<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 March 31, 1995
--------------
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, 1995 was 10,600,729.
==========================================================================
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except for share data)
March 31, December 31,
ASSETS 1995 1994
----------- ------------
<S> <C> <C>
Cash $ 24,072 $ 35,853
Investment securities, held to maturity
(market of $82,046 and $79,316) 85,099 84,052
Loans receivable 3,084,159 3,041,910
Mortgage-backed securities, held to maturity
(market of $835,906 and $791,930) 842,566 821,317
Loans receivable, held for sale (market of
$32,107 and $30,399) 32,107 30,399
Accrued interest and dividends receivable 26,227 24,420
Real estate 15,692 17,081
Office properties and equipment, at
cost less accumulated depreciation 9,070 9,211
Investment in Federal Home Loan Bank
(FHLB) stock, at cost 56,866 56,061
Other assets 23,075 37,110
---------- ----------
$4,198,933 $4,157,414
========== ==========
LIABILITIES
Deposits $2,297,485 $2,298,914
FHLB advances and other borrowings 944,200 913,700
Securities sold under agreements to repurchase 715,654 691,121
Deferred income taxes (574) 6,324
Accrued expenses and other liabilities 55,161 62,668
---------- ----------
4,011,926 3,972,727
---------- ----------
COMMITMENTS AND CONTINGENT
LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share;
authorized 25,000,000 shares; issued
11,395,492 shares; outstanding 10,598,972
shares 114 114
Additional paid-in capital 28,061 28,061
Retained earnings - substantially restricted 171,543 169,186
Loan to employee stock ownership plan (2,879) (2,842)
Treasury stock, at cost, 796,520 shares (9,832) (9,832)
---------- ----------
187,007 184,687
---------- ----------
$4,198,933 $4,157,414
========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except for share data)
Three Months Ended
March 31,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Interest income:
Interest on loans $55,335 $ 44,562
Interest on mortgage-backed securities 11,130 9,000
Interest and dividends on investments 3,261 2,163
------- --------
Total interest income 69,726 55,725
------- --------
Interest expense:
Interest on deposits 25,987 20,274
Interest on borrowings 27,518 11,832
------- --------
Total interest expense 53,505 32,106
------- --------
Net interest income 16,221 23,619
Provision for loan losses 3,000 24,670
------- --------
Net interest income (loss) after
provision for loan losses 13,221 (1,051)
------- --------
Other income (expense):
Loan and other fees 1,591 1,634
Gain (loss) on sale of loans (165) 440
Real estate operations, net 706 382
Other operating income 630 354
------- --------
Total other income 2,762 2,810
------- --------
Non-interest expense 11,677 12,133
------- --------
Earnings (loss) before income taxes 4,306 (10,374)
Income tax provision (benefit) 1,949 (4,259)
------- --------
Net earnings (loss) $ 2,357 $ (6,115)
======= ========
Earnings (loss) per share $ 0.22 $ (0.58)
======= ========
Weighted average shares outstanding
for earnings (loss) per share calculation 10,632,586 10,531,702
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
( In thousands)
Three Months Ended
March 31,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 2,357 $ (6,115)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Provision for loan losses 3,000 24,670
Amortization of fees and discounts (117) (487)
Net change in loans held for sale (2,124) 9,533
Valuation adjustments on real estate sold (227) (2,038)
Increase in interest and dividends
receivable (1,807) (47)
(Increase) decrease in negative amortization (785) 62
Decrease in interest payable (1,796) (2,781)
Increase (decrease) in taxes payable 2,880 (8,226)
Other (1,630) (833)
-------- --------
Net cash provided by (used in)
operating activities (249) 13,738
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers and principal
collections of loans and mortgage-
backed securities (69,213) (62,555)
Loans repurchased (6,342) (2,908)
Loans purchased (30) -
Proceeds from sales of real estate 12,401 14,943
Purchase of investment securities (5,100) (2,247)
Proceeds from maturities and principal payments
on investment securities 4,015 7,648
Other 766 722
-------- --------
Net cash used by investing activities (63,503) (44,397)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in savings deposits (1,429) (23,351)
Net increase in short term borrowings 95,533 52,569
Repayment of long term borrowings (40,500) -
Other (1,633) (150)
-------- --------
Net cash provided by financing activities 51,971 29,068
-------- --------
Net decrease in cash and cash
equivalents (11,781) (1,591)
Cash and cash equivalents at beginning of period 35,853 17,491
-------- --------
Cash and cash equivalents at end of period $ 24,072 $ 15,900
======== ========
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.
