<PAGE>
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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 June 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 August 4, 2000 there were 6,514,128 shares of the Registrant's Common
Stock outstanding.
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<PAGE>
FIRSTFED AMERICA BANCORP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part IFinancial Information
Item 1. Consolidated Financial Statements.................................. 2
Consolidated Balance Sheets as of June 30, 2000 (unaudited) and March
31, 2000.............................................................. 2
Consolidated Statements of Operations for the three months ended June
30, 2000 (unaudited) and 1999 (unaudited)............................. 3
Consolidated Statements of Changes in Stockholders' Equity for the
three months ended June 30, 2000 (unaudited).......................... 4
Consolidated Statements of Cash Flows for the three months ended June
30, 2000 (unaudited) and 1999 (unaudited)............................. 5
Notes to Unaudited Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk......... 13
Part II Other Information
Item 1. Legal Proceedings.................................................. 15
Item 2. Changes in Securities and Use of Proceeds.......................... 15
Item 3. Default Upon Senior Securities..................................... 15
Item 4. Submission of Matters to a Vote of Security Holders................ 15
Item 5. Other Information.................................................. 15
Item 6. Exhibits and Reports on Form 8-K................................... 15
SIGNATURES................................................................. 16
</TABLE>
1
<PAGE>
FIRSTFED AMERICA BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
----------- ---------
(unaudited)
<S> <C> <C>
Assets
Cash on hand and due from banks....................... $ 20,339 20,720
Short-term investments................................ 3,860 250
---------- ---------
Total cash and cash equivalents..................... 24,199 20,970
Mortgage loans held for sale.......................... 4,793 3,417
Investment in trading securities...................... 752 587
Investment securities available for sale (amortized
cost of $6,261 and $6,260)........................... 5,978 5,643
Mortgage-backed securities available for sale
(amortized cost of $527,315 and $550,109)............ 520,220 543,627
Mortgage-backed securities held to maturity (fair
value of $2,736 and $2,853).......................... 2,710 2,819
Stock in Federal Home Loan Bank of Boston, at cost.... 33,612 30,928
Loans receivable, net (net of allowance for loan
losses of $12,568 and $12,275)....................... 978,483 888,760
Accrued interest receivable........................... 7,636 7,018
Mortgage servicing rights............................. 5,774 6,288
Office properties and equipment, net.................. 25,084 25,187
Bank-Owned Life Insurance............................. 32,527 32,127
Prepaid expenses and other assets..................... 11,517 12,624
---------- ---------
Total assets...................................... $1,653,285 1,579,995
========== =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits............................................ $ 678,970 664,682
FHLB advances and other borrowings.................. 839,497 779,662
Advance payments by borrowers for taxes and
insurance.......................................... 5,612 5,984
Accrued interest payable............................ 5,700 4,620
Other liabilities................................... 20,928 23,342
---------- ---------
Total liabilities................................. 1,550,707 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.......................... 85,467 85,449
Retained earnings................................... 65,167 63,270
Accumulated other comprehensive loss................ (4,613) (4,470)
Unearned 1997 stock-based incentive plan............ (4,369) (4,438)
Unallocated ESOP shares............................. (3,872) (3,872)
Treasury stock...................................... (35,289) (34,321)
---------- ---------
Total stockholders' equity........................ 102,578 101,705
---------- ---------
Total liabilities and stockholders' equity........ $1,653,285 1,579,995
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
FIRSTFED AMERICA BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three
Months
Ended June 30,
---------------
2000 1999
------- -------
(unaudited)
<S> <C> <C>
Interest and dividend income:
Loans........................................................ $18,045 $14,784
Investment securities........................................ 97 297
Mortgage-backed securities................................... 8,605 6,026
Federal Home Loan Bank stock................................. 603 469
------- -------
Total interest and dividend income........................... 27,350 21,576
------- -------
Interest expense:
Deposits..................................................... 6,213 6,309
Borrowed funds............................................... 12,358 7,719
------- -------
Total interest expense..................................... 18,571 14,028
------- -------
Net interest income before provision for loan losses....... 8,779 7,548
