<PAGE>
==========================================================================
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 quarterly period ended September 30, 1994
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from N/A to
---------- ---------
Commission File No. l-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.)
40l Wilshire Boulevard, Santa Monica, California 9040l-l490
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 319-6000
Indicate by check mark whether the Registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act
of l934 during the preceding l2 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 November 1, 1994 was 10,595,072.
==========================================================================
<PAGE>
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
September 30,
1994 December 31,
ASSETS (Unaudited) 1993
------------ -------------
<S> <C> <C>
Cash and cash equivalents $ 20,457 $ 17,491
U.S. Government and other securities, held to
maturity (market of $83,898 and $104,282) 87,344 103,836
Loans receivable 3,013,965 2,692,036
Mortgage-backed securities, held to maturity
(market of $727,322 and $715,726) 746,656 708,283
Loans receivable, held for sale ( market of
$24,162 and $24,030) 24,162 23,627
Accrued interest and dividends receivable 22,629 21,018
Real estate 18,886 27,249
Office properties and equipment, net 9,441 8,923
Investment in Federal Home Loan Bank
stock, at cost 55,361 38,967
Other assets 32,167 19,687
---------- ----------
$4,031,068 $3,661,117
========== ==========
LIABILITIES
Deposits $2,206,294 $2,305,480
Federal Home Loan Bank advances
and other borrowings 1,596,500 1,093,149
Income taxes payable - 16,366
Accrued expenses and other liabilities 47,352 37,830
--------- ---------
3,850,146 3,452,825
--------- ---------
CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share;
authorized 25,000,000 shares; issued
11,385,897 and 11,326,191 shares,
outstanding 10,589,377 and 10,529,671
shares 114 113
Additional paid-in capital 27,506 27,279
Retained earnings - substantially
restricted 166,140 193,650
Loan to employee stock ownership plan (3,006) (2,918)
Treasury stock, at cost, 796,520 shares (9,832) (9,832)
---------- ----------
180,922 208,292
---------- ----------
$4,031,068 $3,661,117
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1994 1993 1994 1993
------- ------- ------ -------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans and mortgage-backed
securities $56,692 $56,680 $162,314 $167,476
Interest and dividends on investments 2,850 2,195 7,333 6,172
------- ------- -------- --------
Total interest income 59,542 58,875 169,647 173,648
------- ------- -------- --------
Interest expense:
Interest on deposits 22,636 19,253 64,175 57,350
Interest on borrowings 18,282 13,333 43,411 41,352
------- ------- -------- --------
Total interest expense 40,918 32,586 107,586 98,702
------- ------- -------- --------
Net interest income 18,624 26,289 62,061 74,946
Provision for loan losses 3,000 11,590 82,700 57,562
------- ------- -------- --------
Net interest income (loss)
after provision for losses 15,624 14,699 (20,639) 17,384
------- ------- -------- --------
Other income:
Loan and other fees 1,820 1,518 5,179 4,859
Gain on sale of loans and mortgage-
backed securities (20) 1,103 504 4,005
Real estate operations, net 1,240 (141) 2,201 (457)
Other operating income 434 484 1,155 1,298
------- ------- -------- --------
Total other income 3,474 2,964 9,039 9,705
------- ------- -------- --------
Non-interest expense 11,653 11,453 35,497 34,350
------- ------- -------- --------
Earnings (loss) before income taxes 7,445 6,210 (47,097) ( 7,261)
Income tax provision (benefit) 3,287 2,581 (19,587) ( 2,816)
------- ------- -------- --------
Net earnings (loss) $ 4,158 $ 3,629 $ (27,510) $ (4,445)
======= ======= ========= ========
Earnings (loss) per share $ 0.39 $ 0.34 $ (2.61) $ (0.43)
======= ======= ========= ========
Weighted average shares outstanding
for earnings per share calculation 10,643,738 10,660,168 10,532,732 10,445,881
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
( In thousands)
Nine Months Ended
September 30,
--------------------------
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (27,510) $ (4,445)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Provision for loan losses 82,700 57,562
Amortization of fees and discounts (1,284) (3,359)
Net change in loans held for sale 1,614 69,993
Valuation adjustments on real estate sold (7,342) (7,499)
(Increase) decrease in interest and
dividends receivable (2,920) 330
Decrease in negative amortization 129 1,847
Decrease in interest payable (550) (3,919)
Change in income taxes (19,814) (4,738)
Other 710 3,845
--------- ----------
Net cash provided by operating activities 25,733 109,617
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers and principal
collections of loans (408,399) (227,219)
Loans repurchased (17,915) (39,887)
Loans purchased (59,166) (95)
Proceeds from sales of real estate 66,181 59,551
Purchase of investment securities (2,348) (71,327)
Proceeds from maturities and principal payments
on investment securities 18,693 7,000
Purchase of FHLB stock (15,085) (2,414)
Other (6,780) 4,486
--------- ----------
Net cash used by investing activities (424,819) (269,905)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in savings deposits (99,186) 143,640
Net increase in short term borrowings 610,851 86,700
Proceeds from long term borrowings 100,000 112,700
Repayment of long term borrowings (207,500) (117,500)
Other (2,113) (5,724)
--------- ----------
Net cash provided by financing activities 402,052 219,816
--------- ----------
Net increase in cash and cash
equivalents 2,966 59,528
Cash and cash equivalents at beginning of period 17,491 23,985
--------- ----------
Cash and cash equivalents at end of period $ 20,457 $ 83,513
========= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
4
<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/A. The
results for the periods covered hereby are not necessarily indicative of
the operating results for a full year.
2. Earnings or loss per share were computed by dividing net earnings or
loss by the weighted average number of shares of common stock
outstanding for the period,plus the effect of stock options,ifdilutive.
