UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended: March 31, 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 00-23063
--------
First SecurityFed Financial , Inc.
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(Exact Name of Registrant as Specified In Its Charter)
Delaware 36-4177515
- --------------------------------------- ----------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
Chicago, Illinois 60622
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(Address of Principal Executive Offices) (Zip Code)
773/772-4500
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(Registrant's telephone number, including area code)
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
--- ---
Indicate the number of shares outstanding of each the issuer's classes of common
stock, as of the latest practicable date:
Class Outstanding at April 30, 2000
- --------------------------------------- -----------------------------
Common Stock, par value $0.01 5,232,935 shares
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Financial Condition as of
March 31, 2000 and December 31, 1999................................. 3
Condensed Consolidated Statements of Income for the three months
ended March 31, 2000 and 1999.......................................... 4
Statements of Comprehensive Income for the
three months ended March 31, 2000 and 1999 ........................... 5
Condensed Consolidated Statements of Changes in Shareholders Equity for the
year ended December 31, 1999 and the three months ended March 31, 2000 6
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999.................................. 8
Notes to the Condensed Consolidated Financial Statements as of
March 31, 2000........................................................ 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation........................................ 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 19
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................. 21
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<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share and per share data)
Unaudited)
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<TABLE>
March 31, December 31,
2000 1999
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,374 $ 6,057
Federal funds sold - 200
---------------- ---------------
Total cash and cash equivalents 7,374 6,257
Securities available-for-sale 36,376 20,622
Securities held-to-maturity (fair value of
$75,161 in 2000 and $89,850 in 1999) 78,755 92,908
Loans, net of allowance for loan losses 250,024 241,168
Federal Home Loan Bank stock 2,733 2,315
Premises and equipment, net 3,666 3,672
Accrued interest receivable 3,089 2,976
Intangible assets 180 190
Other assets 1,968 2,184
---------------- ---------------
Total assets $ 384,165 $ 372,292
================ ===============
LIABILITIES
Deposits
Non-interest-bearing $ 6,538 $ 6,089
Interest-bearing 237,403 232,034
---------------- ---------------
243,941 238,123
Advance payments by borrowers for taxes and
insurance 1,571 2,811
Advances from Federal Home Loan Bank 53,800 46,300
Accrued interest payable and other liabilities 2,731 1,902
---------------- ---------------
Total liabilities 302,043 289,136
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value per share, 500,000 shares
authorized, no shares issued and outstanding - -
Common stock, $0.01 par value per share, 8,000,000
shares authorized, 6,408,000 shares issued 64 64
Additional paid-in capital 64,333 64,324
Unearned ESOP shares (4,155) (4,239)
Unearned stock awards (2,895) (3,075)
Retained earnings, substantially restricted 40,720 39,914
Accumulated other comprehensive income (839) (605)
Treasury stock, at cost; (1,148,565 shares at March 31, 2000
and 979,360 shares at December 31,1999) (15,106) (13,227)
----------------- ----------------
Total shareholders' equity 82,122 83,156
---------------- ---------------
Total liabilities and shareholders' equity $ 384,165 $ 372,292
================ ===============
</TABLE>
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See accompanying notes to condensed consolidated financial statements
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<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share and per share data)
(Unaudited)
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<TABLE>
Three months ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Interest income
Loans $ 4,984 $ 4,440
Securities 1,202 833
Mortgage-backed securities 553 530
Other interest-earning assets 63 204
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Total interest income 6,802 6,007
Interest expense
Deposits 2,519 2,215
FHLB advances 688 384
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Total interest expense 3,207 2,599
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Net interest income 3,595 3,408
Provision for loan losses 62 62
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Net interest income after
provision for loan losses 3,533 3,346
Noninterest income
Net gain/(loss) on sale of securities (13) 19
Other income 154 133
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Total noninterest income 141 152
Noninterest expense
Compensation and benefits 918 916
Occupancy and equipment expense 173 150
Data processing 80 88
Federal deposit insurance premiums 32 52
Professional fees 25 46
Other operating expenses 246 249
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Total noninterest expense 1,474 1,501
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Income before income tax provision 2,200 1,997
Provision for income taxes 773 735
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Net income $ 1,427 $ 1,262