Provision for loan losses...................................... 300 300
------- -------
Net interest income after provision for loan losses........ 8,479 7,248
------- -------
Non-interest income:
Loan servicing income........................................ 374 471
Gain (loss) on sale of mortgage loans, net................... 18 (474)
Service charges on deposit accounts.......................... 341 295
Earnings on Bank-Owned Life Insurance........................ 400 380
Other income................................................. 833 754
------- -------
Total non-interest income.................................. 1,966 1,426
------- -------
Non-interest expense:
Compensation and employee benefits........................... 4,308 3,535
Office occupancy and equipment............................... 1,064 1,050
Advertising and business promotion........................... 333 251
Federal deposit insurance premiums........................... 33 99
Data processing.............................................. 396 365
Other........................................................ 864 950
------- -------
Total non-interest expenses................................ 6,998 6,250
------- -------
Income before income tax expense........................... 3,447 2,424
Income tax expense............................................. 1,074 722
------- -------
Net income................................................. $ 2,373 $ 1,702
======= =======
Basic earnings per share....................................... $ 0.40 $ 0.27
======= =======
Diluted earnings per share..................................... $ 0.40 $ 0.27
======= =======
Basic shares outstanding--in thousands......................... 5,976 6,336
======= =======
Diluted shares outstanding--in thousands....................... 5,976 6,336
======= =======
</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 Three Months Ended June 30, 2000
(Dollars and shares in thousands)
(unaudited)
<TABLE>
<CAPTION>
Unearned
1997
stock-
Accumulated based
Shares of Additional other incentive Total
Preferred common Common paid-in Retained comprehensive Unallocated plan (SIP) Treasury stockholders'
stock stock stock capital earnings income (loss) 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........... -- -- -- (5) -- -- -- 69 -- 64
Earned ESOP
shares charged to
expense.......... -- -- -- 23 -- -- -- -- -- 23
Cash dividends
declared and paid
($0.07 per
share)........... -- -- -- -- (476) -- -- -- -- (476)
Common stock
repurchased
(81,200 shares at
an average price
of $10.99 per
share)........... -- -- -- -- -- -- -- -- (897) (897)
Common stock
acquired for
certain employee
benefit plans
(11,629 shares at
an average price
of $11.38 per
share)........... -- -- -- -- -- -- -- -- (132) (132)
Common stock sold
from certain
employee benefit
plans (4,246
shares at an
average price of
$14.37 per
share)........... -- -- -- -- -- -- -- -- 61 61
Comprehensive
income (loss):
Net income....... -- -- -- -- 2,373 -- -- -- -- 2,373
Other
comprehensive
income, net of
tax
Unrealized
holding gains
(losses) on
available for
sale
securities...... -- -- -- -- -- (277) -- -- -- -
Reclassification
adjustment for
losses (gains)
included in net
income.......... -- -- -- -- -- -- -- -- -- -
-------
Net unrealized
(losses) gains.. -- -- -- -- -- (277) -- -- -- -
Tax effect...... -- -- -- -- -- 134 -- -- -- -
-------
Net-of-tax
effect.......... -- -- -- -- -- (143) -- -- -- (143)
--------
Total
comprehensive
income........... -- -- -- -- -- -- -- -- -- 2,230
--- ----- --- ------- ------- ------- ------- ------- -------- --------
Balance at June
30, 2000.......... -- 8,707 $87 $85,467 $65,167 $(4,613) $(3,872) $(4,369) $(35,289) $102,578
=== ===== === ======= ======= ======= ======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FIRSTFED AMERICA BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
--------------------------
2000 1999
----------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 2,373 $ 1,702
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............. (172) 400
Deferred loan origination fees (costs)............ 2 103
Mortgage servicing rights......................... 611 528
Provision for loan losses.......................... 300 300
(Gains) losses on sales of:
Real estate owned................................. -- (32)
Mortgage loans.................................... (18) 474
Office properties and equipment................... -- (30)
Net proceeds from sales of mortgage loans.......... 11,839 118,908
Origination of mortgage loans held for sale........ (13,294) (98,696)
Earnings from Bank-Owned Life Insurance............ (400) (380)
Unrealized gain on trading securities.............. (65) (138)
Real estate owned valuation write-downs............ -- (43)
Depreciation of office properties and equipment.... 664 616
Appreciation in fair value of ESOP shares.......... 23 56
Earned SIP shares.................................. 64 59
Increase or decrease in:
Accrued interest receivable....................... (618) (134)
Prepaid expenses and other assets................. 1,241 (3,146)
Accrued interest payable.......................... 1,080 141
Accrued income taxes and other liabilities........ (2,414) (1,259)
----------- --------
Net cash provided by operating activities........ 1,216 19,429
