<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-12305
FIRSTFED AMERICA BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-3331237
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE FIRSTFED PARK, SWANSEA, MASSACHUSETTS 02777
- --------------------------------------------------------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (508) 679-8181
--------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 December 31, 1997, there were 8,707,152 shares of the Registrant's Common
Stock outstanding.
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FIRSTFED AMERICA BANCORP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
<S> <C> <C>
Consolidated Balance Sheets as of December 31, 1997
(unaudited) and March 31, 1997................................... 2
Consolidated Statements of Operations for the three months
and nine months ended December 31, 1997 (unaudited) and 1996
(unaudited)...................................................... 3
Consolidated Statements of Changes in Stockholders' Equity for the
nine months ended December 31, 1997 (unaudited) and the years
ended March 31, 1997, 1996, and 1995............................. 4
Consolidated Statements of Cash Flows for the nine months ended
December 31, 1997 (unaudited) and 1996 (unaudited)............... 5
Notes to Unaudited Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 8
<CAPTION>
PART II OTHER INFORMATION
<S> <C> <C>
Item 1. Legal Proceedings................................................ 19
Item 2. Changes in Securities............................................ 19
Item 3. Default Upon Senior Securities................................... 19
Item 4. Submission of Matters to a Vote of Security Holders.............. 19
Item 5. Other Information................................................ 19
Item 6. Exhibits and Reports on Form 8-K................................. 19
Signatures................................................................. 20
</TABLE>
1
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FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
-------------- ------------
A S S E T S (unaudited)
-----------
<S> <C> <C>
Cash on hand and due from banks............................ $22,215 $14,130
Short-term investments..................................... 0 39,410
Mortgage loans held for sale............................... 22,455 23,331
Investment securities available for sale
(amortized cost of $5,132 and $5)..................... 6,641 888
Mortgage-backed securities available for sale
(amortized cost of $151,487 and $32,059).............. 153,012 31,732
Investment securities held to maturity
(fair value of $25,094 and $20,958)................... 24,989 20,991
Mortgage-backed securities held to maturity
(fair value of $13,765 and $15,578)................... 13,418 15,435
Stock in Federal Home Loan Bank of Boston.................. 14,137 9,531
Loans receivable, net...................................... 863,990 796,355
Accrued interest receivable................................ 5,203 4,722
Office properties and equipment, net....................... 23,820 14,215
Mortgage servicing rights.................................. 2,837 1,630
Real estate owned, net..................................... 761 665
Deferred income tax asset, net............................. 3,498 4,511
Income tax receivable...................................... 0 263
Prepaid expenses and other assets.......................... 2,532 1,927
-------------- ------------
Total assets..................................... $1,159,508 $979,736
============== ============
<CAPTION>
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
- -----------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Deposits.............................................. $705,589 $723,976
Federal Home Loan Bank advances....................... 298,533 111,062
Advance payments by borrowers for taxes and
insurance............................................ 4,525 5,580
Accrued interest payable.............................. 1,338 717
Accrued income taxes.................................. 1,021 -
Other liabilities..................................... 19,040 16,247
-------------- ------------
Total liabilities................................ 1,030,046 857,582
-------------- ------------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized; none issued................... - -
Common stock, $.01 par value, 25,000,000
shares authorized; 8,707,152 shares
issued and outstanding........................... 87 87
Additional paid in capital............................ 84,815 84,334
Retained earnings..................................... 48,965 43,603
Unrealized gain on securities available for
sale, net of tax..................................... 1,791 326
Unallocated ESOP shares............................... (6,196) (6,196)
-------------- ------------
Total stockholders' equity....................... 129,462 122,154
-------------- ------------
Total liabilities and stockholders'
equity.......................................... $1,159,508 $979,736
============== ============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
2
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended December 31, Ended December 31,
----------------------------- -----------------------------------
1997 1996 1997 1996
------------ ----------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans........................................ $17,100 $14,976 $50,422 $42,853
Investment securities........................ 519 642 1,524 1,448
Mortgage-backed securities................... 1,603 287 3,632 660
Federal Home Loan Bank stock................. 189 153 500 404
------------ ---------- ------------- -------------
Total interest and dividend income...... 19,411 16,058 56,078 45,365
------------ ---------- ------------- -------------
Interest expense:
Deposit accounts............................. 8,273 7,914 25,283 21,898
Borrowed funds............................... 3,553 2,333 8,299 6,515
------------ ---------- ------------- -------------
Total interest expense.................. 11,826 10,247 33,582 28,413
------------ ---------- ------------- -------------
Net interest income before
provision for loan losses.......... 7,585 5,811 22,496 16,952
Provision for loan losses......................... 300 1,000 2,050 3,000
------------ ---------- ------------- -------------
Net interest income after
provision for loan losses.......... 7,285 4,811 20,446 13,952
Noninterest income:
Loan servicing income, net................... 672 709 1,969 2,081
Gain \ (loss) on sale of mortgage loans, net. 537 (92) 1,011 97
Gain on sale of investments.................. 134 51 164 51
Other income................................. 585 595 1,664 1,530
------------ ---------- ------------- -------------
Total noninterest income................ 1,928 1,263 4,808 3,759
------------ ---------- ------------- -------------
Noninterest expense:
Compensation and employee benefits........... 3,518 2,194 9,514 6,563
Office occupancy and equipment............... 848 539 2,035 1,439
Advertising and business promotion........... 387 413 848 926
Federal deposit insurance.................... 117 271 348 3,790
Data processing.............................. 180 162 537 491
Other expense................................ 809 990 2,504 2,196
------------ ---------- ------------- -------------
Total noninterest expense............... 5,859 4,569 15,786 15,405
------------ ---------- ------------- -------------
Income before income tax expense........ 3,354 1,505 9,468 2,306
Income tax expense................................ 1,421 755 4,106 1,092
------------ ---------- ------------- -------------
Net Income.............................. $1,933 $750 $5,362 $1,214
============ ========== ============= =============
Basic earnings per share.......................... $0.24 N/A $0.66 N/A
============ ========== ============= =============
Diluted earnings per share........................ $0.24 N/A $0.66 N/A
============ ========== ============= =============
Basic weighted average shares
outstanding (not in thousands)............... 8,148,802 N/A 8,129,388 N/A
============ ========== ============= =============
Diluted weighted average shares