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 (loss) per share were computed by dividing net earnings
(loss) 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 (loss) per share calculation were 10,632,586 for the three
months ended March 31, 1995 and 10,531,702 for the three months
ended March 31, 1994.
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
which mature within 90 days or less.
4. The Bank adopted Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No.
114"), as of 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.
Prior to the adoption of SFAS No. 114, the Bank considered the
transfer of specific allowances from general valuation allowances as
"charge-offs." Pursuant to SFAS No. 114, the Bank now considers
these transfers as valuation allowances for impairment.
5
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition
At March 31, 1995, FirstFed Financial Corp. ("Company"), holding company
for First Federal Bank of California and its subsidiaries ("Bank"), had
consolidated assets totaling $4.2 billion, consistent with the level at
December 31, 1994 and 14% higher than the $3.7 billion asset level at
March 31, 1994.
The Bank's primary market area is Los Angeles County. This area of
Southern California has been particularly affected during the recent
economic recession. Many economists believe that California showed
signs of economic recovery during 1994. According to the "UCLA Forecast
for California" ("UCLA Report"), over half of the jobs lost in the state
since 1990 had been regained by the end of 1994. However, the UCLA
Report forecasts that California's economic rebound will continue to
lag behind the rest of the country through 1995, then exceed nationwide
growth in 1996 and 1997. The reasons cited for the state's delayed
recovery include the ongoing restructuring of the aerospace industry,
corporate downsizing, the continued decline in California home prices,
and extraordinary events including the 1992 Los Angeles riots and the
1994 Northridge earthquake.
The Bank's portfolio of loans, including mortgage-backed securities, as
of March 31, 1995 was comparable to the December 31, 1994 level and 15%
greater than at March 31, 1994. All of the mortgage-backed securities
included in the Bank's loan portfolio were originated by the Bank.
Mortgage-backed securities 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 1995 were $116 million,
25% less than the first quarter of 1994 and 39% less than the fourth
quarter of 1994. Loan originations dropped compared to last year due to
the Bank's decision to reduce its multi-family lending beginning in the
fourth quarter of 1994.
The Bank continues to focus on the origination and retention of
adjustable rate mortgages for its portfolio. At March 31, 1995, the
percentage of adjustable rate mortgages in the Bank's loan portfolio was
99.1%. Over 94% of these loans adjust based upon monthly changes in the
Eleventh District Cost of Funds Index ("COFI Index"). Mortgage banking
activity has also been impacted by high interest rates. For mortgage
banking purposes, $2 million in loans were originated and $50 thousand
in loans were sold during the first quarter of 1995. This compares to
$27 million in originations and $36 million in sales for mortgage
banking purposes during the first quarter of 1994.
6
<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
March 31, December 31, March 31,
1995 1994 1994
----------- ------------ -----------
(In thousands)
<S> <C> <C> <C>
REAL ESTATE LOANS:
First trust deed residential loans:
One unit $1,234,351 $1,189,835 $ 875,245
Two to four units 356,450 350,718 347,466
Five or more units 1,352,747 1,357,251 1,336,040
---------- ---------- ----------
Residential loans 2,943,548 2,897,804 2,558,751
OTHER REAL ESTATE LOANS:
Commercial and industrial 239,899 246,340 246,035
Second trust deeds 19,840 20,401 23,297
Other 4,891 7,531 5,758
---------- ---------- ----------
Real estate loans 3,208,178 3,172,076 2,833,841
NON-REAL ESTATE LOANS:
Manufactured housing 2,284 2,439 2,728
Deposit accounts 1,384 1,301 1,105
Consumer 130 184 739
---------- ---------- ----------
Loans receivable 3,211,976 3,176,000 2,838,413
LESS:
General valuation allowances-
loan portfolio 41,193 55,353 41,078
Valuation allowances-
impaired loans 29,956 23,887 24,362
General valuation allowances-
loans sold with recourse (1) - - 5,822
Unrealized loan fees 24,561 24,451 26,096
---------- ---------- ----------
Net loans receivable 3,116,266 3,072,309 2,741,055
FHLMC AND FNMA MORTGAGE-
BACKED SECURITIES:
Secured by single family dwellings 815,864 794,126 670,094
Secured by multi-family dwellings 26,702 27,191 28,463
---------- ---------- ----------
Mortgage-backed securities 842,566 821,317 698,557
---------- ---------- ----------
TOTAL $3,958,832 $3,893,626 $3,439,612
========== ========== ==========
</TABLE>
(1) The Bank began disclosing its general valuation allowance for
loans sold with recourse as a liability starting in June of
1994. These amounts totaled $8,451,000 at March 31, 1995 and
$7,948,000 at December 31, 1994.
