10QSB 1 form10q40085-810.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ---------------------------------- FORM 10-QSB (Mark One) |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number: 0-19609 ------- FirstFed Bancorp, Inc. --------------------------------------------------------- (Exact name of Small Business Issuer as specified in its charter) Delaware 63-1048648 -------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1630 Fourth Avenue North Bessemer, Alabama 35020 -------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (205) 428-8472 -------------- Check whether the issuer (1) 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 [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class Outstanding at July 31, 2001 ---------------------------- ---------------------------- Common Stock, $.01 par value 2,478,334 shares Transitional Small Business Disclosure Format (Check one): YES [ ] NO [ X ] FIRSTFED BANCORP, INC. Page ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF JUNE 30, 2001 AND DECEMBER 31, 2000...................................2 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000.................................3 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000.............................4 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000.....................................5 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ...............6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION....................................................9 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS...................................................14 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...........................14 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.....................................14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................14 ITEM 5. OTHER INFORMATION...................................................14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................14 SIGNATURES...................................................................15 THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE NOT BEEN AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS NECESSARY FOR A FAIR PRESENTATION OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS FOR THE PERIODS PRESENTED. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
FIRSTFED BANCORP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION As of June 30, 2001 and December 31, 2000 (Dollar amounts in thousands) June 30, December 31, ASSETS 2001 2000 --------- --------- Cash and Cash Equivalents: Cash on hand and in banks $ 3,807 $ 3,173 Interest-bearing deposits in other banks 15,301 1,520 Federal funds sold 11,100 43 --------- --------- 30,208 4,736 --------- --------- Securities available-for-sale, at fair value 4,535 9,090 Loans held for sale 1,025 351 Securities held-to-maturity, at amortized cost, fair value of $23,105 and $15,903, respectively 22,698 15,833 Loans receivable, net 114,314 118,536 Bank owned life insurance 4,398 -- Land, buildings and equipment, net 3,219 3,256 Goodwill 1,038 1,092 Real estate owned 1,751 1,916 Accrued interest receivable 1,779 1,807 Other assets 370 587 --------- --------- $ 185,335 $ 157,204 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $ 146,565 $ 136,417 Other borrowings 17,000 -- Accrued interest payable 390 85 Dividends payable 178 178 Other liabilities 768 364 --------- --------- 164,901 137,044 Stockholders' Equity: Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding -- -- Common stock, $.01 par value, 10,000,000 shares authorized, 3,131,045 shares issued and 2,551,143 shares outstanding at June 30, 2001 and 3,118,273 shares issued and 2,538,371 shares outstanding at December 31, 2000 31 31 Paid-in capital 8,026 7,954 Retained earnings 16,879 16,823 Deferred compensation obligation 1,671 1,580 Deferred compensation treasury stock (188,399 shares at June 30, 2001 and 180,663 shares at December 31, 2000) (1,723) (1,654) Treasury stock, at cost, 579,902 shares at June 30, 2001and December 31, 2000 (3,752) (3,752) Unearned compensation (725) (811) Accumulated other comprehensive income 27 (11) --------- --------- 20,434 20,160 --------- --------- $ 185,335 $ 157,204 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 2