outstanding (not in thousands)............... 8,207,645 N/A 8,129,388 N/A
============ ========== ============= =============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
3
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the nine months ended December 31, 1997 and the years ended March 31, 1997
and 1996
(in thousands)
<TABLE>
<CAPTION>
Shares of Additional Investments Unallocated Total
Preferred Common Common Paid-In Retained available ESOP Stockholders'
Stock Stock Stock Capital Earnings for sale,net Shares Equity
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(unaudited)
Balance at March 31, 1995...... - - - - $41,430 $267 - $41,697
Changes in net unrealized gain
on investments available for
sale, net of taxes............ - - - - - 118 - 118
Net income..................... - - - - 4,603 - - 4,603
---------------------------------------------------------------------------------------------------
Balance at March 31, 1996...... 0 0 0 0 46,033 385 0 46,418
Stock issued pursuant to
initial common stock offering - 8,062 81 77,510 - - - 77,591
Issuance of 645,380 shares
to The FIRSTFED Charitable
Foundation charged to
expense.................. - 645 6 6,448 - - - 6,454
Common stock acquired by ESOP.. - - - - - - (6,970) (6,970)
Reduction in unallocated ESOP
shares charged to expense - - - - - - 774 774
Appreciation in fair value of
allocated ESOP shares charged
to expense........... - - - 376 - - - 376
Change in net unrealized gain
on investments available for
sale, net . ............. - - - - - (59) - (59)
Net loss....................... - - - - (2,430) - - (2,430)
---------------------------------------------------------------------------------------------------
Balance at March 31, 1997...... 0 8,707 87 84,334 43,603 326 (6,196) 122,154
Appreciation in fair value of
allocated ESOP shares charged
to expense................ - - - 481 - - - 481
Change in net unrealized gain
on investments available for
sale, net ............... - - - - - 1,465 - 1,465
Net income..................... - - - - 5,362 - - 5,362
---------------------------------------------------------------------------------------------------
Balance at December 31, 1997... 0 8,707 $87 $84,815 $48,965 $1,791 ($6,196) $129,462
===================================================================================================
</TABLE>
See accompanying condensed notes to consolidated financial statements.
4
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the nine
months ended December 31,
----------------------------------
1997 1996
-------------- ---------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................ $5,361 $1,214
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization (accretion) of:
Premium on investment and mortgage-backed securities........................ (24) (8)
Deferred loan origination fees, net......................................... 314 259
Mortgage servicing rights................................................... 388 69
Provisions for:
Loan losses................................................................. 2,050 3,000
Deferred income taxes....................................................... - (1,587)
(Gains) losses on sales of:
Investment securities available for sale.................................... (164) -
Real estate owned........................................................... (37) (26)
Land, buildings & equipment................................................. (18) -
Mortgage loans.............................................................. (1,011) (332)
Net proceeds from sales of mortgage loans........................................ 174,115 166,771
Origination of loans held for sale............................................... (173,822) (169,629)
Real estate owned valuation write-downs.......................................... 143 102
Depreciation of office properties and equipment.................................. 1,170 670
Appreciation in fair value of allocated ESOP shares.............................. 482 -
Earned SIP shares................................................................ 1,162 -
Increase or decrease in:
Accrued interest receivable................................................. (481) (422)
Income tax receivable....................................................... 263 43
Prepaid expenses and other assets........................................... (605) (1,871)
Stock subscription proceeds................................................. (55) 88,780
Accrued interest payable.................................................... 621 35
Accrued income taxes and other liabilities.................................. 2,707 1,842
-------------- ---------------
Net cash provided by operating activities.............................. 12,559 89,230
-------------- ---------------
Cash flows from investing activities:
Purchases of investment securities held to maturity................................... (11,990) (7,993)
Maturities of investment securities held to maturity.................................. 8,000 11,000
Purchases of mortgage-backed securities held to maturity.............................. - (9,996)
Payments received on mortgage-backed securities held to maturity...................... 2,013 485
Purchases of investment securities available for sale................................. (5,474) -
Sales of investment securities available for sale..................................... 511 -
Purchases of mortgage-backed securities available for sale............................ (124,160) -
Payments received on mortgage-backed securities available for sale.................... 4,752 -
Purchase of the Federal Home Loan Bank Stock.......................................... (4,606) (2,901)
Net increase in loans................................................................. (71,101) (128,985)
Proceeds from sale of real estate owned............................................... 900 611
Purchases of office properties and equipment.......................................... (10,777) (3,971)
Sales of office properties and equipment.............................................. 19 -
-------------- ---------------
Net cash used in investing activities.................................. (211,913) (141,750)
-------------- ---------------
Cash flows from financing activities:
Net increase (decrease) in deposits................................................... ($18,387) $104,698
FHLB advances and other borrowings.................................................... 492,873 550,674
Repayments on FHLB advances........................................................... (305,402) (499,753)
Net change in advance payments by borrowers for taxes and insurance................... (1,055) (190)
-------------- ---------------
Net cash provided by financing activities.............................. 168,029 155,429
-------------- ---------------
Net increase in cash and cash equivalents.................................................. (31,325) 102,909
Cash and cash equivalents at beginning of period........................................... 53,540 13,277
-------------- ---------------
Cash and cash equivalents at end of period................................................. $22,215 $116,186
============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest......................................................................... $32,961 $28,057
============== ===============
Income taxes..................................................................... $2,823 $3,000
============== ===============
Supplemental disclosures of noncash investing activities:
Property acquired in settlement of loans.............................................. $1,102 $432
============== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements
5
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Note 1. Basis of Presentation
- -------------------------------
The accompanying unaudited consolidated financial statements include
the accounts of FIRSTFED AMERICA BANCORP, INC. (the "Company"), and its wholly-
owned subsidiaries, First Federal Savings Bank of America (the "Bank") and FAB
FUNDING CORPORATION ("FAB FUNDING"). First Federal Savings Bank of America
includes its wholly-owned subsidiary, FIRSTFED MORTGAGE CORPORATION.
