<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 June 30, 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. 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 August 1, 1995 was 10,607,245.
=====================================================================
<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)
June 30, December 31, June 30,
ASSETS 1995 1994 1994
--------- ------------ --------
<S> <C> <C> <C>
Cash $ 70,669 $ 35,853 $ 16,738
Investment securities, held to maturity
(market of $88,470 and $79,316) 89,882 84,052 91,719
Loans receivable 3,079,538 3,041,910 2,780,636
Mortgage-backed securities, held to maturity
(market of $863,035 and $791,930) 858,716 821,317 710,767
Loans receivable, held for sale (market of
$33,909 and $30,399) 33,790 30,399 13,125
Accrued interest and dividends receivable 28,473 24,420 20,871
Real estate 15,377 17,081 20,417
Office properties and equipment, net 8,863 9,211 9,700
Investment in Federal Home Loan Bank
(FHLB) stock, at cost 57,484 56,061 39,722
Other assets 20,419 37,110 32,476
----------- ----------- -----------
$ 4,263,211 $ 4,157,414 $ 3,736,171
=========== =========== ===========
LIABILITIES
Deposits $ 2,282,287 $ 2,298,914 $ 2,284,874
FHLB advances and other borrowings 994,600 913,700 515,370
Securities sold under agreements to repurchase 744,797 691,121 715,654
Deferred income taxes - 6,324 -
Accrued expenses and other liabilities 53,134 62,668 43,569
----------- ----------- -----------
4,074,818 3,972,727 3,559,467
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share;
authorized 25,000,000 shares; issued
11,403,765 and 11,395,492 shares, outstanding
10,607,245 and 10,598,972 shares 114 114 114
Additional paid-in capital 28,141 28,061 27,414
Retained earnings - substantially restricted 172,889 169,186 161,982
Loan to employee stock ownership plan (2,919) (2,842) (2,974)
Treasury stock, at cost, 796,520 shares (9,832) (9,832) (9,832)
----------- ----------- -----------
188,393 184,687 176,704
----------- ----------- -----------
$ 4,263,211 $ 4,157,414 $ 3,736,171
============ =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 57,971 $ 43,451 $113,306 $ 88,013
Interest on mortgage-backed securities 14,991 8,609 26,121 17,609
Interest and dividends on investments 3,380 2,320 6,641 4,483
-------- -------- -------- --------
Total interest income 76,342 54,380 146,068 110,105
Interest expense:
Interest on deposits 28,362 21,265 54,349 41,539
Interest on borrowings 29,377 13,297 56,895 25,129
-------- -------- -------- --------
Total interest expense 57,739 34,562 111,244 66,668
-------- -------- -------- --------
Net interest income 18,603 19,818 34,824 43,437
Provision for loan losses 8,203 55,030 11,203 79,700
-------- -------- -------- --------
Net interest income (loss)
after provision for losses 10,400 (35,212) 23,621 (36,263)
-------- -------- -------- --------
Other income:
Loan and other fees 1,719 1,725 3,310 3,359
Gain on sale of loans 426 84 261 524
Real estate operations, net 621 579 1,327 961
Other operating income 485 367 1,115 721
-------- -------- ------- --------
Total other income 3,251 2,755 6,013 5,565
-------- -------- ------- --------
Non-interest expense 11,205 11,711 22,882 23,844
-------- -------- ------- --------
Earnings (loss) before income taxes 2,446 (44,168) 6,752 (54,542)
Income tax provision (benefit) 1,100 (18,615) 3,049 (22,874)
-------- -------- ------- --------
Net earnings (loss) $ 1,346 $(25,553) $ 3,703 $(31,668)
======== ======== ======== ========
Earnings (loss) per share $ 0.13 $ (2.42) $ 0.35 $ (3.01)
======== ======== ======== ========
Weighted average shares outstanding
for earnings (loss) per share calculation 10,679,934 10,541,367 10,663,524 10,536,561
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
----------------------
1995 1994
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 3,703 $ (31,668)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Provision for loan losses 11,203 79,700
Amortization of fees and discounts (411) (876)
Net change in loans held for sale (3,391) 7,119
Valuation adjustments on real estate sold ( 837) (2,782)
(Increase) in interest and
dividends receivable (1,226) (608)
(Increase) decrease in negative amortization (4,959) 147
Decrease in interest payable (5,827) (1,854)
Change in income taxes 4,684 (26,881)
Other (917) 3,269
-------- ---------
Net cash provided by operating activities 2,022 25,566
