10QSB/A 1 form10qsba-70508_firstfed.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ----------------------------- FORM 10-QSB/A Amendment No. 1 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005 [_] 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 April 29, 2005 ---------------------------- ----------------------------- Common Stock, $.01 par value 2,431,779 shares Transitional Small Business Disclosure Format (Check one): YES [X] NO [_] EXPLANATORY NOTE The purpose of this amendment on Form 10-QSB/A to the Quarterly Report on Form 10-QSB of FirstFed Bancorp, Inc. for the quarter ended March 31, 2005, is to amend and restate our consolidated financial statements for the quarter ended March 31, 2005 and the Condensed Consolidated Balance Sheets as of March 31, 2005 and related disclosures, as described in Note 3 of the Notes to Condensed Consolidated Financial Statements. The previously filed Form 10-QSB for March 31, 2005, should not be relied upon. For the convenience of the reader, this March 31, 2005, Form 10-QSB/A amends and restates in its entirety the original filing of this Quarterly Report on Form 10-QSB. Except for the foregoing information required to reflect the effects of the amendment and restatement, this Form 10-QSB/A continues to describe conditions as presented in the original report on Form 10-QSB. The following items have been amended and restated: o Part I - Item 1 - Financial Statements have been amended and restated. o Part I - Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations has been amended and restated. o The certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 have been refiled. o The certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2005, have been refiled. The Board of Directors approved termination of the Company's Defined Benefit Pension Plan ("Pension Plan") in March 2005. Because an estimate of the termination cost was known to the Company, and it was probable that such expense would be incurred, the cost was recorded as of March 31, 2005, and reported on Form 10-QSB. In August 2005, the Company concluded that the cost recorded in connection with the decision by the Board of Directors to terminate the Pension Plan had been recorded earlier than allowed by Statement of Financial Accounting Standards ("SFAS") No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." SFAS No. 88 provides that such an expense should not be recognized until the period in which regulatory approval of the termination is received. SFAS No. 88 also requires that the curtailment gain and normal pension expense be recorded in the first quarter ended March 31, 2005. The Company incurred additional expense under an incentive plan due to restatement of the termination expense discussed above. In addition, in March 2005, the stockholders of the Company's third-party data processor approved the sale of their company. As a stockholder of the data processor, the Company recorded a gain on the sale of its stock in the data processor in the quarter ended March 31, 2005. However, the Company subsequently determined that the gain should have been recorded in April 2005, which was the effective time of the filing of the Certificate of Merger. The result was an overstatement of income in the quarter ended March 31, 2005, for the amount of this transaction. In summary, costs of $679,000, or $436,000 after income taxes, as well as a net gain of $342,000, or $223,000 after income taxes, have been reversed from the first quarter results as reported on Form 10-QSB. Also, additional incentive compensation expense of $58,000, or $38,000 after income taxes, was recorded as incurred in the first quarter. When regulatory approval is received, which is expected to be in the third quarter of 2005, the termination expense will be recorded. The amount of termination expense is expected to be $810,000, or $525,000 after income taxes. The effect of the amendment and restatement on the Company's Consolidated Statements of Income for the quarter ended March 31, 2005, is an increase in net income of $175,000, or $0.07 per share for the quarter ended March 31, 2005. The effects of the restatement on the Company's Condensed Consolidated Statement of Financial Condition as of March 31, 2005 are an increase in other assets of $233,000, an increase in other liabilities of $58,000 and an increase in retained earnings of $175,000. See Note 3 of the Notes to Condensed Consolidated Financial Statements for additional information. 1
FIRSTFED BANCORP, INC. ---------------------- Page ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF MARCH 31, 2005 AND DECEMBER 31, 2004......................................................................3 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004.............................................................................4 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 ....................................................................................5 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004......................................................................6 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ...................................................7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.................................................................................................. 12 ITEM 3. CONTROLS AND PROCEDURES.................................................................................15 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS.......................................................................................15 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.............................................16 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.........................................................................16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................16 ITEM 5. OTHER INFORMATION.......................................................................................16 ITEM 6. EXHIBITS................................................................................................16 SIGNATURES.......................................................................................................17
