<PAGE>
- - - -----------------------------------------------------------------
- - - -----------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from N/A to
-------- -------
Commission File No. 1-9566
FIRSTFED FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 95-4087449
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Wilshire Boulevard, Santa Monica, California 90401-1490
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310)319-6000
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__
The number of shares of Registrant's $0.01 par value common stock
outstanding as of May 1, 1994 was 10,533,186.
- - - -----------------------------------------------------------------
- - - -----------------------------------------------------------------
<PAGE>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
INDEX TO FORM 10-Q
<TABLE>
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Financial Condition-
March 31, 1994 and December 31, 1993 3
Consolidated Statements of Operations-Three
Months Ended March 31, 1994 and 1993 4
Consolidated Statements of Cash Flows-
Three Months Ended March 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
2
<PAGE>
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 15,900 $ 17,491
U.S. Government and other
securities, at cost
(market of $ 96,867 and $104,282) 98,371 103,836
Loans receivable 2,718,425 2,692,036
Mortgage-backed securities
(market of $679,929 and $715,726) 698,557 708,283
Loans held for sale
(market of $22,840 and $24,030) 22,630 23,627
Accrued interest and dividends
receivable 21,065 21,018
Real estate 31,177 27,249
Office properties and equipment, net 8,938 8,923
Investment in Federal Home Loan Bank
Stock, at cost 39,323 38,967
Other assets 20,083 19,687
---------- ----------
$3,674,469 $3,661,117
========== ==========
LIABILITIES
Deposits $2,282,129 $2,305,480
Federal Home Loan Bank advances
and other borrowings 1,145,718 1,093,149
Income taxes payable 16,592 16,366
Accrued expenses and other
liabilities 27,844 37,830
---------- ----------
3,472,283 3,452,825
---------- ----------
CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01
per share; authorized
25,000,000 shares; issued
11,329,706 and 11,326,191
shares, outstanding 10,533,186
and 10,529,671 shares 113 113
Additional capital 27,315 27,279
Retained earnings -
substantially restricted 187,535 193,650
Loan to employee stock ownership plan (2,945) (2,918)
Treasury stock, at cost,796,520 shares (9,832) (9,832)
---------- ----------
202,186 208,292
---------- ----------
$3,674,469 $3,661,117
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31,
---------
1994 1993
---- ----
<S> <C> <C>
Interest Income:
Interest on loans and mortgage-
backed securities $ 53,562 $ 56,361
Interest and dividends on
investments 2,163 1,886
--------- ---------
Total interest income 55,725 58,247
--------- ---------
Interest expense:
Interest on deposits 20,274 19,168
Interest on borrowings 11,832 14,030
--------- ---------
Total interest expense 32,106 33,198
--------- ---------
Net interest income 23,619 25,049
Provision for loan losses 24,670 44,123
--------- ---------
Net interest income (loss)
after provision for losses ( 1,051) (19,074)
--------- ---------
Other income:
Loan and other fees 1,634 1,791
Gain on sale of loans 440 400
Real estate operations, net 382 143
Other operating income 354 384
--------- ---------
Total other income 2,810 2,718
--------- ---------
Non-interest expense 12,133 11,454
--------- ---------
Loss before income taxes (10,374) (27,810)
Income tax benefit (4,259) (11,408)
--------- ---------
Net loss $ (6,115) $ (16,402)
========= =========
Loss per share $ (0.58) $ (1.57)
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31,
---------
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,115) $ (16,402)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for loan losses 24,670 44,123
Amortization of fees and discounts (289) (214)
Net change to loans held for sale 9,533 (210)
Valuation adjustments on real estate sold (2,038) (2,520)
(Increase) decrease in interest and
dividends receivable (403) 660
Decrease in negative amortization 62 1,175
Decrease in interest payable (2,781) (1,374)
Other (251) 3,805
--------- ----------
Net cash provided by operating activities 22,388 29,043
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers and principal
collections of loans (62,041) (80,221)
Loans repurchased (2,908) (24,239)
Proceeds from sales of real estate 14,943 10,708
Purchase of investment securities (2,247) (22,337)
Proceeds from maturities of
investment securities 7,648 2,000
Other 10 (1,257)
--------- ----------
Net cash used by operating activities (44,595) (115,346)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in savings deposits (23,351) 16,445
Net increase in short term borrowings 52,569 183,670
Net decrease in long term borrowings - (40,000)
Other (8,602) (1,797)
--------- ----------
Net cash provided by financing activities 20,616 158,318
--------- ----------
Net increase (decrease) in cash and cash
equivalents (1,591) 72,015
Cash and cash equivalents at beginning
of quarter 17,491 23,985
--------- ----------
Cash and cash equivalents at end of quarter $ 15,900 $ 96,000
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial statements included herein have been
prepared by the Registrant pursuant to the rules and
regulations of the Securities and Exchange Commission. In
the opinion of the Registrant, all adjustments (which include
only normal recurring adjustments) necessary to present
fairly the results of operations for the periods covered have
been made. Certain information and note disclosures normally
included in financial statements presented in accordance with
generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although
the Registrant believes that the disclosures are adequate to
make the information presented not misleading.