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers and principal
reduction on loans (122,531) (221,417)
Loans repurchased (13,662) (13,905)
Proceeds from sales of real estate 31,729 38,972
Purchase of investment securities (13,095) (2,247)
Principal reductions on mortgage-backed securities 22,321 46,799
Proceeds from maturities and principal payments
on investment securities 7,237 14,256
Other 2,291 (5,291)
-------- ---------
Net cash used by investing activities (85,710) (142,833)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in savings deposits (16,627) (20,606)
Net increase in short term borrowings 375,076 195,375
Proceeds from long term borrowings - 50,000
Repayment of long term borrowings (240,500) (107,500)
Other 555 (755)
-------- ---------
Net cash provided by financing activities 118,504 116,514
-------- ---------
Net increase (decrease) in cash and cash
equivalents 34,816 (753)
Cash and cash equivalents at beginning of period 35,853 17,491
-------- ---------
Cash and cash equivalents at end of period $ 70,669 $ 16,738
======== =========
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 or loss by the weighted average number of shares
of common stock outstanding for the period, plus the effect
of stock options, if dilutive. Weighted average shares
outstanding for the earnings (loss) per share calculation were
10,679,934 for the three months ended June 30, 1995 and
10,541,367 for the three months ended June 30, 1994. Weighted
average shares outstanding for the earnings (loss) per share
calculation were 10,663,524 for the six-month period ended
June 30, 1995 and 10,536,561 for the six-month period ended
June 30, 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") 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
5
<PAGE>
FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Prior to the adoption of SFAS No. 114, the Bank considered the
transfer of specific allowances from general valuation
allowances to be "charge-offs." Pursuant to SFAS No. 114,
the Bank now considers these transfers as valuation allowances
for impairment.
6
<PAGE>
Item 2. Management's Discussion and Analysis of
-------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Financial Condition
-------------------
At June 30, 1995, FirstFed Financial Corp., (the "Company"),
holding company for First Federal Bank of California and its
subsidiaries (the "Bank"), had consolidated assets totaling $4.3
billion, 3% greater than $4.2 billion at December 31, 1994.
Total assets were 14% higher than the $3.7 billion asset level at
June 30, 1994. This increase was due to growth in loans and
mortgage-backed securities which occurred primarily during the
second half of 1994.
Recent economic data suggests that the California economy, after
showing some signs of improvement at the end of last year,
slowed but did not stall in the first five months of 1995.
According to The UCLA Business Forecast for California, June 1995
Report, (the "UCLA Report"), economic indicators were mixed for
the first five months of 1995. Tax revenues increased indicating
a certain level of economic vitality, yet, unemployment increased
to the level of one year ago. Retail sales, after having
increased throughout 1994, began to slow in 1995. According to
the UCLA Report, California delinquency rates have continued to
improve over the prior year but foreclosure rates are still
increasing.
Real estate activity remained the most depressed sector of the
California economy with residential building permits at the
lowest level in over ten years. The UCLA Report states that the
multi-family housing market remained depressed, accounting for
only 15% of new construction permits in 1995, compared to 45%
which had been the typical for the 30-year period ended in 1992.
According to a recent article in the Los Angeles Times, resales
of single family homes were off over 20% from last year's levels,
despite improved affordability due to moderate interest rates and
lower housing prices. Severe winter storms negatively impacted
the real estate market at the beginning of the year. The article
reported that real estate sales levels have remained low so far
in 1995 due to waning consumer confidence in the California
economy and concerns regarding job security. These factors have
made consumers reluctant to purchase a home or trade up to a more
expensive home. As a result, home prices have continued to fall.