The interim consolidated financial statements reflect all normal and
recurring adjustments which are, in the opinion of management, considered
necessary for a fair presentation of the financial condition and results of
operations for the periods presented. The results of operations for the three
months and nine months ended December 31, 1997 are not necessarily indicative of
the results of operations that may be expected for all of fiscal year 1998.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report to Stockholders on Form 10-K for the
fiscal year ended March 31, 1997.
Note 2. Impact of Recent Accounting Pronouncements
- ---------------------------------------------------
In February 1997, the FASB issued SFAS No. 128, Earnings per Share.
SFAS 128 established standards for computing and presenting earnings per share
("EPS"). SFAS 128 replaces the presentation of primary EPS with a presentation
of basic EPS. SFAS 128 also requires dual presentation of basic and diluted EPS
on the face of the statement of operations for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15.
SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. The Company adopted SFAS 128 as of December 31, 1997.
In February, 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure", which will be effective for 1997 financial
statements. The Company's disclosures currently comply with the provisions of
this statement.
In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income, which is defined as all changes to equity except
investments by and distributions to shareholders. Net income is a component of
comprehensive income, with all other components referred to in the aggregate as
other comprehensive income. This statement is effective for 1999 financial
statements.
The FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in June, 1997, which established standards
for reporting information about operating segments. An operating segment is
defined
6
<PAGE>
as a component of a business for which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and evaluate performance. This statement
requires a company to disclose certain income statement and balance sheet
information by operating segment, as well as provide a reconciliation of
operating segment information to the company's consolidated balances. This
statement is effective for 1999 annual financial statements.
Note 3. Conversion to Stock Form of Ownership
- ----------------------------------------------
The Company is a business corporation formed at the direction of the
Bank under the laws of Delaware on September 6, 1996. On January 15, 1997, (i)
the Bank converted from a federally chartered mutual savings bank to a federally
chartered stock savings bank (ii) the Bank issued all of its outstanding capital
stock to the Company and (iii) the Company consummated its initial public
offering of common stock, par value $.01 per share (the "Common Stock"), by
selling at a price of $10.00 per share 7,364,762 shares of Common Stock to
certain of the Bank's eligible account holders who had subscribed for such
shares (collectively, the "Conversion"), by selling 697,010 shares to the Bank's
Employee Stock Ownership Plan and related trust ("ESOP") and by contributing
645,380 shares of Common Stock to The FIRSTFED Charitable Foundation (the
"Foundation"). The Conversion resulted in net proceeds of $77.6 million, after
expenses of $3.0 million. Net proceeds of $43.4 million were invested in the
Bank to increase the Bank's tangible capital to 10% of the Bank's total adjusted
assets. The Company established The FIRSTFED Charitable Foundation dedicated to
the communities served by the Bank. In connection with the Conversion, the
common stock contributed by the Company to the Foundation at a value of $6.5
million was charged to expense.
Prior to the initial public offering and as a part of the subscription
offering, in order to grant priority to eligible depositors, the Bank
established a liquidation account at the time of the conversion in an amount
equal to the retained earnings of the Bank as of the date of its latest balance
sheet date, September 30, 1996, contained in the final Prospectus used in
connection with the Conversion. In the unlikely event of a complete liquidation
of the Bank (and only in such an event), eligible depositors who continue to
maintain accounts at the Bank shall be entitled to receive a distribution from
the liquidation account. The total amount at the liquidation account is
decreased if the balances of eligible depositors decrease at the annual
determination dates. The liquidation account approximated $31.1 million
(unaudited) at March 31, 1997.
The Company may not declare or pay dividends on its stock if such
declaration and payment would violate statutory or regulatory requirements.
In addition to the 25,000,000 authorized shares of common stock, the
Company authorized 1,000,000 shares of preferred stock with a par value of $0.01
per share (the "Preferred Stock"). The Board of Directors is authorized, subject
to any limitations by law, to provide for the issuance of the shares of
preferred stock in series, to establish from time to time the number of shares
to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restriction thereof. As of December 31, 1997,
there were no shares of preferred stock issued.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND MARCH 31, 1997
General
Total assets at December 31, 1997 were $1.160 billion, an increase of
$179.8 million, or 18.4%, compared to $979.7 million at March 31, 1997. Asset
growth was primarily attributable to growth in mortgage-backed securities
available for sale which increased from $31.7 million to $153.0 million, an
increase of $121.3 million or 383%, as well as growth in net loans receivable,
which increased from $796.4 million to $864.0 million, an increase of $67.6
million, or 8.5%. Partially offsetting this growth was a $39.4 million reduction
in short-term investments which decreased to a balance of zero from $39.4
million at March 31, 1997. Balance sheet growth was primarily funded by Federal
Home Loan Bank advances and other borrowings, which increased $187.5 million, or
169%, from $111.1 million at March 31, 1997 to $298.5 million at December 31,
1997. This balance sheet growth caused the reduction in stockholders' equity to
total assets ratio at March 31, 1997 from 12.47% to 11.17% at December 31, 1997,
or a 1.30% decrease.
Total deposits at December 31, 1997 were $705.6 million, a decrease of
$18.4 million, or 2.5%, compared to $724.0 million at March 31, 1997.
Stockholders' equity at December 31, 1997 was $129.5 million, compared to $122.2
million at March 31, 1997, an increase of $7.3 million, or 6.0%.
Liquidity and Capital
The Company's primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, FHLB advances,
investment maturities, and proceeds from the sale of loans. While scheduled
amortization of loans and investment maturities are predictable sources of
funds, deposit flows, mortgage prepayments, and interest rate payments on
adjustable-rate mortgage loans and securities are influenced by general interest
rates, economic conditions and competition. The Company has other sources of
liquidity if a need for additional funds arises, including an overnight FHLB
line of credit and approximately $345 million of additional borrowing capacity
at the Federal Home Loan Bank and at securities dealers through repurchase
agreements. The Bank has maintained liquid assets in excess of the required
minimum levels as defined by the Office of Thrift Supervision (OTS) regulations.