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. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIRSTFED BANCORP, INC. ---------------------- UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ------------------------------------------------------------------ As of March 31, 2005 and December 31, 2004 (Dollar amounts in thousands)
March 31, December 31, ASSETS 2005 2004 --------- --------- (As restated, Cash and Cash Equivalents: see Note 3) Cash on hand and in banks $ 3,104 $ 3,125 Interest-bearing deposits in other banks 5,489 1,489 Federal funds sold 469 176 --------- --------- 9,062 4,790 Securities available-for-sale, at fair value 7,957 22,941 Loans held for sale 213 739 Loans receivable, net 163,360 161,841 Land, buildings and equipment, net 7,313 7,377 Bank owned life insurance 6,462 6,368 Real estate owned 904 986 Accrued interest receivable 836 1,134 Goodwill and other intangibles 1,154 1,167 Other assets 7,385 7,100 --------- --------- $ 204,646 $ 214,443 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $ 161,925 $ 157,545 Borrowings 17,000 31,494 Subordinated debentures 6,000 6,000 Accrued interest payable 234 238 Dividends payable 170 168 Other liabilities 833 580 --------- --------- 186,162 196,025 Stockholders' Equity: Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding -- -- Common stock, $.01 par value, 10,000,000 shares authorized, 3,258,062 shares issued and 2,428,114 shares outstanding at March 31, 2005 and 3,230,955 shares issued and 2,401,007 shares outstanding at December 31, 2004 33 32 Paid-in capital 8,739 8,590 Retained earnings 16,195 15,976 Deferred compensation obligation 2,105 2,114 Deferred compensation treasury stock (239,548 shares at March 31, 2005 and 240,036 shares at December 31, 2004) (2,105) (2,114) Treasury stock, at cost (829,948 shares at March 31, 2005 and December 31, 2004) (6,088) (6,088) Unearned compensation (299) (328) Accumulated other comprehensive (loss) income (96) 236 --------- --------- 18,484 18,418 --------- --------- $ 204,646 $ 214,443 ========= =========
See accompanying notes to unaudited condensed consolidated financial statements. 3 FIRSTFED BANCORP, INC. ---------------------- UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME ----------------------------------------------------- For the Three Months Ended March 31, 2005 and 2004 (Dollar amounts in thousands, except per share amounts) Three Months Ended March 31, 2005 2004 ---------- ---------- (As restated, See Note 3) INTEREST INCOME: Interest and fees on loans $ 2,417 $ 2,025 ---------- ---------- Interest and dividends on securities 105 306 Other interest income 19 3 Total interest income 2,541 2,334 ---------- ---------- INTEREST EXPENSE: Interest on deposits 787 720 Interest on borrowings 322 258 ---------- ---------- Total interest expense 1,109 978 ---------- ---------- Net interest income 1,432 1,356 Provision for loan losses, net 19 220 ---------- ---------- Net interest income after provision for loan losses, net 1,413 1,136 ---------- ---------- NONINTEREST INCOME: Fees and other noninterest income 678 580 Gain on sale of investments 354 7 Bank owned life insurance 94 91 ---------- ---------- Total noninterest income 1,126 678 ---------- ---------- NONINTEREST EXPENSE: Salaries and employee benefits 891 783 Office building and equipment expenses 204 239 Other operating expenses 618 667 ---------- ---------- Total noninterest expenses 1,713 1,689 ---------- ---------- Income before income taxes 826 125 Provision for income taxes 267 13 ---------- ---------- NET INCOME $ 559 $ 112 ========== ========== AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 2,392,709 2,344,794 ========== ========== BASIC EARNINGS PER SHARE $ .23 $ .05 ========== ========== AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 2,408,378 2,403,367 ========== ========== DILUTED EARNINGS PER SHARE $ .23 $ .05 ========== ========== DIVIDENDS DECLARED PER SHARE $ .14 $ .14 ========== ========== See accompanying notes to unaudited condensed consolidated financial statements. 4