The median price of a single-family home is expected to decrease
3% in 1995 from 1994 levels, according to sources quoted in the
Los Angeles Times article.
The UCLA Report projects that the California economy may improve
in 1997 but may get worse before it gets better. Unemployment is
expected to increase to 9% by the first quarter of 1996 and,
although it may drop back to the current 8% level, the UCLA
Report projects that it will stay at least two percentage points
above the national level until 1997. Further declines in
defense spending, including additional base closures over the
next two years, are expected to cause continued layoffs. Also,
decreases in general manufacturing and persistent weakness in the
real estate market may continue to cause higher unemployment
levels in California.
7
<PAGE>
The recession in California, along with riots, earthquakes and
other natural disasters, has impacted the Company's results over
the last three years. The Bank recorded provisions for loan
losses totaling $8 million for the second quarter of 1995, an
increase from $3 million for the first quarter of 1995 but a
substantial decrease from $55 million for the second quarter of
1994. For the first six months of 1995, provisions for loan
losses were $11 million compared to $80 million for the first six
months of 1994.
Loan charge-offs were $5 million for the second quarter of 1995
compared to $9 million for the second quarter of 1994. For the
first six months of 1995, loan charge-offs were $11 million
compared to $19 million for the first six months of 1994. Charge-
offs were due primarily to losses on multi-family loans which
have been particularly affected in the on-going recession. In
prior periods, transfers to loan allowances for impaired loans
were considered as charge-offs by the Bank. Transfers to the
allowance for impaired loans totaled $4 million and $15 million,
respectively, for the second quarter and first six months of
1995 compared to $10 million and $25 million, respectively, for
the second quarter and first six months of 1994.
The Bank's portfolio of loans, including mortgage-backed
securities, as of June 30, 1995 totaled $4.0 billion, 2% greater
than the December 31, 1994 level. Mortgage-backed securities
generally have the same experience with respect to prepayment,
repayment, delinquencies and other factors as the Bank's loan
portfolio.
The Bank originates primarily single family loans in Southern
California. Most recently, loan originations have been impacted
by the decrease in real estate sales activity due to the
recession. Loan originations decreased by 46% in the first six
months of 1995 compared to the first six months of 1994.
Management decided to de-emphasize the origination of multi-
family loans starting in the fourth quarter of 1994 because
market pricing does not fully compensate the Bank for the risks
associated with this type of lending. This also contributed to
the decrease in loan originations in 1995 compared to 1994.
The ratio of non-performing assets to total assets was 1.99% as
of June 30, 1995, compared to 2.23% at December 31, 1994 and
3.03% at June 30, 1994. Real estate acquired by foreclosure at
June 30, 1995 decreased 24% compared to June 30, 1994 and 9%
compared to December 31, 1994. Loans delinquent greater than 90
days decreased 25% at June 30, 1995 compared to the level one
year ago and 8% compared to the level at December 31, 1994. (See
"Non-performing Assets" for further discussion.)
