<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 September 30, 2000
[_]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 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 November 3, 2000, there were 6,400,557 shares of the Registrant's
Common Stock outstanding.
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
FIRSTFED AMERICA BANCORP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2000
(unaudited) and March 31, 2000................................ 2
Consolidated Statements of Operations for the three months and
six months ended September 30, 2000 (unaudited) and 1999
(unaudited)................................................... 3
Consolidated Statements of Changes in Stockholders' Equity for
the six months ended September 30, 2000 (unaudited)........... 4
Consolidated Statements of Cash Flows for the six months ended
September 30, 2000 (unaudited) and 1999 (unaudited)........... 5
Notes to Unaudited Consolidated Financial Statements........... 6
Management's Discussion and Analysis of Financial Condition and
Item 2. Results of Operations.......................................... 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk..... 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 16
Item 2. Changes in Securities and Use of Proceeds...................... 16
Item 3. Default Upon Senior Securities................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............ 16
Item 5. Other Information.............................................. 16
Item 6. Exhibits and Reports on Form 8-K............................... 16
SIGNATURES............................................................... 17
</TABLE>
1
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------- ----------
(unaudited)
<S> <C> <C> <C>
Assets
Cash on hand and due from banks................. $ 22,312 $ 20,720
Short-term investments.......................... 4,515 250
---------- ----------
Total cash and cash equivalents............... 26,827 20,970
Mortgage loans held for sale.................... 4,624 3,417
Investment in trading securities................ 815 587
Investment securities available for sale
(amortized cost of $6,261 and $6,260).......... 6,796 5,643
Mortgage-backed securities available for sale
(amortized cost of $504,367 and $550,109)...... 498,421 543,627
Mortgage-backed securities held to maturity
(fair value of $2,702 and $2,853).............. 2,663 2,819
Stock in Federal Home Loan Bank of Boston, at
cost........................................... 35,255 30,928
Loans receivable, net (net of allowance for loan
losses of $12,783 and $12,275)................. 995,764 888,760
Accrued interest receivable..................... 7,690 7,018
Mortgage servicing rights....................... 5,348 6,288
Office properties and equipment, net............ 24,977 25,187
Real estate owned, net.......................... 106 --
Bank-Owned Life Insurance....................... 32,938 32,127
Prepaid expenses and other assets............... 11,329 12,624
---------- ----------
Total assets................................ $1,653,553 $1,579,995
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits...................................... $ 666,934 $ 664,682
FHLB advances and other borrowings............ 851,057 779,662
Advance payments by borrowers for taxes and
insurance.................................... 5,900 5,984
Accrued interest payable...................... 4,433 4,620
Other liabilities............................. 21,390 23,342
---------- ----------
Total liabilities........................... 1,549,714 1,478,290
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000
shares authorized; none issued -- --
Common stock, $0.01 par value; 25,000,000
shares authorized; 8,707,152 shares issued... 87 87
Additional paid-in capital.................... 85,392 85,449
Retained earnings............................. 66,720 63,270
Accumulated other comprehensive loss.......... (3,436) (4,470)
Unallocated ESOP shares....................... (3,872) (3,872)
Unearned 1997 stock-based incentive plan...... (3,004) (4,438)
Treasury stock................................ (38,048) (34,321)
---------- ----------
Total stockholders' equity.................. 103,839 101,705
---------- ----------
Total liabilities and stockholders' equity.. $1,653,553 $1,579,995
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
For the Three
Months For the Six Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans.............................. $ 19,514 $ 14,805 $ 37,559 $ 29,589
Investment securities.............. 134 127 231 424
Mortgage-backed securities......... 8,483 7,276 17,088 13,302
Federal Home Loan Bank stock....... 695 482 1,298 951
--------- --------- --------- ---------
Total interest and dividend
income: 28,826 22,690 56,176 44,266
--------- --------- --------- ---------
Interest expense:
Deposits........................... 6,492 6,265 12,705 12,574
Borrowed funds..................... 13,596 8,472 25,954 16,191
--------- --------- --------- ---------
Total interest expense........... 20,088 14,737 38,659 28,765
--------- --------- --------- ---------
Net interest income before loan
loss provision.................. 8,738 7,953 17,517 15,501
Provision for loan losses............ 300 300 600 600