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 at the fair value of its collateral. SFAS
No. 114 does not apply to large groups of homogeneous loans that are
collectively reviewed for impairment. For the Bank, loans collectively
reviewed for impairment include all single family loans less than $500
thousand and 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.
5
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition
At September 30, 1994,FirstFed Financial Corp. (the "Company"),holding
company for First Federal Bank of California and its subsidiaries (the
"Bank"),had consolidated assets totaling $4.0 billion, a 10% increase
over the December 31, 1993 level and 10% more than at September 30, 1993.
The increase in assets is due primarily to new loans originated and
purchased which increased to $720.5 million for the first nine months of
1994 from $539.3 million for the first nine months of 1993.
Due to rising interest rates, market demand for adjustable rate mortgages,
which the Bank originates for its own portfolio, improved during the first
nine months of 1994. Substantially all (99.7%) of new loans originated or
purchased during 1994 were adjustable rate mortgages. New loan activity
during the first nine months of the year included $59.1 million in single
family adjustable rate mortgages purchased from another financial
institution. At September 30, 1994, 99.0% of the loan portfolio had
adjustable interest rate provisions. It is management's belief that
adjustable rate mortgages help to maintain net interest income in
fluctuating interest rate environments.
The Bank's portfolio of loans, including mortgage-backed securities,
increased to $3.8 billion at September 30, 1994 from $3.4 billion at
December 31, 1993 and $3.3 billion at September 30, 1993. All of the
mortgage-backed securities included in the Bank's loan portfolio are
collateralized by loans originated by the Bank. Therefore, the mortgage-
backed securities generally have the same experience with respect to
prepayment, repayment, delinquencies and other factors as the remainder of
the Bank's portfolio.
The Bank's management has re-evaluated its policy relating to multi-family
loans as a result of current market conditions and government regulations
relating to risk-based capital requirements applicable to multi-family
loans. Management has determined that current market pricing does not
fully compensate the Bank for the risks and higher costs attendant to such
loans. As a result, starting in October of 1994, the Bank has
substantially reduced its origination of multi- family loans until such
time as market pricing allows for the profitable origination of these loans.
During the first nine months of 1994, the Bank recorded $82.7 million in
loan loss provisions, consisting of $30.6 million for estimated losses
relating to the January 17, 1994 earthquake and $52.1 million to provide
for estimated losses due to the weak Southern California economy and real
estate market. Of the $82.7 million in loan loss provisions mentioned
above, $14.6 million was charged-off as earthquake losses during the first
nine months and $40.1 million was charged-off as economic losses during
the first nine months. Charge-offs were due primarily to losses on multi-
family loans which have been disproportionately affected in the current
recession.
The ratio of non-performing assets to total assets was 3.03% as of September
30, 1994, compared to 3.23% at December 31, 1993 and 3.47% at September
6
<PAGE>
30, 1993. The decrease in the non-performing assets ratio from December 31,
1993 was due to a 31% decline in real estate acquired by foreclosure, and a
10% growth in total assets. The decrease in the ratio from September 30,
1993 was due to a 54% decrease in real estate acquired by foreclosure,
offset by a 33% increase in non-performing loans, before subtracting
specific valuation allowances. The ratio also decreased due to a 10% growth
in total assets. (See "Non-performing Assets.")
The Bank's primary market area is Los Angeles County. This area of Southern
California has been especially affected during the 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).
Despite some reported improvement in the economy, many economists believe
that California, and especially Southern California, will lag behind the
rest of the country during the general nationwide economic recovery.
According to the UCLA Business Forecast for California, September 1994
Report (the "UCLA Report"), the California economy is expected to grow at
an annualized rate of 1% during 1994, well below the state's long term
average of 3%. While many reasons are cited, the primary cause is the
structural changes that have taken place in the defense and aerospace
industries. It is anticipated that the jobs lost in these business
sectors will not be replaced in the foreseeable future and that the lost
jobs will have a indirect effect on other industries, therefore impacting
the state's economic recovery.
The unemployment rate in California, currently 9% according to the UCLA
Report, is nearly three percentage points above the national average.
Although the California unemployment rate is expected to fall to 7% by 1997,
it is expected to remain at least 1% above the national rate according to
the UCLA Report.
According to the UCLA Report, residential building permits in 1994 should
reach the highest level in three years, ending a four year slump. Although
the financial outlook for 1995 through 1997 is favorable for new construction
as well as resale housing, building permits should improve only slightly
from the current levels due to lower levels of migration to the state.
Also, increasing interest rates may be a factor in offsetting the level of
real estate development and sales over the next three years.
7
<PAGE>
The following table shows the components of the Bank's loan portfolio by
type of loan for the periods indicated:
<TABLE>
<CAPTION>
LOAN PORTFOLIO COMPOSITION
- --------------------------
September 30, December 31, September 30,
1994 1993 1993
------------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
REAL ESTATE LOANS:
First trust deed residential loans:
One unit $1,161,556 $ 864,874 $ 829,302
Two to four units 355,977 340,035 335,891
Five or more units 1,331,523 1,296,260 1,246,655
---------- ---------- ----------
Residential loans 2,849,056 2,501,169 2,411,848
OTHER REAL ESTATE LOANS:
Commercial and industrial 239,610 245,387 241,758
Second trust deeds 21,587 24,606 27,613
Other 18,661 5,861 13,263
---------- ---------- ----------
Real estate loans 3,128,914 2,777,023 2,694,482
NON-REAL ESTATE LOANS:
Manufactured housing 2,533 2,880 3,051
Deposit accounts 1,150 1,086 1,269
Consumer 561 847 1,046
---------- ---------- ----------
Loans receivable 3,133,158 2,781,836 2,699,848
LESS:
General valuation allowances-
loan portfolio 69,625 40,669 38,984
General valuation allowances-
loans sold with recourse (1) - 6,231 7,916
Unrealized loan fees 25,406 19,273 25,326
---------- ---------- ----------
Net loans receivable 3,038,127 2,715,663 2,627,622
FHLMC AND FNMA MORTGAGE-
BACKED SECURITIES:
Secured by single family dwellings 719,018 678,884 675,174
Secured by multi-family dwellings 27,638 29,399 30,111
---------- ---------- ----------
Mortgage-backed securities 746,656 708,283 705,285
---------- ---------- ----------
TOTAL $3,784,783 $3,423,946 $3,332,907
========== ========== ==========
(1) Starting in June 30, 1994, this amount, $5,289,000 at September 30,
1994, was reclassified to a liability account.