It is suggested that these condensed financial statements be
read in conjunction With the financial statements and the
notes thereto included in the Registrant's latest annual
report on Form 10-K. The results for the periods covered
hereby are not necessarily indicative of the operating
results for a full year.
2. Earnings per share were computed by dividing net income by the
weighted average number of shares of common stock outstanding
for the period plus the effect of dilutive stock options.
Weighted average shares outstanding for the primary earnings
per share calculation were 10,531,702 for the three months
ended March 31, 1994 and 10,417,143 for the three
months ended March 31, 1993.
3. For purposes of reporting cash flows on the "Consolidated
Statement of Cash Flows", cash and cash equivalents include
cash, overnight investments and securities purchased under
agreements to resell.
4. The Bank adopted Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan,"
("SFAS No. 114") effective January 1,1994. SFAS No. 114
requires the measurement of impaired loans based on the
present value of expected future cash flows discounted at the
loan's effective interest rate, or at the loan's observable
market price or the fair value of its collateral. SFAS No.
114 does not apply to large groups of smaller balance
homogeneous loans that are collectively evaluated for
impairment. For the Bank, loans collectively reviewed for
impairment include all single family loans less than $500
thousand and performing multi-family loans less than $750
thousand. The adoption of SFAS No. 114 did not result in
material additions to the Bank's provision for loan losses.
6
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition
At March 31, 1994, FirstFed Financial Corp. (the "Company"),
holding company for First Federal Bank of California and its
subsidiaries (the "Bank"), had consolidated assets totaling
$3.7 billion, consistent with the level at December 31, 1993
and slightly higher than $3.6 billion at March 31, 1993.
The Bank's primary market area is Los Angeles County. This area
of Southern California has been especially affected during the
current economic recession. The metropolitan Los Angeles area
has had the state's largest economic decline with a widely
reported loss of 500,000 jobs from 1990 to 1993. In addition to
the recession, Los Angeles County has experienced civil unrest
(1992), major firestorms (1993) and a devastating earthquake
(1994). Many economists believe that California, and especially
Southern California, will lag behind the rest of the country
during the general nationwide economic recovery. While many
reasons are cited, the primary cause is the structural changes
that have taken place in the defense and aerospace industries.
It is not anticipated that the jobs lost in these business
sectors will be replaced in the foreseeable future.
The Southern California area experienced a substantial earthquake
on January 17, 1994. Of the Bank's $3.8 billion in loans and
loans sold with recourse, $1.1 billion were collateralized by
properties in areas directly affected by the earthquake. The
Bank is still in the process of determining the extent of
possible losses resulting from the earthquake and should know
more about the extent of these possible losses by the end of
the second quarter. The process for owners to obtain property
inspections, receive estimates of repair, and decide on a course
of action can take several months. Also, some borrowers may
have alternative sources of funds or other remedies available to
help offset potential loss exposure to the Bank.
Multi-family and commercial properties above certain dollar
amounts and located in earthquake-impacted areas have been or are
being inspected. Inspections to date show that 56 properties
representing $35 million in loans have sustained significant
cosmetic damage, and 62 properties on loans totaling $39 million
have sustained significant structural damage.
As of March 31, 1994, the Bank, for earthquake-related reasons,
had modified loans totaling $116 million. A typical earthquake-
related modification involves the deferral of payments for
three months.
The Bank's portfolio of loans, including mortgage-backed
securities, as of March 31, 1994 was comparable to the December
31, 1993 level and 4% greater than at March 31, 1993. All of the
mortgage-backed securities included in the Bank's loan portfolio
were originated by the Bank. Mortgage-backed securities
7
<PAGE>
generally have the same experience with respect to prepayment,
repayment, delinquencies and other factors as the remainder of the
Bank's loan portfolio. Loan originations during the first
quarter of 1994 were $155 million, a 17% decrease from the first
quarter of 1993 and a 25% decrease from the fourth quarter of
1993. The earthquake and weak real estate market in Southern
California have contributed to a drop in real estate activity
and, therefore, the demand for loans. Also, the increasing
interest rate trend adversely impacted refinance activity during
the first quarter.