--------- --------- --------- ---------
Net interest income after loan
loss provision.................. 8,438 7,653 16,917 14,901
Non-interest income:
Loan servicing income.............. 378 694 752 1,165
Gain (loss) on sale of mortgage
loans, net........................ 135 (457) 153 (931)
Service charges on deposit
accounts.......................... 401 349 742 644
Earnings on Bank-Owned Life
Insurance......................... 410 395 810 775
Other income....................... 1,088 514 1,921 1,268
--------- --------- --------- ---------
Total non-interest income........ 2,412 1,495 4,378 2,921
--------- --------- --------- ---------
Non-interest expense:
Compensation and employee
benefits.......................... 4,636 3,747 8,944 7,282
Office occupancy and equipment..... 1,099 1,007 2,163 2,057
Advertising and business
promotion......................... 272 310 605 561
Data processing.................... 435 307 831 672
Federal deposit insurance
premiums.......................... 36 99 69 198
Other expense...................... 1,169 833 2,033 1,783
--------- --------- --------- ---------
Total non-interest expense....... 7,647 6,303 14,645 12,553
--------- --------- --------- ---------
Income before income tax
expense......................... 3,203 2,845 6,650 5,269
Income tax expense................... 1,007 922 2,081 1,644
--------- --------- --------- ---------
Net income....................... $ 2,196 $ 1,923 $ 4,569 $ 3,625
========= ========= ========= =========
Basic earnings per share............. $ 0.37 $ 0.30 $ 0.77 $ 0.57
========= ========= ========= =========
Diluted earnings per share........... $ 0.37 $ 0.30 $ 0.77 $ 0.57
========= ========= ========= =========
Weighted average shares outstanding--
basic............................... 5,908,173 6,392,510 5,941,770 6,363,972
========= ========= ========= =========
Weighted average shares outstanding--
diluted............................. 5,920,241 6,392,510 5,941,770 6,363,972
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended September 30, 2000
(Dollars and shares in thousands)
(unaudited)
<TABLE>
<CAPTION>
Unallocated
1997
Accumulated stock-based
Shares of Additional other incentive Total
Preferred common Common paid-in Retained comprehensive Unallocated plan (SIP) Treasury stockholders'
stock stock stock capital earnings (loss) income ESOP shares shares stock equity
--------- --------- ------ ---------- -------- ------------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March
31, 2000........... -- 8,707 $87 $85,449 $63,270 $(4,470) $(3,872) $(4,438) $(34,321) $101,705
Earned SIP stock
awards............ -- -- -- (154) -- -- -- 1,434 -- 1,280
Earned ESOP
shares charged to
expense........... -- -- -- 97 -- -- -- -- -- 97
Cash dividends
declared and paid
(1st quarter at
$0.07 per share;
2nd quarter at
$0.10 per
share)............ -- -- -- -- (1,119) -- -- -- -- (1,119)
Common stock
acquired under
repurchase
program (262,671
shares at a price
of $12.93 per
share)............ -- -- -- -- -- -- -- -- (3,406) (3,406)
Common stock
acquired for
certain employee
benefit plans
(30,774 shares at
an average price
of $12.40 per
share)............ -- -- -- -- -- -- -- -- (382) (382)
Common stock sold
from certain
employee benefit
plans (4,246
shares at an
average price of
$14.37 per
share)............ -- -- -- -- -- -- -- -- 61 61
Comprehensive
income:
Net income........ -- -- -- -- 4,569 -- -- -- -- 4,569
Other
comprehensive
income, net of
tax
Unrealized
holding gains on
available for
sale
securities...... -- -- -- -- -- 1,687 -- -- -- --
Reclassification
adjustment for
losses (gains)
included in net
income.......... -- -- -- -- -- -- -- -- -- --
-------
Net unrealized
gains........... -- -- -- -- -- 1,687 -- -- -- --
Tax effect...... -- -- -- -- -- (653) -- -- -- --
-------
Net-of-tax
effect.......... -- -- -- -- -- 1,034 -- -- -- 1,034
--------
Total
comprehensive
income............ -- -- -- -- -- -- -- -- -- 5,603
--- ----- --- ------- ------- ------- ------- ------- -------- --------
Balance at
September 30,
2000............... -- 8,707 $87 $85,392 $66,720 $(3,436) $(3,872) $(3,004) $(38,048) $103,839
=== ===== === ======= ======= ======= ======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended September 30,
--------------------
2000 1999
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 4,569 $ 3,625
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization (accretion) of:
Premium (discount) on investment and mortgage-backed
securities available for sale......................... (301) 530
Deferred loan origination (costs) fees................. (38) 92
Mortgage servicing rights.............................. 1,226 864
Provision for loan losses............................... 600 600
(Gains) losses on sales of:
Real estate owned...................................... -- (60)
Land, building and equipment........................... -- (30)
Mortgage loans......................................... (153) 931
Net proceeds from sales of mortgage loans............... 34,306 188,193
Origination of mortgage loans held for sale............. (35,646) (148,341)
Earnings on Bank-Owned Life Insurance................... (810) (775)
Unrealized gain on trading securities................... (128) (80)