8
<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
June 30, December 31, June 30,
1995 1994 1994
-------- ------------ --------
(Dollars in thousands)
<S> <C> <C> <C>
REAL ESTATE LOANS:
First trust deed residential loans:
One unit $1,240,590 $1,192,251 $ 944,106
Two to four units 356,510 350,718 350,051
Five or more units 1,349,876 1,357,251 1,356,472
---------- ---------- -----------
Residential loans 2,946,976 2,900,220 2,650,629
OTHER REAL ESTATE LOANS:
Commercial and industrial 231,689 246,340 246,011
Second trust deeds 19,217 20,401 22,072
Other 3,738 4,793 4,826
---------- ---------- ----------
Real estate loans 3,201,620 3,171,754 2,923,538
NON-REAL ESTATE LOANS:
Manufactured housing 2,211 2,439 2,625
Deposit accounts 1,076 1,301 1,278
Consumer 426 506 711
---------- ---------- ----------
Loans receivable 3,205,333 3,176,000 2,928,152
LESS:
General valuation allowances-
loan portfolio 40,852 55,353 77,038
Valuation allowances-
impaired loans 28,398 23,887 31,091
Unrealized loan fees 22,755 24,451 26,262
---------- ---------- ----------
Net loans receivable 3,113,328 3,072,309 2,793,761
FHLMC AND FNMA MORTGAGE-
BACKED SECURITIES:
Secured by single family dwellings 832,899 794,126 682,712
Secured by multi-family dwellings 25,817 27,191 28,055
---------- ---------- ----------
Mortgage-backed securities 858,716 821,317 710,767
---------- ---------- ----------
TOTAL $3,972,044 $3,893,626 $3,504,528
========== ========== ==========
</TABLE>
9
<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 $390 million or
9.14% at the end of the second quarter. In comparison, the one
year GAP ratio was a positive $592 million or 15.89% as of June
30, 1994 and $574 million or 13.81% of total assets as of
December 31, 1994. The positive one year GAP decreased during
the first six months of 1995 due to shortened maturity periods on
certificates of deposit.
Over 94% of the Bank's loans adjust based upon monthly changes in
the Eleventh District Cost of Funds Index ("COFI Index"). Since
the majority of the Bank's loans are adjustable monthly, 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 declines during periods of increasing
interest rates because of the three month time lag before changes
in the COFI Index can be implemented with respect to the Bank's
loans. In order to diversify its loan portfolio, starting in
1995, the Bank began emphasizing the origination of adjustable
rate loans based upon the one month London Interbank Overseas
Rate ("LIBOR").
Deposits, including interest credited, as of June 30, 1995,
remained at $2.3 billion, comparable to the level one year ago
and the level as of December 31, 1994. Borrowings increased to
$1.7 billion as of June 30, 1995, 41% more than the level one
year ago and 8% more than the level at December 31, 1994.
The Company's consolidated stockholders' equity increased to $188
million at June 30, 1995 due to net earnings. The Bank's capital
as of June 30, 1995 exceeded the minimum amounts required by its
primary regulatory agency, the Office of Thrift Supervision
("OTS"). 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 5.4% and the risk-based capital ratio was 10.5%
at June 30, 1995. These ratios meet the OTS' requirements
necessary to be deemed well capitalized.
10
<PAGE>
Results of Operations
---------------------
The Company reported consolidated net earnings of $1.3 million or
$0.13 per share for the second quarter of 1995 and $3.7 million
or $0.35 per share for the first six months of 1995. The Bank
recorded an $8 million provision for loan losses during the
second quarter of 1995 compared to $3 million in each of the
prior two quarters. The increased provision was due to continued
foreclosure activity in the Bank's multi-family loan portfolio.
Net interest income increased in the second quarter over the
first quarter, partially offsetting the higher provision for loan
losses.
The Company reported net losses of $25.6 million or $2.42 per
share and $31.7 million or $3.01 per share for the second quarter
and first six months of 1994, respectively. The losses resulted
from additional provisions estimated losses resulting from the
January 17, 1994 earthquake and continuing charge-offs in the
Bank's multi-family loan portfolio.
Multi-family loans comprised 34% of the loans and mortgage-backed
securities as of June 30, 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.
Management is unable to predict future levels of loan loss
provisions. Among other things, future loan loss provisions are
based on the level of loan charge-offs, transfers to allowances
for impaired loans, foreclosure activity, and the severity and
duration of the economic recession in Southern California.
Loan charge-offs were $5 million for the second quarter of 1995
compared to $9 million for the second quarter of 1994. For the
first six months of 1995, loan charge-offs were $11 million
compared to $19 million for the first six months of 1994. The
lower charge-off levels compared to the prior year resulted
primarily from improvement in non-performing loans and a decrease
in foreclosed real estate. (See "Non-performing Assets" for
further discussion.) Transfers to valuation allowances for
impaired loans were considered as charge-offs in prior periods.