----------- --------
Cash flows from investing activities:
Purchase of trading securities..................... (100) (100)
Purchase of mortgage-backed securities available-
for-sale.......................................... -- (95,722)
Payments received on mortgage-backed securities
available for sale................................ 22,967 35,852
Maturities of investment securities held to
maturity.......................................... -- 6,000
Payments received on mortgage-backed securities
held to maturity.................................. 109 1,320
Purchase of Federal Home Loan Bank stock........... (2,684) -
Net (increase) decrease in loans................... (90,025) 7,231
Proceeds from sales of real estate owned........... -- 302
Proceeds from sale of office properties and
equipment......................................... -- 103
Purchases of office properties and equipment....... (561) (297)
----------- --------
Net cash used in investing activities............ (70,294) (45,311)
----------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits................ 14,288 (5,424)
Proceeds from FHLB advances and other borrowings... 1,351,338 113,641
Repayments on FHLB advances and other borrowings... (1,291,503) (91,880)
Net change in advance payments by borrowers for
taxes and insurance............................... (372) (98)
Cash dividend paid................................. (476) (355)
Payments to acquire common stock for treasury
stock............................................. (968) (39)
----------- --------
Net cash provided by financing activities........ 72,307 15,845
----------- --------
Net increase (decrease) in cash and cash
equivalents........................................ 3,229 (10,037)
Cash and cash equivalents at beginning of year...... 20,970 39,020
----------- --------
Cash and cash equivalents at end of quarter......... $ 24,199 $ 28,983
=========== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................... $ 17,491 $ 13,887
=========== ========
Income taxes....................................... $ 2,671 $ 1,695
=========== ========
Supplemental disclosures of noncash investing
activities:
Property acquired in settlement of loans........... $ -- $ 164
=========== ========
</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 ended June 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
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. Under this statement, an entity that
elects to apply hedge accounting is required to establish at the inception of
the hedge the method it will use for assessing the effectiveness of the
hedging derivative and the measurement approach for determining the
ineffective aspect of the hedge. In June 1999, the FASB issued SFAS No. 137
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133, which defers the effective date of
SFAS No. 133. SFAS No. 133 will be effective for all fiscal quarters of fiscal
years beginning after June 15, 2000.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of Financial Condition at June 30, 2000 and March 31, 2000
General
Total assets at June 30, 2000 were $1.653 billion, an increase of $73.3
million, or 4.6%, compared to $1.580 billion at March 31, 2000. Asset growth
was primarily attributable to growth in loans receivable, net, which increased
$89.7 million, or 10.1%, to $978.5 million at June 30, 2000 from $888.8
million at March 31, 2000. Partially offsetting this growth was a $23.4
million decrease in mortgage-backed securities available for sale. Balance
sheet growth was primarily funded by increases of $59.8 million in Federal
Home Loan Bank of Boston advances and other borrowings and $14.3 million in
deposit balances during the first quarter of fiscal year 2001.
Total stockholders' equity increased $873,000 to $102.6 million at June 30,
2000, from $101.7 million at March 31, 2000. The increase is primarily due to
$2.4 million in earnings, partially offset by $476,000 in dividends paid to
stockholders, $968,000 in treasury stock purchases, and a $143,000 reduction
in the fair market value of available for sale securities, net of tax. The
stockholders' equity to assets ratio was 6.20% at June 30, 2000, down from
6.44% at March 31, 2000.
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 June 30,
2000 and March 31, 2000, the Bank's liquidity ratio was 27.25% 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 June 30, 2000,
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 totaled $555.9 million, or 33.6% 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 June 30, 2000, the Company
had $839.5 million in advances outstanding from the FHLB and other borrowings,
and an additional borrowing capacity from the FHLB of $159.4 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 June 30, 2000, the Company had commitments to originate loans and unused
outstanding lines of credit and undistributed balances of construction loans
totaling $128.7 million. The Company anticipates that it will have sufficient
funds available to meet its current loan origination commitments. Certificate
of deposit accounts scheduled to mature in less than one year from June 30,
2000 totaled $313.1 million. The Company expects that it will retain a
majority of maturing certificate accounts.