This requirement, which may be varied at the direction of the OTS depending upon
economic conditions and deposit flows, is based upon a percentage of the Bank's
deposits and short-term borrowings. The Bank's required liquidity ratio is
currently 4%, reduced by the OTS from 5% in November, 1997. At December 31, 1997
and March 30, 1997 the Bank's liquidity ratio was 8.64% and 13.40% respectively.
Management has redeployed excess liquidity into higher yielding assets
throughout the year.
The Company's most liquid assets are cash, short-term investments,
mortgage loans held for sale, investments available for sale, and mortgage-
backed securities available for sale. These asset levels are dependent on the
Company's operating, financing, lending, and investing activities during any
given period. At December 31, 1997, the Company's cash, short-term investments,
mortgage loans held for sale, investments available for sale, and mortgage-
backed securities available for sale totaled $204.3 million or 17.6% of the
Company's total assets. Additional investments were available which qualified
for the Bank's regulatory liquidity requirements.
The Company has other sources of liquidity if a need for additional
funds arises, including FHLB advances and dealer repurchase agreements. At
December 31, 1997, the Bank had $298.5 million in advances and other borrowings
outstanding from the FHLB and securities dealers. The Company generally
maintains a competitive deposit rate strategy in its market
8
<PAGE>
and sources of funds such as FHLB advances and repurchase agreements may be used
to supplement cash flow needs.
At December 31, 1997, the Company had commitments to originate
portfolio loans and unused outstanding lines of credit totaling $81.9 million.
The Company anticipates that it will have sufficient funds available to meet its
current loan origination commitments. Certificate accounts which are scheduled
to mature in less than one year from December 31, 1997, totaled $387.4 million.
At December 31, 1997, the consolidated stockholders' equity to total
assets ratio was 11.17%. At December 31, 1997, the Bank exceeded all of its
regulatory capital requirements. The Bank's tangible capital of $106.9 million,
or 9.36%, of total adjusted assets, is above the required level of $17.1 million
or 1.5%; core capital of $106.9 million, or 9.36% of total adjusted assets, is
above the required level of $34.2 million, or 3.0%; and risk-based capital of
$114.2 million, or 19.35% of risk-weighted assets, is above the required level
of $47.2 million or 8.0%. The Bank is considered a "well capitalized"
institution under the OTS prompt corrective action regulations.
Off-Balance Sheet and Asset \ Liability Management
At December 31, 1997, the Company maintained two off-balance sheet
interest rate swap positions ("swaps") with notional principal balances totaling
$50 million. There were no off-balance sheet interest rate swap positions at
March 31, 1997. These positions require the Company to pay a long term fixed
rate that was set at the time the position was established, and requires the
swap's counter party to pay the Company a short-term rate that resets semi-
annually based on the 6 month London Inter Bank Offer Rate (LIBOR). This
position is a hedge to the Company's natural source of short-term funds, short-
term deposits, and reduces the Company's "liability sensitive" interest rate
risk profile. The net differential to be paid or received is treated as an
adjustment to interest expense. The remaining terms of these swaps were
approximately 4 and 5 years at December 31, 1997.
The Company monitors its exposure to interest-rate risk through the use
of multiple measurement and simulation analyses, including net portfolio value
exposure and sensitivity, projected net interest income sensitivity, and cash
flow matched "Repricing Gap" analyses. There are certain inherent shortcomings
in each method, therefore we employ all of these methods. One analysis, the
"Repricing Gap" model, compares the repricing characteristics of the Company's
assets and liabilities in certain forward time frames. A negative gap means that
more liabilities will reprice than assets during that particular time frame,
exposing the Company to rising interest rates. As of December 31, 1997 the
Company had a cumulative one year gap of -5.3% versus a -7.4% one year gap as of
March 31, 1997. The Company has actively sought to reduce its exposure to
interest rate risk through the purchase and origination of adjustable rate
mortgages and mortgage-backed securities, through active lengthening of the
maturities of the FHLB advances and other borrowings portfolio, and through the
use of off-balance sheet interest rate swaps.
9
<PAGE>
Asset Quality
At December 31, 1997, non-accrual loans totaled $3.3 million and REO
totaled $761,000. The Company ceases to accrue interest on loans 90 days or more
past due and charges off all accrued interest. Foregone interest on non-accrual
loans for the nine months ended December 31, 1997 was $68,343. The following
table sets forth information regarding non-accrual loans and real estate owned
("REO").
<TABLE>
<CAPTION>
At December 31, At March 31,
1997 1997
-------------------- -------------------
(dollars in thousands)
<S> <C> <C>
Non-accrual loans:
Mortgage loans:
One- to four-family.............................................. $1,180 $1,908
Multi-family..................................................... 268 268
Commercial real estate........................................... 1,216 976
Construction and land............................................ 117 232
-------------------- --------------------
Total mortgage loans............................................. 2,781 3,384
-------------------- --------------------
Commercial loans...................................................... 74 -
Consumer loans:
Home equity lines................................................ 430 114
Second mortgages................................................. 13 95
Other consumer loans............................................. 7 69
-------------------- --------------------
Total consumer loans............................................. 450 278
-------------------- --------------------
Total nonaccrual loans..................................................... 3,305 3,662
Real estate owned, net(1).................................................. 761 665
-------------------- --------------------
Total non-performing assets................................................ $4,066 $4,327
==================== ====================
Allowance for loan losses as a percent
of loans(2)........................................................... 1.23% 1.09%
Allowance for loan losses as a percent
of non-performing loans(3)............................................ 324.39% 239.98%
Non-performing loans as a percent
of loans(2)(3)........................................................ 0.38% 0.45%
Non-performing assets as a percent
of total assets(4).................................................... 0.35% 0.44%
</TABLE>
(1) REO balances are shown net of related valuation allowances.
(2) Loans includes loans receivable, net, excluding allowance for loan losses.
(3) Non-performing loans consist of all 90 days or more past due and other
loans which have been identified by the Bank as presenting uncertainty
with respect to the collectability of interest or principal.
(4) Non-performing assets consist of non-performing loans and real estate owned
(REO).
10
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1997 AND THE THREE MONTHS ENDED DECEMBER 31, 1996
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income is a function of both the relative amounts of interest earning
assets and interest-bearing liabilities, and the interest rates earned or paid
on them.