11
<PAGE>
Listed below is a summary of the activity in general valuation
allowances applicable to the Bank's loan portfolio during the
periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1995 1994
----------- -----------
(In thousands)
<S> <C> <C>
Beginning general valuation allowances $ 55,353 $ 41,078
Provision for loan losses 11,203 79,700
Charge-offs, net of recoveries:
Single family (3,025) (4,558)
Multi-family (8,050) (14,341)
Commercial 158 -
Non-real estate (3) (75)
---------- ----------
Total charge-offs (10,920) (18,974)
Transfers to valuation allowances for
impaired loans (14,784) (24,766)
---------- ----------
Ending general valuation allowances $ 40,852 $ 77,038
========== ==========
</TABLE>
The ratio of general valuation allowances to the Bank's assets
(loans and real estate owned) was 1.27% at the end of the second
quarter of 1995, compared to 1.74% as of December 31, 1994 and
2.63% as of June 30, 1994. The Bank also maintains an allowance
for loans sold with recourse, recorded as a liability. This
allowance was 3.23% of loans sold with recourse as of June 30,
1995, compared to 2.86% as of December 31, 1994 and 2.13% as of
June 30, 1994. The balance of loans sold with recourse totaled
$287 million, $305 million and $321 million as of June 30, 1995,
December 31, 1994 and June 30, 1994, respectively.
The Company's net interest income decreased 6% in the second
quarter of 1995 compared to the second quarter of 1994 and 20% in
the first six months of 1995 compared to the first six months of
1994. The Company's interest rate margin declined in the second
quarter and first six months of 1995 compared to the same periods
during 1994 due to increased interest rates. The Federal Reserve
increased interest rates seven times throughout 1994 and the
first quarter of 1995. Interest rates began to moderate in the
second quarter of 1995 and the Company's interest rate margin
improved to 1.66% in the second quarter from 1.36% in the first
quarter.
12
<PAGE>
Interest expense for the second quarter and first six months of
1995 includes $1.5 million and $2.9 million of interest expense,
respectively, on the $50 million in 10-year notes issued by the
Company in September of 1994.
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 Six Months Ended June 30, (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 $ 3,942,472 7.07% $3,443,353 6.14%
Investment securities (2) 175,742 5.57 138,726 4.83
----------- ---------- ----
Interest-earning assets 4,118,214 7.01 3,582,079 6.09
Average dollar amount of and
average rate paid on:
Deposits 2,278,447 4.81 2,293,683 3.65
Borrowings 1,787,679 6.38 1,200,506 4.21
----------- ----------
Interest-bearing liabilities 4,066,126 5.50 3,494,189 3.84
Average dollar difference between
interest-earning assets and ----------- ----------
interest-bearing liabilities $ 52,088 $ 87,890
=========== ==========
----- -----
Interest rate spread 1.51% 2.25%
===== =====
Effective net spread (3) 1.58% 2.34%
===== =====
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
During The Three Months Ended June 30,(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 $3,966,341 7.36% $3,453,952 6.03%
Investment securities (2) 177,587 5.68 140,020 4.88
---------- ----------
Interest-earning assets 4,143,928 7.29 3,593,972 5.99
Average dollar amount of and
average rate paid on:
Deposits 2,287,592 4.97 2,294,226 3.72
Borrowings 1,815,025 6.46 1,225,354 4.35
---------- ----------
Interest-bearing liabilities 4,102,617 5.63 3,519,580 3.94
Average dollar difference between
interest-earning assets and ---------- ----------
interest-bearing liabilities $ 41,311 $ 74,392
========== ==========
----- -----
Interest rate spread 1.66% 2.05%
===== =====
Effective net spread (3) 1.71% 2.13%
===== =====
</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 $621 thousand
and $1.3 million for the second quarter and first six months of
1995, respectively. Gains are mostly the result of recoveries
of excess valuation allowances realized upon the sale of
foreclosed properties. In comparison, the Bank recorded net
gains of $579 thousand and $961 thousand for the second quarter
and first six months of 1994, respectively.