FIRSTFED BANCORP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the Three and Six Months Ended June 30, 2001 and 2000 (Dollar amounts in thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, --------------------------- ---------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- INTEREST INCOME: Interest and fees on loans $ 2,742 $ 2,669 $ 5,561 $ 5,243 Interest and dividends on securities 433 493 960 951 Other interest income 251 155 418 333 ----------- ----------- ----------- ----------- Total interest income 3,436 3,317 6,939 6,527 ----------- ----------- ----------- ----------- INTEREST EXPENSE: Interest on deposits 1,593 1,532 3,185 3,050 Interest on other borrowings 224 -- 416 -- ----------- ----------- ----------- ----------- Total interest expense 1,817 1,532 3,601 3,050 ----------- ----------- ----------- ----------- Net interest income 1,619 1,785 3,338 3,477 Provision for loan losses 14 28 (47) 57 ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 1,605 1,757 3,385 3,420 ----------- ----------- ----------- ----------- NONINTEREST INCOME: Fees and other noninterest income 350 223 619 439 ----------- ----------- ----------- ----------- Total noninterest income 350 223 619 439 ----------- ----------- ----------- ----------- NONINTEREST EXPENSE: Salaries and employee benefits 858 740 1,715 1,477 Office building and equipment expenses 151 145 301 294 Amortization of goodwill 27 27 54 54 Other operating expenses 413 367 900 727 ----------- ----------- ----------- ----------- Total noninterest expense 1,449 1,279 2,970 2,552 ----------- ----------- ----------- ----------- Income before income taxes 506 701 1,034 1,307 Provision for income taxes 170 265 367 486 ----------- ----------- ----------- ----------- NET INCOME $ 336 $ 436 $ 667 $ 821 =========== =========== =========== =========== AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 2,488,026 2,443,782 2,484,325 2,440,401 =========== =========== =========== =========== BASIC EARNINGS PER SHARE $ .14 $ .18 $ .27 $ .34 =========== =========== =========== =========== AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 2,537,021 2,506,679 2,534,852 2,508,959 =========== =========== =========== =========== DILUTED EARNINGS PER SHARE $ .13 $ .17 $ .26 $ .32 =========== =========== =========== =========== DIVIDENDS DECLARED PER SHARE $ .07 $ .07 $ .24 $ .21 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 3
FIRSTFED BANCORP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the Six Months Ended June 30, 2001 and 2000 (Dollar amounts in thousands, except per share amounts) Deferred Deferred Compen- Compen- sation Common Paid-In Retained sation Treasury Treasury Stock Capital Earnings Obligation Stock Stock -------- -------- -------- -------- -------- -------- BALANCE, December 31, 1999 $ 31 $ 7,773 $ 16,155 $ 1,307 $ (1,433) $ (3,752) Net income -- -- 821 -- -- -- Change in unrealized gain (loss) on securities available for sale, net of tax of $6 -- -- -- -- -- -- Comprehensive income -- -- -- -- -- -- Amortization of unearned compensation -- -- -- -- -- -- Dividends declared ($.21 per share) -- -- (528) -- -- -- Exercise of stock options -- 39 -- -- -- -- Amortization of Deferred Compensation -- -- -- 26 -- -- Purchase of Deferred Compensation Treasury -- -- -- 111 (111) -- Stock issued under Dividend Reinvestment Plan -- 76 -- -- -- -- -------- -------- -------- -------- -------- -------- BALANCE, June 30, 2000 $ 31 $ 7,888 $ 16,448 $ 1,444 $ (1,544) $ (3,752) ======== ======== ======== ======== ======== ======== BALANCE, December 31, 2000 $ 31 $ 7,954 $ 16,823 $ 1,580 $ (1,654) $ (3,752) Net income -- -- 667 -- -- -- Change in unrealized gain (loss) on securities available for sale, net of tax of $24 -- -- -- -- -- -- Comprehensive income -- -- -- -- -- -- Amortization of unearned compensation -- -- -- -- -- -- Dividends declared ($.24 per share) -- -- (611) -- -- -- Exercise of stock options -- 15 -- -- -- -- Change in stock value of Employee Stock Ownership Plan -- (10) -- -- -- -- Amortization of Deferred Compensation -- -- -- 22 -- -- Purchase of Deferred Compensation Treasury -- -- -- 69 (69) -- Stock issued under Dividend Reinvestment Plan -- 67 -- -- -- -- -------- -------- -------- -------- -------- -------- BALANCE, June 30, 2001 $ 31 $ 8,026 $ 16,879 $ 1,671 $ (1,723) $ (3,752) ======== ======== ======== ======== ======== ======== Accumulated Other Unearned Compre- Compre- Compen- hensive hensive sation Income Income -------- -------- -------- BALANCE, December 31, 1999 $ (934) $ (167) Net income -- -- $ 821 Change in unrealized gain (loss) on securities available for sale, net of tax of $6 -- 16 16 -------- Comprehensive income -- -- $ 837 ======== Amortization of unearned compensation 73 -- Dividends declared ($.21 per share) -- -- Exercise of stock options -- -- Amortization of Deferred Compensation -- -- Purchase of Deferred Compensation Treasury -- -- Stock issued under Dividend Reinvestment Plan -- -- -------- -------- BALANCE, June 30, 2000 $ (861) $ (151) ======== ======== BALANCE, December 31, 2000 $ (811) $ (11) Net income -- -- $ 667 Change in unrealized gain (loss) on securities available for sale, net of tax of $24 -- 38 38 -------- Comprehensive income -- -- $ 705 ======== Amortization of unearned compensation 86 -- Dividends declared ($.24 per share) -- -- Exercise of stock options -- -- Change in stock value of Employee Stock Ownership Plan -- -- Amortization of Deferred Compensation -- -- Purchase of Deferred Compensation Treasury -- -- Stock issued under Dividend Reinvestment Plan -- -- -------- -------- BALANCE, June 30, 2001 $ (725) $ 27 ======== ========
See accompanying notes to unaudited condensed consolidated financial statements. 4
FIRSTFED BANCORP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2001 and 2000 (Dollar amounts in thousands) Six Months Ended June 30, ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES: 2001 2000 -------- -------- Net income $ 667 $ 821 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion 89 192 Loan fees (cost) deferred, net 148 23 (Credit) provision for loan losses (47) 57 Provision for real estate owned losses 135 -- Loss (gain) on sale of real estate, net 52 64 Origination of loans held for sale (7,053) (3,010) Proceeds from loans held for sale 6,379 2,900 Amortization of goodwill 54 54 Provision for deferred compensation 69 111 Decrease (increase) in assets: Accrued interest receivable 28 (186) Other assets 45 (60) Increase (decrease) in liabilities: Accrued interest payable 305 14 Other liabilities 404 (24) -------- -------- Net cash provided by (used in) operating activities 1,275 956 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available-for-sale 4,854 450 Proceeds from the sale of securities available-for-sale 1,800 536 Purchase of securities available-for-sale (2,004) (1,847) Proceeds from maturities, calls and repayments received on securities held-to-maturity 9,775 1,183 Purchase of securities held-to-maturity (16,681) -- Purchase of Bank Owned Life Insurance (4,250) -- Proceeds from sale of real estate and repossessed assets 690 116 Net loan repayments (originations) 3,574 (2,365) Capital expenditures (111) (106) -------- -------- Net cash provided by (used in) investing activities (2,353) (2,033) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in deposits, net 10,148 (1,719) Proceeds from Federal Home Loan Bank advances 17,000 -- Proceeds from exercise of stock options 15 39 Dividends paid (611) (526) Proceeds from dividend reinvestment 67 76 Purchase of treasury stock for Deferred Compensation Plan (69) (111) -------- -------- Net cash provided by (used in) financing activities 26,550 (2,241) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,472 (3,318) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,736 17,837 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 30,208 $ 14,519 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for - Income taxes $ 459 $ 584 Interest 3,296 3,036 Non-cash transactions - Transfer of loans receivable to real estate owned 675 357