</TABLE>
8
<PAGE>
The one year GAP ratio (the difference between rate-sensitive assets and
liabilities repricing within one year or less as a percentage of total
assets) was a positive 15.8% at September 30, 1994. Management's goal is
to keep the one year GAP ratio at less than 20% of total assets to further
minimize the Bank's exposure to interest rate risk.
Deposits grew by 4% at September 30, 1994 compared to the level one year
ago due to the acquisition of $113 million in deposits from the Resolution
Trust Corporation in December of 1993. Deposits decreased by 4% from the
December 31, 1993 level due to deposits withdrawn when interest rates on
the acquired deposits were modified to market rates. Also, deposits in the
telemarketing area decreased due to competition from other types of
investments available to telemarketing customers.
Consolidated stockholders' equity decreased to $180.9 million at September
30, 1994 from $208.3 million at December 31, 1993 due primarily to the $27.5
million loss for the first nine months of 1994. In September of 1994,
FirstFed Financial Corp. issued $50 million in 11 3/4% 10-year notes in a
public offering. The notes are due in 2004, but may be redeemed at any
time after October 1,1999 at specified amounts by FirstFed Financial Corp.
The notes are unsecured and unsubordinated. Interest is paid semi-annually.
The projected debt service on the notes is $852 thousand per quarter or
$3.4 million per year, net of tax.
The net proceeds from the notes,$47.8 million, were contributed to the Bank
as capital. As a result, the Bank's risk-based capital ratio rose above
10%. Thrifts with risk-based capital ratios above 10% are considered
"well capitalized" by the Bank's primary regulatory agency, the Office of
Thrift Supervision. At September 30, 1994, the Bank was required to
maintain tangible capital of at least 1.5% of adjusted total assets; core
capital of at least 3% of adjusted total assets; and risk-based capital
of at least 8% of risk-weighted assets. The Bank's core and tangible
capital ratios were both 5.53% as of September 30, 1994, and the
risk-based capital ratio was 10.31% as of the same date.
Results of Operations
The Company reported consolidated net earnings of $4.2 million for the
third quarter of 1994 compared to consolidated net earnings of $3.6 million
for the third quarter of 1993. For the first nine months of 1994, the
Company reported a net loss of $27.5 million compared to a net loss of
$4.4 million for the first nine months of 1993. Year-to-date results for
1994 were impacted by the recording of loan loss provisions totaling $82.7
million for the first nine months of the year. The higher than usual
provisions were due to anticipated losses stemming from the earthquake and
general weakness in the Southern California economy. 1993 results were
impacted by the weak Southern California economy as well. Total provisions
for the first nine months of 1993 totaled $57.6 million, due mostly to a
$44.1 million provision recorded in the first quarter of that year.
Management is unable to predict future levels of loan loss provisions.
Among other things, future loan loss provisions are based on the level of
9
<PAGE>
loan charge-offs and the severity and duration of the economic recession
in Southern California. Management believes that the $30.6 million
provision for losses resulting from the January 1994 earthquake is
sufficient to cover estimated losses thereon. Further provisions for losses
may be necessary due to unforeseen events.
Loan charge-offs, which are primarily transfers from general valuation
allowances to specific reserves for problem assets, continued due to
depressed Southern California real estate values. Charge-offs were $11.4
million and $54.7 million for the third quarter and first nine months of
1994, compared to $17.3 million and $38.5 million for the third quarter
and first nine months of 1993. The specific reserves were to record
loans and foreclosed properties at fair value less estimated costs to sell.
Multi-family loans have been particularly affected in the current economy.
The current recession has caused declines in multi-family property values
due to lower rental income, higher vacancy rates, real estate depreciation,
and lower levels of real estate sales. Upon foreclosure, or when a loan
becomes delinquent 90 days or more, 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 write-downs on non-
performing multi-family loans and multi-family properties acquired by
foreclosure were required.
The Bank maintains two different general valuation allowance accounts: one
for inherent risks in the Bank's own loan portfolio and the other for
risks associated with loans the Bank has sold with recourse (which is
recorded as a liability.) These two allowances, when added together, are
referred to as the "combined GVA" by the Bank.
Listed below is a summary of the activity in the combined GVA and the
associated loan portfolio during the periods indicated (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1994 1993
---------- -----------
<S> <C> <C>
Beginning Balance $ 46,900 $ 27,854
Provision for Loan Losses 82,700 57,562
Charge-Offs:
Single Family (7,896) (6,587)
Multi-Family (43,855) (30,744)
Commercial (2,835) (1,049)
Non-Real Estate (100) (136)
-------- --------
Total Charge-Offs (54,686) (38,516)
-------- --------
Ending Combined General Valuation Allowances $ 74,914 $ 46,900
======== ========
</TABLE>
The ratio of combined general valuation allowances to the Bank's portfolio
of loans with loss exposure and real estate owned was 2.17% at September
30, 1994 compared to 2.57% at June 30, 1994 and 1.50% at September 30,
1993. Management believes that, as of September 30, 1994, the level of
combined general valuation allowances recorded by the Bank was sufficient
to cover estimated losses at that time.