Gain on sale of loans was $426 thousand and $261 thousand,
respectively, for the second quarter and first six months of
1995 compared to $84 thousand and $524 thousand, respectively,
for the second quarter and first six months of 1994. In the
first six months of 1995, the gain varied due primarily to mark
to market adjustments on the Bank's portfolio of loans held for
sale. The lower volume of loans originated for sale was caused
by the reduced levels of real estate sales activity in the
current recession.
Total non-interest expense decreased by 4% during both the
second quarter and first six months of 1995 compared to the
prior year periods. The expense-to-assets ratio was 1.06% of
average assets for the second quarter of 1995, down from 1.26%
for the same quarter of last year. On a six-month comparative
basis, the expense-to-assets ratio was 1.09% for 1995 compared
14
<PAGE>
to 1.29% for 1994. Management maintains ongoing programs to
monitor the level of non-interest expense incurred by the Bank.
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 is in foreclosure. Loans on
which delinquent interest allowances had been established (non-
accrual loans) totaled $92 million at June 30, 1995 compared to
$94 million at December 31, 1994 and $124 million at June 30,
1994.
The additional amount of interest that would have been earned had
there been no loans 90 days or more delinquent or in foreclosure
at June 30, 1995 was $5 million compared to $5 million at
December 31, 1994 and $7 million at June 30, 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 June 30, 1995, the Bank had modified loans totaling $49
million, net of loan loss allowances totaling $7 million. No
modified loans were 90 days or more delinquent as of June 30,
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 valuation 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.
15
<PAGE>
The following is a summary of impaired loans for the periods
indicated, net of impairment allowances which totaled $28
million as of June 30, 1995, $24 million as of December 31, 1994
and $32 million as of June 30, 1994:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
--------- ------------ ---------
(In thousands)
<S> <C> <C> <C>
Non-accrual loans $ 28,674 $ 38,004 $ 53,099
Modified loans 34,632 41,635 58,639
Other impaired loans 34,136 28,637 41,808
--------- --------- ---------
$ 97,442 $ 108,276 $ 153,546
========= ========= =========
</TABLE>
The Bank evaluates loans for impairment whenever the
collectibility of contractual principal and interest payments is
questionable. 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.
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>
June 30, December 31, June 30,
1995 1994 1994
--------- ------------ ---------
(In thousands)
<S> <C> <C> <C>
Fair value method $ 80,260 $ 77,245 $ 71,337
Present value method 17,182 31,031 82,209
--------- --------- ---------
Total impaired loans $ 97,442 $ 108,276 $ 153,546
========= ========= =========
</TABLE>
Impaired loans for which there were no valuation allowances
established totaled $16 million, $22 million and $64 million as
of June 30, 1995, December 31, 1994, and June 30, 1994,
respectively.
16
<PAGE>
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>
June 30,
1995
--------
<S> <C>
Beginning valuation allowances for impaired loans $ 23,887
Allocation from general valuation allowances 14,784
Charges to the allowances (1) (10,273)
---------
Ending valuation allowances for impaired loans $ 28,398
=========
</TABLE>
------------------------------------
(1) Previously, these amounts would have been considered charge-offs
at the time an impairment allowance was established.
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. 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 June 30, 1995 was $94 million. The amount of
interest income recognized for impaired loans during the quarter
ended June 30, 1995 was $2 million under both the accrual method
of accounting and the cash basis method of accounting.
Prior to SFAS No. 114, the Bank had a policy of establishing
valuation allowances for all loans deemed probable of foreclosure
based on the fair value of the collateral. As a result, SFAS No.
114 had only a minor impact on the Bank's allowance for loan
losses.