Real estate owned valuation adjustments................. -- (43)
Depreciation of office properties and equipment......... 1,382 1,265
Appreciation in fair value of ESOP shares............... 97 128
Earned SIP shares....................................... 1,280 1,277
Increase or decrease in:
Accrued interest receivable............................ (672) (218)
Prepaid expenses and other assets...................... 641 (479)
Accrued interest payable............................... (187) 649
Accrued income taxes and other liabilities............. (1,952) 693
---------- --------
Net cash provided by operating activities............. 4,214 48,821
---------- --------
Cash flows from investing activities:
Purchase of trading securities.......................... (100) (100)
Purchase of mortgage-backed securities available for
sale................................................... -- (178,847)
Payments received on mortgage-backed securities
available for sale..................................... 46,041 67,283
Maturities of investment securities held to maturity.... -- 10,000
Payments received on mortgage-backed securities held to
maturity............................................... 156 2,185
Purchase of Federal Home Loan Bank stock................ (4,327) (1,118)
Net decrease (increase) in loans........................ (107,672) (22,873)
Proceeds from sales of real estate owned................ -- 617
Purchases of office properties and equipment............ (1,172) (743)
Proceeds from sales of office properties and equipment.. -- 103
---------- --------
Net cash used in investing activities................. (67,074) (123,493)
---------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits..................... 2,252 (6,540)
Proceeds from FHLB advances and other borrowings........ 2,761,147 736,152
Repayments on FHLB advances and other borrowings........ (2,689,752) (669,597)
Net change in advance payments by borrowers for taxes
and insurance.......................................... (84) (837)
Cash dividends paid..................................... (1,119) (851)
Common stock repurchased, net........................... (3,727) (320)
---------- --------
Net cash provided by financing activities............. 68,717 58,007
---------- --------
Net increase (decrease) in cash and cash equivalents..... 5,857 (16,665)
Cash and cash equivalents at beginning of period......... 20,970 39,020
---------- --------
Cash and cash equivalents at end of period............... $ 26,827 $ 22,355
========== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................ $ 38,846 $ 28,116
========== ========
Income taxes............................................ $ 3,304 $ 1,350
========== ========
Supplemental disclosures of noncash investing activities:
Property acquired in settlement of loans ............. $ 106 $ 170
========== ========
</TABLE>
See accompanying 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"), its wholly-owned
subsidiaries, First Federal Savings Bank of America (the "Bank"), FAB FUNDING
CORPORATION ("FAB FUNDING") and FIRSTFED INSURANCE AGENCY, LLC (the "Agency"),
and its 65% interest in FIRSTFED TRUST COMPANY, N.A. (the "Trust Company").
The remaining 35% interest of the Trust Company is held by M/D Trust, LLC, a
minority owner. First Federal Savings Bank of America includes its wholly-
owned subsidiaries, FIRSTFED MORTGAGE CORPORATION, FIRSTFED INVESTMENT
CORPORATION, and CELMAC INVESTMENT 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 six months ended September 30, 2000 are not necessarily indicative
of the results of operations that may be expected for all of fiscal year 2001.
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, 2000.
Note 2. Impact of Recent Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities," was issued
in June 2000 and amends the accounting and reporting standards of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," for
certain derivative instruments and hedging activities. These amendments
include the application of the normal purchases and sales exception in SFAS
No. 133, and redefinition of hedged risk. SFAS No. 138 also amends SFAS No.
133 for decisions made by the Financial Accounting Standards Board relating to
the Derivatives Implementation Group process. SFAS No. 138 will be adopted
concurrently with SFAS No. 133 on April 1, 2001. The impact of these
statements cannot be currently estimated and will be dependent upon the fair
value, nature and purpose of the derivative instruments held by the Company as
of March 31, 2001.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
General
Total assets at September 30, 2000 were $1.654 billion, an increase of
$73.6 million, or 4.7%, compared to $1.580 billion at March 31, 2000. Asset
growth was primarily attributable to growth in loans receivable, net, which
increased $107.0 million, or 12.0%, to $995.8 million at September 30, 2000
from $888.8 million at March 31, 2000. Partially offsetting this growth was a
$45.2 million decrease in mortgage-backed securities available for sale.
Balance sheet growth was primarily funded by increases of $71.4 million in
Federal Home Loan Bank advances and other borrowings and $2.3 million in
deposit balances during the first six months of fiscal year 2001.