10
<PAGE>
The increasing interest rate trend continued during the third quarter and
first nine months of 1994. Many of the Bank's borrowings have pricing
characteristics which approximate changes in the London Interbank
Overseas Rate ("LIBOR") which responds very quickly to movements in market
interest rates. This has caused the Bank's cost of funds to increase
faster than the Federal Home Loan Bank Eleventh District Cost of Funds
Index ("COFI"). Substantially all of the Bank's loans are adjusted
monthly based on COFI. As a result, the Bank's net interest income
decreased by 29% during the third quarter of 1994 compared to the third
quarter of 1993 and by 17% for the first nine months of 1994 compared
to the first nine months of 1993. The Bank's net interest income also
decreased due to the three month time lag before changes in COFI can be
passed on to loan customers.
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 for the periods
indicated.
<TABLE>
<CAPTION>
During The Nine Months Ended September 30, (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 $ 3,506,748 6.17% $3,322,568 6.72%
Investment securities (2) 143,525 4.89 134,415 4.68
----------- ----------
Interest-earning assets 3,650,273 6.12 3,456,983 6.64
Average dollar amount of and
average rate paid on:
Deposits 2,284,289 3.76 2,018,245 3.80
Borrowings 1,288,785 4.47 1,343,925 4.11
----------- ----------
Interest-bearing liabilities 3,573,074 4.01 3,362,170 3.92
Average dollar difference between
interest-earning assets and
---------- ----------
interest-bearing liabilities $ 77,199 $ 94,813
========== ==========
----- -----
Interest rate spread 2.11% 2.72%
===== =====
Effective net spread (3) 2.19% 2.82%
===== =====
</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 spread 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)
11
<PAGE>
<TABLE>
<CAPTION>
During The Three Months Ended September 30,(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 $ 3,633,745 6.24% $3,322,791 6.82%
Investment securities (2) 153,123 4.98 137,826 4.93
----------- ----------
Interest-earning assets 3,786,868 6.19 3,460,617 6.75
Average dollar amount of and
average rate paid on:
Deposits 2,265,502 3.97 2,078,629 3.68
Borrowings 1,465,343 4.91 1,299,708 4.07
----------- ----------
Interest-bearing liabilities 3,730,845 4.34 3,378,337 3.83
Average dollar difference between
interest-earning assets and
----------- ----------
interest-bearing liabilities $ 56,023 $ 82,280
=========== ==========
----- -----
Interest rate spread 1.85% 2.92%
===== =====
Effective net spread (3) 1.91% 3.01%
===== =====
</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 spread 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)
Real estate operations resulted in net gains of $1.2 million and $2.2
million for the third quarter and first nine months of 1994, respectively.
Gains are due mostly to the recovery of excess valuation allowances
realized upon the sale of foreclosed properties. In comparison, the Bank
recorded net losses of $141 thousand and $457 thousand for the third
quarter and first nine months of 1993, respectively. The losses recorded
during 1993 were mostly attributable to maintenance costs and property
tax payments on foreclosed multi-family properties which exceeded rents
collected during the holding period before the properties were sold.
Sales of loans and mortgage-backed securities resulted in a net loss of
$20 thousand for the third quarter of 1994 and a net gain of $504 thousand
for the first nine months of 1994. During the third quarter of 1993 and
the first nine months of 1993 sales of loans and mortgage-backed securities
resulted in net gains of $1.1 million and $4.0 million, respectively.
Transactions during 1994 were less profitable compared to 1993 due to
volatile secondary market prices as a result of increasing interest rates.
The net gain recorded in the first nine months of 1993 included a gain
of $2.0 million on the sale of a mortgage-backed security which had
previously been identified as held for sale.
12
<PAGE>
Total non-interest expenses were $11.7 million for the third quarter of
1994, comparable to $11.5 million in the third quarter of 1993. Due to
cost control programs in place, expenses were virtually the same as the
second quarter of 1994. Because of asset growth, the ratio of non-
interest expenses to total assets decreased to 1.20% for the third quarter
of 1994 from 1.26% for the third quarter of 1993. Despite the 3% increase
in non-interest expenses for the first nine months of 1994 compared to
the first nine months of 1993, the ratio of non-interest expenses to
total assets dropped to 1.25% in 1994 from 1.28% in 1993 due to asset
growth.
Non-accrual, Past Due, Modified 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 allowance for each loan which becomes 90 days or more past due
or in foreclosure. Loans on which delinquent interest allowances had been
established totaled $131.0 million at September 30, 1994 compared to
$106.1 million at December 31, 1993 and $98.7 million at September 30,
1993.
The additional interest that would have been earned had there been no
loans 90 days or more delinquent or in foreclosure was $6.8 million as
of September 30, 1994 compared to $5.8 million at December 31, 1993 and
$5.0 million at September 30, 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 principal and interest payments at the end of the
modification period, foreclosure procedures are initiated. As of September
30, 1994, the Bank had modified loans totaling $76.1 million. As of that
date, loan loss allowances totaling $6.8 million had been established for
these loans. There were no modified loans 90 days or more delinquent as
of September 30, 1994.
The Bank also restructured certain loans to borrowers who experienced damage
to their properties as a result of the January 1994 earthquake. These
modifications were granted in the months immediately following the
earthquake and were usually for the deferral of three to six months of
loan payments. As of September 30, 1994, the modification period for most
of these loans had ended. The outstanding balance of loans which remain
modified for earthquake reasons as of September 30, 1994 totaled $4.5
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
13
<PAGE>
losses are included in the Bank's provisions for loan losses. At September
30, 1994, the total recorded amount of loans for which impairment has
been recognized in accordance with SFAS No. 114 was $117.1 million (after
deducting $26.4 million of specific loan loss allowances attributable to
such loans). The Bank's impaired loans at September 30, 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 $44.4 million, modified loans of $50.1
million and major loans less than 90 days delinquent in which full payment
of principal and interest is not expected of $22.6 million.