FIRSTFED BANCORP, INC. ---------------------- UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND ----------------------------------------------------------------------- COMPREHENSIVE INCOME -------------------- For the Three Months Ended March 31, 2005 and 2004 (Dollar amounts in thousands, except per share amounts) Deferred Accumulated Deferred Compen- Other Compre- Compen- sation Unearned Compre- hensive Common Paid-In Retained sation Treasury Treasury Compen- hensive Income Stock Capital Earnings Obligation Stock Stock sation Income (Note 1) ----- ------- -------- ---------- ----- ----- ------ ------ -------- BALANCE, December 31, 2003 $ 32 $ 8,426 $ 16,047 $ 1,969 $ (1,969) $ (6,088) $ (416) $ 551 Net income -- -- 112 -- -- -- -- -- $ 112 Change in unrealized gain (loss) on securities available for sale, net of tax of $63 -- -- -- -- -- -- -- 109 109 -------- Comprehensive income -- -- -- -- -- -- -- -- $ 221 ======== Amortization of unearned compensation -- -- -- -- -- -- 29 -- Dividends declared ($.14 per share) -- -- (333) -- -- -- -- -- Exercise of stock options -- 10 -- -- -- -- -- -- Stock issued under Dividend Reinvestment Plan -- 50 -- -- -- -- -- -- Purchase of deferred comp treasury shares -- -- -- 7 (7) -- -- -- Change in stock value of Employee Stock Ownership Plan -- (4) -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- BALANCE, March 31, 2004 $ 32 $ 8,482 $ 15,826 $ 1,976 $ (1,976) $ (6,088) $ (387) $ 660 ======== ======== ======== ======== ======== ======== ======== ======== BALANCE, December 31, 2004 $ 32 $ 8,590 $ 15,976 $ 2,114 $ (2,114) $ (6,088) $ (328) $ 236 Net income (As restated, See Note 3) -- -- 559 -- -- -- -- -- $ 559 Change in unrealized gain (loss) on securities available for sale, net of tax of ($191) -- -- -- -- -- -- -- (332) (332) -------- Comprehensive income (As restated, see Note 3) -- -- -- -- -- -- -- -- $ 227 ======== Amortization of unearned compensation -- -- -- -- -- -- 29 -- Dividends declared ($.14 per share) -- -- (340) -- -- -- -- -- Exercise of stock options -- 105 -- -- -- -- -- -- Stock issued under Dividend Reinvestment Plan 1 51 -- -- -- -- -- -- Purchase of deferred comp treasury shares -- -- -- 24 (24) -- -- -- Distribution of deferred comp treasury shares -- -- -- (33) 33 -- -- -- Change in stock value of Employee Stock Ownership Plan -- (7) -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- BALANCE, March 31, 2005 (As restated, See Note 3) $ 33 $ 8,739 $ 16,195 $ 2,105 $ (2,105) $ (6,088) $ (299) $ (96) ======== ======== ======== ======== ======== ======== ======== ======== See accompanying notes to unaudited condensed consolidated financial statements. 5
FIRSTFED BANCORP, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2005 and 2004 (Dollar amounts in thousands)
Three Months Ended March 31, CASH FLOWS FROM OPERATING ACTIVITIES: 2005 2004 -------- -------- (As restated, See Note 3) Net income $ 559 $ 112 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization and accretion 115 130 Loan fees deferred, net 53 76 Provision for loan losses, net 19 220 Gain on sale of investments (354) (7) Gain on sale of fixed assets -- (9) Loss on sale of real estate, net 16 99 Origination of loans held for sale (1,170) (3,018) Proceeds from loans held for sale 1,696 3,015 Proceeds from sale of other assets 378 -- Gain on sale of other assets (363) -- Provision for deferred compensation 24 7 Increase in surrender value of Bank Owned Life Insurance (94) (91) Decrease (increase) in assets: Accrued interest receivable 298 (49) Other assets (138) 272 Increase (decrease) in liabilities: Accrued interest payable (4) 4 Other liabilities 258 68 -------- -------- Net cash provided by operating activities 1,293 829 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities, calls and repayments of securities available-for-sale 144 6,097 Proceeds from sale of securities available-for-sale 15,169 3,000 Purchase of securities available-for-sale (500) (4,788) Proceeds from sales of real estate and repossessed assets 196 315 Net loan originations (1,684) (9,806) Capital expenditures (26) (1,289) -------- -------- Net cash provided by (used in) investing activities 13,299 (6,471) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in deposits, net 4,380 3,584 Proceeds from borrowings 7,304 22,600 Repayment of borrowings (21,798) (19,255) Proceeds from exercise of stock options 105 10 Dividends paid (338) (333) Proceeds from dividend reinvestment 51 50 Purchase of treasury stock for Deferred Compensation Plan (24) (7) -------- -------- Net cash provided by (used in) financing activities (10,320) 6,649 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,272 1,007 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,790 7,621 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,062 $ 8,628 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for - Income taxes $ 25 $ 19 Interest 1,037 962 Non-cash transactions - Transfer of loans receivable to real estate owned 110 228 Transfer of leased real estate owned to other assets -- 3,246
See accompanying notes to unaudited condensed consolidated financial statements 6 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 State Corp. ("FSC"), which in turn is the sole shareholder of First Financial Bank ("First Financial" or the "Bank"). The accompanying unaudited condensed consolidated financial statements as of March 31, 2005, and December 31, 2004, and for the three months ended March 31, 2005 and 2004, include the accounts of the Company, FSC and the Bank. 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 months ended March 31, 2005, are not necessarily indicative of the results of operations which may be expected for the entire year. These unaudited condensed financial statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto incorporated in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2004. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Company's December 31, 2004, Consolidated Financial Statements. 