The Bank continues to focus on the origination and retention of
adjustable rate mortgages for its own portfolio. In this
quarter, 83% of the new loan volume was originated for the
Bank's portfolio and the remainder was originated for sale under
the Bank's new mortgage banking program. At March 31, 1994, the
percentage of adjustable rate mortgages in the Bank's loan
portfolio was 98.6%.
The one year GAP ratio (the difference between rate-sensitive
assets and liabilities repricing in one year or less as a
percentage of total assets) was a positive $518 million or 14.1%
of total assets at March 31, 1994. In comparison, the one year
GAP ratio was a positive $458 million or 12.8% of total assets as
of March 31, 1993 and a positive $542 million or 14.8% of total
assets at December 31, 1993. Since the majority of the Bank's
loans are monthly adjustable loans, the Bank's one year GAP
position varies based primarily on the remaining terms of its
savings and borrowings. The longer the borrowing term, the more
positive the one year GAP. A positive GAP normally benefits a
financial institution in times of increasing interest rates.
However, due to the three month time lag before changes in the
Bank's cost of funds can be passed on to its loan customers, the
Bank's net interest income initially decreases when interest
rates increase.
Deposits grew by 14% at March 31, 1994 compared to the level one
year ago due to $113 million in deposits acquired from the
Resolution Trust Corporation in December of 1993. Deposits
decreased by $23 million from the December 31, 1993 level due to
deposit outflows when interest rates on the acquired deposits
were modified to market rates.
The Bank's regulatory risk-based capital ratio was 9.9% of
risk-weighted assets as of March 31, 1994 and its core and
tangible capital ratios were both 5.3% of total assets. Capital
ratios mandated by the Bank's primary regulator, the Office of
Thrift Supervision ("OTS"), at March 31, 1994 were a risk-based
capital ratio of 8% of risk-weighted assets, a core capital ratio
of 3% of total assets and a tangible capital ratio of 1.5% of
total assets.
A regulation adding an interest rate risk component to the
risk-based capital requirement was finalized by the OTS in
September of 1993. The regulation, which became effective
January 1, 1994, requires a financial institution to hold
additional capital to the extent that its net portfolio value
deteriorates greater than 2%, based on a 200 basis point increase
8
<PAGE>
or decrease in interest rates. The amount of additional capital
required to be held is equal to one-half the difference between
an institution's measured exposure to interest rate risk and a
"normal" level of exposure to interest rate risk. A normal level
of interest rate risk is defined as two percent of the estimated
economic value of an institution's assets. The initial
calculation of the new interest rate risk requirement will be
made as of July 1, 1994, based on data as of December 31, 1993.
It is not expected that the Bank will be required to hold
additional capital as a result of this new regulation.
Results of Operations
The Company reported a consolidated net loss of $6.1 million or
$0.58 per share of common stock during the first quarter of 1994
compared to a net loss of $16.4 million or $1.57 per share for
the first quarter of 1993 and net earnings of $2.4 million or
$0.23 per share for the fourth quarter of 1993. The net loss
during the first quarter of 1994 was due to provisions for loan
losses totaling $24.7 million. The provisions resulted
primarily from write-downs taken on multi-family loans.
Multi-family loans have been particularly affected by the
economic recession in Southern California and comprise 38% of the
Bank's loan portfolio. Multi-family property values have been
reduced by decreased rental income resulting from increased
vacancies and a general lowering of market rents. Upon
foreclosure, or when a loan becomes seriously delinquent, the
properties securitizing the loans are recorded at fair value less
the estimated costs to sell. As a result of the decrease
in multi-family property values, larger writedowns on
non-performing multi-family loans and multi-family properties
acquired by foreclosure were required.
Listed below is a summary of the activity in general loan loss
allowances applicable to the Bank's portfolio of loans with loss
exposure during the periods indicated (in thousands):
<TABLE>
<CAPTION>
Three Months ended March 31,
----------------------------
1994 1993
---- ----
<S> <C> <C>
Beginning General Valuation
Allowances $46,900 $ 27,854
Provisions for Loan Losses 24,670 44,123
Charge-offs:
Single Family (1,477) (1,703)
Multi-Family (20,658) (10,625)
Commercial (2,510) (132)
Non-Real Estate (25) -
------- -------
Total Charge-offs (24,670) (12,460)
Ending General Valuation
Allowances $46,900 $ 59,517
======= ========
</TABLE>
9
<PAGE>
As a result of charge-offs taken in the first quarter, the Bank
recorded a $24.7 million loan loss provision during the quarter
to maintain general loss allowances at desired levels as of March
31, 1994. The ratio of general loss allowances to loans with
loss exposure was 1.48% at the end of the first quarter of 1994,
consistent with the ratio as of December 31, 1993. The $44.1
million provision for losses in the first quarter of 1993 was
recorded to increase the overall level of general loan loss
allowances to loans with loss exposure at that time. Included in
the $24.7 million provision for loan losses during the first
quarter of 1994 was $7.5 million provided for properties damaged
by the earthquake on January 17, 1994.