The Bank evaluates loans for impairment whenever the collectability of
contractual principal and interest payments are 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 of years)
discounted at the loan's effective interest rate. However, if the loan is
probable of foreclosure or collateral-dependent, impairment is measured
based on the fair value of the collateral. As of September 30,1994, out
of total impaired loans of $117.1 million, approximately $62.7 million
of loans were measured using the fair value method and $54.4 million of
loans were measured based on the present value of expected future cash
flows discounted at the effective interest rate of the loan. When the
measured value of an impaired loan is less than the recorded investment
in the loan, the Bank records 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.
14
<PAGE>
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.
The table below identifies the Bank's investment in delinquent loans
determined to be impaired loans by property type at September 30, 1994:
<TABLE>
<CAPTION>
At September 30, 1994
---------------------
(In thousands)
<S> <C>
Single Family $ 3,318
Multi-Family 28,383
Commercial 12,736
----------
Total $ 44,437
==========
</TABLE>
Asset Quality
-------------
Asset Quality Ratios
- --------------------
The following table sets forth certain asset quality ratios of the Bank at
the periods indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------ -------------
<S> <C> <C> <C>
Non-Performing Loans to
Loans Receivable (1) 3.31% 3.28% 3.21%
Non-Performing Assets to
Total Assets (2) 3.03% 3.23% 3.47%
Loan Loss Allowances to
Non-Performing Loans (3) 73.95% 52.23% 51.81%
General Loss Allowances to
Total Loans with Loss
Exposure (4) 2.17% 1.48% 1.50%
</TABLE>
- -------------------------
(1) Non-performing loans are net of specific loan loss allowances. Loans
receivable exclude mortgage-backed securities and are computed 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 loans sold by the Bank with full or limited recourse.
Non-performing loans are computed 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. Loans with
loss exposure include the Bank's loan portfolio plus loans sold by the
Bank with full or limited recourse.
15
<PAGE>
The increased ratios of loan loss allowances to non-performing loans and
general loan loss allowances to total loans with loss exposure from
September 30, 1993 to September 30, 1994 reflect the increased loan loss
provisions for estimated losses due to the weak Southern California
economy and real estate market.
Non-performing Assets
The Bank defines non-performing assets as loans delinquent over 90 days
(non-accrual loans), loans in foreclosure and real estate acquired in
settlement of loans.
An analysis of non-performing assets as of September 30, 1994 and 1993 and
December 31, 1993 follows:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------- ------------ ------------
(In thousands)
<S> <C> <C> <C>
Foreclosed real estate owned:
Single family $ 8,851 $10,052 $ 13,594
Multi-family 9,579 16,015 25,547
Commercial 41 327 811
Other 55 484 446
-------- --------- --------
Total foreclosed real estate owned 18,526 26,878 40,398
Delinquent loans over 90 days past due:
Single family 29,981 25,317 26,045
Multi-family 77,555 70,207 65,874
Commercial 23,240 10,307 6,547
Other 271 245 229
Specific valuation allowances (27,289) (14,732) (12,150)
-------- -------- --------
Total delinquent loans 103,758 91,344 86,545
-------- -------- --------
Total non-performing assets $122,284 $118,222 $126,943
======== -------- ========
</TABLE>
The ratio of non-performing assets to total assets was 3.03% at September
30, 1994, compared to 3.23% at December 31, 1993 and 3.47% at September 30,
1993. The decrease from September 30, 1993 to September 30, 1994 was
caused by a 54% drop in foreclosed properties owned by the Bank, offset by a
20% increase in delinquent loans. The increase in specific valuation
allowances is attributable to the increase in non-performing loans and the
continuing decline in the Southern California real estate values.
Management continues to dedicate significant attention to resolving problem
loan situations and disposing of foreclosed properties. The Bank's
management is continuing to explore other ways to reduce the level of its
non-performing assets, including both individual and bulk sales of non-
performing loans and real estate owned. It is presently in the early stages
of negotiation with several bidders on a portion of the portfolio of such
assets. However, there is no assurance that an agreement for the sale of
any such assets will be reached.
The adoption of SFAS No. 114 has had an effect on the comparability of the
non-performing assets information. Certain loans for which specific loan
16
<PAGE>
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 since SFAS No.114 was adopted on
January 1, 1994.
Sources of Funds
----------------
External sources of funds include savings deposits, advances from the
Federal Home Loan Bank of San Francisco ("FHLBSF") and securitized
borrowings.
Savings deposits are obtained from several sources: retail savings
branches, the telemarketing department, and national deposit brokers.
Not including $16.4 million and $47.3 million in interest credits during
the third quarter and first nine months of 1994, respectively, total
savings deposits decreased by $94.5 million during the third quarter
and $146.5 million during the first nine months of 1994.
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 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 $31.3 million during the third quarter and
$56.0 million during the first nine months of 1994. The Bank experienced
outflows of deposits acquired from the Resolution Trust Corporation in
December of 1993, particularly during the first quarter of 1994.
This outflow typically occurs with acquired deposits when the interest
rates, which are typically above market on the date of acquisition,
are adjusted to market rates after the acquisition. Retail deposits
comprised 67% of total deposits at September 30, 1994 compared to 65% of
total deposits at September 30, 1993.
Telemarketing deposits decreased by $26.9 million during the third quarter
of 1994 and $60.0 million during the first nine months of the year.
These deposits, normally large deposits from pension plans and other
managed trusts, decreased due primarily to higher yields available to
investors on alternate investments. Telemarketing deposits comprised 11%
of total deposits at September 30, 1994 compared to 14% of total deposits
at September 30, 1993.
Deposits acquired from national brokerage firms decreased by $36.3 million
during the third quarter of 1994 and $30.5 million for the first nine
months of the year. The Bank has used brokered deposits for nearly 10
years and considers these deposits a stable source of funds. The Bank
has solicited brokered funds based on a waiver obtained from the Federal
Deposit Insurance Corporation ("FDIC"), the insurer of the Bank's deposits.