2. SIGNIFICANT ACCOUNTING POLICIES: ------------------------------- Loans Held for Sale Loans held for sale are recorded at the lower of amortized cost or fair value, as such loans are not intended to be held to maturity. As of March 31, 2005, and December 31, 2004, loans held for sale consisted of mortgage loans that have been committed for sale to third-party investors. Loans Receivable Loans receivable are stated at unpaid principal balances, net of the allowance for loan losses and deferred loan origination fees and costs. Interest is credited to income based upon the recorded investment. The accrual of interest on loans is discontinued and an allowance established when a loan becomes 90 days past due and/or, in the opinion of management, the ultimate collection is in doubt. Upon such discontinuance, all unpaid accrued interest is reversed against current income unless the collateral for the loan is sufficient to cover the accrued interest. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectibility of principal. Generally, loans are restored to accrual status when the obligation is brought current and the ultimate collectibility of the total contractural principal and interest is no longer in doubt. Allowance for Loan Losses The allowance for loan losses is maintained at levels which management considers adequate to absorb losses currently in the loan portfolio at each reporting date. Management's estimation of this amount includes a review of all loans for which full collectibility is not reasonably assured and considers, among other factors, prior years' loss experience, economic conditions, distribution of portfolio loans by risk class, the estimated value of underlying collateral, and the balance of any impaired loans (generally considered to be nonperforming loans, excluding residential mortgages and other homogeneous loans). Though management believes the allowance for loan losses to be adequate, ultimate losses may vary from estimations; however, the allowance is reviewed 7 periodically and as adjustments become necessary they are reported in earnings in the periods in which they become known. Specific allowances for impaired loans are based on comparisons of the carrying values of the loans to the present value of the loans' estimated cash flows at each loan's original effective interest rate, the fair value of the collateral, or the loans' observable market prices. 3. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS: ----------------------------------------------------- The Board of Directors approved termination of the Company's Defined Benefit Pension Plan ("Pension Plan") in March 2005. Because an estimate of the termination cost was known to the Company, and it was probable that such expense would be incurred, the cost was recorded as of March 31, 2005, and reported on Form 10-QSB. In August 2005, the Company concluded that the cost recorded in connection with the decision by the Board of Directors to terminate the Pension Plan had been recorded earlier than allowed by Statement of Financial Accounting Standards ("SFAS") No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." SFAS No. 88 provides that such an expense should not be recognized until the period in which regulatory approval of the termination is received. SFAS No. 88 also requires that the curtailment gain and normal pension expense be recorded in the first quarter ended March 31, 2005. The Company incurred additional expense under an incentive plan due to restatement of the termination expense discussed above. In addition, in March 2005, the stockholders of the Company's third-party data processor approved the sale of their company. As a stockholder of the data processor, the Company recorded a gain on the sale of its stock in the data processor in the quarter ended March 31, 2005. However, the Company subsequently determined that the gain should have been recorded in April 2005, which was the effective time of the filing of the Certificate of Merger. The result was an overstatement of income in the quarter ended March 31, 2005, for the amount of this transaction. In summary, costs of $679,000, or $436,000 after income taxes, as well as a net gain of $342,000, or $223,000 after income taxes, have been reversed from the first quarter results as reported on Form 10-QSB. Also, additional incentive compensation expense of $58,000, or $38,000 after income taxes, was recorded as incurred in the first quarter. When regulatory approval is received, which is expected to be in the third quarter of 2005, the termination expense will be recorded. The amount of termination expense is expected to be $810,000, or $525,000 after income taxes. The effect of the amendment and restatement on the Company's Consolidated Statements of Income for the quarter ended March 31, 2005, is an increase in net income of $175,000, or $0.07 per share for the quarter ended March 31, 2005. The effects of the restatement on the Company's Condensed Consolidated Statement of Financial Condition as of March 31, 2005 are an increase in other assets of $233,000, an increase in other liabilities of $58,000 and an increase in retained earnings of $175,000. The impact of the amendment and restatement on the Company's consolidated financial statements is summarized below: March 31, 2005 ----------------------- As Previously As Reported Restated -------- -------- Consolidated Statements of Financial Conditi (In thousands) Other assets $ 7,152 $ 7,385 Total assets 204,413 204,646 Other liabilities 775 833 Total liabilities 186,104 186,162 Retained Earnings 16,020 16,195 Total stockholders' equity 18,309 18,484 Total liabilities and stockholders' equity 204,413 204,646 8 Three Months Ended March 31, 2005 ---------------------- As Previously As Reported Restated (In thousands, except per share data) Consolidated Statements of Income: Fees and other noninterest income $ 973 $ 678 Total noninterest income 1,421 1,126 Salaries and employee benefits 786 891 Pension plan termination expense 679 -- Total noninterest expenses 2,287 1,713 Income before income taxes 547 826 Provision for income taxes 163 267 Net income 384 559 Earnings per common share: Basic 0.16 0.23 Diluted 0.16 0.23 Consolidated Statements of Stockholders' Equity and Comprehensive Income: Net Income 384 559 Retained Earnings 16,020 16,195 Comprehensive Income 52 227 Consolidated Statements of Cash Flows: Net Income 384 559 Other assets 95 (138) Other liabilities 200 258 4. EARNINGS AND DIVIDENDS PER SHARE: -------------------------------- Earnings per share ("EPS") for the three months ended March 31, 2005 and 2004, were as follows:
Three Months Three Months Ended March 31, 2005 Ended March 31, 2004 ------------------------------------------ ------------------------------------------- Dilutive Dilutive Effect of Effect of Options Options Basic Issued Diluted Basic Issued Diluted ---------- ---------- ---------- ---------- ---------- ---------- Net income (as restated, See Note 3) $ 559,000 -- $ 559,000 $ 112,000 -- $ 112,000 Shares available to common shareholders 2,392,709 15,669 2,408,378 2,344,794 58,573 2,403,367 ---------- ---------- ---------- ---------- ---------- ---------- Earnings per share (as restated, See Note 3) $ 0.23 -- $ 0.23 $ 0.05 -- $ 0.05 ========== ========== ========== ========== ========== ==========
Options to purchase 193,548 and 11,384 shares of common stock at prices in excess of the average market price were outstanding during the quarter ended March 31, 2005 and 2004, respectively, but not included in the computation of diluted earnings per share. 9 There were 26,359 and 35,145 shares of common stock held by the Employee Stock Ownership Plan and unallocated at March 31, 2005 and 2004, respectively. These shares are outstanding but not included in the computation of earnings per share. Dividends declared for the quarter ended March 31, 2005, consisted of a $.07 per share quarterly dividend and a $.07 per share special dividend. 5. 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 month ended March 31, 2005 and 2004. Three Months Ended March 31, 2005 ---------------------------------------------- Banking Holding Total Operations Company Eliminations Company ---------- ------- ------------ ------- (In thousands) Net interest income (expense) $ 1,505 $ (73) $ -- $ 1,432 Provision for loan losses 19 -- -- 19 Noninterest income 1,099 27 -- 1,126 Noninterest expense 1,642 71 -- 1,713 -------- -------- -------- -------- Income (loss) before income taxes 943 (117) -- 826 Income tax expense (benefit) 319 (52) -- 267 -------- -------- -------- -------- Net income (loss) $ 624 $ (65) $ -- $ 559 ======== ======== ======== ======== Total assets $202,146 $ 24,645 $(22,145) $204,646 ======== ======== ======== ======== Capital expenditures $ 26 $ -- $ -- $ 26 ======== ======== ======== ======== Three Months Ended March 31, 2004 ---------------------------------------------- Banking Holding Total Operations Company Eliminations Company ---------- ------- ------------ ------- Net interest income $ 1,363 $ (7) $ -- $ 1,356 Provision for loan losses 220 -- -- 220 Noninterest income 653 25 -- 678 Noninterest expense 1,617 72 -- 1,689 -------- -------- -------- -------- Income (loss) before income taxes 179 (54) -- 125 Income tax expense (benefit) 42 (29) -- 13 -------- -------- -------- -------- Net income (loss) $ 137 $ (25) $ -- $ 112 ======== ======== ======== ======== Total assets $198,844 $ 20,387 $(18,045) $201,186 ======== ======== ======== ======== Capital expenditures $ 1,289 $ -- $ -- $ 1,289 ======== ======== ======== ======== 6. STOCK-BASED COMPENSATION: ------------------------ In accordance with provisions of Statement of Financial Accounting Standard ("SFAS") 123, the Company has elected to continue to apply APB Opinion 25 and related Interpretations. In December 2002, SFAS 148, Accounting for Stock-Based Compensation - Transition and Disclosure, was issued which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. This Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. 10 There were no options granted during the quarters ended March 31, 2005 and 2004. 7. PENSION DISCLOSURES: ------------------- The Company is terminating the Defined Benefit Pension Plan ("Pension Plan") effective June 8, 2005. By terminating the Pension Plan, the Company anticipates incurring a termination expense of approximately $810,000, which is anticipated to be recorded during the three months ended September 30, 2005. Termination of the Pension Plan, distribution to participants of its assets, and recording termination expense will not occur until a standard termination notice is received with the Pension Benefit Guaranty Corporation. The Financial Accounting Standards Board ("FASB") issued SFAS 132 (revised 2003) in December of 2003. The Statement revises employers' disclosures about pension plans and other postretirement benefits by requiring additional disclosures to those in the original SFAS 132 about the assets, obligations, cash flows, investment strategy, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The Company does not have any postretirement benefits. The effect of the required interim information for the Pension Plan is reflected in the following table: Three Months Ended March 31, 2005 2004 ------ ------ (In thousands) Service cost $ 35 $ 44 Interest cost 24 31 Expected return on plan assets (19) (25) Amortization of transitional asset 7 (1) Recognized actuarial loss -- 6 ------ ------ Net periodic benefit cost $ 47 $ 55 ====== ====== The estimated contribution to the Pension Plan for fiscal 2005 is $314. 