7
<PAGE>
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 $478 million or 11.4% of total assets at March 31, 1995.
In comparison, the one year GAP ratio was a positive $518 million or 14.1%
of total assets as of March 31, 1994 and a positive $574 million or 13.8%
of total assets at December 31, 1994. Since the majority of the Bank's
loans are monthly adjustable loans, the Bank's one year GAP position
varies primarily based upon the remaining terms of its savings and
borrowings. The longer the term of the Bank's liabilities, the more
positive the one year GAP. A positive GAP normally benefits a financial
institution in times of increasing interest rates. However, the Bank's net
interest income typically decreases during periods of increasing interest
rates. The Bank's liabilities have shorter terms than the liabilities
which comprise the COFI Index and, historically, its cost of funds has risen
faster than the COFI Index during periods of increasing interest rates.
Additionally, there is a three month time lag before changes in the COFI
Index can be implemented with respect to the Bank's loans.
Deposits remained at the December 31, 1994 level of $2.3 billion at March
31, 1995 due to interest credits which offset $18 million in deposit
outflows. Borrowings increased by $55 million during the first quarter.
See "Sources of Funds."
The Bank's regulatory risk-based capital ratio was 10.4% of risk-weighted
assets as of March 31, 1995 and both its core and tangible capital ratios
were 5.4% of total assets. The minimum ratios required at March 31, 1995
by the Bank's primary regulator, the Office of Thrift Supervision ("OTS"),
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 federal regulation, effective January 1, 1994, requires a financial
institution with an above normal level of interest rate risk to be subject
to a deduction of an interest rate risk component from total capital for
purposes of calculating its risk-based capital requirement. An institution
with greater than "normal" interest rate risk is defined as an institution
that would suffer a loss of net portfolio value exceeding 2% of the estimated
market value of its assets in the event of an immediate and sustained 200
basis point increase or decrease in interest rates. The interest rate risk
component, calculated quarterly, is one-half of the difference between an
institution's measured interest rate risk and 2%, multiplied by the market
value of its assets. The regulation is subject to a "lag" time between the
reporting date of the data used to calculate an institution's interest rate
risk and the effective date of each quarter's interest rate risk component.
The Bank was not required to hold any additional capital as a result of this
regulation as of March 31, 1995, December 31, 1994 or March 31, 1994.
Results of Operations
The Company reported consolidated net earnings of $2.4 million or $0.22 per
share of common stock during the first quarter of 1995 compared to a net
8
<PAGE>
loss of $6.1 million or $0.58 per share for the first quarter of 1994 and net
earnings of $3.0 million or $0.29 per share for the fourth quarter of 1994.
Net earnings improved from the first quarter of the prior year due to a
decline in loan loss provisions which totaled $3 million for the first
quarter of 1995 compared to $25 million for the first quarter of 1994. The
1994 loss provision was due to anticipated write-downs on multi-family loans
and estimated losses resulting from the January 17, 1994 earthquake.
Listed below is a summary of the activity in general loan loss allowances
applicable to the Bank's loan portfolio during the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
---------------------
March 31,
---------------------
(In thousands)
1995 1994 (1)
------- ---------
<S> <C> <C>
Beginning general valuation
allowances $ 55,353 $ 41,078
Provisions for loan losses 3,000 24,670
Charge-offs, net of recoveries:
Single family (2,261) (1,477)
Multi-family (4,043) (8,791)
Commercial 162 113
Non-real estate - (25)
------- -------
Total charge-offs (6,142) (10,180)
Transfers to valuation allowances for
impaired loans (11,018) (14,490)
------- -------
Ending general valuation
allowances $ 41,193 $ 41,078
======== ========
</TABLE>
(1) This analysis was revised to exclude general valuation allowances
for recourse loans which were transferred to a liability account
as of June 30, 1994.
The ratio of general loss allowances to the Bank's assets with loss exposure
(loans and real estate owned) was 1.27% at the end of the first quarter of
1995, compared to 1.43% as of March 31, 1994 and 1.73% as of December 31,
1994. The Bank also maintains an allowance for loans sold with recourse,
recorded as a liability. This allowance was 3.13% of loans sold with
recourse at March 31, 1995, compared to 1.89% at March 31, 1994 and 2.86%
at December 31, 1994. The Bank has a policy of no longer selling loans with
recourse.