17
<PAGE>
No waiver is necessary for any period in which the Bank's risk-based
capital meets the regulatory capital standard for "well-capitalized" thrifts.
Since the Bank's risk-based capital ratio exceeded 10% at September 30,
1994, the Bank meets this capital standard and therefore does not now
require a waiver to obtain brokered deposits. As of September 30, 1994,
brokered deposits comprised 22% of total deposits compared to 21% of total
deposits at September 30, 1993. Securitized borrowings under reverse
repurchase agreements increased by $27.5 million during the third quarter
of 1994 and $79.2 million during the first nine of 1994. The amount
outstanding varies depending on the level of available collateral. The
Bank converted $57.0 million and $112.4 million of loans into mortgage-
backed securities during the third quarter and first nine months of
1994, respectively.
FHLBSF advances increased by $290.0 million during the third quarter and
$402.5 million during the first nine months of 1994. The Bank utilized its
borrowing capacity with the FHLBSF during the first nine months of 1994
whenever the collateral available for securitized borrowings was exhausted
and FHLBSF advances were the least costly source of funds.
Internal sources of funds include both principal payments and payoffs on
loans, loan sales, and positive cash flows from operations.
Principal payments include amortization and prepayments which are a function
of real estate activity and the general level of interest rates. Total
principal payments were $69.6 million and $211.3 million, respectively,
for the third quarter and first nine months of 1994. This compares with
$80.4 million and $252.7 million, respectively, for the third quarter and
first nine months of 1993. Principal payments decreased due to higher
interest rates in 1994 compared to 1993 which had the effect of decreasing
loan refinance activity.
Loan sales decreased to $869 thousand for the third quarter and $43.2
million for the first nine months of 1994. This compares with loan sales
of $20.7 million and $129.3 million, respectively for the third quarter
and first nine months of 1993. Activity for the first nine months of 1993
included the second quarter sale of a $70.2 million mortgage-backed security
from the Bank's portfolio of loans and mortgage-backed securities held for
sale. Due to increased interest rates in 1994, the level of loans
originated for sale by the Bank decreased in 1994 compared to 1993.
18
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Unaudited)
a) Exhibits
(4) Instruments defining the rights of security holders, including
indentues. See indenture filed as Exhibit 4 to Amendment No.3
to S-3 dated September 20, 1994 and incorporated by reference.
(11) Computation of earnings per share. Part I hereof is hereby
incorporated by reference.
(19) Reports furnished to security holders. The third quarter letter
to stockholders for the period ended September 30, 1994.
Pages 21 to 28.
b.) Reports on Form 8-K
(1) A report on Form 8-K was filed for the event reported July 29, 1994.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FIRSTFED FINANCIAL CORP.
------------------------
Registrant
Date: November 14, 1994
By /s/ WILLIAM MORTENSEN
---------------------
William S. Mortensen
Chairman of the Board
and Chief Executive Officer
By /s/ JAMES GIRALDIN
------------------
James P. Giraldin
Chief Financial Officer and
Executive Vice President
20
<PAGE>
FirstFed Financial Corp. and Subsidiary
Dear Stockholder:
Your Company is always looking for ways to become more efficient as
part of its ongoing cost control programs. We have found that one way
of reducing costs is to replace the quarterly report to shareholders with
the quarterly earnings releases prepared for public distribution.
Changing the format of the quarterly report to shareholders will save time
and production costs but will not affect the quantity or quality of the
information that you receive. All information previously contained in the
quarterly report to shareholders will be included in the quarterly earnings
releases. You will continue to receive the annual report, typically mailed
with the proxy statement in March.
We thank you for your cooperation and support.
William S. Mortensen
Chairman and CEO
Babette E. Heimbuch
President and COO
21
<PAGE>
October 28, 1994
FIRSTFED REPORTS EARNINGS FOR THE THIRD QUARTER OF 1994
FirstFed Financial Corp., holding company for First Federal Bank of
California, today announced net earnings of $4.2 million or $0.39 per
share of common stock for the third quarter of 1994. For the third quarter
of 1993, the Company reported net earnings of $3.6 million or $0.34 per
share. The increase in quarterly earnings resulted from a decline in loan
loss provisions compared to the third quarter of 1993. The Company recorded
a net loss of $25.6 million or $2.42 per share during the second quarter
of 1994.
For the first nine months of 1994, the Company recorded a year-to-date loss
of $27.5 million or $2.61 per share compared to a net loss of $4.4 million
or $0.43 per share for the first nine months of 1993. The losses recorded
during the first nine months of 1994 reflect the loan loss provisions for
anticipated charge-offs resulting from the January 17, 1994 earthquake
and the anticipated losses from the weak Southern California economy.
Losses recorded during the first nine months of 1993 were principally due
to loan loss provisions resulting from the weak Southern California economy.
The Bank's non-performing assets ratio was 3.03% at September 30, 1994,
a decrease from 3.47% at September 30, 1993 and approximately the same
as the June 30, 1994 level. Sales of foreclosed properties rose to $38.7
million during the third quarter of 1994 from $34.2 million during the third
quarter of 1993. On a year-to-date basis, $92.1 million in real estate was
sold during the first nine months of 1994 compared to $67.9 million during
the first nine months of 1993.
Charge-offs, primarily transfers from general valuation allowances to
specific reserves for problem assets, continued due to the depressed
Southern California real estate values. Charge-offs for the third quarter
of 1994 were $11.4 million, compared to $17.3 million for same quarter of
last year and $18.6 million for the second quarter of 1994. Charge-offs,
including $14.6 million related to the earthquake, were $54.7 million for
the first nine months of 1994, compared to $38.5 million for the first
nine months of 1993.