The following table sets forth certain information relating to the
Company for the three months ended December 31, 1997 and 1996. The average
yields and costs are derived by dividing income or expense by the average
balance of interest earning assets or interest bearing liabilities,
respectively, for the periods shown. Average balances are derived from average
month-end balances. Management does not believe that the use of average monthly
balances instead of average daily balances causes any material differences in
the information presented. The yields and the costs include fees, premiums and
discounts which are considered adjustments to yields.
<TABLE>
<CAPTION>
For the Three Months Ended December 31,
-----------------------------------------------------------------------------------
1997 1996
-------------------------------------- -----------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
----------- -------- ---------- ----------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable, net and
mortgage loans held for sale...... $887,311 $17,100 7.65% $781,816 $14,976 7.60%
Investments........................... 42,852 708 6.55% 57,445 795 5.49%
Mortgage-backed securities............ 107,829 1,603 5.90% 16,811 287 6.77%
---------- -------- --------- ----------- --------- ---------
Total interest-earning assets..... 1,037,992 19,411 7.42% 856,072 16,058 7.44%
-------- --------- --------- ---------
Noninterest-earning assets................. 54,048 37,695
---------- -----------
Total assets...................... $1,092,040 $893,767
========== ===========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits.............................. 666,337 8,273 4.93% 622,697 7,914 5.04%
FHLB advances and other borrowings.... 233,675 3,553 6.03% 147,430 2,333 6.28%
---------- -------- --------- ----------- --------- ---------
900,012 11,826 5.21% 770,127 10,247 5.28%
-------- --------- --------- ---------
Noninterest-bearing liabilities............ 64,237 76,320
---------- -----------
Total liabilities................. 964,249 846,447
---------- -----------
Stockholders' equity....................... 127,791 47,320
---------- -----------
Total liabs & stockholders' equity $1,092,040 $893,767
========== ===========
Net interest rate spread................... $7,585 2.21% $5,811 2.16%
======== ========= ========= =========
Net interest margin........................ 2.90% 2.69%
========= =========
Ratio of interest-earning assets to
interest-bearing liabilities.......... 115.33% 111.16%
========== ===========
</TABLE>
11
<PAGE>
General
Net income increased to $1.9 million for the three months ended
December 31, 1997, compared to $750,000 for the three months ended December 31,
1996. The $1.2 million increase in net income for the three months ended
December 31, 1997 was the result of $1.8 million and $665,000 increases in net
interest income and non-interest income, respectively. These increases were
partially offset by a $1.3 million increase in non-interest expense.
Interest Income
Interest and dividend income for the three months ended December 31,
1997 was $19.4 million, compared to $16.1 million for the three months ended
December 31, 1996, an increase of $3.4 million, or 20.9%. The increase in
interest and dividend income is primarily attributable to a $181.9 million
increase in average interest-earning assets which increased to $1.038 billion
for the three months ended December 31, 1997 from $856.1 million for the three
months ended December 31, 1996. The increase in average interest-earning assets
was mainly due to an increase in mortgage-backed securities available for sale
which were primarily funded by FHLB advances. The increase in average interest-
earning balances was accompanied by a two basis point decrease in the average
yield from 7.44% for the three months ended December 31, 1996 to 7.42% for the
three months ended December 31, 1997.
Interest income on loans receivable and mortgage loans held for sale
for the three months ended December 31, 1997 increased by $2.1 million, or
14.2%, to $17.1 million compared to $15.0 million for the same three months in
1996. This increase was attributable to an increase of $105.5 million in the
average loan balance and a five basis point increase in yield on loans
receivable and mortgage loans held for sale.
Interest and dividend income from investments was $708,000 for the
three months ended December 31, 1997, compared to $795,000 for the comparable
three months in 1996. The average yield on investment securities increased by
106 basis points during the three months ended December 31, 1997 versus the
three months ended December 31, 1996. The yield on investment securities for the
three months ended December 31, 1996 was low because of stock subscription
proceeds from the Company's initial public offering that were temporarily
invested in lower yielding, highly liquid short-term investments. Investment
securities decreased by $14.6 million to an average of $42.8 million during the
three months ending December 31, 1997 from $57.4 million during the three months
ended December 31, 1996.
Interest on mortgage-backed securities for the three months ended
December 31, 1997 increased by $1.3 million to $1.6 million, compared to
$287,000 for the same three months in 1996. This increase in income is
attributable to a $91.0 million increase in the average mortgage-backed
securities balance, partially offset by a 87 basis point decrease in the average
yield, from 6.77% to 5.90%, during the three months ended December 31, 1997
versus the three months ended December 31, 1996. This reduction in yield was the
result of the addition of adjustable rate mortgage-backed securities, some of
which offer low introductory rates.
Interest Expense
Interest expense for the three months ended December 31, 1997 was $11.8
million, compared to $10.2 million for the three months ended December 31, 1996,
an increase of $1.6 million, or 15.4%. The increase in interest expense during
this time period was the net effect of an increase in average interest-bearing
liabilities and a decrease in their associated cost. Average interest-bearing
liabilities increased $129.9 million, or 16.9%, to $900.0 million for the three
months ended December 31, 1997, from $770.1 million for the three months ended
December 31, 1996. Of this amount, average deposit growth was $43.6 million, or
7.0%, from $622.7 during the three months ended December 31, 1996 to $666.3
million during the three months ended December 31, 1997. During this time period
the cost of deposits fell 11 basis points due to a decline in the general level
of interest rates and to the Company's less aggressive deposit pricing strategy.
12
<PAGE>
Average Federal Home Loan Bank advances and other borrowings grew 58.5%
to $233.7 million during the three months ended December 31, 1997 versus $147.4
million during the same period in 1996. Because of a decline in market interest
rates, the cost of Federal Home Loan Bank advances and other borrowings fell 25
basis points during this time period, from 6.28% to 6.03%, even though the
Company actively extended liability maturities through longer-term advances.