Multi-family loans comprised 34% of loans and mortgage-backed securities
as of March 31, 1995. Multi-family property values have been particularly
affected by the economic recession in Southern California. Multi-family
property values have declined due to decreased rental income resulting from
increased vacancies and a general lowering of market rents. Upon
foreclosure, or when a loan becomes a non-accrual loan, the properties
securing the loans are recorded at fair value less the estimated costs to
sell.
9
<PAGE>
As a result of the decline in multi-family property values, write downs on
non-performing multi-family loans and multi-family properties acquired by
foreclosure were required during both periods presented above. Charge-offs
for the first quarter of 1995 dropped slightly compared to the first quarter
of 1994 (after considering charge-offs related to the January 17,1994
earthquake).
Non-interest expenses decreased 4% during the first quarter of 1995 compared
to the first quarter of 1994 due to lower salary, maintenance and advertising
costs. Non-interest expenses increased 17% compared to the fourth quarter of
1994 due to the recovery of annual discretionary compensation in the fourth
quarter.
Real estate operations (primarily the sale and operation of foreclosed
properties) resulted in a net gain of $706 thousand for the first quarter of
1995 compared to a net gain of $382 thousand for the first quarter of 1994.
Gains from real estate operations increased in 1995 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 1995 compared to the first quarter of 1994.
The Bank recorded a loss on the sale of loans of $165 thousand for the first
quarter of 1995 compared to a net gain of $440 thousand for the first quarter
of 1994. Due to a decrease in the market value of loans held for sale, a
valuation allowance totaling $416 thousand was recorded as of March 31, 1995.
Net interest income was $16 million for the first quarter of 1995 compared
to $24 million for the first quarter of 1994 due to the increasing trend in
interest rates over the last year. The Federal Reserve Board has increased
interest rates by 300 basis points since February of 1994. During periods
of increasing interest rates, the Bank's net interest income decreases due
to increased savings and borrowing costs. The Bank's liabilities have
shorter terms than the liabilities which comprise the COFI Index and its
cost of funds increases faster than the COFI Index when interest rates rise.
At the same time, the loan portfolio yield declines or remains the same
until the increase in rates is reflected in the COFI Index. Additionally,
there is a three month time lag before changes in the COFI Index can be
passed on to loan customers.
Interest expense for the first quarter of 1995 includes $1.5 million of
interest expense on the $50 million in 10-year notes issued by the Company
in September of 1994.
10
<PAGE>
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.
<TABLE>
<CAPTION>
During the Three Months Ended March 31, (1)
-------------------------------------------
1995 1994
------------------- -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Average dollar amount of and
average yield earned on:
Loans and mortgage-backed
securities $3,918,794 6.78% $3,433,733 6.24%
Investment securities (2) 173,897 5.47 137,432 4.77
---------- ----------
Interest-earning assets 4,092,691 6.73 3,571,165 6.18
Average dollar amount of and
average rate paid on:
Savings deposits 2,269,302 4.65 2,293,140 3.59
Borrowings 1,760,333 6.30 1,175,657 4.06
---------- ----------
Interest-bearing liabilities 4,029,635 5.37 3,468,797 3.75
---------- ----------
Average dollar difference between
interest-earning assets and
interest-bearing liabilities $ 63,056 $ 102,368
========== ==========
----- -----
Interest rate margin 1.36% 2.43%
===== =====
Effective net margin (3) 1.44% 2.54%
===== =====
</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).
The decline in the average dollar difference between interest-earning assets
and interest-bearing liabilities from March 31, 1994 to March 31, 1995 is
due primarily to losses upon liquidation of foreclosed real estate.
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 allowance for each loan which becomes 90 days or more past due or
is in foreclosure. Loans on which delinquent interest allowances had been
established (non-accrual loans) totaled $114 million at March 31, 1995
compared to $94 million at December 31, 1994 and $107 million at March 31,
1994. The additional amount of interest that would have been earned had
11
<PAGE>
there been no loans 90 days or more delinquent or in foreclosure at March
31, 1995 was $6 million compared to $5 million at December 31, 1994 and $6
million at March 31, 1994.