Total stockholders' equity increased $2.1 million, or 2.1%, to $103.8
million at September 30, 2000, from $101.7 million at March 31, 2000. The
increase is primarily due to $4.6 million in net income, $1.4 million in
earned Stock-based Incentive Plan awards and a $1.0 million increase in the
fair market value of available for sale securities, net of tax, partially
offset by $1.1 million in dividends paid to stockholders and $3.7 million in
treasury stock purchases. Stockholders' equity to assets was 6.28% at
September 30, 2000, down from 6.44% at March 31, 2000. Book value per share
increased 5.3% to $17.77 at September 30, 2000 from $16.88 at March 31, 2000,
due to the $2.1 million increase in stockholders' equity and a decrease in
shares outstanding of 181,035. On September 29, 2000, the Company announced
its seventh stock repurchase program, authorizing the repurchase of up to 5%
of shares outstanding or 320,028 shares.
Liquidity and Capital
The Company's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, proceeds from the sale of
loans, FHLB advances, and other borrowings. While maturities and scheduled
amortization of loans are predictable sources of funds, deposit flows and
mortgage prepayments are influenced by general interest rates, economic
conditions and competition. The Bank is required to maintain minimum levels of
liquid assets as defined by 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 ("liquidity ratio"). At September
30, 2000 and March 31, 2000, the Bank's liquidity ratio was 26.06% and 28.35%,
respectively. The OTS required liquidity ratio is 4.0%.
The Company's most liquid assets are cash, short-term investments, mortgage
loans held for sale, investments in trading securities, investment securities
available for sale, and mortgage-backed securities available for sale. The
levels of these assets are dependent on the Company's operating, financing,
lending and investing activities during any given period. At September 30,
2000, cash and cash equivalents, mortgage loans held for sale, investments in
trading securities, investment securities available for sale, and mortgage-
backed securities available for sale totaled $537.5 million, or 32.5% of total
assets.
The Company has other sources of liquidity if a need for additional funds
arises, including a $25 million FHLB secured line of credit, FHLB advances,
and other borrowings from securities dealers. At September 30, 2000, the
Company had $851.1 million in advances outstanding from the FHLB and other
borrowings, and an additional borrowing capacity from the FHLB of $138.0
million. The Company uses FHLB advances and other borrowings to fund asset
growth and other cash flow needs, and may continue to do so in the future,
depending on market conditions, the pricing of deposit products, and the
pricing of FHLB advances and other borrowings.
At September 30, 2000, the Company had commitments to originate loans and
unused outstanding lines of credit and undistributed balances of construction
loans totaling $118.4 million. The Company anticipates that it will have
sufficient funds available to meet its current loan origination commitments.
Certificate of deposit
7
<PAGE>
accounts scheduled to mature in less than one year from September 30, 2000
totaled $295.1 million. The Company expects that it will retain a majority of
maturing certificate accounts.
At September 30, 2000, the Bank exceeded all of its regulatory capital
requirements. The Bank's tangible capital of $100.7 million, or 6.10%, of
total adjusted assets, was above the required level of $33.0 million or 2.0%;
core capital of $100.7 million, or 6.10% of total adjusted assets, was above
the required level of $66.0 million, or 4.0%; risk-based capital of $110.6
million, or 13.86% of risk-weighted assets, was above the required level of
$63.9 million or 8.0%, and Tier 1 risk-based capital of $100.7 million, or
12.61% of risk-weighted assets, was above the required level of $31.9 million
or 4.0%. The Bank is considered a "well capitalized" institution under the OTS
prompt corrective action regulations.
Asset Quality
At September 30, 2000, non-accrual loans totaled $766,000 and real estate
owned ("REO") totaled $106,000. 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 three months ended September 30, 2000
was $10,000 and was $19,000 for the six months ended September 30, 2000. The
following table sets forth information regarding non-accrual loans and REO.
<TABLE>
<CAPTION>
At September 30, At March 31,
2000 2000
---------------- ------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual loans:
Mortgage loans:
One- to four-family........................... $ 580 $ 941
Multi-family.................................. -- --
Commercial real estate........................ -- --
Construction and land......................... -- --
----- ------
Total mortgage loans........................ 580 941
----- ------
Commercial loans................................ 126 345
----- ------
Consumer loans:
Home equity lines............................. -- --
Second mortgages.............................. 37 12
Other consumer loans.......................... 23 12
----- ------
Total consumer loans........................ 60 24
----- ------
Total nonaccrual loans...................... 766 1,310
Real estate owned, net(1)....................... 106 --
----- ------
Total non-performing assets................. $ 872 $1,310
===== ======
Allowance for loan losses as a percent of
loans(2)....................................... 1.27% 1.36%
Allowance for loan losses as a percent of non-
performing loans(3)............................ 1,669% 937%
Non-performing loans as a percent of
loans(2)(3).................................... 0.08% 0.15%
Non-performing assets as a percent of total
assets(4)...................................... 0.05% 0.08%
</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 loans 90 days or more past due and
other loans which have been identified by the Company as presenting
uncertainty with respect to the collectability of interest or principal.