See accompanying notes to unaudited condensed consolidated financial statements. 5 FIRSTFED BANCORP, INC. ---------------------- NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------- 1. BASIS OF PRESENTATION: ---------------------- FirstFed Bancorp, Inc. (the "Company") is the holding company and sole shareholder of First Federal Savings Bank ("First Federal") and First State Corporation ("FSC"), which in turn is the sole shareholder of First State Bank of Bibb County ("First State"). First Federal and First State are referred to herein collectively as the "Banks". The accompanying unaudited condensed consolidated financial statements as of June 30, 2001, and December 31, 2000, and for the three and six months ended June 30, 2001 and 2000, include the accounts of the Company and the Banks. All significant intercompany transactions and accounts have been eliminated in consolidation. In the opinion of management, all adjustments (none of which are other than normal recurring accruals) necessary for a fair presentation of the results of such interim periods have been included. The results of operations for the three and six months ended June 30, 2001, are not necessarily indicative of the results of operations which may be expected for the entire fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Company's December 31, 2000, Consolidated Financial Statements. 2. EARNINGS AND DIVIDENDS PER SHARE: --------------------------------- Earnings per share for the three and six months ended June 30, 2001 and 2000, respectively, were as follows:
Three Months Three Months Ended June 30, 2001 Ended June 30, 2000 ----------------------------------------- ------------------------------------------ Dilutive Dilutive Effect of Effect of Options Options Basic Issued Diluted Basic Issued Diluted ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 336,000 -- $ 336,000 $ 436,000 -- $ 436,000 Shares available to common shareholders 2,488,026 48,995 2,537,021 2,443,782 62,897 2,506,679 ---------- ---------- ---------- ---------- ---------- ---------- Earnings per share $ 0.14 -- $ 0.13 $ 0.18 -- $ 0.17 ========== ========== ========== ========== ========== ==========
6
Six Months Six Months Ended June 30, 2001 Ended June 30, 2000 ----------------------------------------- ------------------------------------------ Dilutive Dilutive Effect of Effect of Options Options Basic Issued Diluted Basic Issued Diluted ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 667,000 -- $ 667,000 $ 821,000 -- $ 821,000 Shares available to common shareholders 2,484,325 50,527 2,534,852 2,440,401 68,558 2,508,959 ---------- ---------- ---------- ---------- ---------- ---------- Earnings per share $ 0.27 -- $ 0.26 $ 0.34 -- $ 0.32 ========== ========== ========== ========== ========== ==========
Options to purchase 39,590 shares of common stock at prices ranging from $8.88 to $12.50 were outstanding during the three and six months ended June 30, 2001, and options to purchase 37,675 and 23,675 shares of common stock at prices ranging from $8.88 to $12.50 were outstanding during the three and six months ended, June 30, 2000, respectively, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common stock. The options will expire at various times over the next nine years. There were 61,503 and 70,289 shares of common stock held by the Employee Stock Ownership Plan and unallocated at June 30, 2001 and 2000, respectively. These shares are outstanding but not included in the computation of earnings per share. Dividends declared for the quarter ended June 30, 2001, consisted of a $.07 per share quarterly dividend and, for the six months ended June 30, 2001, consisted of $.14 per share quarterly dividends and a $.10 per share special dividend. 3. SEGMENT DISCLOSURE: ------------------ The holding company is considered a separate reportable segment from the banking operations since it does not offer products or services or interact with customers, but does meet the quantitative threshold as outlined in the accounting standards. The Company's segment disclosure is as follows for the three and six months ended June 30, 2001 and 2000.