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. Generally, if the borrower is unable to return to
scheduled principal and interest payments at the end of the modification
period, foreclosure proceedings are initiated. As of March 31, 1995, the
Bank had modified loans totaling $53 million, net of loan loss allowances
totaling $10 million. This compares with $60 million as of December 31,
1994 and $62 million as of March 31, 1994, net of loan loss allowances
totaling $8 million and $6 million, respectively. No modified loans were
90 days or more delinquent as of March 31, 1995.
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 recorded as separate loan allowances and may be
subsequently adjusted based upon changes in the measurement of impairment.
Impaired loans, which are disclosed net of valuation allowances, include
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), modified loans, and major loans less than 90 days delinquent
in which full payment of principal and interest is not expected to be
received.
The following is a summary of impaired loans for the periods indicated, net
of impairment allowances which totaled $30 million as of March 31,1995 and
$24 million for both December 31, 1994 and March 31, 1994:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
---------- ------------ ----------
(In thousands)
<S> <C> <C> <C>
Non-accrual loans $ 39,730 $ 38,004 $ 39,576
Modified loans 39,034 41,635 50,648
Other impaired loans 26,091 28,637 28,976
--------- --------- ---------
$ 104,855 $ 108,276 $ 119,200
========= ========= =========
</TABLE>
The Bank evaluates loans for impairment whenever the collectibility of
contractual principal and interest payments 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 for impairment, including residential mortgage loans,
are not subject to the application of SFAS No. 114.
12
<PAGE>
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 "collateral-dependent" or probable of foreclosure, impairment is
measured based on the fair value of the collateral. When the measure of an
impaired loan is less than the recorded investment in the loan, the Bank
records an impairment allowance equal to the excess of the Bank's recorded
investment in the loan over its measured value. The following summary
details loans measured using the fair value method and loans measured based
on the present value of expected future cash flows discounted at the
effective interest rate of the loan for the periods indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
---------- ----------- ----------
(In thousands)
<S> <C> <C> <C>
Fair value method $ 94,150 $ 77,245 $ 57,889
Present value method 10,705 31,031 61,311
--------- --------- ---------
Total impaired loans $ 104,855 $ 108,276 $ 119,200
========= ========= =========
</TABLE>
Impaired loans for which there were no valuation allowances established
totaled $9 million, $22 million and $62 million as of March 31, 1995,
December 31, 1994, and March 31, 1994, respectively.
Listed below is a summary of the activity in the valuation allowance for
losses applicable to impaired loans during the period indicated (in
thousands):
<TABLE>
<CAPTION>
March 31,
1995
---------
<S> <C>
Beginning valuation allowances for impaired loans $ 23,887
Allocation from general valuation allowances 11,018
Charge-offs, net of recoveries (4,949)
--------
Ending valuation allowances for impaired loans $ 29,956
========
</TABLE>
Cash pyments 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. On certain modified loans where
the Bank does not believe that it will receive all amounts due under the
original contractual loan terms, the Bank records an allowance for interest
received.
The average recorded investment in impaired loans during the quarter ended
March 31, 1995 was $105 million. The amount of interest income recognized
for impaired loans during the quarter ended March 31, 1995 was $1 million
under both the accrual method of accounting and the cash basis method of
accounting.
13
<PAGE>
Prior to SFAS No. 114, the Bank already had a policy of establishing
valuation allowances for all loans deemed probable of foreclosure based on
the fair value of the collateral. Therefore, SFAS No. 114 had only a minor
impact on the Bank's allowance for loan losses.
The table below identifies the Bank's net investment in non-performing loans,
determined to be impaired, by property type at the end of the periods
indicated:
<TABLE>
<CAPTION>
March 31, December, 31 March 31,
1995 1994 1994
---------- ------------ ----------
(In thousands)
<S> <C> <C> <C>
Single Family $ 5,453 $ 2,140 $ 1,725
Multi-Family 24,971 22,696 30,580
Commercial 9,306 13,168 7,271
--------- -------- --------
$ 39,730 $ 38,004 $ 39,576
========= ======== ========
</TABLE>
Asset Quality
Asset Quality Ratios
- --------------------
The following table sets forth certain asset quality ratios of the Bank at
the periods indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
---------- ------------ ---------
<S> <C> <C> <C>
Non-Performing Loans to
Loans Receivable (1) 2.78% 2.39% 2.87%
Non-Performing Assets to
Total Assets (2) 2.49% 2.23% 3.05%
Loan Loss Allowances to
Non-Performing Loans (3) 62.66% 83.87% 61.21%
General Loss Allowances to
Loans Receivable(4) 1.28% 1.74% 1.45%
General Loss Allowances to
Total Loans with Loss
Exposure (5) 1.41% 1.82% 1.48%
</TABLE>
- -----------
(1) Non-performing loans are net of 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 loan loss allowances.