(4) Non-performing assets consist of non-performing loans and REO.
8
<PAGE>
Cautionary Statement
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995, and is including this statement for purposes of these safe
harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identified by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material
adverse effect on the operations of the Company and the subsidiaries include,
but are not limited to, changes in: interest rates, general economic
conditions, legislative/regulatory changes, monetary and fiscal policies of
the U.S. Government, including policies of the U.S. Treasury and the Federal
Reserve Board, the quality or composition of the loan or investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in the Company's market area and accounting principles and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Further information about the Company and its business, including
additional factors that could materially affect the Company's financial
results, is included in the Company's other filings with the Securities and
Exchange Commission.
The Company does not undertake--and specifically disclaims any obligation--
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or
unanticipated events.
9
<PAGE>
RESULTS OF OPERATIONS
General
Net income increased $273,000, or 14.2%, to $2.2 million for the three
months ended September 30, 2000 from $1.9 million for the three months ended
September 30, 1999. Basic and diluted earnings per share ("EPS") increased
23.3% to $0.37 for the second quarter of fiscal year 2001 from $0.30 per share
for the second quarter of fiscal year 2000. Pre-tax income increased $358,000,
or 12.6%, to $3.2 million, the net result of increases in net interest income
of $785,000, non-interest income of $917,000 and non-interest expense of $1.3
million.
Year to date net income increased $944,000, or 26.0%, to $4.6 million for
the six months ended September 30, 2000 from $3.6 million for the six months
ended September 30, 1999. Basic and diluted EPS increased 35.1% to $0.77 for
the first six months of fiscal year 2001 from $0.57 per share for the first
six months of fiscal year 2000. Pre-tax income increased $1.4 million, or
26.2%, to $6.7 million, the net result of increases in net interest income of
$2.0 million, non-interest income of $1.5 million and non-interest expense of
$2.1 million. The growth in EPS for the second quarter and year to date
periods of fiscal year 2001, compared to the same periods of fiscal year 2000,
was caused by the growth in net income and a reduction in shares outstanding
as a result of the Company's stock repurchases.
Net Interest Income
Net interest income before provision for loan losses increased $785,000, or
9.9%, to $8.7 million for the second quarter of fiscal year 2001 from $8.0
million for the second quarter of fiscal year 2000. The net interest rate
spread decreased 13 basis points to 1.99% for the second quarter of fiscal
year 2001 from 2.12% for the second quarter of fiscal year 2000.
Year to date net interest income before provision for loan losses increased
$2.0 million, or 13.0%, to $17.5 million for the first six months of fiscal
year 2001 from $15.5 million for the first six months of fiscal year 2000. The
net interest rate spread decreased six basis points to 2.00% for the first six
months of fiscal year 2001 from 2.06% for the first six months of fiscal year
2000.
The increases in net interest income for the second quarter and year to
date periods of fiscal year 2001, compared to the same periods of fiscal year
2000, were primarily due to growth in loans receivable and mortgage backed
securities funded by increases in FHLB advances and other borrowings. Rising
interest rates, however, contributed to a narrowing of the net interest rate
spreads during the fiscal year 2001 periods. The growth in the average
balances of loans receivable and mortgage-backed securities during the second
quarter and year to date periods of fiscal year 2001, compared to the same
periods of fiscal year 2000, was due to several key factors. Rising market
interest rates resulted in the Company's shift to origination of adjustable-
rate mortgages that are generally retained for portfolio, from origination of
fixed-rate mortgages that are generally sold in the secondary market, and
decreased prepayment speeds on loans. Favorable economic conditions, combined
with the Company's promotional efforts, resulted in growth in commercial and
consumer loans. In addition, the growth in mortgage-backed securities resulted
from management's strategy to increase the Company's leverage in fiscal year
2000.
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 tables set forth certain information relating to the Company
for the periods indicated. 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 the best available daily or monthly data, which
management believes approximates the average balances computed on a daily
basis. The yields and the costs include fees, premiums and discounts which are
considered adjustments to yields.