============== =============
Earnings per share
Basic $ .29 $ .25
============== =============
Diluted $ .29 $ .25
============== =============
</TABLE>
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See accompanying notes to condensed consolidated financial statements
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands, except share and per share data)
(Unaudited)
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<TABLE>
Three months ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Net Income $ 1,427 $ 1,262
Other comprehensive income, net of tax:
Change in unrealized gains (losses) on securities
resulting from the reclassification of securities from
held-to-maturity to available-for-sale (134) -
Change in unrealized holding gains (losses) on
securities available-for-sale (108) (38)
Reclassification adjustments for (gains) losses
recognized in income 8 (12)
-------- --------
Comprehensive Income $ 1,193 $ 1,212
======== ========
</TABLE>
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See accompanying notes to condensed consolidated financial statements
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<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except share and per share data)
(Unaudited)
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<TABLE>
Accumulated
Other Total
Additional Unearned Unearned Compre- Share-
Common Paid-in ESOP Stock Treasury Retained hensive holders'
Stock Capital Shares Awards Stock Earnings Income Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 64 $64,324 $(4,239) $(3,075) $(13,227) $39,914 $ (605) $83,156
ESOP shares earned -- 9 84 -- -- -- -- 93
MRP shares earned -- -- -- 180 -- -- -- 180
Net income -- -- -- -- -- 1,427 -- 1,427
Purchase of treasury stock -- -- -- -- (1,879) -- -- (1,879)
Dividends declared ($.12 per share) -- -- -- -- -- (621) -- (621)
Change in fair value of securities,
net of income taxes and
reclassification effects -- -- -- -- -- -- (234) (234)
Balance at March 31, 2000 $ 64 $ 64,333 $(4,155) $(2,895) $(15,106) $40,720 $ (839) $ 82,122
========= ========== ======= ======= ======== ======= ========= ==========
</TABLE>
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See accompanying notes to condensed consolidated financial statements
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<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except share and per share data)
(Unaudited)
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<TABLE>
Three months ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,427 $ 1,262
Adjustments to reconcile net income to net
cash from operating activities
Depreciation and amortization 80 96
Amortization of discounts and premiums
on securities 24 42
Net (gain)/loss on sales and calls of securities 13 (19)
Provision for loan losses 62 62
ESOP compensation expense 93 107
Stock award compensation expense 180 175
Change in
Deferred loan origination fees 103 (5)
Accrued interest receivable and other assets 111 (408)
Other liabilities and deferred income taxes 788 978
------------- -------------
Net cash provided by operating activities 2,881 2,290
Cash flows from investing activities
Purchase of securities available-for-sale (1,301) (1,062)
Purchase of securities held-to-maturity (2,248) (16,336)
Proceeds from repayment of securities 924 1,915
Proceeds from sales of securities available-for-sale 310 2,968
Proceeds from calls and maturities of securities 435 4,000
Net change in loans (9,021) (1,566)
Capital expenditures, net (64) (6)
Purchase of Federal Home Loan Bank stock (418) -
-------------- -------------
Net cash used in investing activities (11,383) (10,087)
Cash flows from financing activities
Net increase in deposits 5,818 1,393
Net borrowings from FHLB 7,500 -
Net decrease in advances from
borrowers for insurance and taxes (1,240) (1,141)
Dividends paid (580) -
Purchase of treasury stock (1,879) (2,614)
-------------- --------------
Net cash provided by (used in) financing activities 9,619 (2,362)
------------- --------------
Net change in cash and cash equivalents 1,117 (10,159)
Cash and cash equivalents at beginning of period 6,257 24,830
------------- -------------
Cash and cash equivalents at end of period $ 7,374 $ 14,671
============= =============
</TABLE>
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See accompanying notes to condensed consolidated financial statements
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<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
First SecurityFed Financial, Inc. (the Company) is a Delaware corporation
organized in July 1997 by First Security Federal Savings Bank (the Bank) in
connection with the conversion of the Bank from a federally chartered mutual
savings bank to a federally chartered stock savings bank.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements.
In the opinion of management, the unaudited consolidated financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial condition of First SecurityFed
Financial, Inc. as of March 31, 2000 and December 31, 1999 and the results of
its operations and cash flows for the three month periods ended March 31, 2000
and 1999. The annualized results of operations for the three months ended March
31, 2000 are not necessarily indicative of the results expected in the full year
ending December 31, 2000.
NOTE 2 - SECURITIES
Effective January 1, 2000, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. As permitted by SFAS No.133, the Company
reclassified some of its securities held-to-maturity to securities
available-for-sale. The securities which were reclassified had an amortized cost
of $15,605,733 and a fair value of $15,386,299 at January 1, 2000.