(3) The Bank's loan loss allowances, including valuation allowances for
impaired loans and general valuation allowances but excluding general
valuation allowances for loans sold by the Bank with full or limited
recourse. Non-performing loans are before deducting loan loss
allowances.
(4) The Bank's general valuation allowances, excluding general valuation
allowances for loans sold with full or limited recourse. Loans
receivable exclude mortgage-backed securities and are before deducting
unrealized loan fees and general valuation allowances.
(5) 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 with
recourse.
14
<PAGE>
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 March 31, 1995, December 31, 1994
and March 31, 1994 follows:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
---------- ------------ ----------
(In thousands)
<S> <C> <C> <C>
Real estate owned:
Single family $ 5,421 $ 5,711 $ 11,984
Multi-family 9,598 10,647 17,856
Commercial 319 366 485
Other - - 476
-------- ------- --------
Total real estate owned 15,338 16,724 30,801
-------- ------- --------
Non-performing loans:
Single family 22,410 13,041 23,542
Multi-family 73,916 60,213 69,705
Commercial 16,976 20,986 13,298
Other 246 245 364
Valuation allowances (1) (24,154) (18,596) (25,579)
-------- ------- --------
Total non-performing loans 89,394 75,889 81,330
-------- ------- --------
Total non-performing assets $104,732 $92,613 $112,131
======== ======= ========
</TABLE>
- -------------
(1) Includes both valuation allowances for impairment and loss allowances
on loans analyzed collectively.
Total non-performing assets were 2.49% of total assets at March 31, 1995
compared with 2.23% of total assets at December 31, 1994 and 3.05% of total
assets at March 31, 1994.
The level of real estate owned varies depending on foreclosure activity and
the Bank's ability to sell the foreclosed properties. Both single family
and multi-family foreclosures have increased over the last three years 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. Management remains committed to
selling foreclosed properties promptly after foreclosure while seeking to
achieve the greatest possible recovery. Real estate owned decreased 50%
from the level one year ago and decreased 8% from the level at December
31, 1994. Sales of real estate totaled $12 million for the first quarter
of 1995 compared to $14 million for the first quarter of 1994 and $17 million
for the fourth quarter of 1994. The Bank sold $2 million in real estate
during both the first quarter of 1995 and the fourth quarter of 1994 in
connection with bulk sales of problem assets.
15
<PAGE>
Non-performing loans at March 31, 1995 increased 6% from the level one year
ago due to an increase in delinquent multi-family loans resulting from
higher vacancy rates and lower rents due to the recession. Non-performing
loans increased 20% at March 31, 1995 from the level at December 31, 1994
due to increases in both multi-family and single family delinquencies
greater than 90 days. The Bank sold $30 million in non-performing loans
during the fourth quarter of 1994 in connection with a bulk sale.
The Bank's non-performing assets may increase further depending on the
length and severity of the economic recession.
Sources of Funds
External sources of funds include savings deposits, advances from the
Federal Home Loan Bank of San Francisco ("FHLB"), securitized borrowings
and unsecured term funds.
Savings deposits are accepted from several sources: retail savings branches,
the Bank's telemarketing department, and national deposit brokers. Overall,
savings deposits decreased by $18 million during the first quarter of 1995,
excluding $17 million in interest credits.
Retail deposits decreased by $38 million during the first quarter of 1995
excluding interest credits of $15 million. Deposits decreased due to higher
rates being offered to depositors by other depository institutions. Retail
deposits comprised 64% of total deposits at the end of the first quarter.
Telemarketing deposits decreased by $30 million during the first quarter of
1995, excluding $2 million in interest credits. These deposits, which are
normally large deposits from pension plans and other managed trusts,
comprised 8% of total deposits at the end of the first quarter.
Deposits acquired from national brokerage firms increased by $50 million
during the first quarter of 1995. These deposits, which comprised 28% of
total deposits at the end of the first quarter, were utilized to compensate
for outflows in retail and telemarketing deposits.
Total borrowings increased by $55 million during the first quarter of 1995
due to $25 million in additional borrowings under reverse repurchase
agreements, $20 million in advances from the FHLB, and $10 million in
unsecured term funds.