7
<PAGE>
At June 30, 2000, the consolidated stockholders' equity to total assets
ratio was 6.20%. At June 30, 2000, the Bank exceeded all of its regulatory
capital requirements. The Bank's tangible capital of $100.4 million, or 6.08%,
of total adjusted assets, was above the required level of $33.1 million or
2.0%; core capital of $100.4 million, or 6.08% of total adjusted assets, was
above the required level of $66.1 million, or 4.0%; risk-based capital of
$110.1 million, or 14.16% of risk-weighted assets, was above the required
level of $62.2 million or 8.0%, and Tier 1 risk-based capital of $100.4
million, or 12.91% of risk-weighted assets, was above the required level of
$31.1 million or 4.0%. The Bank is considered a "well capitalized" institution
under the OTS prompt corrective action regulations.
Asset Quality
At June 30, 2000, non-accrual loans totaled $1.0 million and there was no
real estate owned ("REO"). 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 June 30, 2000 was $17,000. The
following table sets forth information regarding non-accrual loans and REO.
<TABLE>
<CAPTION>
At June 30, At March 31,
2000 2000
----------- ------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual loans:
Mortgage loans:
One- to four-family................................ $ 779 $ 941
Multi-family....................................... -- --
Commercial real estate............................. -- --
Construction and land.............................. -- --
------ ------
Total mortgage loans............................. 779 941
------ ------
Commercial loans..................................... 244 345
------ ------
Consumer loans:
Home equity lines.................................. -- --
Second mortgages................................... 4 12
Other consumer loans............................... 19 12
------ ------
Total consumer loans............................. 23 24
------ ------
Total nonaccrual loans........................... 1,046 1,310
Real estate owned, net............................... -- --
------ ------
Total non-performing assets........................ $1,046 $1,310
====== ======
Allowance for loan losses as a percent of loans(1)... 1.27% 1.36%
Allowance for loan losses as percent of non-
performing loans(2)................................. 1,202% 937%
Non-performing loans as a percent of loans(1)(2)..... 0.11% 0.15%
Non-performing assets as a percent of total
assets(3)........................................... 0.06% 0.08%
</TABLE>
--------
(1) Loans includes loans receivable, net, excluding allowance for loan losses.
(2) 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.
(3) 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 it's 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>
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
JUNE 30, 2000 AND THE THREE MONTHS ENDED JUNE 30, 1999
General
Net income increased $671,000, or 39.4%, to $2.4 million for the first
quarter of fiscal year 2001 from $1.7 million for the first quarter of fiscal
year 2000. Basic and diluted earnings per share ("EPS") increased 48.1% to
$0.40 for the first quarter of fiscal year 2001 from $0.27 per share for the
first quarter of fiscal year 2000. Pre-tax income increased $1.0 million, or
42.2%, to $3.4 million, the net result of increases in net interest income of
$1.2 million, non-interest income of $540,000 and non-interest expense of
$748,000. The growth in EPS 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 $1.2 million,
or 16.3%, to $8.8 million for the first quarter of fiscal year 2001 from $7.5
million for the first quarter of fiscal year 2000, primarily due to growth in
loans receivable and mortgage-backed securities funded by increases in FHLB
advances and other borrowings. Despite rising interest rates, the Company's
net interest rate spread increased two basis points to 2.01% for the first
quarter of fiscal year 2001, compared to 1.99% for the same period in fiscal
year 2000.
The growth in the average balances of loans receivable and mortgage-backed
securities during the first quarter of fiscal year 2001, compared to the first
quarter of fiscal year 2000, was due to several key factors. Rising market
interest rates resulted in increased origination of adjustable-rate mortgages
that are generally retained for portfolio, decreased 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.
10
<PAGE>
The following table sets forth certain information relating to the Company
for the three months ended June 30, 2000 and 1999. 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.