The table below shows the Bank's net investment in non-performing
loans determined to be impaired, by property type, as of the
periods indicated:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
-------- ------------ --------
(In thousands)
<S> <C> <C> <C>
Single family $ 4,593 $ 2,140 $ 1,535
Multi-family 19,491 22,696 36,849
Commercial 4,590 13,168 14,715
-------- -------- --------
$ 28,674 $ 38,004 $ 53,099
======== ======== ========
</TABLE>
17
<PAGE>
Asset Quality
-------------
Asset Quality Ratios
--------------------
The following table sets forth certain asset quality ratios of
the Bank at the periods indicated:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
-------- ------------ --------
<S> <C> <C> <C>
Non-Performing Loans to
Loans Receivable (1) 2.18% 2.39% 3.18%
Non-Performing Assets to
Total Assets (2) 1.99% 2.23% 3.03%
Loan Loss Allowances to
Non-Performing Loans (3) 68.52% 78.27% 87.15%
General Loss Allowances to
Loans Receivable and
Real Estate Owned (4) 1.27% 1.74% 2.63%
General Loss Allowances to
Total Loans with Loss
Exposure (5) 1.41% 1.82% 2.57%
</TABLE>
------------------------------------
(1) Non-performing loans are net of valuation allowances related to
those loans. Loans receivable exclude mortgage-backed securities
and are before deducting unrealized loan fees, general valuation
allowances and valuation allowances for impaired loans.
(2) Non-performing assets are net of valuation allowances related to
those assets.
(3) The Bank's loan loss allowances, including valuation allowances
for non-performing 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 valuation allowances related to those loans.
(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, general valuation
allowances and valuation allowances for impaired loans.
(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.
18
<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 the periods indicated follows:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1995 1994 1994
--------- ------------ --------
(Dollars in thousands)
<S> <C> <C> <C>
Real estate owned:
Single family $ 5,839 $ 5,711 $ 9,277
Multi-family 8,641 10,647 10,085
Commercial 773 366 137
Other - - 555
-------- -------- --------
Total real estate owned 15,253 16,724 20,054
Non-performing loans:
Single family 20,410 13,041 26,210
Multi-family 60,242 60,213 78,296
Commercial 10,846 20,986 19,543
Other 409 245 189
Valuation allowances (1) (22,124) (18,596) (31,238)
-------- -------- --------
Total non-performing loans 69,783 75,889 93,000
-------- -------- --------
Total non-performing assets $ 85,036 $ 92,613 $113,054
======== ======== ========
</TABLE>
------------------------------------
(1) Includes valuation allowances for impaired loans and loss
allowances on other non-performing loans requiring fair
value adjustments.
Real estate acquired by foreclosure at June 30, 1995 decreased 24%
compared to June 30, 1994 and 9% compared to December 31, 1994.
Non-performing loans decreased 25% at June 30, 1995 compared to the
level one year ago and 8% compared to the level at December 31,
1994. Management continues to dedicate significant attention to
resolving problem loans and disposing of foreclosed properties.
Sales of foreclosed real estate totaled $19 million and $31 million
for the second quarter and first six months of 1995, respectively,
compared to $24 million and $37 million, respectively for the
second quarter and first six months of 1994.
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 telemarketing department, and national deposit
brokers. Not including $18 million and $35 million in interest
credits during the second quarter and first six months of 1995,
respectively, total savings deposits decreased by $33 million
during the second quarter and $52 million during the first six
months of 1995.
19
<PAGE>
Retail deposits decreased by $45 million during the second quarter
and $83 million during the first six months of 1995 primarily due
to increased competition from other financial institutions offering
promotional accounts in the Bank's market areas. Retail deposits
comprised 63% of total savings deposits as of June 30, 1995.
Telemarketing deposits decreased by $21 million during the first
six months of 1995 but increased by $8 million during the second
quarter. These deposits are normally large deposits from pension
plans and other managed trusts. Deposit levels fluctuate based on
the attractiveness of the Bank's rates compared to rates available
to investors on alternative investments. Telemarketing deposits
comprised 8% of total deposits at June 30, 1995.