Three Months Ended June 30, 2001 Banking Holding Total Operations Company Eliminations Company ---------- ------- ------------ ------- (In thousands) Net interest income $ 1,598 $ 21 $ -- $ 1,619 Provision for loan losses 14 -- -- 14 Noninterest income 350 -- -- 350 Noninterest expense 1,270 179 -- 1,449 -------- -------- ----------- -------- Income before income taxes 664 (158) -- 506 Income tax expense 225 (55) -- 170 -------- -------- ----------- -------- Net income $ 439 $ (103) $ -- $ 336 ======== ======== =========== ======== Total assets $189,223 $ 21,246 $ (25,134) $185,335 ======== ======== =========== ========
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Three Months Ended June 30, 2000 ------------------------------------------------------- Banking Holding Total Operations Company Eliminations Company ---------- ------- ------------ --------- (In thousands) Net interest income $ 1,763 $ 22 $ -- $ 1,785 Provision for loan losses 28 -- -- 28 Noninterest income 223 -- -- 223 Noninterest expense 1,124 155 -- 1,279 --------- --------- --------- --------- Income before income taxes 834 (133) -- 701 Income tax expense 313 (48) -- 265 --------- --------- --------- --------- Net income $ 521 $ (85) $ -- $ 436 ========= ========= ========= ======== Total assets $ 169,615 $ 19,738 $ (19,310) $ 170,043 ========= ========= ========= ========= Six Months Ended June 30, 2001 -------------------------------------------------------- Banking Holding Total Operations Company Eliminations Company ---------- ------- ------------ --------- (In thousands) Net interest income $ 3,298 $ 40 $ -- $ 3,338 Provision (credit) for loan losses (47) -- -- (47) Noninterest income 619 -- -- 619 Noninterest expense 2,601 369 -- 2,970 --------- --------- ----------- --------- Income before income taxes 1,363 (329) -- 1,034 Income tax expense 482 (115) -- 367 --------- --------- ----------- --------- Net income $ 881 $ (214) $ -- $ 667 ========= ========= =========== ========= Total assets $ 189,223 $ 21,246 $ (25,134) $ 185,335 ========= ========= =========== ========= Six Months Ended June 30, 2000 -------------------------------------------------------- Banking Holding Total Operations Company Eliminations Company ---------- ------- ------------ --------- (In thousands) Net interest income $ 3,435 $ 42 $ -- $ 3,477 Provision for loan losses 57 -- -- 57 Noninterest income 439 -- -- 439 Noninterest expense 2,260 292 -- 2,552 -------- -------- ------------ -------- Income before income taxes 1,557 (250) -- 1,307 Income tax expense 573 (87) -- 486 -------- -------- ------------ -------- Net income $ 984 $ (163) $ -- $ 821 ======== ======== ============ ======== Total assets $169,615 $ 19,738 $ (19,310) $170,043 ======== ======== ============ ========
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Management's discussion and analysis includes certain forward-looking statements addressing, among other things, the Company's prospects for earnings, asset growth and net interest margin. Forward-looking statements are accompanied by, and identified with, such terms as "anticipates," "believes," "expects," "intends," and similar phrases. Management's expectations for the Company's future necessarily involve a number of assumptions and estimates. Factors that could cause actual results to differ from the expectations expressed herein are: substantial changes in interest rates, changes in the general economy, and changes in the Company's strategies for credit-risk management, interest-rate risk management and investment activities. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized. Comparison of Financial Condition as of June 30, 2001, and December 31, 2000 ---------------------------------------------------------------------------- All dollar amounts, except per share amounts, included hereafter in Management's Discussion and Analysis are in thousands. Cash and cash equivalents increased $25,472, or 537.84 %, to $30,208 at June 30, 2001, from $4,736 at December 31, 2000. This increase was substantially the result of an increase in deposits and the reduction of callable investments and loans during the six months ended June 30, 2001. Securities available-for-sale and held-to-maturity increased $2,310, or 9.3%, to $27,233 at June 30, 2001. During the six months ended June 30, 2001, $14,000 in corporate bonds were purchased in connection with an arbitrage transaction discussed below. An additional $4,000 in treasury and other bonds were also purchased. Proceeds totaling $16,429 were received from investment calls, maturities, sales and repayments. Loans receivable, net, at June 30, 2001, were $114,314, a decrease of $4,222, or 3.6%, from $118,536 at December 31, 2000. The decrease in loans receivable, net, was primarily due to an increase in the