Net Interest Income
Net interest income before provision for loan losses increased $1.8
million, or 30.5%, to $7.6 million for the three months ended December 31, 1997
from $5.8 million for the three months ended December 31, 1996. Net interest
income improved during this time period because the $181.9 million increase in
average interest-earning assets was funded by a $129.9 million increase in
average interest-bearing liabilities, with the $52.0 million difference being
funded by the increase in stockholders' equity. Most of the increase in
stockholders' equity came from net stock conversion proceeds raised during the
Company's initial public offering in January of 1997. The Company's net interest
margin increased to 2.90% for the three months ended December 31, 1997 from
2.69% for the three months ended December 31, 1996.
Provision for Loan Losses
For the three months ended December 31, 1997, the Company's provision
for loan losses was $300,000 compared to $1.0 million for the same prior year
period. The quarterly provision was reduced based on management's current
assessment of the bank's loan portfolio, trend in the loan portfolio, and market
conditions. The allowance for loan loss as a percentage of loans at December 31,
1997 was 1.23% as compared to 1.09% at March 31, 1997.
Non-interest Income
Non-interest income increased to $1.9 million for the three months
ended December 31, 1997 compared to $1.3 million for the three months ended
December 31, 1996, an increase of $665,000, or 52.7%. During this time period,
net loan servicing income decreased to $672,000 compared to $709,000 and
gain/(loss) on sale of mortgage loans increased to a $537,000 from a $92,000
loss. These changes were primarily due to the effect of increases in the present
value of mortgage servicing rights on loans originated and sold during the
period, as a component of the gain/(loss) on sale of mortgage loans. The
mortgage servicing rights are amortized as a reduction of loan servicing income
over the estimated life of the loans being serviced, adjusted for prepayments.
Non-interest Expense
Total non-interest expense was $5.9 million for the three months ended
December 31, 1997 compared to $4.6 million for the comparable three months in
1996. Compensation and benefits increased by $1.3 million to $3.5 million for
the three months ended December 31, 1997 from $2.2 million for the three months
ended December 31, 1996. The increase in compensation is primarily due to
increased staffing at the Bank to support balance sheet growth, expenses related
to the Bank's ESOP, which was created at the time of the initial public
offering, and expenses related to the Stock-based Incentive Plan, which was
approved by stockholders in August of 1997. Office occupancy and equipment
expense was up $309,000 from $539,000 during the three months ended December 31,
1996 to $848,000 during the three months ended December 31, 1997 due to expenses
related to the opening of the Company's new administrative and operations
facility in Swansea, Massachusetts and the renovation of the Downtown branch in
Fall River and other branches.
13
<PAGE>
Other non-interest expense decreased to $809,000 for the three months
ended December 31, 1997 versus $990,000 for the three months ended December 31,
1996, a decrease of $181,000, or 18.3%. This decrease was primarily caused by
the absence of certain professional fees and other expenses related to the
Company's initial public offering.
Income Taxes
Income tax expense was $1.4 million for the three months ended December
31, 1997 compared to $755,000 for the three months ended December 31, 1996, an
increase of $666,000, caused by the increase in income before taxes. The
effective income tax rates for the three months ended December 31, 1997 and
December 31, 1996 were 42% and 50%, respectively.
14
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
DECEMBER 31, 1997 AND THE NINE MONTHS ENDED DECEMBER 31, 1996
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income is a function of both the relative amounts of interest earning
assets and interest-bearing liabilities, and the interest rates earned or paid
on them.
The following table sets forth certain information relating to the
Company for the nine months ended December 31, 1997 and 1996. The average yields
and costs are derived by dividing income or expense by the average balance of
interest earning assets or interest bearing liabilities, respectively, for the
periods shown. Average balances are derived from average month-end balances.
Management does not believe that the use of average monthly balances instead of
average daily balances has caused any material differences in the information
presented. The yields and the costs include fees, premiums and discounts which
are considered adjustments to yields.
<TABLE>
<CAPTION>
For the Nine Months Ended December 31,
-----------------------------------------------------------------------------
1997 1996
-------------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
----------- ---------- ------------ --------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable, net and
mortgage loans held for sale ............. $ 872,843 $ 50,422 7.67% 745,530 42,853 7.63%
Investments ................................... 43,405 2,024 6.19% 41,587 1,853 5.91%
Mortgage-backed securities .................... 78,510 3,632 6.14% 13,013 659 6.72%
---------- ---------- -------- -------- --------- --------
Total interest-earning assets ............ 994,758 56,078 7.48% 800,130 45,365 7.53%
---------- -------- --------- --------
Noninterest-earning assets ......................... 49,022 33,851
---------- --------
Total assets ............................. $1,043,780 $833,981
========== ========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits ...................................... 675,269 25,283 4.97% 583,645 21,898 4.98%
FHLB advances and other borrowings ............ 180,353 8,299 6.11% 137,661 6,515 6.28%
---------- ---------- -------- -------- --------- --------
855,622 33,582 5.21% 721,306 28,413 5.23%
---------- -------- --------- --------
Noninterest-bearing liabilities .................... 62,683 65,348
---------- --------
Total liabilities ........................ 918,305 786,654
Stockholders' equity ............................... 125,475 47,327
---------- --------
Total liabs & stockholders' equity ....... $1,043,780 $833,981
========== ========
Net interest rate spread ........................... $22,496 2.27% $16,952 2.30%
========== ======== ========= ========
Net interest margin ................................ 3.00% 2.81%
======== ========
Ratio of interest-earning assets to
interest-bearing liabilities .................. 116.26% 110.93%
========== ========
</TABLE>
15
<PAGE>
General
Net income increased to $5.4 million for the nine months ended December
31, 1997, compared to $1.2 million for the nine months ended December 31, 1996.
Results for the nine months ended December 31, 1996 included a one-time, pre-tax
charge of $2.9 million for SAIF Special Assessment to recapitalize the Savings
Association Insurance Fund that was paid in the second quarter of fiscal year
1997 ended September 30, 1996. Excluding the SAIF Special Assessment, after-tax
earnings for the nine months ended December 31, 1996 were $2.7 million. The $2.7
million increase in net income, excluding the SAIF Special Assessment, for the
nine months ended December 31, 1997 was primarily due to growth in interest-
earning assets.