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<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 3 - EARNINGS PER COMMON SHARE
A reconciliation of the numerator and denominator of the earnings per common
share computation for the three month period ended March 31, 2000 and 1999 is
presented below:
<TABLE>
2000 1999
---- ----
<S> <C> <C>
Earnings per common share
Net income attributable to common shareholders $1,427 $1,262
====== ======
Weighted average common shares outstanding 4,723 4,794
Add: shares committed to be issued to charitable foundation 150 200
------ ------
Total weighted average common shares outstanding 4,873 4,994
====== ======
Basic earnings per share $ .29 $ .25
====== ======
</TABLE>
The Company's outstanding stock options and stock awards were not considered in
the computations of diluted earnings per share because the effects of assumed
exercise would have been antidilutive. In future years, outstanding stock
options may be exercised which would increase the weighted average common shares
outstanding and, thereby, dilute earnings per share. In addition, if the average
common stock price were to exceed the exercise price of outstanding options in a
future year, the assumed exercise of the options and/or the assumed issuance of
the stock awards would have a dilutive effect on earnings per share for the
future year. However, previously reported earnings per share and diluted
earnings per share are not restated to reflect change in the status of changes
in the relationship between exercise prices and average stock prices
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<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 4 - CAPITAL REQUIREMENTS
Pursuant to federal regulations, savings institutions must meet two separate
capital requirements. The following is a summary of the Bank's regulatory
capital at March 31, 2000.
<TABLE>
Core Risk based
Capital Capital
------- ----------
(In thousands)
<S> <C> <C>
Regulatory capital $70,691 $72,985
Minimum capital requirement to be considered
adequately capitalized 15,064 14,682
------- -------
Excess regulatory capital over
minimum requirement $55,627 $58,303
======= =======
</TABLE>
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<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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Comparison of Financial Condition at March 31, 2000 and December 31, 1999
Total assets increased $11.9 million to $384.2 million at March 31, 2000 from
$372.3 million at December 31, 1999. The increase in total assets consisted
primarily of increases of $1.6 million in securities, $1.1 million in cash and
cash equivalents, $8.8 million in loans receivable and $400,000 in Federal Home
Loan Bank Stock.
Net loans receivable increased by $8.8 million from $241.2 million at December
31, 1999 to $250.0 million at March 31, 2000. This increase was due to the
disbursement of $1.5 million to fund construction loans and the continuing
market demand due to current economic conditions and the prevailing favorable
interest rate environment.
Securities available-for-sale increased by $15.8 million from $20.6 million at
December 31, 1999 to $36.4 million at March 31, 2000. The increase was primarily
due to the reclassification of $16.6 million of securities from held-to-maturity
to available-for-sale, in connection with the adoption of SFAS No. 133,
partially offset by paydowns on mortgage backed securities.
Securities held-to-maturity decreased by $14.1 million from $92.9 million at
December 31, 1999 to $78.8 million at March 31, 2000. The decrease was primarily
due to the reclassification of $16.6 million in securities from held-to-maturity
to available-for-sale, in connection with the adoption of SFAS No. 133,
partially offset by purchases of federal agency and tax exempt municipal
securities.
Total liabilities at March 31, 2000 were $302.0 million compared to $289.1
million at December 31, 1999, an increase of $12.9 million. Deposits increased
by $5.8 million and Federal Home Loan Bank Advances increased by $7.5 million.
The weighted average term to maturity of the Company's Federal Home Loan Bank
Advances was 4.1 years, with a weighted average term to call of 10 months.
Borrowings were increased in order to fund the continuing demand for loans.
During this same period, accrued interest payable and other liabilities
increased by $800,000. These increases were partially offset by a $1.2 million
decrease in advance payments by borrowers for taxes and insurance due to the
payment of the first installment of taxes during the quarter.
Shareholders' equity at March 31, 2000 was $82.1 million compared to $83.2
million at December 31, 1999, a decrease of $1.1 million. The decrease in equity
was due primarily to the Company's repurchase of outstanding common stock of
$1.9 million partially offset by net income of $1.4 million for the period.
Equity at March 31, 2000 was also impacted by the declaration of a $621,000 cash
dividend on common stock. The dividend was paid to stockholders in April 2000.