Non-interest expense increased 6% during the first quarter of
1994 compared to the first quarter of 1993 due to normal salary
adjustments, inflation and one savings branch added since last
year. Expenses increased 11% compared to the fourth quarter of
1993 due to lower expenses recorded in the fourth quarter for
annual discretionary compensation expenses due to reduced
earnings.
Real estate operations resulted in a net gain of $382 thousand in
the first quarter of 1994, a net gain of $143 thousand in the
first quarter of 1993, and a net gain of $20 thousand in the
fourth quarter of 1993. The gains resulted primarily from excess
valuation allowances recovered upon the sale of foreclosed
properties. Gains from real estate operations increased in 1994
due to an increase in the percentage of appraised value recovered
upon the sale of foreclosed properties. Also, net operating
expenses on foreclosed properties decreased in the first quarter
of 1994 compared to the 1993 periods.
Net interest income was $24 million for the first quarter of
1994, 6% less than the first quarter of 1993 and 3% greater than
the fourth quarter of 1993. Due to Federal Reserve actions,
interest rates started to increase in the first quarter of 1994.
During periods of increasing interest rates, the Bank's net
interest income initially decreases due to upward pressure on
savings and borrowing costs while the loan portfolio yield
continues to decline. The increase in net interest income
compared to the fourth quarter of 1993 was the result of growth
in average interest-earning assets which offset lower interest
rate margins.
The following table sets forth: (i) the average dollar amounts of
and average yields earned on loans, mortgage-backed securities
and investment securities,(ii) the average dollar amounts of and
average rates paid on savings and borrowings,(iii) the average
dollar differences, (iv) the interest rate spreads, and (v) the
effective net spreads during the periods indicated.
10
<PAGE>
<TABLE>
<CAPTION>
During the Three Months Ended March 31, (1)
--------------------------------------------
1994 1993
-------------------- -------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Average dollar amount of and
average yield earned on:
Loans and mortgage-backed
securities $3,433,733 6.24% $3,316,504 6.80%
Investment securities (2) 137,432 4.77 129,978 4.47
---------- ----------
Interest-earning assets 3,571,165 6.18 3,446,482 6.71
Average dollar amount of and
average rate paid on:
Savings deposits 2,293,140 3.59 1,979,918 3.93
Borrowings 1,175,657 4.06 1,336,135 4.25
--------- ---------
Interest-bearing liabilities 3,468,797 3.75 3,316,053 4.06
Average dollar difference between
interest-earning assets and ---------- ----------
interest-bearing liabilities $ 102,368 $ 130,429
========== ==========
---- ----
Interest rate margin 2.43% 2.65%
==== ====
Effective net margin (3) 2.54% 2.81%
==== ====
</TABLE>
- - - ---------------------------------
(1) Average balances and weighted average rates for the period are
computed based on daily balances.
(2) Does not include Federal Home Loan Bank stock.
(3) The effective net margin is a fraction, the denominator of which
is the average dollar amount of interest-earning assets, and the
numerator of which is net interest income (excluding stock
dividends and miscellaneous interest income).
Non-accrual, Past Due and Restructured Loans
The Bank accrues interest earned but uncollected for every loan
without regard to its contractual delinquency status but
establishes a specific interest reserve for each loan which
becomes 90 days or more past due or in foreclosure. Loans on
which delinquent interest reserves had been established totaled
$107 million at March 31, 1994 compared to $106 million at
December 31, 1993 and $122 million at March 31, 1993. The
additional amount of interest that would have been earned had
there been no loans 90 days or more delinquent or in foreclosure
at March 31, 1994 was $5.8 million which was comparable to the
amounts at December 31, 1993 and March 31, 1993.
The Bank has debt restructurings which result from temporary
modifications of principal and interest payments. Under these
arrangements, loan terms are typically reduced to no less than
a monthly interest payment required under the note. Any loss
of revenues under the modified terms would be immaterial to
the Bank. If the borrower is unable to return to scheduled
11
<PAGE>
principal and interest payments at the end of the modification
period, foreclosure procedures are initiated. As of March 31,
1994, the Bank had modified loans totaling $68.3 million.
The Bank had established loan loss allowances of $6.1 million
for these loans. No modified loans were 90 days or more
delinquent as of March 31, 1994.