The cost of funds, operating margins and net earnings of the Bank associated
with brokered and telemarketing deposits are generally comparable to the
cost of funds, operating margins and net earnings 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, the Bank will seek funds from the lowest cost source until
the relative costs change. As the costs of the funds, operating margins
and net earnings of the Bank associated with each source of funds are
16
<PAGE>
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.
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 $45 million
during the first quarter of 1995, a decrease from $65 million during the
first quarter of last year. Due to the higher level of interest rates
during the first quarter of 1995 compared to the first quarter of 1994,
loan prepayments decreased due to a drop in refinance activity.
17
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Unaudited)
a) Exhibits
(4.1) Shareholders' Rights Agreement filed as Exhibit 1 to Form 8-A, dated
November 2,1988 and incorporated by reference.
(4.2) Indenture filed as Exhibit 4 to Amendment No. 3 to Form S-3 dated
September 20,1994 and incorporated by reference.
(10.1) Deferred Compensation Plan filed as Exhibit 10.3 to Form 10-K for the
fiscal year ended December 31, 1983 and incorporated by reference.
(10.2) Bonus Plan filed as Exhibit 10(iii)(A)(2) to Form 10 dated November
2, 1993 and incorporated by reference.
(10.3) Supplemental Executive Retirement Plan dated January 16, 1986 and
filed as Exhibit 10.5 to Form 10-K for the fiscal year ended December
21, 1992 and incorporated by reference.
(11.1) Computation of earnings per share. Part I hereof is incorporated by
reference.
(19.1) Report furnished to security holders. The first quarter report to
stockholders for the period ending March 31, 1995 is included as
pages 20 to 22 herein.
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended March 31,1995.
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: May 15, 1995
By /s/WILLIAM S.MORTENSEN
----------------------
William S. Mortensen
Chairman of the Board
and Chief Executive Officer
By /s/ JAMES P.GIRALDIN
--------------------
James P. Giraldin
Executive Vice President
and Chief Financial Officer
19
<PAGE>
LETTER TO STOCKHOLDERS
May 1, 1995
Dear Stockholder:
I know that not all stockholders were able to attend our Annual Meeting, so
I thought I would provide a brief summary for you. At the meeting, we
announced first quarter earnings of $2.4 million, representing our third
consecutive profitable quarter. Loan loss provisions for the first three
months were $3.0 million - a dramatic reduction from the $24.7 million in
loss provisions made for the same period last year. It is our hope that the
earnings tide is now shifting to a much more positive outlook, and we hope
to continue giving you good news in the months ahead.
We have achieved these recent earnings despite a squeeze on net interest
income. This reduction in our net interest income primarily results from
the lag effect built into all adjustable rate loans. Basically, we pay for
our money on a day-to-day basis, but our loan customers pay on an index that
does not impact their interest rate until three months later. When
interest rates rise rapidly, as they have in the past 12 months, the money
we collect in interest on loans does not keep pace with the funds we pay for
deposits and borrowings. However, we are able to catch up when interest
rates stabilize, as they have recently.
Meanwhile, we have continued to scrutinize all of our operational expenses.
I am pleased to report that these expenses dropped to 1.12% of total assets
for the first quarter from 1.32% for the same quarter of last year. Our
current cost structure makes your company one of the lowest cost producers
in the industry - a factor that will be critical for any financial
institution which expects to effectively compete in the marketplace of the
future.
Despite absorbing major loan losses during the past two years, the Bank's
capital position remains strong and is testimony to the strength of our core
business. At the end of the quarter, we continued to meet all of the
capital requirements necessary to be categorized by federal regulators as
"well capitalized," the highest rating given.
Fundamental to the improvement in our earnings is what appears to be the
brightening picture of the Southern California economy. For example, the
unemployment rate in Los Angeles County, which reached a high of 11.0% early
last year, has now dropped to 8.0%. We are also pleased with the news coming
from respected economists, including the UCLA Economic Forecast. These
economists believe that Southern California will continue to improve
throughout 1995, even though the rest of the country is likely to see a
leveling off in its economic growth rate.
Thus, we are optimistic about the future, tempered with caution about
federal monetary policies. We always strive to take the long view in our
planning - absorbing losses as they occur, finding ways to prevent similar
losses, being proactive in our marketing strategy, and positioning our
balance sheet for profitability in the face of aggressive competition.
We thank you for your continuing loyalty and consideration of FirstFed
Financial Corp. as an investment today and in the years ahead.