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<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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Comparison of Operating Results for the Three Months Ended March 31, 2000 and
March 31, 1999
General
Net earnings for the three months ended March 31, 2000 were $1,427,000, an
increase of $165,000 from net earnings of $1,262,000 for the three months ended
March 31, 1999. The increase in net earnings is primarily attributable to an
increase in net interest income due to increases in the average balances of
assets and liabilities. Income per share also increased during the period as a
result of the increase in net earnings and the Company's repurchases of its
common stock.
Interest Income
Interest income for the three months ended March 31, 2000 was $6.8 million, an
increase of $800,000 from interest income of $6.0 million for the three months
ended March 31, 1999. Interest income on loans increased by $544,000 due to an
increase in the volume of loans receivable. Interest income on securities
increased by $369,000 due to increases in the outstanding balance of the
Company's investment securities portfolio. Interest income on other
interest-earning assets decreased by $141,000 due to decreases in the
outstanding balances of funds invested in overnight fed funds and kept on
deposit in interest bearing accounts with the Federal Home Loan Banks.
Interest Expense
Interest expense for the three months ended March 31, 2000 was $3.2 million
compared to $2.6 million for the three months ended March 31, 1999, an increase
of $600,000. Interest expense on deposits increased by $304,000 due to increases
in the outstanding deposit account balances and the rates paid on those balances
. Interest expense on Federal Home Loan Bank advances also increased by $304,000
due to increases in the balances of Federal Home Loan Bank advances which were
used to fund loan growth.
Provision for Loan Losses
The provision for loan losses for the three months ended March 31, 2000 and
1999 was $62,000.
The amount of the provision and allowance for estimated losses on loans is
influenced by current economic conditions, actual loss experience, industry
trends and other factors, including real estate values, in the Bank's market
area . In addition, various regulatory agencies, as an integral part of their
examination process , periodically review the Bank's allowance for estimated
losses on loans. Such agencies may require the Bank to provide additions to the
allowance based upon judgments which differ from those of management. Although
management uses the best information available and maintains the Bank's
allowance for losses at a level it believes adequate to provide for losses,
future adjustments to the allowance may be necessary due to economic, operating,
regulatory and other conditions that may be beyond the Bank's control.
Noninterest Income
Noninterest income for the three months ended March 31, 2000 was $141,000
compared to $152,000 for the three months ended March 31, 1999. The $11,000
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<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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decrease in non-interest income was due primarily to a $32,000 decrease in the
net gain on the sale of securities which was partially offset by a $21,000
increase in other income. ATM fees and service charges on deposits increased due
to increases in deposits and contributed to the increase in other income.
Noninterest Expense
Noninterest expense for the three months ended March 31, 2000 was $1.5 million
and remained fairly consistent with the three months ended March 31, 1999.
Occupancy and equipment expense increased by $23,000 due to a $30,000 refund for
property taxes being included in the totals for the three months ended March 31,
1999. The increase in the property tax expense was partially offset by decreases
in depreciation expense for the bank's office buildings. Federal deposit
insurance premiums decreased by $20,000 due to the reduced FDIC assessment which
was effective as of January 1, 2000. Professional fees decreased by $21,000 due
to a decrease in legal fees which were paid in 1999 primarily for the reduction
of the bank's taxes.
Income Taxes
Income taxes were $773,000 for the three months ended March 31, 2000 compared to
$735,000 for the three months ended March 31, 1999, an increase of $38,000. The
increase in the provision for income taxes was due to an increase of $203,000 in
pretax earnings.
Liquidity and Capital Resources
The Company's primary resource of funds are deposits and proceeds from principal
and interest payments on loans and mortgage-backed securities. While maturities
and scheduled amortization of loans and securities are predictable sources of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. First Security generally
manages the pricing of its deposits to be competitive and to increase core
deposit relationships.
Liquidity management is both a daily and long-term responsibility of management.
First Security adjusts its investments in liquid assets based upon management's
assessment of (i) expected loan demand, (ii) expected deposit flows, (iii)
yields available on interest-earning deposits and investment securities, and
(iv) the objective of its asset/liability management program. Excess liquid
assets are invested generally in interest-earning overnight deposits and short-
and intermediate-term U.S. government and agency obligations and mortgage-backed
securities of short duration. If First Security requires funds beyond its
ability to generate them internally, it has additional borrowing capacity with
the FHLB of Chicago.
Federal Regulations require First Security to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon economic
conditions and savings flows and is currently 4% of net withdrawable savings
deposits and borrowings payable on demand or in one year or less during the
preceding calendar month. Liquid assets for purposes of this ratio include cash,
certain time deposits, U. S. Government, government agency and corporate
securities and other obligations generally having remaining maturities of less
than five years. First Security has historically maintained its liquidity ratio
for regulatory purposes at levels in excess of those required. At March 31,
2000, First Security's liquidity ratio for regulatory purposes was 10.35%.