origination of secondary market mortgage loans that were sold and repayments of several large loans. The Company's consolidated allowance for loan losses decreased to $777 at June 30, 2001, from $966 at December 31, 2000. This decrease of $189 was primarily due to net charge-offs over recoveries of $142. Nonperforming loans, which includes nonaccruing loans and accruing loans delinquent ninety days or more, at June 30, 2001, decreased to $1,745 or 1.53 % of loans receivable, from $2,693, or 2.27% of loans receivable at December 31, 2000. At June 30, 2001, there were no material loans not included in nonperforming loans which represented material credits about which management was aware of any information which caused management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. Real estate owned was $1,751 at June 30, 2001, a decrease of $165 from December 31, 2000, as a result of foreclosures, net of sells, during the six months ended June 30, 2001. During the quarter ended June 30, 2001, the Company purchased approximately $4,250 of Bank Owned Life Insurance ("BOLI") on certain key officers. The life insurance policies were purchased to offset liabilities associated with certain existing employee benefits. Income earned on the policies will offset, to some extent, benefit expenses. Increases in the cash surrender value of the policies, as well as insurance proceeds received, are recorded as a component of non-interest income. 9 Deposits increased $10,148, or 7.4%, to $146,565 at June 30, 2001, from $136,417 at December 31, 2000. The increase was primarily the result of an increase in certificate of deposit accounts. As markets adjusted during the six months ended June 30, 2001, new funds were acquired in certificates of deposit. Borrowings of $17 million were recorded during the six months ended June 30, 2001, which represented advances from the Federal Home Loan Bank of Atlanta. The borrowings were used to purchase $14 million in corporate bonds, and $3 million was used for lending. This arbitrage transaction is expected to yield a net return on this investment of over 1% after income taxes. The Company had stockholders' equity of $20,434 as of June 30, 2001, an increase of $274, or 1.4%, from $20,160 as of December 31, 2000. The primary components of the change were net income for the six months ended June 30, 2001, of $667 less dividends of $.24 per share totaling $611. Liquidity and Capital Resources Traditionally, the Banks' principal sources of funds have been deposits, principal and interest payments on loans and mortgage-backed securities, and proceeds from interest on investments and maturities of investments. In addition, First Federal has borrowing ability from the Federal Home Loan Bank of Atlanta if the need for additional funds arises. At June 30, 2001, the Banks had commitments to originate and fund loans of $8.5 million. The Banks anticipate that they will have sufficient funds available to meet their current commitments. First Federal is required by regulation to maintain minimum levels of liquid assets. The liquidity ratio of First Federal at June 30, 2001, was 14.5%, which exceeded the applicable regulatory requirement. Under applicable regulations, First Federal, First State and the Company are each required to maintain minimum capital ratios. Set forth below are actual capital ratios and the minimum regulatory capital requirements as of June 30, 2001.
First Federal First State The Company ------------------ ------------------- ----------------- RISK-BASED CAPITAL RATIOS Tier 1 Capital: Stockholders' Equity less goodwill $13,521 14.02% $ 4,533 15.54% $ 19,370 15.46% Minimum Required 3,859 4.00% 1,167 4.00% 5,008 4.00% -------- ----- -------- ----- ---------- ----- Excess $ 9,662 10.02% $ 3,366 11.54% $ 14,362 11.46% ======= ===== ======= ===== ======== ===== Total Capital: Tier 1 Capital plus allowances for loan losses $14,018 14.54% $ 4,813 16.50% $ 20,147 16.09% Minimum Required 7,715 8.00% 2,333 8.00% 10,018 8.00% -------- ----- -------- ----- ---------- ----- Excess $ 6,303 6.54% $ 2,480 8.50% $ 10,129 8.09% ======= ===== ======= ===== ========= ===== LEVERAGE RATIO Tier 1 Capital $13,521 9.31% $ 4,533 9.78% $ 19,370 10.49% Minimum Leverage Requirement 5,809 4.00% 1,853 4.00% 7,387 4.00% -------- ----- -------- ----- --------- ----- Excess $ 7,712 5.31% $ 2,680 5.78% $ 11,983 6.49% ======= ===== ======= ===== ======== ===== TANGIBLE CAPITAL RATIO Tangible Capital $13,521 9.31% N/A N/A Tangible Capital Requirement 2,178 1.50% -------- ----- Excess $ 11,343 7.81% ======== =====