10
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
---------------------------------------------------------
2000 1999
---------------------------- ----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- -------- ------- ---------- -------- -------
(Dollars in (Dollars in
thousands) thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning
assets:
Loans receivable, net
and mortgage loans
held for sale........ $ 991,721 $19,514 7.87% $ 785,559 $14,805 7.54%
Investment
securities........... 46,121 829 7.13 41,739 609 5.80
Mortgage-backed
securities........... 514,180 8,483 6.60 498,440 7,276 5.84
---------- ------- ---- ---------- ------- ----
Total interest-
earning assets..... 1,552,022 28,826 7.43 1,325,738 22,690 6.84
------- ---- ------- ----
Noninterest-earning
assets................. 98,887 97,478
---------- ----------
Total assets........ $1,650,909 $1,423,216
========== ==========
Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Deposits.............. 609,101 6,492 4.23 612,009 6,265 4.07
FHLB advances and
other borrowings..... 855,519 13,596 6.31 628,896 8,472 5.36
---------- ------- ---- ---------- ------- ----
Total interest-
bearing
liabilities........ 1,464,620 20,088 5.44 1,240,905 14,737 4.72
------- ---- ------- ----
Noninterest-bearing
liabilities.......... 82,561 77,391
---------- ----------
Total liabilities... 1,547,181 1,318,296
Stockholders' equity.. 103,728 104,920
---------- ----------
Total liabilities
and stockholders'
equity............. $1,650,909 $1,423,216
========== ==========
Net interest rate
spread................. $ 8,738 1.99% $ 7,953 2.12%
======= ==== ======= ====
Net interest margin..... 2.23% 2.39%
==== ====
Ratio of interest-
earning assets to
interest-bearing
liabilities............ 105.97% 106.84%
========== ==========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended September 30,
---------------------------------------------------------
2000 1999
---------------------------- ----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- -------- ------- ---------- -------- -------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning
assets:
Loans receivable, net
and mortgage loans
held for sale........ $ 961,685 $37,559 7.81% $ 792,941 $29,589 7.46%
Investment
securities........... 43,476 1,529 7.01 48,212 1,375 5.70
Mortgage-backed
securities........... 525,756 17,088 6.50 464,934 13,302 5.72
---------- ------- ---- ---------- ------- ----
Total interest-
earning assets..... 1,530,917 56,176 7.34 1,306,087 44,266 6.78
------- ---- ------- ----
Noninterest-earning
assets................. 100,284 98,291
---------- ----------
Total assets........ $1,631,201 $1,404,378
========== ==========
Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Deposits.............. $ 608,107 12,705 4.17 $ 612,939 12,574 4.10
FHLB advances and
other borrowings..... 835,697 25,954 6.19 605,595 16,191 5.35
---------- ------- ---- ---------- ------- ----
Total interest-
bearing
liabilities........ 1,443,804 38,659 5.34 1,218,534 28,765 4.72
------- ---- ------- ----
Noninterest-bearing
liabilities.......... 84,146 79,235
---------- ----------
Total liabilities... 1,527,950 1,297,769
Stockholders' equity.. 103,251 106,609
---------- ----------
Total liabilities
and stockholders'
equity............. $1,631,201 $1,404,378
========== ==========
Net interest rate
spread................. $17,517 2.00% $15,501 2.06%
======= ==== ======= ====
Net interest margin..... 2.28% 2.37%
==== ====
Ratio of interest-
earning assets to
interest-bearing
liabilities............ 106.03% 107.19%
========== ==========
</TABLE>
Provision for Loan Losses
The Company's provision for loan losses remained unchanged at $300,000 for
the second quarters of fiscal years 2001 and 2000, and $600,000 for the first
six months of fiscal years 2001 and 2000. The allowance for loan losses was
$12.8 million, or 1.27% of loans receivable, at September 30, 2000, compared
to $12.3 million, or 1.36% of loans receivable, at March 31, 2000.
Non-performing loans decreased to $766,000, or 0.08% of loans receivable,
at September 30, 2000, from $1.3 million, or 0.15% of loans receivable, at
March 31, 2000. At September 30, 2000, the Company's non-performing assets,
which include non-performing loans and REO, decreased $438,000 to $872,000
million compared to $1.3 million at March 31, 2000. Decreases in non-
performing loans and assets are primarily a result of continued strengthening
in the local economy and conservative loan underwriting.
The Company establishes provisions for loan losses, which are charged to
operations, based on management's assessment of the loan loss reserve level,
the existing loan portfolio, current market conditions, and the volume and mix
of new originations. To the extent the Company experiences further increases
in the overall balance of its loan portfolio or increases its concentrations
of loans which bear a higher degree of risk than one- to four-family loans,
the Company anticipates further increases in its allowance for loan losses
through
12
<PAGE>
continued provisions for loan losses. While management of the Company believes
that the current level of its allowance for loan losses is sufficient based on
information currently available at this time, no assurances can be made that
future events, conditions or regulatory directives will not result in
increased provisions for loan losses or additions to the Company's allowance
for loan losses which may adversely affect net income.
