<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 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
--- ---
AS OF NOVEMBER 1, 1996, 10,517,597 SHARES OF THE REGISTRANT'S $0.01 PAR VALUE
COMMON STOCK WERE OUTSTANDING.
================================================================================
<PAGE>
FIRSTFED FINANCIAL CORP.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
as of September 30, 1996, December 31, 1995
and September 30, 1995
Consolidated Statements of Operations for the 4
three months and nine months ended September 30,
1996 and 1995
Consolidated Statements of Cash Flows for the nine 5
months ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II. Other Information (omitted items are inapplicable) 19
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 20
</TABLE>
2
<PAGE>
PART I - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
-------------- ------------- ---------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 167,088 $ 36,878 $ 34,300
Investment securities, available-for-sale
(at fair value) 117,302 76,184 -
Investment securities, held-to-maturity
(fair value of $85,267) - - 86,384
Mortgage-backed securities, available-for-sale
(at fair value) 747,847 835,448 -
Mortgage-backed securities, held-to-maturity
(fair value of $846,359) - - 844,893
Loans receivable, held-for-sale (fair value of
$4,330, $7,464, and $36,270) 4,325 7,377 35,860
Loans receivable, net 3,024,702 3,052,403 3,052,652
Accrued interest and dividends receivable 28,951 28,620 29,566
Real estate 18,093 19,821 21,172
Office properties and equipment, net 8,891 8,686 8,668
Investment in Federal Home Loan Bank
(FHLB) stock, at cost 61,425 58,935 58,161
Other assets 18,102 15,385 18,520
---------- ---------- ----------
$4,196,726 $4,139,737 $4,190,176
========== ========== ==========
LIABILITIES
Deposits $2,054,520 $2,205,036 $2,182,918
FHLB advances and other borrowings 1,236,500 942,300 1,010,000
Securities sold under agreements to repurchase 659,727 724,643 739,268
Accrued expenses and other liabilities 62,038 71,467 67,635
---------- ---------- ----------
4,012,785 3,943,446 3,999,821
---------- ---------- ----------
Commitments and Contingent Liabilities
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share;
authorized 25,000,000 shares; issued 11,441,117,
11,410,922 and 11,405,522 shares, outstanding
10,517,597, 10,614,402 and 10,609,002 shares 114 114 114
Additional paid-in capital 28,524 28,212 28,160
Retained earnings - substantially restricted 177,320 175,721 174,873
Loan to employee stock ownership plan (2,599) (2,500) (2,960)
Treasury stock, at cost,
923,520, 796,520 and 796,520 shares (11,885) (9,832) (9,832)
Unrealized gain (loss) on securities
available-for-sale, net of taxes (7,533) 4,576 -
---------- ---------- ----------
183,941 196,291 190,355
---------- ---------- ----------
$4,196,726 $4,139,737 $4,190,176
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 57,101 $ 59,508 $ 171,551 $ 172,814
Interest on mortgage-backed securities 13,369 15,487 41,934 41,608
Interest and dividends on investments 3,070 3,553 9,905 10,194
----------- ----------- ----------- -----------
Total interest income 73,540 78,548 223,390 224,616
Interest expense:
Interest on deposits 24,249 27,599 77,662 81,948
Interest on borrowings 26,031 29,584 75,848 86,479
----------- ----------- ----------- -----------
Total interest expense 50,280 57,183 153,510 168,427
----------- ----------- ----------- -----------
Net interest income 23,260 21,365 69,880 56,189
Provision for loan losses 8,700 6,173 26,700 17,376
----------- ----------- ----------- -----------
Net interest income
after provision for loan losses 14,560 15,192 43,180 38,813
----------- ----------- ----------- -----------
Other income:
Loan and other fees 1,625 1,252 4,895 4,562
Gain (loss) on sale of loans 18 (2,125) 215 (1,864)
Real estate operations, net (166) 72 1,082 1,399
Other operating income 666 546 2,047 1,661
----------- ----------- ----------- -----------
Total other income 2,143 (255) 8,239 5,758
----------- ----------- ----------- -----------
Non-interest expense 25,561 11,342 48,314 34,224
----------- ----------- ----------- -----------
Earnings (loss) before income taxes (8,858) 3,595 3,105 10,347
Income tax provision (benefit) (3,689) 1,611 1,506 4,660
----------- ----------- ----------- -----------
Net earnings (loss) $ (5,169) $ 1,984 $ 1,599 $ 5,687
=========== =========== =========== ===========
Earnings (loss) per share $ (0.49) $ 0.19 $ 0.15 $ 0.53
=========== =========== =========== ===========
Weighted average shares outstanding
for earnings (loss) per share calculation 10,514,193 10,662,633 10,622,149 10,653,978
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,599 $ 5,687
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net change in loans held-for-sale 3,052 (5,696)
Provision for loan losses 26,700 17,376