10 As of June 30, 2001, management was not aware of any trends, events or uncertainties that will have or are reasonably likely to have a material effect on the Company's or the Banks' liquidity, capital resources or operations. Results of Operations - Comparison of the Three Months Ended ------------------------------------------------------------ June 30, 2001 and 2000 ---------------------- Net income for the three months ended June 30, 2001, was $336, a decrease of $100, or 22.9%, from net income of $436 for the three months ended June 30, 2000. The decrease was primarily attributable to a decrease in net interest income resulting from a decrease in interest rate spread. The decrease in interest rate spread is the result of the Banks maintaining, on average, more assets in short-term liquid investments. Interest Income --------------- Total interest income increased $119, or 3.6%, to $3,436 for the three months ended June 30, 2001, from $3,317 for the three months ended June 30, 2000. This increase was primarily due to an increase in the average balance of interest-earning assets offset by a decrease in the average yield on interest-earning assets to 8.1%, from 8.5%, for the corresponding quarter of the previous year. Interest Expense ---------------- Interest expense for the quarter ended June 30, 2001, was $1,817, an increase of $285, or 18.6%, from $1,532 for the quarter ended June 30, 2000. The increase was the result of an increase in the average balance of interest-bearing liabilities of 9.4 % for the three months ended June 30, 2001, compared to the same quarter a year ago, plus an increase in the average rate paid for the three months ended June 30, 2001, to 4.5% from 4.1% for the corresponding quarter of the previous year. Net Interest Income ------------------- Net interest income for the quarter ended June 30, 2001, was $1,619 compared to $1,785 for the quarter ended June 30, 2000. The average net interest spread decreased to 3.6% for the three months ended June 30, 2001, from 4.2% for the same period in the prior year. The net interest margin decreased to 3.8% for the three months ended June 30, 2001, from 4.6% for the three months ended June 30, 2000. Provision for Loan Losses ------------------------- Management increased the Company's total allowance for loan losses by a provision of $14 during the quarter ended June 30, 2001. The Company's allowance for loan losses is based on management's evaluation of losses inherent in the loan portfolio and considers, among other factors, prior years' loss experience, economic conditions, distribution of portfolio loans by risk class and the estimated value of the underlying collateral. Noninterest Income ------------------ Noninterest income during the quarter ended June 30, 2001, increased $127, to $350, from $233 for the quarter ended June 30, 2000. The increase in noninterest income was primarily the result of increases in secondary market fees for loans sold and income on Bank Owned Life Insurance. 11 Noninterest Expenses -------------------- Noninterest expenses during the quarter ended June 30, 2001, increased $170 to $1,449 from the June 30, 2000, level of $1,279. The increase in noninterest expense was primarily attributable to an increase in employee costs and a provision of $25 for estimated losses on real estate owned. Income Taxes ------------ The provision for income taxes decreased $95, or 35.6%, to $170 for the quarter ended June 30, 2001, as compared to the corresponding quarter in 2000. The decreased tax expense was due to the decrease in pretax income. Results of Operations - Comparison of the Six Months Ended ---------------------------------------------------------- June 30, 2001 and 2000 ---------------------- Net income for the six months ended June 30, 2001, was $667, a decrease of $154, or 18.8%, from net income of $821 for the six months ended June 30, 2000. The decrease was primarily attributable to a decrease in the Banks' interest rate spread. The decrease in interest rate spread was primarily the result of the Banks maintaining, on average, more assets in short-term liquid investments. Interest Income --------------- Total interest income increased $412, or 6.3%, to $6,939 for the six months ended June 30, 2001. This increase was the result of an increase in the average balance of interest-earning assets during the six months ended June 30, 2001, as compared to the six months ended June 30, 2000, partially offset by a decrease in the average yield on the interest-earning assets to 8.2% during the six months ended June 30, 2001, from 8.3% during the six months ended June 30, 2000. Interest Expense ---------------- Interest expense for the six months ended June 30, 2001, increased $551, or 18.1%, to $3,601, from $3,050 during the six months ended June 30, 2000. This increase was primarily attributable to an increase in the average balance of interest-bearing liabilities of 6.2 % for the six months ended June 30, 2001, compared to the same period a year ago, coupled with an increase in the average rate paid on interest-bearing liabilities to 4.5% for the six month period ended June 30, 2001, compared to 4.1% for the same period a year ago. Net Interest Income ------------------- Net interest income for the six months ended June 30, 2001, decreased $139, or 4.0%, to $3,338, from $3,477 for the six months ended June 30, 2000. This decrease was due primarily to a decrease in the average net interest spread to 3.7% for the six months ended June 30, 2001, from 4.3% for the six months ended June 30, 2000. The net interest margin decreased to 4.0% in the six months ended June 30, 2001, from 4.4% in the six months ended June 30, 2000. 