results primarily from loan fees recognized at the time of sale. The gain fluctuates based on the volume of loans sold. Loan sales totaled $10.6 million and $13.8 million during the third quarter and first nine months of 1997 compared to $7.1 million and $37.5 million during the third quarter and first nine months of 1996. Other operating income increased to $854 thousand during the third quarter of 1997 from $666 thousand for the same period last year. For the first nine months of 1997 other operating income increased to $2.5 million from $2.0 million the year before. The improved amounts are due to increased fees collected for services rendered at the retail savings branches and additional fees collected from remote ATMs. Non-interest expense was 1.04% of average assets for the third quarter of 1997 and 1.08% of average assets for the first nine months of 1997. These amounts are slightly higher than 1.01% and 1.07%, for the third quarter and first nine months of 1996, respectively, after excluding the $15.1 million special SAIF assessment that was accrued during the third quarter of 1996. The small increase in the expense ratios after excluding the special SAIF assessment results from the higher operating costs of expanding the Bank's business lines and reviewing and implementing new computer systems. There was also a slight decrease in average assets.. 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 $46.9 million at September 30, 1997 compared to $72.6 million at December 31, 1996 and $90.2 million at September 30, 1996. The amount of interest that has been reserved for loans 90 days or more delinquent or in foreclosure was $2.7 million at September 30, 1997, $4.2 million at December 31, 1996 and $4.9 million at September 30, 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 September 30, 1997, the Bank had modified loans totaling $10.7 million, net of loan loss allowances totaling $3.6 million. There were no modified loans 90 days or more delinquent as of September 30, 1997. 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:
September 30, December 31, September 30, 1997 1996 1996 ------------- ------------ ------------- (Dollars in thousands) Non-accrual loans $ 16,054 $ 20,052 $ 27,912 Modified loans 10,984 5,996 6,971 Other impaired loans 9,468 11,586 9,068 ------------- ------------ ------------- $ 36,506 $ 37,634 $ 43,951 ============= ============ =============
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:
September 30, December 31, September 30, 1997 1996 1996 ------------- ------------ ------------- (Dollars in thousands) Fair value method $ 35,439 $ 34,642 $ 40,935 Present value method 1,067 2,992 3,016 ------------- ------------ ------------- Total impaired loans $ 36,506 $ 37,634 $ 43,951 ============= ============ =============
Impaired loans for which there were no valuation allowances established totaled $4.4 million, $4.1 million and $2.2 million as of September 30, 1997, December 31, 1996, and September 30, 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 dates indicated:
September 30, December 31, September 30, 1997 1996 1996 ------------- ------------ ------------- (Dollars in thousands) Single family $ 1,220 $ 2,002 $ 2,076 Multi-family 14,337 17,417 23,872 Commercial 497 633 1,964 ------------- ------------ ------------- $ 16,054 $ 20,052 $ 27,912 ============= ============ =============
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. 14 Listed below is additional information concerning the Bank's impaired loans for the periods indicated:
September 30, December 31, September 30, 1997 1996 1996 ------------ ----------- ------------- (Dollars in thousands) Average recorded investment $ 38,638 $ 36,632 $ 44,017 Interest income recognized on impaired loans $ 527 $ 445 $ 397
Asset Quality The following table sets forth certain asset quality ratios of the Bank at the dates indicated:
September 30, December 31, September 30, 1997 1996 1996 ------------- ------------ ------------- Non-Performing Loans to Loans Receivable (1) 1.21% 1.89% 2.30% Non-Performing Assets to Total Assets (2) 1.20% 1.78% 2.15% Loan Loss Allowances to Non-Performing Loans (3) 139.81% 94.27% 75.36% General Loss Allowances to Assets with Loss Exposure (4) 1.79% 1.74% 1.57% General Loss Allowances to Total Assets with Loss Exposure (5) 2.05% 1.87% 1.71%