Interest Income
Interest and dividend income for the nine months ended December 31,
1997 was $56.1 million, compared to $45.4 million for the nine months ended
December 31, 1996, an increase of $10.7 million, or 23.6%. The increase in
interest and dividend income is primarily attributable to a $194.6 million
increase in average interest-earning assets which increased to $994.8 million
for the nine months ended December 31, 1997 from $800.1 million for the nine
months ended December 31, 1996. The increase in average interest-earning assets
was mainly due to an increase in mortgage-backed securities available for sale
which were primarily funded by FHLB advances. The increase in average interest-
earning balances was accompanied by a five basis point decrease in the average
yield from 7.53% for the nine months ended December 31, 1996 to 7.48% for the
nine months ended December 31, 1997.
Interest income on loans receivable and mortgage loans held for sale
for the nine months ended December 31, 1997 increased by $7.6 million, or 17.7%,
to $50.4 million compared to $42.8 million for the same nine months in 1996.
This increase was primarily attributable to an increase of $127.3 million in the
average loan balance and a four basis point increase in yield on loans
receivable and mortgage loans held for sale.
Interest and dividend income from short-term investments, investment
securities and Federal Home Loan Bank stock was $2.0 million for the nine months
ended December 31, 1997, compared to $1.9 million for the comparable nine months
in 1996. The average yield on investment securities increased by 28 basis
points, from 5.91% to 6.19%, during the nine months ended December 31, 1997
versus the nine months ended December 31, 1996. The yield on investment
securities for the nine months ended December 31, 1996 was low because of stock
subscription proceeds from the Company's initial public offering that were
temporarily invested in lower yielding, highly liquid short-term investments.
The average balance of investment securities increased by $1.8 million to an
average of $43.4 million during the nine months ending December 31, 1997 from
$41.6 million during the nine months ended December 31, 1996.
Interest on mortgage-backed securities for the nine months ended
December 31, 1997 increased by $3.0 million to $3.6 million, compared to
$659,000 for the same nine months in 1996. This increase in income is
attributable to a $65.5 million increase in the average balance, partially
offset by a 58 basis point decrease in the average yield on mortgage-backed
securities, from 6.72% to 6.14%, during the nine months ended December 31, 1997
versus the nine months ended December 31, 1996. This reduction in yield was the
result of the addition of adjustable rate mortgage-backed securities, some of
which offer low introductory rates.
Interest Expense
Interest expense for the nine months ended December 31, 1997 was $33.6
million, compared to $28.4 million for the nine months ended December 31, 1996,
an increase of $5.2 million, or 18.2%. The increase in interest expense during
this time period was due to an increase in average interest-bearing liabilities,
partially offset by a two basis point decrease in their associated cost. Average
interest-bearing liabilities increased $134.3 million, or 18.6%, to $855.6
million for the nine months ended December 31, 1997, from $721.3 million for the
nine months ended December 31, 1996. Of this amount, the largest
16
<PAGE>
growth was in average deposits which grew 15.7% to $675.3 million during the
nine months ended December 31, 1997 versus $583.6 million during the same period
in 1996. Deposit costs fell one basis point during this time. Because of a
decline in market interest rates, the portfolio rate on Federal Home Loan Bank
Advances and other borrowings was down 17 basis points, even through the Company
actively extended liability maturities through longer-term advances. Average
Federal Home Loan Bank advance balances increased $42.7 million to $180.4
million during the nine months ended December 31, 1997 from $137.7 million
during the nine months ended December 31, 1996.
Net Interest Income
Net interest income before provision for loan losses increased $5.5
million, or 32.7%, to $22.5 million for the nine months ended December 31, 1997
from $17.0 million for the nine months ended December 31, 1996. Net interest
income improved during this time period because the $194.6 million increase in
average interest-earning assets was funded by a $134.3 million increase in
average interest-bearing liabilities, with the $60.3 million difference being
funded by the increase in stockholders' equity. Most of the increase in
stockholders' equity came from net stock conversion proceeds raised during the
Company's initial public offering in January of 1997. The Company's net interest
margin increased to 3.00% for the nine months ended December 31, 1997 from 2.81%
for the nine months ended December 31, 1996, a by-product of the increase in net
interest income before provision for loan losses.
Provision for Loan Losses
For the nine months ended December 31, 1997, the Company's provision
for loan losses was $2.1 million compared to $3.0 million for the same prior
year period. The quarterly provision was reduced based on management's current
assessment of the bank's loan portfolio, trends in the loan portfolio, and
market conditions. The allowance for loan loss as a percentage of loans at
December 31, 1997 was 1.23% as compared to 1.09% at March 31, 1997.
Non-interest Income
Non-interest income increased to $4.8 million for the nine months ended
December 31, 1997 compared to $3.8 million for the nine months ended December
31, 1996, an increase of $1.0 million, or 27.9%. During this time period, net
loan servicing income decreased to $2.0 million from $2.1 million and gain on
sale of mortgage loans increased to $1.0 million from $97,000. These changes
were primarily due to the effect of increases in the present value of mortgage
servicing rights on loans originated and sold during the period, as a component
of the gain/(loss) on sale of mortgage loans. The mortgage servicing rights are
amortized as a reduction of loan servicing income over the estimated life of the
loans being serviced, adjusted for prepayments.
Non-interest Expense
Total non-interest expense was $15.8 million for the nine months ended
December 31, 1997 compared to $15.4 million for the comparable nine months in
1996. Compensation and benefits increased by $2.9 million to $9.5 million for
the nine months ended December 31, 1997 from $6.6 million for the nine months
ended December 31, 1996. The increase in compensation is primarily due to
increased staffing at the Bank to support balance sheet growth, expenses related
to the Bank's ESOP, which was created at the time of the initial public
offering, and expenses related to the Stock-based Incentive Plan, which was
approved by stockholders in August of 1997. Office occupancy and equipment
expense increased $596,000 from $1.4 million during the nine months ended
December 31, 1996 to $2.0 million during the nine months ended December 31, 1997
due to expenses related to the opening of the Company's new administrative and
operations facility in Swansea, Massachusetts and the renovation of the Downtown
branch in Fall River and other branches.