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<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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The Company's cash flows are comprised of three primary classifications: cash
flows from operating activities, investing activities and financing activities.
Cash flows provided by operating activities were $2.9 million and $2.3 million
for the three months ended March 31, 2000 and March 31, 1999 respectively. Net
cash from investing activities consisted primarily of disbursements for loan
originations and the purchase of investments and mortgage-backed securities,
offset by principal collections on loans, proceeds from maturation and sales of
securities and paydowns on mortgage-backed securities. Net cash from financing
activities consisted primarily from increases in net deposits and advances from
FHLB of Chicago partially offset by purchases of treasury stock and payment of
dividends in 2000 and 1999.
The Company's most liquid assets are cash and short-term investments. The levels
of these assets are dependent on the Company's operating, financing, lending and
investing activities during any given period . At March 31, 2000, cash and
short-term investments totaled $7.4 million. The Company has other sources of
liquidity if a need for additional funds arises, including securities maturing
within one year and the repayment of loans. The Company may also utilize the
sale of securities available-for-sale and FHLB advances as a source of funds.
At March 31, 2000, the Company had outstanding commitments to originate loans of
$4.1 million, all of which had fixed interest rates. These loans are to be
secured by properties located in its market area. The Company anticipates that
it will have sufficient funds available to meet its current loan commitments.
Loan commitments have, in recent periods, been funded through liquidity or
through FHLB advances. Certificates of deposit which are scheduled to mature in
one year or less from March 31, 2000 totaled $124.6 million. Management
believes, based on past experience, that a significant portion of such deposits
will remain with the Company. Based on the foregoing, in addition to the
Company's high level of core deposits and capital, the Company considers its
liquidity and capital resources sufficient to meet its outstanding short-term
and long-term needs.
First Security is subject to various regulatory capital requirements imposed by
the OTS. At March 31, 2000, First Security was in compliance with all applicable
capital requirements. See Note 4 of the Notes to the Condensed Consolidated
Financial Statements.
Impact Of Inflation and Changing Prices
The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and results of operations in terms
of historical dollars, without considering changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all of the assets and liabilities of the Company are monetary in
nature. Therefore, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. In the current interest rate
environment, the liquidity and maturity structure and quality of the Company's
assets and liabilities are critical to the maintenance of acceptable performance
levels.
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-14-
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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Safe Harbor 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 Bank 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 Bank, are
generally identifiable by use of the words "believe", "expect", "intend",
"anticipate", "estimate", "project" or similar expressions. The Bank's ability
to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which could have a material adverse affect on the
operations and future prospects of the Bank 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 Bank's market area and accounting principles, policies 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 concerning the Company and its business, including additional
factors that could materially affect the Bank's financial results, is included
in the Bank's filings with the Securities and Exchange Commission.
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-15-
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
- --------------------------------------------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In an attempt to manage its exposure to changes in interest rates, management
monitors the Company's interest rate risk. The Board of Directors reviews at
least quarterly the Company's interest rate risk position and profitability. The
Board of Directors also reviews the Company's portfolio, formulates investment
strategies and oversees the timing and implementation of transactions to assure
attainment of the Company's objectives in the most effective manner. In
addition, the Board reviews on a quarterly basis the Company's asset/liability
position, including simulations of the effect on the Company's capital of
various interest rate scenarios.
In managing its asset/liability mix, the Company, depending on the relationship
between long- and short-term interest rates, market conditions and consumer
preference, often places more emphasis on managing short term net interest
margin than on better matching the interest rate sensitivity of its assets and
liabilities in an effort to enhance net interest income. Management believes
that the increased net interest income resulting from a mismatch in the maturity
of its asset and liability portfolios can, during periods of declining or stable
interest rates, provide high enough returns to justify the increased exposure to
sudden and unexpected increases in interest rates.