8. PENDING ACCOUNTING PRONOUNCEMENTS: --------------------------------- There are no pending accounting pronouncements that have not been previously disclosed. 9. SUBORDINATED DEBT: ----------------- On June 8, 2004, the Company established FirstFed Statutory Trust I ("Trust"), a wholly-owned statutory business trust. The Company is the sole sponsor of the Trust and acquired the Trust's common securities for $186,000. The Trust was created for the exclusive purpose of issuing 30-year capital trust securities ("Trust Preferred Securities") in the aggregate amount of $6,000,000 and using proceeds to purchase junior subordinated debentures ("Subordinated Debentures") issued by the Company. The assets of the Trust consist primarily of the Subordinated Debentures. The Company's $186,000 investment in the Trust is included in other assets in the accompanying consolidated balance sheet and the $6,000,000 obligation of the Company is included in subordinated debt. The Trust Preferred Securities bear a floating interest rate based on a spread over 3-month LIBOR which is set each quarter and matures on June 17, 2034. Distributions are payable quarterly. The Trust Preferred Securities are subject to mandatory redemption upon repayment of the Subordinated Debentures at their stated maturity date or their earlier redemption in an amount equal to their liquidation amount plus accumulated and unpaid distributions to the date of redemption. The Company guarantees the payment of distributions and payments for redemption or liquidation of the Trust Preferred Securities to the extent of funds held by the Trust. The Company's obligation under the Subordinated Debentures together with the guarantee and other back-up obligation, in aggregate, constitute a full and unconditional guarantee by the Company of the obligations of the Trust under the Trust Preferred Securities. 11 The Subordinated Debentures are unsecured, bear an interest rate based on a spread over a 3 month LIBOR (equal to the spread paid by the Trust on the Trust Preferred Securities) which is set each quarter and matures on June 17, 2034. Interest is payable quarterly. The Company may defer the payment of interest at any time for a period not exceeding 20 consecutive quarters provided that deferral period does not extend past the stated maturity. During any such deferral period, distributions on the Trust Preferred Securities will also be deferred and the Company's ability to pay dividends on the common shares will be restricted. 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 include: changes in interest rates, changes in the general economy, changes in the Company's strategies for credit-risk management, interest-rate risk management and investment activities, change in accounting principals, policies or guidelines, legislative or regulatory changes, changes in monetary or fiscal policies, and other economic, competitive, governmental, regulatory and technological factors. 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 March 31, 2005, and December 31, 2004 ----------------------------------------------------------------------------- All dollar amounts, except per share amounts, included hereafter in Management's Discussion and Analysis are in thousands. Interest-bearing deposits and federal funds sold increased $4,272, or 89.2%, to $9,062 at March 31, 2005. The increase was substantially the result of an increase in deposits. Securities available-for-sale decreased $14,984, or 65.3%, to $7,957 at March 31, 2005. During the three months ended March 31, 2005, investments totaling $144 were called or matured, $500 were purchased and $15,169 were sold. Loans receivable, net, at March 31, 2005, were $163,360, an increase of $1,519, or 0.9%, from $161,841 at December 31, 2004. The increase was primarily the result of increased portfolio originations in connection with adjustable rate commercial mortgages. The Company's consolidated allowance for loan losses decreased to $1,679 at March 31, 2005, from $1,684 at December 31, 2004. This decrease was partially due to a provision to the allowance for loan losses of $19 for the three months ended March 31, 2005, net of recoveries over charge-offs of $24. Nonperforming loans at March 31, 2005, decreased to $138, or 0.08% of loans receivable, from $961, or 0.66% of loans receivable, at December 31, 2004. At March 31, 2005, 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. Land, buildings and equipment, net, decreased $64, or 0.9%, to $7,313 at March 31, 2005. The decrease was substantially the result of increases in accumulated depreciation. Real estate owned was $904 at March 31, 2005, a decrease of $82 from $986 at December 31, 2004. The decrease was substantially the result of the disposition of three properties, net of two foreclosures, during the three months ended March 31, 2005. Deposits increased $4,380, or 2.8%, to $161,925 at March 31, 2005, from $157,545 at December 31, 2004. The increase was substantially the result of increases in commercial checking accounts and, to a lesser extent, increases in certificates of deposit. 