Non-interest Income
Non-interest income increased $917,000, or 61.3%, to $2.4 million for the
second quarter of fiscal year 2001 from $1.5 million for the second quarter of
fiscal year 2000. This increase was primarily attributable to an improvement
of $592,000 in gain (loss) on sale of mortgage loans, net and a $574,000
increase in other non-interest income, partially offset by a $316,000 decrease
in loan servicing income.
Year to date non-interest income increased $1.5 million, or 49.9%, to $4.4
million for the first six months of fiscal year 2001 from $2.9 million for the
first six months of fiscal year 2000. This increase was primarily attributable
to an improvement of $1.1 million in gain (loss) on sale of mortgage loans,
net and a $653,000 increase in other non-interest income, partially offset by
a $413,000 decrease in loan servicing income.
The improvement in gain (loss) on sale of mortgage loans reflected a
decrease in the origination of saleable fixed rate mortgages during the first
six months of fiscal year 2001 as compared to the first six months of fiscal
year 2000, and unfavorable secondary market conditions that existed during the
first six months of fiscal year 2000. The increases in other non-interest
income for the second quarter and year to date periods of fiscal year 2001,
compared to the same periods of fiscal year 2000, were primarily attributable
to higher insurance commissions and trust fees. The decreases in loan
servicing income were primarily attributable to declines in the Company's
loans serviced for others during the first six months of fiscal year 2001
compared to the same periods of fiscal year 2000, reflecting a shift to
production of adjustable rate mortgages that are generally retained for
portfolio, and a $237,000 reduction in the valuation reserve for mortgage
servicing rights during the first six months of fiscal year 2000.
Non-interest Expense
Non-interest expense increased $1.3 million, or 21.3%, to $7.6 million for
the second quarter of fiscal year 2001 from $6.3 million for the second
quarter of fiscal year 2000, due primarily to an $889,000 increase in
compensation and employee benefits. Year to date non-interest expense
increased $2.1 million, or 16.7%, to $14.6 million for the first six months of
fiscal year 2001 from $12.6 million for the first six months of fiscal year
2000, due primarily to a $1.7 million increase in compensation and employee
benefits.
The higher level of expenses for the second quarter and year to date
periods of fiscal year 2001, compared to the same periods of fiscal year 2000,
reflected costs associated with the Company's new retail banking and business
banking offices in downtown Providence, Rhode Island, both of which opened
earlier this year, two insurance agencies acquired in March 2000, FIRSTFED
TRUST COMPANY, N.A., which opened in February 2000, and the accounting impact
of an increase in the market price of FIRSTFED stock held by certain employee
benefit plans.
Income Taxes
Income tax expense increased $85,000, or 9.2%, to $1.0 million for the
second quarter of fiscal year 2001 from $922,000 for the second quarter of
fiscal year 2000. Year to date income tax expense increased $437,000, or
26.6%, to $2.1 million for the first six months of fiscal year 2001 from $1.6
million for the first six months of fiscal years 2000. These increases were
due primarily to higher income before income tax expense. The Company's
effective tax rate increased slightly to 31.3% during the first six months of
fiscal year 2001 from 31.2% for the first six months of fiscal year 2000.
13
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk affecting the Company is interest-rate risk. The
principal objective of the Company's interest rate risk management function is
to evaluate the interest rate risk included in certain balance sheet accounts,
determine the level of risk appropriate given the Company's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with Board of Directors' approved
guidelines. Through such management, the Company seeks to reduce the
vulnerability of its operations to changes in interest rates. The Company
monitors its interest rate risk as such risk relates to its operating
strategies. The Company's Board of Directors has established an
Asset/Liability Committee, responsible for reviewing its asset/liability
policies and interest rate risk position, which meets on a monthly basis and
reports trends and interest rate risk position to the Board of Directors on a
quarterly basis. The extent of the movement of interest rates is an
uncertainty that could have a negative impact on the earnings of the Company.
In recent years, the Company has primarily utilized the following
strategies to manage interest rate risk: (1) emphasizing the origination and
retention of adjustable-rate and shorter-term (generally twelve years or less)
fixed-rate, one- to four-family mortgage loans; (2) selling in the secondary
market longer-term, fixed-rate mortgage loans originated while generally
retaining the servicing rights on such loans; (3) investing primarily in
adjustable rate mortgage-backed securities and short-term fixed-rate
collateralized mortgage obligations ("CMOs"); and (4) reducing the overall
interest rate sensitivity of liabilities by emphasizing longer-term deposits
and longer-term FHLB advances to replace rate sensitive deposits and fund
asset growth. In addition, the Company engaged in two interest rate swap
agreements with a total notional principal amount of $50 million to
synthetically lengthen its liability maturities.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and
by monitoring a bank's interest rate sensitivity "gap." An asset or liability
is said to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap
is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that same time
period.