12 (Credit) Provision for Loan Losses ---------------------------------- Management decreased the Company's total allowance for loan losses by a credit of $47 during the six months ended June 30, 2001. The net credit was the result of added provisions less a credit of $125 for reclassification of reserve balances. The Company's allowance for loan losses is based on management's evaluation of possible losses inherent in the loan portfolio and consider, among other factors, prior years' loss experience, economic conditions, distribution of portfolio loans by risk class and the estimated value of underlying collateral. Noninterest Income ------------------ Noninterest income for the six months ended June 30, 2001, totaled $619 as compared to $439 for the six months ended June 30, 2000. The increase in noninterest income was primarily the result of increases in secondary market fees for loans sold and income on Bank Owned Life Insurance. Noninterest Expenses -------------------- Noninterest expenses during the six months ended June 30, 2001, increased $418 to $2,970 from the 2000 level of $2,552. The increase in noninterest expense is primarily attributable to an increase in compensation expense and a provision of $125 for estimated losses on real estate owned. Income Taxes ------------ The provision for income taxes decreased $119, to $367 for the six months ended June 30, 2001, as compared to $486 for the corresponding period of the prior year. The decreased tax expense was due to the decrease in pretax income. Recent Accounting Pronouncements -------------------------------- In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141 Business Combinations ("Statement No. 141"), which will require that the purchase method of accounting be used for all business combinations after June 30, 2001, and Statement No. 142, Goodwill and Other Intangible Assets ("Statement 142"), which will change the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of Statement 142, which will be on January 1, 2002. In 1996, the Company acquired First State Corp. and its wholly owned subsidiary, First State Bank of Bibb County, which resulted in approximately $1,600,000 of nondeductible goodwill which is being amortized straight-line over 15 years. Under Statement 142, commencing in 2002, goodwill will no longer be amortized but will be tested for impairment at least annually. The Company is currently incurring goodwill amortization annually of approximately $108,000, which would no longer be amortized pursuant to Statement 142. 13 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company and Banks are parties to routine legal proceedings occurring in the ordinary course of business. At June 30, 2001, there were no legal proceedings to which the Company or the Banks were a party or parties, or to which any of their property was subject, which were expected by management to result in a material loss. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 24, 2001, the Company held the 2001 Annual Meeting of Stockholders. The election of B. K. Goodwin, III, A. W. Kuhn and Robert E. Paden as directors was submitted to a vote of the stockholders. The following is the result of the vote: For Withheld ----------- ---------- B. K. Goodwin, III 2,030,866 193,828 A. W. Kuhn 2,030,827 193,868 Robert E. Paden 2,030,827 193,868 There were no broker non-votes in the above matter. There was also a vote on the approval of the FirstFed Bancorp, Inc. 2001 Stock Incentive Plan. The following is the result of the vote: For Against Abstain --------- -------- ------- 1,721,265 301,317 202,110 The abstentions included 201,598 broker non-votes. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None. (b) Reports on Form 8-K. None. 14 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 BANCORP, INC. Date: August 13, 2001 /s/ B. K. Goodwin, III --------------- ---------------------- B. K. Goodwin, III Chairman of the Board, Chief Executive Officer and President Date: August 13, 2001 /s/ Lynn J. Joyce --------------- ----------------- Lynn J. Joyce Chief Financial Officer, Executive Vice President, Secretary and Treasurer 15