17
<PAGE>
Federal deposit insurance expense decreased by $3.4 million, or 90.8%,
to $348,000 for the nine months ended December 31, 1997 from $3.8 million during
the nine months ended December 31, 1996. Federal deposit insurance expense for
the nine months ended December 31, 1996 included a one-time, pre-tax charge of
$2.9 million for the industry-wide SAIF Special Assessment to recapitalize the
Savings Association Insurance Fund.
Other non-interest expense increased to $2.5 million for the nine
months ended December 31, 1997 versus $2.2 million for the nine months ended
December 31, 1996, an increase of $309,000, or 14.1%. The largest changes in
this category came from a $168,000 increase in professional fees, and a $108,000
increase in new holding company related expenses.
Income Taxes
Income tax expense was $4.1 million for the nine months ended December
31, 1997 compared to $1.1 million for the nine months ended December 31, 1996,
an increase of $3.0 million, caused by the increase in income before taxes. The
effective income tax rates for the December 31, 1997 and December 31, 1996 nine
month periods were 43% and 47%, respectively.
Year 2000
The Company is aware of the issues associated with the programming code
in existing computer systems as the millennium (Year 2000) approaches. The Year
2000 problem is pervasive and complex as virtually every computer operation will
be affected in some way by the rollover of the two digit year value to "00". The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the Year 2000
compliance. The Company is currently in an assessment phase to determine the
scope and costs for Year 2000 related issues, and at the end of this phase, the
Company will have an estimate of those costs and the related potential effect on
the Company's earnings.
Cautionary Statement
This Quarterly Report on Form 10-Q contains statements relating to
future results of the corporation (including certain projections and business
trends) that are considered "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from those projected as a result of certain risks and uncertainties,
including but not limited to changes in political and economic conditions,
interest rate fluctuations, competitive product and pricing pressures within the
Company's market, equity and bond market fluctuations, personal and corporate
customers' bankruptcies, inflation, acquisitions and integrations of acquired
businesses, as well as other risks and uncertainties detailed from time to time
in the filings of the Company with the Securities and Exchange Commission.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Other than as discussed below, the Company is not engaged in
any legal proceedings of a material nature at the present
time. From time to time, the Company is a party to routine
legal proceedings within the normal course of business. Such
routine legal proceedings in the aggregate are believed by
management to be immaterial to the Company's financial
condition or results of operations.
On January 30, 1998, the Company was named as a defendant in
an action filed with the Superior Court of the Commonwealth
of Massachusetts, County of Suffolk, (Advest, Inc. v.
FIRSTFED AMERICA BANCORP, INC.). The plaintiff alleges that
the Company improperly denied the plaintiff the ability to
purchase 30,000 shares of stock in the Bank's conversion at
$10.00 per share. The Company believes there is no merit to
the action and believes its position is supported by
applicable federal regulation. The Company intends to
vigorously defend the action.
Item 2. Changes in Securities
---------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to Vote of Security Holders
-------------------------------------------------
Not Applicable
Item 5. Other Information
-----------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
3.1 Certificates of Incorporation of FIRSTFED AMERICA
BANCORP, INC.*
3.2 Bylaws of FIRSTFED AMERICA BANCORP, INC.*
4.0 Stock Certificate of FIRSTFED AMERICA BANCORP,
INC.*
11 Computation of earnings per share
27 Financial Data Schedule (filed herewith)
b) Reports on Form 8-K
None
* Incorporated herein by reference into this document
from the Exhibits to Form S-1, Registration Statement,
filed on September 27, 1996, as amended, Registration
No. 333-12855.
19
<PAGE>
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, there unto duly authorized.
FIRSTFED AMERICA BANCORP, INC.
--------------------------------------------
Registrant
Date: February 13, 1998 /s/ Robert F. Stoico
--------------------------------------------
President and Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: February 13, 1998 /s/ Edward A. Hjerpe III
--------------------------------------------
Senior Vice President
(Principal Accounting and Financial Officer)
20
<PAGE>
EXHIBIT 11.
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF DILUTED EARNINGS PER SHARE
THREE AND NINE MONTHS ENDED DECEMBER 31, 1997
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Nine
months ended months ended
December 31, December 31,
1997 1997
------------- -------------
<S> <C> <C>
Net income.......................................................... $1,933 $5,361
------------- -------------
Weighted average shares outstanding:
Weighted average shares outstanding............................ 8,707,152 8,707,152
Less: Unallocated shares held by the ESOP................ 607,045 607,045
Plus: ESOP shares released or committed
to be released during the fiscal year........... 48,695 29,281
Plus: Share equivalent stock options 58,843 -
------------- -------------
Weighted average shares outstanding............................ 8,207,645 8,129,388
Diluted earnings per share.......................................... $0.24 $0.66
============= =============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 22,215
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 159,653
<INVESTMENTS-CARRYING> 38,407
<INVESTMENTS-MARKET> 38,859
<LOANS> 863,990<F1>
<ALLOWANCE> 10,721
<TOTAL-ASSETS> 1,159,508
<DEPOSITS> 705,589
<SHORT-TERM> 155,700
<LIABILITIES-OTHER> 25,924
<LONG-TERM> 142,833
0
0
<COMMON> 87
<OTHER-SE> 129,375
<TOTAL-LIABILITIES-AND-EQUITY> 1,159,508
<INTEREST-LOAN> 50,422
<INTEREST-INVEST> 5,156
<INTEREST-OTHER> 500
<INTEREST-TOTAL> 56,078
<INTEREST-DEPOSIT> 25,283
<INTEREST-EXPENSE> 33,582
<INTEREST-INCOME-NET> 22,496
<LOAN-LOSSES> 2,050
<SECURITIES-GAINS> 164
<EXPENSE-OTHER> 15,786
<INCOME-PRETAX> 9,468
<INCOME-PRE-EXTRAORDINARY> 9,468
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,362
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
<YIELD-ACTUAL> 3.00
<LOANS-NON> 3,305
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,456
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,788
<CHARGE-OFFS> 128
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 10,721
<ALLOWANCE-DOMESTIC> 10,721
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,488
<FN>
<F1>
LOANS HELD TO MATURITY
</FN>
</TABLE>