The Bank also restructured loans to borrowers with properties
damaged in the Northridge earthquake. A typical earthquake-
related modification involves the deferral of three months'
loan payments. Any loss of revenues under the modified terms
would be immaterial to the Bank. If a borrower is unable to
return to scheduled principal and interest payments at the end
of the modification period, foreclosure procedures are
initiated. As of March 31, 1994, loans modified for earthquake-
related reasons totaled $115.7 million.
At January 1, 1994, the Bank implemented Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" ("SFAS No.114"). Pursuant to SFAS No.
114, the Bank considers a loan to be impaired when management
believes that it is probable that the Bank will be unable to
collect all amounts due under the contractual terms of the loan.
Estimated impairment losses are included in the Bank's specific
loan loss allowances. Subsequent adjustments to estimated
impairment losses are included in the Bank's provisions for loan
losses. At March 31, 1994, the total recorded amount of loans
for which impairment has been recognized in accordance with SFAS
No. 114 was $119.2 million (after deducting $24.4 million of
specific loan loss allowances attributable to such loans). The
Bank's impaired loans at March 31, 1994 were composed of non-
accrual major loans (single family loans with an outstanding
principal amount greater than or equal to $500,000 and multi-
family and commercial real estate loans with an outstanding
principal amount greater than or equal to $750,000) of $39.6
million, modified loans of $50.6 million and major loans less
than 90 days delinquent in which full payment of principal and
interest is not expected of $29.0 million.
The Bank evaluates loans for impairment whenever the
collectability of contractual principal and interest payment is
questionable. A loan is impaired when the collateral property's
undiscounted net operating income (over a holding period not to
exceed 5 years) plus the property's anticipated value at the end
of the period, are less than the estimated debt service payments
over the same period plus the estimated remaining unpaid balance.
Large groups of smaller balance homogenous loans that are
collectively evaluated, including residential mortgage loans, are
not subject to the application of SFAS No. 114.
When a loan is considered impaired the Bank measures impairment
based on the present value of expected future cash flows (over a
period not to exceed 5 years) discounted at the loan's effective
interest rate. However, if the loan is probable of foreclosure,
impairment is measured based on the fair value of the collateral.
As of March 31,1994, out of total impaired loans of $119.2
million, approximately $57.9 million were measured using the fair
value method and $61.3 million were measured based on the present
12
<PAGE>
value of expected future cash flows discounted at the effective
interest rate of the loan. When the measure of an impaired loan
is less than the recorded investment in the loan, the Bank has
recorded a specific loan loss allowance amounting to the excess
of the Bank's recorded investment in the loan over its measured
value.
The present value of an impaired loan's expected future cash
flows will change from one reporting period to the next because
of the passage of time and also may change because of revised
estimates in the amount or timing of those cash flows. The Bank
records the entire change in the present value of the expected
future cash flows as an adjustment to the provision for loan
losses. Similarly, the fair value of the collateral of an
impaired collateral-dependent loan may change from one reporting
period to the next. The Bank records a change in the measure of
these impaired loans as an adjustment to the provision for loan
losses.
Cash payments received from impaired loans are recorded in
accordance with the contractual terms of the loan. The principal
portion of the payment is used to reduce the principal balance of
the loan, whereas the interest portion is recognized as interest
income.
Because the Bank had established specific loan loss allowances
for all loans deemed probable of foreclosure based on the fair
value of the collateral, the adoption of SFAS No. 114 had only a
minor impact on the Bank's allowance for loan losses.
Debt restructurings completed prior to the adoption of SFAS No.
114 were accounted for in accordance with SFAS No. 15. Bank
policy required that when the estimated cash receipts projected
in accordance with the modified terms were less than the recorded
investment in the loan, the recorded investment would be reduced
to an amount equal to these future cash receipts. The amount of
this reduction was required to be recognized as a specific loan
loss allowance. Bank policy also required that if future cash
receipts specified by the new terms exceeded the recorded
investment in the loan, interest income would have been
recognized over the restructuring period using the interest
method. Debt restructurings that are probable of foreclosure
require loss recognition based on the fair value of the
collateral.
13
<PAGE>
The table below identifies the Bank's investment in non-
performing loans determined to be impaired loans by property type
at March 31, 1994:
<TABLE>
<CAPTION>
At March 31, 1994
-----------------
(In thousands)
<S> <C>
Single Family $ 1,725
Multi-Family 30,581
Commercial 7,271
-----------
$ 39,577
==========
Asset Quality
Asset Quality Ratios
- - - --------------------
The following table sets forth certain asset quality ratios of
the Bank at the periods indicated:
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31, March 31,
--------- ------------- ---------
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
Non-Performing Loans to
Total Receivable (1) 2.90% 3.28% 4.05%
Non-Performing Assets to
Total Assets (2) 3.05% 3.23% 3.72%
Loan Loss Allowances to
Non-Performing Loans (3) 62.35% 52.23% 56.45%
General Loss Allowances to
Total Loans with Loss
Exposure (4) 1.48% 1.48% 1.93%
</TABLE>
- - - -------------
(1) Non-performing loans are net of specific loan loss allowances.