Sincerely,
William S. Mortensen
20
<PAGE>
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except for share data)
March 31, December 31,
ASSETS 1995 1994
----------- ------------
<S> <C> <C>
Cash $ 24,072 $ 35,853
Investment securities, held to maturity
(market of $82,046 and $79,316) 85,099 84,052
Loans receivable 3,084,159 3,041,910
Mortgage-backed securities, held to maturity
(market of $835,906 and $791,930) 842,566 821,317
Loans receivable, held for sale (market of
$32,107 and $30,399) 32,107 30,399
Accrued interest and dividends receivable 26,227 24,420
Real estate 15,692 17,081
Office properties and equipment, at
cost less accumulated depreciation 9,070 9,211
Investment in Federal Home Loan Bank
(FHLB) stock, at cost 56,866 56,061
Other assets 23,075 37,110
---------- ----------
$4,198,933 $4,157,414
========== ==========
LIABILITIES
Deposits $2,297,485 $2,298,914
FHLB advances and other borrowings 944,200 913,700
Securities sold under agreements to repurchase 715,654 691,121
Deferred income taxes (574) 6,324
Accrued expenses and other liabilities 55,161 62,668
---------- ----------
4,011,926 3,972,727
---------- ----------
COMMITMENTS AND CONTINGENT
LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share;
authorized 25,000,000 shares; issued
11,395,492 shares; outstanding 10,598,972
shares 114 114
Additional paid-in capital 28,061 28,061
Retained earnings - substantially restricted 171,543 169,186
Loan to employee stock ownership plan (2,879) (2,842)
Treasury stock, at cost, 796,520 shares (9,832) (9,832)
---------- ----------
187,007 184,687
---------- ----------
$4,198,933 $4,157,414
========== ==========
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except for share data)
Three Months Ended
March 31,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Interest income:
Interest on loans $55,335 $ 44,562
Interest on mortgage-backed securities 11,130 9,000
Interest and dividends on investments 3,261 2,163
------- --------
Total interest income 69,726 55,725
------- --------
Interest expense:
Interest on deposits 25,987 20,274
Interest on borrowings 27,518 11,832
------- --------
Total interest expense 53,505 32,106
------- --------
Net interest income 16,221 23,619
Provision for loan losses 3,000 24,670
------- --------
Net interest income (loss) after
provision for loan losses 13,221 (1,051)
------- --------
Other income (expense):
Loan and other fees 1,591 1,634
Gain (loss) on sale of loans (165) 440
Real estate operations, net 706 382
Other operating income 630 354
------- --------
Total other income 2,762 2,810
------- --------
Non-interest expense 11,677 12,133
------- --------
Earnings (loss) before income taxes 4,306 (10,374)
Income tax provision (benefit) 1,949 (4,259)
------- --------
Net earnings (loss) $ 2,357 $ (6,115)
======= ========
Earnings (loss) per share $ 0.22 $ (0.58)
======= ========
Weighted average shares outstanding
for earnings (loss) per share calculation 10,632,586 10,531,702
========== ==========
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated Statements of Operations and Consolidated Statements of
Financial Condition and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000810536
<NAME> FIRSTFED FINANCIAL CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 24,072
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 85,099
<INVESTMENTS-MARKET> 82,046
<LOANS> 3,958,832
<ALLOWANCE> 41,193
<TOTAL-ASSETS> 4,198,933
<DEPOSITS> 2,297,485
<SHORT-TERM> 1,326,154
<LIABILITIES-OTHER> 54,587
<LONG-TERM> 333,700
<COMMON> 114
0
0
<OTHER-SE> 186,893
<TOTAL-LIABILITIES-AND-EQUITY> 4,198,993
<INTEREST-LOAN> 55,335
<INTEREST-INVEST> 14,391
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 69,726
<INTEREST-DEPOSIT> 25,987
<INTEREST-EXPENSE> 53,505
<INTEREST-INCOME-NET> 16,221
<LOAN-LOSSES> 3,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,677
<INCOME-PRETAX> 4,306
<INCOME-PRE-EXTRAORDINARY> 4,306
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,357
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<YIELD-ACTUAL> 1.44
<LOANS-NON> 89,394
<LOANS-PAST> 0
<LOANS-TROUBLED> 48,684
<LOANS-PROBLEM> 32,723
<ALLOWANCE-OPEN> 55,353
<CHARGE-OFFS> 16,657
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 41,193
<ALLOWANCE-DOMESTIC> 41,193
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