At September 30, 2000, the Company's cumulative one year interest rate gap
(which is the difference between the amount of interest-earning assets and the
amount of interest-bearing liabilities maturing or repricing within one year)
as a percentage of total assets was a negative 4.1%. Accordingly, during a
period of falling interest rates, the Company's interest-earning assets would
tend to reprice downward at a slower rate than its interest-bearing
liabilities, which, consequently, may tend to positively affect the Company's
net interest income. During a period of rising interest rates, the Company's
interest-earning assets would tend to reprice upward at a slower rate than its
interest-bearing liabilities which, consequently, may tend to negatively
affect the Company's net interest income.
Certain shortcomings are inherent in gap analysis. For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable-rate loans, have features which restrict changes in
interest rates both on a short-term basis and over the life of the asset.
Further, in the event of change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in
calculating the table. Finally, the ability of some borrowers to service their
adjustable-rate loans may decrease in the event of an interest rate increase.
The Company's interest rate sensitivity is also monitored by management
through the use of a model which generates estimates of the change in the
Company's net interest income ("NII") and net portfolio value ("NPV") over a
range of interest rate scenarios. NPV is the present value of expected cash
flows from assets, liabilities,
14
<PAGE>
and off-balance sheet contracts. The NPV ratio, under any interest rate
scenario, is defined as the NPV in that scenario divided by the estimated
market value of assets in the same scenario. The OTS produces a similar
analysis for the Bank using its own model, based upon data submitted on the
Bank's quarterly Thrift Financial Report, the results of which may vary from
the Company's internal model primarily due to differences in assumptions
utilized between the Company's internal model and the OTS model, including
estimated loan prepayment rates, reinvestment rates and deposit renewal rates.
As in the case with the Gap Table, certain short-comings are inherent in
the methodology used in the above interest rate risk measurements. Modeling
changes in NPV require certain assumptions which may or may not reflect the
manner in which actual yields and costs respond to changes in market interest
rates. In this regard, the NPV model presented incorporates an assumption that
the composition of the Company's interest sensitive assets and liabilities
existing at the beginning of a period remains constant over the period being
measured, and that a particular change in interest rates is reflected
uniformly across the yield curve regardless of the duration to maturity or
repricing of specific assets and liabilities. Accordingly, although the NPV
measurements and net interest income models provide an indication of the
Company's interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Company's net interest
income and will differ from actual results.
The Company follows a practice of selling certain fixed-rate and
adjustable-rate mortgage loans while generally retaining the servicing rights.
In conjunction with this mortgage banking activity, the Company uses forward
contracts in order to reduce exposure to interest-rate risk. The amount of
forward coverage of the "pipeline" of mortgages is managed on a day-to-day
basis by an operating officer, within Board approved policy guidelines, based
on the Company's assessment of the general direction of interest rates and
levels of mortgage origination activity.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of FIRSTFED AMERICA BANCORP, INC. (1)
3.2 Bylaws of FIRSTFED AMERICA BANCORP, INC. (1)
4.0 Stock Certificate of FIRSTFED AMERICA BANCORP, INC. (1)
10.1 FIRSTFED AMERICA, INC. 1997 Stock-based Incentive Plan, as
amended (2)(3)
10.2 FIRSTFED AMERICA, INC. 1998 Stock Option Plan (3)
27 Financial Data Schedule (filed herewith)
</TABLE>
b) Reports on Form 8-K
None
--------
(1) Incorporated into this document by reference from the Exhibits to Form S-
1, Registration Statement, filed on September 27, 1996, as amended,
Registration No. 333-12855.
(2) Incorporated into this document by reference from the proxy statement
dated June 20, 1997 and filed with the SEC on June 20, 1997 (SEC No. 1-
12305).
(3) Incorporated into this document by reference from Appendices A (Amendments
to the FIRSTFED AMERICA BANCORP, INC. 1997 Stock-Based Incentive Plan) and
B (FIRSTFED AMERICA, INC. 1998 Stock Option Plan), respectively, of the
proxy statement dated June 15, 1998 and filed with the SEC on June 15,
1998 (SEC No. 1-12305).
16
<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: November 10, 2000 /s/ Robert F. Stoico
_____________________________________
President and Chief Executive
Officer and Chairman of the Board
(Principal Executive Officer)
Date: November 10, 2000 /s/ Edward A. Hjerpe III
By___________________________________
Executive Vice President and Chief
Operating Officer and Chief
Financial Officer (Principal
Accounting and Financial Officer)
17