Loans receivable exclude mortgage-backed securities and are
before deducting unrealized loan fees and general valuation
allowances.
(2) Non-performing assets are net of specific loan loss allowances.
(3) The Bank's loan loss allowances, including specific loan loss
allowances and general valuation allowances but excluding general
valuation allowances for loan sold by the Bank with full or limited
recourse. Non-performing loans are before deducting specific loan
loss allowances.
(4) The Bank's general valuation allowances, including general valuation
allowances for loans sold with full or limited recourse.
Non-Performing Assets
The Bank defines non-performing assets as loans delinquent over
90 days (non-accrual loans), loans in foreclosure, real estate
acquired in settlement of loans and other loans whose
collectibility is questionable.
14
<PAGE>
An analysis of non-performing assets as of March 31, 1994 and
December 31, 1993 follows:
March 31, December 31,
1994 1993
-------- ------------
(Dollars in thousands)
Foreclosed real estate owned:
Single family $ 11,984 $ 10,052
Multi-family 17,856 16,015
Commercial 485 327
Other 476 484
-------- --------
Total foreclosed real
estate owned 30,801 26,878
Delinquent loans over 90
days past due:
Single family 23,542 25,317
Multi-family 69,705 70,207
Commercial real estate 13,298 10,307
Other 364 245
Specific valuation allowances (25,579) (14,732)
--------- --------
Total delinquent loans 81,330 91,344
-------- --------
Total non-performing assets $112,131 $118,222
======== ========
Ratio of general loan loss
allowance to total
non-performing assets 41.8% 39.7%
==== ====
Total non-performing assets were 3.05% of total assets at March
31, 1994 compared with 3.23% of total assets at December 31, 1993
and 3.72% of total assets at March 31, 1993.
Real estate owned by the Bank increased 18% from the level one
year ago and 15% from the level at December 31, 1993. The
amount of real estate owned by the Bank varies depending on
foreclosure activity and the Bank's ability to sell the
foreclosed properties. Both single family and multi-family
foreclosures have increased in the current economic environment
due to recessionary factors such as layoffs, reduced incomes and
declining real estate values. Multi-family property values
have also been affected by increased vacancy rates and lower
rents collected. Management remains committed to selling
foreclosed properties as quickly as possible. Sales of
foreclosed real estate totaled $18.8 million for the first
quarter of 1994 compared to $14.5 million for the first quarter
of 1993 and $45.2 million for the fourth quarter of 1993.
Non-accrual loans at March 31, 1994 decreased 24% from the level
one year ago and 11% from the level at December 31, 1993. The
decrease in non-accrual loans resulted from specific
15
<PAGE>
valuation allowances to record non-performing loans at the fair
value of the underlying properties less the estimated costs of
selling the properties.
The Bank's non-performing assets may increase further depending
on the length and severity of the economic recession and the
impact of the earthquake on the real estate market in Southern
California.
The Bank's general and specific loan loss allowances (excluding
general valuation allowances for loans sold with full or limited
recourse) increased 27.5% from December 31, 1993 to March 31,
1994. The increase in loan loss allowances is attributable to
the increase in non-performing loans, the overall increase in the
loan portfolio and the continuing decline in the Southern
California real estate market.
The adoption of SFAS No. 114 has had an effect on the
comparability of the non-performing assets table and the general
loan loss allowance information to the extent that certain loans
for which specific loan loss allowances were not previously
required under prior accounting standards are now considered
impaired and thus subject to the establishment of specific loan
loss allowances.
Sources of Funds
External sources of funds include savings deposits, advances from
the Federal Home Loan Bank of San Francisco ("FHLB") and
securitized borrowings.
Savings deposits are accepted from several sources: retail
savings branches, the telemarketing department, and national
deposit brokers. Not considering $16 million in interest
credited during the first quarter of 1994, total savings
decreased by $39 million.
The cost of funds, operating margins and net income of the Bank
associated with brokered and telemarketing deposits are generally
comparable to the cost of funds, operating margins and net income
of the Bank associated with retail deposits, FHLB borrowings and
repurchase agreements. As the cost of each source of funds
fluctuates from time to time, based on market rates of interest
generally offered by the Bank and other depository institutions
and associated costs, the Bank seeks funds from the lowest cost
source until the relative costs change. As the costs of the
funds, operating margins and net income of the Bank associated
with each source of funds are generally comparable, the Bank
does not deem the impact of its use of any one of the specific
sources of funds at a given time to be material.