12 Borrowings decreased by $14,494, or 46.0%, to $17,000 at March 31, 2005, substantially as a result of the repayment of overnight borrowings with the proceeds of investment sales. The Company had stockholders' equity of $18,484 as of March 31, 2005, an increase of $66, or 0.4%, from $18,418 as of December 31, 2004. Net income for the three months ended March 31, 2005, was $559. Equity was decreased by dividends of $.14 per share, or $340. Included in such dividends was a special dividend of $.07 per share, which was declared during the first quarter. In addition, accumulated other comprehensive income decreased $332, or 140.78%, due to an unrealized loss of $96 at March 31, 2005, as a result of decreases in the fair value of the securities available-for-sale. This was primarily due to higher market rates of interest and the sale of $14,984 in available-for-sale securities. Liquidity and Capital Resources ------------------------------- Liquidity refers to the ability of the Company to meet its cash flow requirements in the normal course of business, including loan commitments, deposit withdrawals, and liability maturities, and ensuring that the Company is in a position to take advantage of investment opportunities in a timely and cost-efficient manner. Management monitors the Company's liquidity position and reports to the Board of Directors monthly. The Company may achieve its desired liquidity objectives through management of assets and liabilities and through funds provided by operations. Funds invested in short-term marketable instruments, the continuous maturing of other interest-earning assets, the possible sale of available-for-sale securities and the ability to securitize certain types of loans provide sources of liquidity from an asset perspective. The liability base provides sources of liquidity through deposits. In addition, at March 31, 2005, the Bank has borrowing ability from the Federal Home Loan Bank of Atlanta and correspondent banks if the need for additional funds arises. At March 31, 2005, the Bank had commitments to originate and fund loans of $17.3 million. The Bank anticipates that it will have sufficient funds available to meet its current commitments. Under applicable regulations, First Financial 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 March 31, 2005.
March 31, 2005 ----------------------------------------------------------- (Dollar amounts in thousands) (As restated, see Note 3) To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions ---------------- ----------------- ----------------- Amount Rate Amount Rate Amount Rate -------- ---- -------- ---- -------- ---- Tier 1 Risk-Based Capital Consolidated $ 23,368 13.6% N/A N/A N/A N/A First Financial Bank 19,254 11.4% $ 6,776 4.0% $ 10,164 6.0% Total Risk-Based Capital Consolidated $ 25,047 14.6% N/A N/A N/A N/A First Financial Bank 20,933 12.4% $ 13,552 8.0% $ 16,940 10.0% Tier 1 Leverage Consolidated $ 23,368 11.7% N/A N/A N/A N/A First Financial Bank 19,254 9.6% $ 8,008 4.0% $ 10,010 5.0%
As of March 31, 2005, 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 Bank's liquidity, capital resources or operations. Results of Operations - Comparison of the Three Months Ended March 31, 2005 and ------------------------------------------------------------------------------- 2004 ---- Net income for the three months ended March 31, 2005, was $559, an increase of $447, or 399.1%, from net income of $112 for the three months ended March 31, 2004. The increase was primarily the result of gains on the sale of investments of $354, net of the provisions for income taxes. Nonrecurring items recorded during the three months ended March 31, 2005, includes a reduction in loan loss provision which reflects recoveries and a reduction in losses. 13 Interest Income --------------- Total interest income increased $207, or 8.9%, to $2,541 for the three months ended March 31, 2005. This increase was due to an increase in the average balance on interest-earning assets for the three months ended March 31, 2005, compared to the same quarter a year ago, coupled with an increase in the average yield on interest-earning assets to 5.6% for the three months ended March 31, 2005, compared to 5.2% for the same quarter a year ago. Interest Expense ---------------- Interest expense for the quarter ended March 31, 2005, was $1,109, an increase of $131, or 13.4%, from $978 for the quarter ended March 31, 2004. The increase was substantially the result of an increase in the average balance of interest-bearing liabilities compared to the same quarter a year ago. In addition, the average rate paid on interest-bearing liabilities increased to 2.4% for the three months ended March 31, 2005 compared to 2.2% for the same period a year ago. Net Interest Income ------------------- Net interest income for the quarter ended March 31, 2005, increased $76, or 5.6%, to $1,432 from the quarter ended March 31, 2004, level of $1,356. The increase was primarily the result of an increase in the average net interest spread to 3.2% for the quarter ended March 31, 2005, compared to 3.0% for the same period a year ago. The net interest margin also increased to 3.2% for the quarter ended March 31, 2005, from 3.0% for the same quarter a year ago. Provision for Loan Losses ------------------------- Management increased the Company's total allowance for loan losses by a charge to the provision of $19 during the quarter ended March 31, 2005, compared to $220 for the quarter ended March 31, 2004. The 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. The Bank segregates its loan portfolio into problem and non-problem loans. The Bank then determines the allowance for loan losses based on specific review of all problem loans by internal loan review committees. This detailed analysis primarily determines the allowance on problem loans by specific evaluation of collateral fair value. The allowance for non-problem loans considers historical losses and other relevant factors. The allowances