<TABLE>
<CAPTION>
For the Three Months Ended June 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......... $ 931,318 $18,045 7.75% $ 800,322 $14,784 7.39%
Investment securities.. 40,802 700 6.88 54,685 766 5.63
Mortgage-backed
securities............ 537,459 8,605 6.40 431,428 6,026 5.59
---------- ------- ---- ---------- ------- ----
Total interest-earning
assets................ 1,509,579 27,350 7.25 1,286,435 21,576 6.71
------- ---- ------- ----
Noninterest-earning
assets................. 101,699 99,105
---------- ----------
Total assets........... $1,611,278 $1,385,540
========== ==========
Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Deposits............... $ 607,103 6,213 4.10 $ 613,868 6,309 4.13
FHLB advances and other
borrow................ 815,656 12,358 6.08 582,295 7,719 5.33
---------- ------- ---- ---------- ------- ----
Total interest-bearing
liabilities........... 1,422,759 18,571 5.24 1,196,163 14,028 4.72
------- ---- ------- ----
Noninterest-bearing
liabilities............ 85,750 81,080
---------- ----------
Total liabilities...... 1,508,509 1,277,243
Stockholders' equity.... 102,769 108,297
---------- ----------
Total liabilities and
stockholders' equity.. $1,611,278 $1,385,540
========== ==========
Net interest rate
spread................. $ 8,779 2.01% $ 7,548 1.99%
======= ==== ======= ====
Net interest margin..... 2.33% 2.36%
==== ====
Ratio of interest-
earning assets to
interest-bearing
liabilities............ 106.10% 107.55%
========== ==========
</TABLE>
Provision for Loan Losses
The Company's provision for loan losses remained unchanged at $300,000 for
the first quarters of fiscal years 2001 and 2000. The allowance for loan
losses was $12.6 million, or 1.27% of loans receivable at June 30, 2000,
versus $12.3 million, or 1.36% of loans receivable at March 31, 2000. To the
extent the Company experiences increases in the balance of its loan portfolio
or increases its concentration 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 continued provisions for loan losses.
Non-performing loans decreased to $1.0 million, or 0.11% of loans
receivable, at June 30, 2000, from $1.3 million, or 0.15% of loans receivable,
at March 31, 2000. There was no REO at June 30, 2000 and 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.
11
<PAGE>
Non-interest Income
Non-interest income increased $540,000, or 37.9%, to $2.0 million for the
first quarter of fiscal year 2001 from $1.4 million for the first quarter of
fiscal year 2000. This increase is primarily attributable to a $492,000
improvement in gain (loss) on sale of mortgage loans, reflecting a decrease in
the origination of saleable fixed rate mortgages during the first quarter of
fiscal year 2001 as compared to the first quarter of fiscal year 2000.
Instead, the Company has experienced increased production of adjustable rate
mortgages, which are generally retained for portfolio. During the prior year's
quarter, mortgage interest rates rose significantly, having a negative impact
on the price of loans sold in the secondary market.
Non-interest Expense
Non-interest expense increased $748,000, or 12.0%, to $7.0 million for the
first quarter of fiscal year 2001 from $6.3 million for the first quarter of
fiscal year 2000. This increase, which includes a $773,000 increase in
compensation and benefits, is primarily attributable to costs associated with
the Company's recently opened office in downtown Providence, Rhode Island, two
insurance agencies acquired by the Agency in March 2000, and the Trust
Company, which opened in February 2000.
Income Taxes
Income tax expense increased $352,000, or 48.8%, from the first quarter of
fiscal year 2000 to the first quarter of fiscal year 2001, due primarily to
increased income before income tax expense. The Company's effective tax rate
increased to 31.2% during the first quarter of fiscal year 2001, from 29.8%
for the first quarter of fiscal year 2000.
12
<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 June 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,
13
<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 shortcomings 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.
14
<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
The annual meeting of stockholders was held July 27, 2000. The following
proposals were voted on by the stockholders:
<TABLE>
<CAPTION>
Withheld/ Broker
Proposal For Against Abstain Non-Votes
-------- --------- ------- --------- ---------
<S> <C> <C> <C> <C>
1)Election of Directors:
Thomas A. Rodgers, Jr............. 5,300,484 -- 642,218 --
Anthony L. Silvia................. 5,313,232 -- 629,470 --
2) Ratification of KPMG LLP as
independent auditors of the Company
for the fiscal year ending March
31, 2001........................... 5,757,021 11,783 47,433 --
</TABLE>
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).
15
<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: August 14, 2000 /s/ Robert F. Stoico
By___________________________________
President and Chief Executive
Officer and Chairman of the Board
(Principal Executive Officer)
Date: August 14, 2000 /s/ Edward A. Hjerpe III
By___________________________________
Executive Vice President and Chief
Operating Officer and Chief
Financial Officer (Principal
Accounting and Financial Officer)
16