Retail deposits decreased by 18 million during the first quarter
of 1994 due to a $23 million outflow of deposits acquired from
the Resolution Trust Corporation in December of 1993. Retail
deposits comprised 65% of total deposits at the end of the
first quarter.
16
<PAGE>
Telemarketing deposits increased by $26 million during the first
quarter of 1994. These deposits, which are normally large
deposits from pension plans and other managed trusts, comprised
14% of total deposits at the end of the first quarter.
Deposits acquired from national brokerage firms decreased by $44
million during the first quarter of 1994. These deposits, which
comprised 21% of total deposits at the end of the first quarter,
are accepted pursuant to a waiver from the Federal Deposit
Insurance Corporation.
Total borrowings increased by $53 million during the first
quarter of 1994 due primarily to a $51 million increase in
borrowings under reverse repurchase agreements. Borrowings under
reverse repurchase agreements, which are often the most cost
effective for the Bank, vary depending on the amount of
collateral available. Advances from the Federal Home Loan Bank
Board remained at $515 million during the first quarter of 1994.
Internal sources of funds are principal payments on loans,
payoffs of loans and positive cash flows from operations.
Principal payments include both amortization and prepayments and
are a function of real estate activity and general levels of
interest rates. Total principal payments were $66 million during
the first quarter, down from $82 million during the comparable
period of last year. Due to increasing interest rates during the
first quarter of 1994, loan prepayments decreased due to a drop
in refinance activity compared to the prior year.
17
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Unaudited)
<TABLE>
a) Exhibits
<C> <S>
1) Computation of earnings per share. Part I hereof is
hereby incorporated herein by reference.
2) Report furnished to security holders. The first quarter
report to shareholders for the period ending March 31,
1994. Pages 20 to 25.
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the quarter ended March 31, 1994.
18
<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 thereunto duly authorized.
FIRSTFED FINANCIAL CORP.
(Registrant)
Date: September 7, 1994
By /s/WILLIAM MORTENSEN
--------------------
William S. Mortensen
Chairman of the Board
and Chief Executive Officer
By /s/ JAMES GIRALDIN
------------------
James P. Giraldin
Executive Vice President
and Chief Financial Officer
19
<PAGE>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
FIRST QUARTER REPORT TO STOCKHOLDERS
FOR THE PERIOD ENDED MARCH 31, 1994
20
<PAGE>
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
--------------
March 31, March 31,
1994 1993
--------- ---------
(Dollars in Thousands,
Except Per Share)
<S> <C> <C>
At, Or For The Three Months Ended
Net Loss $ (6,115) $ (16,402)
Net Loss Per Share $ (0.58) $ (1.57)
Common Shares Outstanding 10,533,186 10,432,882
Weighted Average Shares for
Earnings Per Share
Calculation 10,531,702 10,417,143
Book Value Per
Common Share $ 19.20 $ 18.33
Total Loan Volume $ 154,703 $ 186,455
Total Assets $3,674,469 $3,591,073
Total Loans $3,439,612 $3,314,939
Total Deposits $2,282,129 $1,999,190
Total Borrowings $1,145,718 $1,339,911
Net Worth $ 202,186 $ 191,214
Net Interest Income $ 23,619 $ 25,049
Interest Rate Spread During
the Period 2.43% 2.65%
Net Worth to Assets Ratio 5.50% 5.32%
Tangible Capital Ratio 5.31% 5.18%
Core Capital Ratio 5.31% 5.18%
Risk-Based Capital Ratio 9.94% 9.26%
Return on Average Assets (0.67%) (1.86%)
Return on Average Equity (11.92%) (32.91%)
Expense Ratio as a % of
Average Assets 1.32% 1.30%
Non-performing Assets to
Total Assets Ratio 3.05% 3.72%
Adjustable Loans as a % of
Total Loans 98.60% 97.80%
</TABLE>
21
<PAGE>
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
MESSAGE TO STOCKHOLDERS
Dear Stockholder:
The Los Angeles Business Journal recently ran a feature story on
the situation in Southern California as it affected First Federal
Bank. In that story, a leading financial analyst was quoted,
saying, "They have been hit by riots, fires, and the
earthquake... it's like reading the Book of Job." Truer words
were never spoken. The Bank incurred a first quarter loss of
$6.1 million based on despair generated among property owners,
the general economic conditions and specific earthquake damage to
mortgaged properties. At year end 1993 it began to appear that
the real estate delinquency problems were improving. Then the
January 17th earthquake hit the San Fernando Valley and Western
portions of Los Angeles. The earthquake presents special
problems for First Federal since a significant portion of our
loans are located in these areas. As we fully assess the impact
of the earthquake on the general Southern California economy, we
expect to see further charge-offs adversely affecting second
quarter earnings.