_______________________ (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, include valuation allowances for non-performing loans and general valuation allowances but exclude 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 exclude 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:
September 30, December 31, September 30, 1997 1996 1996 ------------- ------------ ------------- (Dollars in thousands) Real estate owned: Single family $ 6,422 $ 6,840 $ 8,351 Multi-family 2,726 7,339 9,284 Commercial 680 673 1,043 Other 19 - - ------------- ------------ ------------- Total real estate owned 9,847 14,852 18,678 ------------- ------------ ------------- Non-accrual loans: Single family 16,027 25,602 26,236 Multi-family 28,500 44,754 60,689 Commercial 2,332 2,223 3,129 Other 34 - 144 Less: Valuation allowances (1) (7,661) (13,522) (18,728) ------------- ------------ ------------- Total non-accrual loans 39,232 59,057 71,470 ------------- ------------ ------------- Total non-performing assets $ 49,079 $ 73,909 $ 90,148 ============= ============ =============
_____________________________ (1) Includes valuation allowances for impaired loans and loss allowances on other non-performing loans requiring fair value adjustments. Real estate owned at September 30, 1997 decreased 34% compared to December 31, 1996 and 47% compared to September 30, 1996 due to improvement in the Southern California real estate market. Properties are selling more quickly and property values are increasing compared to the prior year. Non-accrual loans, net of valuation allowances, at September 30, 1997 decreased 34% compared to the level at December 31, 1996 and decreased 45% from the level one year ago. Substantial improvement in both multi-family and single family delinquencies was noted compared to the year ago levels. 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. Savings deposits are accepted from retail banking offices, the telemarketing department, and national deposit brokers. Excluding $17.0 million and $50.8 million in interest credited during the third quarter and first nine months of 1997, respectively, total savings deposits decreased by $15.6 million and $46.5 million during the third quarter and first nine months of 1997, 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 seeks funds from the lowest cost source until the relative costs 16 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 banking offices decreased by $12.1 million and $42.5 million during the third quarter and first nine months of 1997, respectively. The Bank is focusing its marketing efforts on attracting liquid accounts and short term certificate of deposits. Retail deposits comprised 74% of total savings deposits as of September 30, 1997. Telemarketing deposits decreased by $13.3 million and $32.0 million during the third quarter and first nine months of 1997, 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 5% of total deposits at September 30, 1997. Deposits acquired from national brokerage firms ("brokered deposits") increased by $9.7 million and $27.9 million during the third quarter and first nine months of 1997, 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 September 30, 1997, brokered deposits comprised 21% of total deposits. Total borrowings decreased by $108.0 million during the third quarter of 1997 due to net payoffs of $13.0 million in borrowings under reverse repurchase agreements and $95.0 million in advances from the FHLB. Total borrowings decreased by $64.1 million during the first nine months of 1997 due to net payoffs of $57.6 million in borrowings under reverse repurchase agreements and $22 million in advances from the FHLB, offset by $15.5 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. Principal payments on loans and mortgage-backed securities were $86.8 million and $237.0 million for the third quarter and first nine months of 1997, respectively, compared to $67.9 million and $217.0 million for the third quarter and first nine months of 1996, respectively. Loan sales were $10.6 million and $13.8 million for the third quarter and the first nine months of 1997, respectively, compared with sales of $7.1 million and $37.5 million for the third quarter and first nine months of 1996. The amount of salable product increased during the third quarter of 1997 due to borrower preference for the fixed rate loans that the Bank is originating for sale under its "Lend FFB" program. 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) Nonemployee Directors Stock Incentive Plan filed as Appendix A to the Proxy Statement for the Annual Meeting of Stockholders held April 23, 1997 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 September 30, 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: November 13, 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 Statement of Financial Condition and is qualified in its entirety by reference to such financial statements. 0000810536 FIRSTFED FINANCIAL CORP. 1000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 37,437 55,000 0 0 741,716 0 0 3,144,595 69,356 4,104,647 1,961,757 1,826,339 54,715 50,000 0 0 115 211,721 4,104,647 213,588 5,919 3,675 223,182 69,770 152,431 70,751 16,500 0 33,692 28,915 28,915 0 0 16,487 1.53 1.53 2.30 39,232 0 16,054 33,117 67,250 15,659 5,499 69,356 69,356 0 0
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