Due to transfers to specific reserves in the third quarter , the Bank's
general valuation allowances decreased to $69.6 million or 2.19% of the
Bank's portfolio of loans and real estate owned at September 30, 1994 from
$77.0 million or 2.62% at June 30, 1994. General valuation allowances
22
<PAGE>
were $40.7 million or 1.43% at December 31, 1993 and $39.0 million or 1.41%
at September 30, 1993. Additionally, the Bank has valuation allowances,
recorded as a liability, for loans which it has sold with recourse. At
September 30, 1994, these allowances totaled $5.3 million or 1.87% of the
loans sold with recourse. This compares to $6.2 million or 1.97% at
December 31, 1993 and $7.9 million or 2.23% at September 30, 1993.
The Bank implemented Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (SFAS No. 114), as of
January 1, 1994. As of September 30, 1994, the Bank had $117.1 million of
loans which were considered impaired, net of $26.4 million in loan loss
allowances related to such loans. This level compared to $149.0 million,
net at June 30, 1994.
The Bank had an additional $76.1 million in loans on which the principal
and interest payments had been temporarily modified as of September 30,
1994. This compares with temporary modifications of $84.0 million as of
June 30, 1994. These modifications are typically for six to twelve months
and reduce the borrowers' payments to no less than the monthly interest
payment required under the note. As of September 30, 1994, the Bank had
established loan loss allowances of $5.6 million for these loans. These
amounts include loans modified for earthquake-related reasons of $4.5
million as of September 30, 1994 and $26.4 million as of June 30, 1994.
As a result of new loan activity during the third quarter, consolidated
total assets for the Company reached $4.0 billion at September 30, 1994.
New loans were $368.8 million for the third quarter of 1994 compared
to $167.0 million for the third quarter of 1993. The increase in new
loans during the third quarter of 1994 reflects the continuing high
demand for adjustable rate mortgages in the current interest rate
environment. Adjustable rate mortgages were 99.7% of new loans originated
during the third quarter. New loans for the third quarter of 1994
include the purchase of $45.5 million in newly originated single family
adjustable rate mortgages from another financial institution. For the
first nine months of 1994, new loans were $720.5 million compared to $539.3
million for the same period of 1993. New loans for the first nine months
of 1994 include $59.1 million in single family adjustable rate mortgages
which were purchased from another financial institution. The percentage
of adjustable rate mortgages in the Bank's loan portfolio was 98.97% at
September 30, 1994.
The Bank's management has re-evaluated its policy relating to multi-family
loans as a result of current market conditions and governmental regulations
relating to risk-based capital requirements. It was determined that current
23
<PAGE>
market pricing does not fully compensate the Bank for the risks attendant
for such loans. As a result, starting in October of 1994, the Bank has
substantially reduced its origination of multi-family loans until such
time as market pricing allows for the profitable origination of these loans.
Real estate operations, consisting of gains and losses on the sale of
foreclosed properties net of operating expenses, amounted to net gains of
$1.2 million and $2.2 million, respectively, for the third quarter and
first nine months of 1994. This compares with net losses of $141 thousand
and $457 thousand, respectively, for the comparable periods of 1993.
The gains recorded during 1994 resulted from the recovery of valuation
allowances realized upon the sale of foreclosed properties. The losses
recorded during 1993 were attributable to operating costs which exceeded
rents collected during the holding period before the properties were sold.
The net interest margin, the difference between the Bank's yield on
interest-earning assets and its cost of funds, declined to 1.85% in the
third quarter of 1994 from 2.05% in the second quarter of 1994 and 2.92%
in the third quarter of 1993. The decline is due primarily to increasing
interest rates and the lag effect of the Eleventh District Cost of Funds
Index (the "Index") during rising interest rate periods. At September 30,
1994, 93.7% of the Bank's loans are adjustable monthly based on changes
in the Index. Although the Index responds slowly to changes in interest
rates, management believes that its adjustable mortgage portfolio helps
to preserve net interest income during periods of fluctuating interest
rates.
Because management has continued to focus on cost control, non-interest
expenses for the third quarter of 1994 were virtually the same as the second
quarter of 1994. The ratio of non-interest expenses to total assets
decreased to 1.20% for the third quarter of 1994 from 1.26% for the second
quarter of 1994 due to asset growth. The expense ratio for the third
quarter of 1993 was 1.26%. For the first nine months of 1994, the ratio
of non-interest expenses to total assets decreased to 1.25% from 1.28% for
the same period of 1993.
FirstFed successfully completed its issuance of $50 million in 10-year
notes in September of 1994. FirstFed contributed the net proceeds of
approximately $47.8 million to the Bank as capital. As a result, the
Bank's risk-based capital ratio improved to 10.31% of risk-weighted assets
as of September 30, 1994 from 8.71% as of June 30, 1994. A risk-based
capital ratio above 10% is within the "well-capitalized" category of thrifts
according to regulatory rankings.
Mr. William S. Mortensen, Chairman of FirstFed Financial Corp., stated,
24
<PAGE>
"The third quarter results indicate the progress the Bank has made towards
overcoming the economic recession and other events which have affected the
Southern California real estate market over the past few years." Mr.
Mortensen commented further,"The successful completion of our debt offering
allows the Bank to participate in the resurgent adjustable rate loan market
in Southern California and also will allow the Bank to emerge from this
recession positioned to successfully compete in the challenging years
ahead."