The bank's core earnings remain strong. That's good news.
Although the interest rate spread is somewhat below last year's
spread based on changes in money market rates, core earnings for
the first quarter totaled $14.3 million. At the same time,
the bank's expense-to-assets ratio continues to be well below
that of virtually all of our major thrift competitors. In the
long run, our ability to be both a strong marketing company and
a low cost producer positions First Federal very favorably in
the competitive financial environment we face.
Another favorable factor is that over 98% of our loans have
adjustable interest rate provisions. Thus, while there may be
some initial downward pressure on our net interest income because
of rising interest rates, our loan portfolio will eventually
adjust to any upward swing in future money market rates.
Looking to the remainder of 1994, we face several major
challenges. First, we must further expand our efforts in loan
originations. The first steps in that process were taken late in
1993 with the introduction of programs which enable us to offer
our customers both mortgage banking and portfolio products.
Also, market conditions now appear more favorable for the
adjustable rate loans which have been traditionally strong for
our company.
Our program of selling foreclosed properties quickly and at or
near the appraised value must continue. During the first quarter
of 1994, properties in excess of $18.8 million were sold at an
average price which was 99% of the appraised value. If the real
estate market in Southern California improves somewhat in
22
<PAGE>
subsequent months, benefits could accrue to the bank with even
quicker real estate sales and greater yields.
Other areas of the country with much less to offer than Southern
California have demonstrated their ability to recover from
economic troubles. It was not long ago that such cities as
Denver, Phoenix, Dallas and Houston were considered places to
avoid. Today they are considered the places to be. Southern
California has the resources and the diversity to fully recover
from this recession. We believe it is only a question of time.
William S. Mortensen
Chairman and CEO
Babette E. Heimbuch
President and COO
23
<PAGE>
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
March 31, December 31,
1994 1993
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 15,900 $ 17,491
U.S. Government and other
securities, at cost
(market of $ 96,867 and $104,282) 98,371 103,836
Loans receivable 2,718,425 2,692,036
Mortgage-backed securities
(market of $679,929 and $715,726) 698,557 708,283
Loans held for sale
(market of $22,840 and $24,030) 22,630 23,627
Accrued interest and dividends
receivable 21,065 21,018
Real estate 31,177 27,249
Office properties and equipment, net 8,938 8,923
Investment in Federal Home Loan Bank
Stock, at cost 39,323 38,967
Other assets 20,083 19,687
---------- ----------
$3,674,469 $3,661,117
========== ==========
LIABILITIES
Deposits $2,282,129 $2,305,480
Federal Home Loan Bank advances
and other borrowings 1,145,718 1,093,149
Income taxes payable 16,592 16,366
Accrued expenses and other
liabilities 27,844 37,830
---------- ----------
3,472,283 3,452,825
---------- ----------
CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01
per share; authorized
25,000,000 shares; issued
11,329,706 and 11,326,191
shares, outstanding 10,533,186
and 10,529,671 shares 113 113
Additional capital 27,315 27,279
Retained earnings -
substantially restricted 187,535 193,650
Loan to employee stock ownership plan (2,945) (2,918)
Treasury stock, at cost,796,520 shares (9,832) (9,832)
---------- ----------
202,186 208,292
---------- ----------
$3,674,469 $3,661,117
========== ==========
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months Ended
------------------
March 31,
---------
1994 1993
---- ----
<S> <C> <C>
Interest Income:
Interest on loans and mortgage-
backed securities $ 53,562 $ 56,361
Interest and dividends on
investments 2,163 1,886
--------- ---------
Total interest income 55,725 58,247
--------- ---------
Interest expense:
Interest on deposits 20,274 19,168
Interest on borrowings 11,832 14,030
--------- ---------
Total interest expense 32,106 33,198
--------- ---------
Net interest income 23,619 25,049
Provision for loan losses 24,670 44,123
--------- ---------
Net interest income (loss)
after provision for losses ( 1,051) (19,074)
--------- ---------
Other income:
Loan and other fees 1,634 1,791
Gain on sale of loans 440 400
Real estate operations, net 382 143
Other operating income 354 384
--------- ---------
Total other income 2,810 2,718
--------- ---------
Non-interest expense 12,133 11,454
--------- ---------
Loss before income taxes (10,374) (27,810)
Income tax benefit (4,259) (11,408)
--------- ---------
Net loss $ (6,115) $ (16,402)
========= =========
Loss per share $ (0.58) $ (1.57)
========= =========
</TABLE>
25