The Board has taken a number of steps to manage the Company's vulnerability to
changes in interest rates. First, the Company has long used community outreach,
customer service and marketing efforts to increase the Company's passbook and
other non-certificate accounts. At March 31, 2000, $99.8 million or 40.9% of the
Company's deposits consisted of passbook, NOW and money market accounts. The
Company believes that these accounts represent "core" deposits which are
generally somewhat less interest rate sensitive than other types of deposit
accounts. Second, while the Company continues to originate 30 year fixed rate
residential loans for portfolio as a result of consumer demand, an increasing
proportion of the Company's residential loans have terms of 15 years or less or
carry adjustable interest rates. Finally, the Company has focused a significant
portion of its investment activities on securities with adjustable interest
rates or terms of five years or less. At March 31, 2000, $8.8 million or 54.3%
of the Company's mortgage-backed securities had adjustable interest rates or
terms to maturity (or anticipated average lives in the case of collateralized
mortgage obligations) of five years or less and $20.4 million or 20.6% of the
Company's other securities had adjustable interest rates or terms to maturity of
five years or less.
Management utilizes the net portfolio value ("NPV") analysis to quantify
interest rate risk. In essence, this approach calculates the difference between
the present value of liabilities, expected cash flows from assets and cash flows
from off balance sheet contracts. Presented below, as of December 31, 1999, the
latest date for which information is available, is an analysis of the Bank's
estimated interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in interest rates, up and down 300 basis points in 100
point increments. Even though the information presented reflects the Bank's
interest rate risk position at the close of the prior quarter, management
believes that it is helpful in assessing the Bank's current interest rate risk
position.
- --------------------------------------------------------------------------------
-16-
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
- --------------------------------------------------------------------------------
<TABLE>
Assumed Change $ Change in % Change in
In Interest Rates $ Amount NPV NPV
----------------- --------- ------------ ------------
(Basis Points) (Dollars in Thousands)
<S> <C> <C> <C> <C>
+ 300 48,492 (26,478) (35)
+ 200 57,325 (17,645) (24)
+ 100 66,365 (8,605) (11)
---- 74,970 ---- ----
- 100 82,036 7,066 9
- 200 88,452 13,482 18
- 300 94,645 19,675 26
</TABLE>
Certain assumptions utilized in assessing the interest rate risk of thrift
institutions were employed in preparing the preceding table. These assumptions
relate to interest rates, loan prepayment rates, deposit decay rates, and the
market values of certain assets under the various interest rate scenarios. It
was also assumed that delinquency rates will not change as a result of changes
in interest rates although there can be no assurance that this will be the case.
Even if interest rates change in the designated amounts, there can be no
assurance that the Company's assets and liabilities would perform as set forth
above. In addition, a change in U.S. Treasury rates in the designated amounts
accompanied by a change in the shape of the Treasury yield curve would cause
significantly different changes to the NPV than indicated above.
- --------------------------------------------------------------------------------
-17-
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
- --------------------------------------------------------------------------------
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits - Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K - none
- --------------------------------------------------------------------------------
-18-
<PAGE>
FIRST SECURITYFED FINANCIAL, INC.
CHICAGO, ILLINOIS
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST SECURITYFED FINANCIAL, INC
(Registrant)
By: /s/Julian E. Kulas
----------------------------------------
Julian E. Kulas
Principal Executive Officer
May 12, 2000
By: /s/Harry Kucewicz
----------------------------------------
Harry Kucewicz
Chief Financial and Accounting Officer
May 12, 2000
- --------------------------------------------------------------------------------
-19-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from Form 10Q for
the quarter ended March 31, 2000 and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,374
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,376
<INVESTMENTS-CARRYING> 78,755
<INVESTMENTS-MARKET> 75,161
<LOANS> 250,024
<ALLOWANCE> 2,375
<TOTAL-ASSETS> 384,165
<DEPOSITS> 243,941
<SHORT-TERM> 10,500
<LIABILITIES-OTHER> 4,302
<LONG-TERM> 43,300
0
0
<COMMON> 64
<OTHER-SE> 82,058
<TOTAL-LIABILITIES-AND-EQUITY> 384,165
<INTEREST-LOAN> 4,984
<INTEREST-INVEST> 1,755
<INTEREST-OTHER> 63
<INTEREST-TOTAL> 6,802
<INTEREST-DEPOSIT> 2,519
<INTEREST-EXPENSE> 3,207
<INTEREST-INCOME-NET> 3,595
<LOAN-LOSSES> 62
<SECURITIES-GAINS> (13)
<EXPENSE-OTHER> 1,474
<INCOME-PRETAX> 2,200
<INCOME-PRE-EXTRAORDINARY> 2,200
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,427
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 4.17
<LOANS-NON> 0
<LOANS-PAST> 1,492
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,313
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,375
<ALLOWANCE-DOMESTIC> 2,375
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 725
</TABLE>