25
<PAGE>
<TABLE>
<CAPTION>
KEY FINANCIAL RESULTS ARE HIGHLIGHTED BELOW
(Unaudited)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- --------------------------------
1994 1993 1994 1993
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Net Earnings (Loss) $ 4,158,000 $ 3,629,000 $ (27,510,000) $ (4,445,000)
Earnings (Loss) per Share $ 0.39 $ 0.34 $ (2.61) $ (0.43)
Book Value per Share $ 17.09 $ 19.37 $ 17.09 $ 19.37
Weighted Average Shares
Outstanding 10,643,738 10,660,168 10,532,732 10,445,881
Assets $4,031,068,000 $3,655,587,000 $4,031,068,000 $3,655,587,000
Loans $3,784,783,000 $3,332,907,000 $3,784,783,000 $3,332,907,000
Deposits $2,206,294,000 $2,126,385,000 $2,206,294,000 $2,126,385,000
Borrowings $1,596,500,000 $1,278,141,000 $1,596,500,000 $1,278,141,000
Stockholders' Equity $ 180,922,000 $ 203,263,000 $ 180,922,000 $ 203,263,000
Loan Originations $ 368,814,000 $ 167,007,000 $ 720,479,000 $ 539,338,000
Net Interest Income $ 18,624,000 $ 26,289,000 $ 62,061,000 $ 74,946,000
Real Estate (Foreclosed) $ 18,526,000 $ 40,398,000 $ 18,526,000 $ 40,398,000
Modified Loans (Not Impaired) $ 23,494,000 $ - $ 23,494,000 $ -
Impaired Loans $ 117,096,000 $ - $ 117,096,000 $ -
Non-performing Assets to
Total Assets 3.03% 3.47% 3.03% 3.47%
Net Worth to Assets Ratio 4.49% 5.56% 4.49% 5.56%
Tangible Capital Ratio * 5.53% 5.43% 5.53% 5.43%
Core Capital Ratio * 5.53% 5.43% 5.53% 5.43%
Risk-Based Capital Ratio * 10.31% 9.92% 10.31% 9.92%
Interest Rate Spread During
the Period 1.85% 2.92% 2.11% 2.72%
% Adjustable Mortgages 98.97% 98.25% 98.97% 98.25%
Expense Ratios:
% Gross Income 18.49% 18.52% 19.87% 18.73%
% Average Assets 1.20% 1.26% 1.25% 1.28%
One Year "Gap" % of Assets 15.78% 13.11% 15.78% 13.11%
Return on Average Assets 0.43% 0.40% (0.97%) (0.17%)
Return on Average Equity 9.30% 7.21% (18.85%) (2.89%)
</TABLE>
*First Federal Bank.
26
<PAGE>
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
September 30,
1994 December 31,
ASSETS (Unaudited) 1993
------------ -------------
<S> <C> <C>
Cash and cash equivalents $ 20,457 $ 17,491
U.S. Government and other securities, held to
maturity (market of $83,898 and $104,282) 87,344 103,836
Loans receivable 3,013,965 2,692,036
Mortgage-backed securities, held to maturity
(market of $727,322 and $715,726) 746,656 708,283
Loans receivable, held for sale ( market of
$24,162 and $24,030) 24,162 23,627
Accrued interest and dividends receivable 22,629 21,018
Real estate 18,886 27,249
Office properties and equipment, net 9,441 8,923
Investment in Federal Home Loan Bank
stock, at cost 55,361 38,967
Other assets 32,167 19,687
---------- ----------
$4,031,068 $3,661,117
========== ==========
LIABILITIES
Deposits $2,206,294 $2,305,480
Federal Home Loan Bank advances
and other borrowings 1,596,500 1,093,149
Income taxes payable - 16,366
Accrued expenses and other liabilities 47,352 37,830
--------- ---------
3,850,146 3,452,825
--------- ---------
CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share;
authorized 25,000,000 shares; issued
11,385,897 and 11,326,191 shares,
outstanding 10,589,377 and 10,529,671
shares 114 113
Additional paid-in capital 27,506 27,279
Retained earnings - substantially
restricted 166,140 193,650
Loan to employee stock ownership plan (3,006) (2,918)
Treasury stock, at cost, 796,520 shares (9,832) (9,832)
---------- ----------
180,922 208,292
---------- ----------
$4,031,068 $3,661,117
========== ==========
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1994 1993 1994 1993
------- ------- ------ -------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans and mortgage-backed
securities $56,692 $56,680 $162,314 $167,476
Interest and dividends on investments 2,850 2,195 7,333 6,172
------- ------- -------- --------
Total interest income 59,542 58,875 169,647 173,648
------- ------- -------- --------
Interest expense:
Interest on deposits 22,636 19,253 64,175 57,350
Interest on borrowings 18,282 13,333 43,411 41,352
------- ------- -------- --------
Total interest expense 40,918 32,586 107,586 98,702
------- ------- -------- --------
Net interest income 18,624 26,289 62,061 74,946
Provision for loan losses 3,000 11,590 82,700 57,562
------- ------- -------- --------
Net interest income (loss)
after provision for losses 15,624 14,699 (20,639) 17,384
------- ------- -------- --------
Other income:
Loan and other fees 1,820 1,518 5,179 4,859
Gain on sale of loans and mortgage-
backed securities (20) 1,103 504 4,005
Real estate operations, net 1,240 (141) 2,201 (457)
Other operating income 434 484 1,155 1,298
------- ------- -------- --------
Total other income 3,474 2,964 9,039 9,705
------- ------- -------- --------
Non-interest expense 11,653 11,453 35,497 34,350
------- ------- -------- --------
Earnings (loss) before income taxes 7,445 6,210 (47,097) ( 7,261)
Income tax provision (benefit) 3,287 2,581 (19,587) ( 2,816)
------- ------- -------- --------
Net earnings (loss) $ 4,158 $ 3,629 $ (27,510) $ (4,445)
======= ======= ========= ========
Earnings (loss) per share $ 0.39 $ 0.34 $ (2.61) $ (0.43)
======= ======= ========= ========
Weighted average shares outstanding
for earnings per share calculation 10,643,738 10,660,168 10,532,732 10,445,881
========== ========== ========== ==========
</TABLE>
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