are reviewed throughout the year to consider changes in the loan portfolio and classification of loans which results in a self-correcting mechanism. Noninterest Income ------------------ Noninterest income during the quarter ended March 31, 2005, increased $448, to $1,126, from the March 31, 2004, level of $678. The increase was primarily the result of a gain on the sale of investments of $354. A curtailment gain of $68 was recorded in connection with the Board of Director's approval of the termination of the Pension Plan. Noninterest Expenses -------------------- Noninterest expenses during the quarter ended March 31, 2005, increased $24, or 1.4%, to $1,713, from the March 31, 2004, quarter of $1,689. The slight increase in other operating expense was primarily attributable to general increases in salary and benefits net of a reduction in other operating expenses. Income Taxes ------------ The provision for income taxes increased $254, to $267 for the quarter ended March 31, 2005, as compared to $13 for the corresponding quarter in the previous year. The increased tax expense was due primarily to an increase in pretax income. 14 ITEM 3. CONTROLS AND PROCEDURES The Company carried out an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of March 31, 2005, pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Company's Chief Executive Officer and the Company's Chief Financial Officer concluded that the Company's disclosure controls and procedures, as designed and implemented, were not effective in alerting them in a timely manner to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. The Company had two instances where transactions were recorded in the Company's Form 10-QSB for the three-month period ended March 31, 2005, earlier than prescribed under generally accepted accounting principles as discussed below. In the future, for a non-recurring item, a third party accounting resource will be consulted. Subsequent to the filing of Form 10-QSB for the quarterly period ended March 31, 2005, the Company determined that an error had been made in the application of accounting principals generally accepted in the U.S. related to the recognition of the termination of its Defined Benefit Pension Plan, as well as the timing of the recognition of a gain on the sale of a stock investment in its data processor. The net result was an overstatement of expense, causing an understatement of net income, in the three-month period ended March 31, 2005, for the amount of the non-recurring transactions. Accordingly, on August 10 and 11, 2005, the Company determined to restate such quarterly financial statements to reflect the necessary corrections. The restatement is further described in Note 3 to the unaudited condensed consolidated financial statements included in this quarterly report on Form 10-QSB/A. In addition, the Company reviewed its internal controls. There has been no change in the Company's internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect the Company's internal control over financial reporting. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed by the Company under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Disclosure controls include internal controls that are designed to provide reasonable assurance that transactions are properly authorized, assets are safeguarded against unauthorized or improper use and transactions are properly recorded and reported. Any control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are achieved. The design of a control system inherently has limitations, including the controls' cost relative to their benefits. Additionally, controls can be circumvented. No cost-effective control system can provide absolute assurance that all control issues and instances of fraud, will be detected. Effective in 2006, the Company will become subject to Section 404 of The Sarbanes-Oxley Act of 2002. Section 404 requires management to assess and report on the effectiveness of the Company's internal controls over financial reporting. Additionally, it requires the Company's independent registered public accounting firm to report on management's assessment as well as report on its own assessment of the effectiveness of the Company's internal controls over financial reporting. Management is currently establishing policies and procedures to assess and report on internal controls, and will retain an outside firm to assist it in determining the effectiveness of the Company's internal controls over financial reporting. PART II-OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company and Bank are parties to routine legal proceedings occurring in the ordinary 15 course of business. At March 31, 2005, there were no legal proceedings to which the Company and/or the Bank 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. UNREGISTERED SALES OF EQUITY 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 Not applicable. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS Exhibit 31.1 - Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 31.2 - Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 - Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 16 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRSTFED BANCORP, INC. Date: August 22, 2005 \s\ B. K. Goodwin , III --------------- ------------------------- B. K. Goodwin, III, Chairman of the Board, Chief Executive Officer, and President Date: August 22, 2005 \s\ Lynn J. Joyce --------------- ------------------------- Lynn J. Joyce Chief Financial Officer, Executive Vice President, Secretary and Treasurer 17