Deposits acquired from national brokerage firms increased by $3
million during the second quarter of 1995 and $53 million for the
first six months of the year. These deposits were used to replace
outflows in retail and telemarketing deposits during the first six
months of 1995. The Bank has used brokered deposits for nearly 10
years and considers these deposits a stable source of funds. Because
the Bank has sufficient capital to be deemed "well-capitalized" by
the Office of Thrift Supervision, it may solicit brokered funds
without special regulatory approval. At June 30, 1995, brokered
deposits comprised 29% of total deposits.
Total borrowings increased by $79 million during the second quarter
of 1995, including $29 million in additional borrowings under
reverse repurchase agreements and $55 million in advances from the
FHLB. Unsecured term funds decreased by $5 million during the
second quarter of 1995. Total borrowings increased by $134 million
during the first six months of 1995 due to $54 million in
additional borrowings under reverse repurchase agreements, $75
million in advances from the FHLB, and $5 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 seeks funds from the lowest cost source
until the relative costs change. As the cost of funds, operating
margins and net earnings 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.
Internal sources of funds include both principal payments and
payoffs on loans, loan sales, and positive cash flows from
operations. Principal payments include amortized principal and
prepayments which are a function of real estate activity and the
general level of interest rates. Total principal payments were
$50 million and $95 million, respectively, for the second quarter
and first six months of 1995. This compares with principal payments
of $77 million and $142 million, respectively, for the second
quarter and first six months of 1994.
Loan sales decreased to $2 million for both the second quarter and
the first six months of 1995. This compares with loan sales of $6
million and $42 million, respectively for the second quarter and
first six months of 1994.
20
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
On April 26, 1995, the Company held its Annual Meeting of
Stockholders for the purpose of voting on three proposals. The
following are the matters voted on at the meeting and the votes
cast for, against or withheld, and abstentions as to each such
matter. There were no broker non-votes as to these matters.
1. Election of Directors
<TABLE>
<CAPTION>
For Withheld Abstain
--------- -------- --------
<S> <C> <C> <C>
William S. Mortensen 9,068,211 0 384,534
Babette E. Heimbuch 9,065,368 0 387,397
John R. Woodhull 9,066,750 0 387,995
</TABLE>
2. Ratification of proposal to approve 1994 Stock Option and Stock
Appreciation Rights Plan.
<TABLE>
<CAPTION>
<S> <C>
For: 5,862,608
Against: 2,707,975
Abstain: 140,809
</TABLE>
3. Ratification of KPMG Peat Marwick LLP as independent public
auditors for the Company for 1995.
<TABLE>
<CAPTION>
<S> <C>
For: 9,349,914
Against 26,167
Abstain: 76,666
</TABLE>
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.
21
<PAGE>
(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.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the period ended
June 30, 1995.
22
<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: August 14, 1995
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
23
<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>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 70,669
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 89,882
<INVESTMENTS-MARKET> 88,470
<LOANS> 3,972,044
<ALLOWANCE> 40,852
<TOTAL-ASSETS> 4,263,211
<DEPOSITS> 2,282,287
<SHORT-TERM> 1,605,697
<LIABILITIES-OTHER> 53,134
<LONG-TERM> 133,700
<COMMON> 114
0
0
<OTHER-SE> 188,279
<TOTAL-LIABILITIES-AND-EQUITY> 4,263,211
<INTEREST-LOAN> 139,427
<INTEREST-INVEST> 6,641
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 146,068
<INTEREST-DEPOSIT> 54,349
<INTEREST-EXPENSE> 111,244
<INTEREST-INCOME-NET> 34,824
<LOAN-LOSSES> 11,203
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 22,882
<INCOME-PRETAX> 6,752
<INCOME-PRE-EXTRAORDINARY> 6,752
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,703
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
<YIELD-ACTUAL> 1.58
<LOANS-NON> 69,783
<LOANS-PAST> 0
<LOANS-TROUBLED> 41,447
<LOANS-PROBLEM> 42,335
<ALLOWANCE-OPEN> 55,353
<CHARGE-OFFS> 10,920
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 40,852
<ALLOWANCE-DOMESTIC> 40,852
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