Valuation adjustments on real estate sold (1,360) (889)
Amortization of fees and discounts (1,076) (576)
Increase in negative amortization (3,099) (3,630)
Increase in taxes payable 1,506 4,667
Increase in interest and dividends receivable (331) (5,146)
Increase (decrease) in interest payable (11,037) 3,215
Other 11,383 4,362
--------- ---------
Total adjustments 25,738 13,683
--------- ---------
Net cash provided by operating activities 27,337 19,370
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers net of principal
collection on loans (42,242) (115,681)
Loans repurchased (11,404) (18,699)
Proceeds from sales of real estate 58,918 46,098
Proceeds from maturities and principal payments
on investment securities 38,067 10,675
Principal reductions on mortgage-backed securities 66,791 36,144
Purchase of investment securities (79,405) (13,095)
Treasury stock purchases (2,053) -
Other 2,620 4,460
--------- ---------
Net cash provided by (used in) investing activities 31,292 (50,098)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in savings deposits (150,516) (115,996)
Net increase in short term borrowings 238,284 407,647
Repayment of long term borrowings (9,000) (263,200)
Other (7,187) 724
--------- ---------
Net cash provided by financing activities 71,581 29,175
--------- ---------
Net increase (decrease) in cash and cash equivalents 130,210 (1,553)
Cash and cash equivalents at beginning of period 36,878 35,853
--------- ---------
Cash and cash equivalents at end of period $ 167,088 $ 34,300
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial statements included herein have been prepared by
the Registrant pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of the Registrant, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
results of operations for the periods covered have been made. Certain
information and note disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. 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 10,514,193 for
the three months ended September 30, 1996 and 10,662,633 for the three months
ended September 30, 1995. Weighted average shares outstanding for the earnings
per share calculation were 10,622,149 for the nine months ended September 30,
1996 and 10,653,978 for the nine months ended September 30, 1995.
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 of
the date of purchase.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
At September 30, 1996, FirstFed Financial Corp. (the "Company"), holding company
for First Federal Bank of California and its subsidiaries (the "Bank"), had
consolidated assets totaling $4.2 billion, compared to $4.1 billion at December
31, 1995 and $4.2 billion at September 30, 1995.
The Bank's primary market area is Southern California. Throughout 1996, the
California economy has continued to improve from the economic recession of the
early 1990's. According to the "UCLA Business Forecast for California,
September, 1996 Report" (the "UCLA Report"), the state will continue to generate
jobs at a rate of about 3% annually through 1997 and 2% thereafter. The UCLA
Report attributes the employment gains to a number of favorable factors
including increased customer demand, improved international trade, and gains in
the multi-media and high tech manufacturing industries. Despite these gains, the
authors of the UCLA Report project that the state's unemployment rate will
remain above 6%. At this level of unemployment, the authors do not believe that
the construction and real estate businesses will recover to their pre-recession
levels.
Real estate values in Southern California remain soft. Loan charge-offs, net of
recoveries were $29.7 million during the first nine months of 1996 compared to
$33.0 million during the first nine months of 1995. For the third quarter of
1996, loan charge-offs, net of recoveries were $11.8 million compared to $11.8
million for the third quarter of 1995. Loan charge-offs during both periods in
1996 and 1995 resulted primarily from losses on multi-family loans.
The ratio of non-performing assets to total assets was 2.15% as of September 30,
1996, compared to 2.33% at December 31, 1995 and 2.19% at September 30, 1995.
Real estate acquired through foreclosure (real estate owned, or "REO") as of
September 30, 1996 decreased 5% from the December 31, 1995 level and 11% from
the September 30, 1995 level. Non-performing loans, net of valuation
allowances, decreased 7% from the December 31, 1995 level and increased 1% from
the September 30, 1995 level. (See "Non-performing Assets" for further
discussion.)
The Bank's general valuation allowances were $49.2 million at September 30, 1996
compared to $42.9 million at December 31, 1995 and $37.9 million at September
30, 1995. The Bank also maintains valuation allowances for impaired loans which
totaled $17.0 million at September 30, 1996, $26.1 million at December 31, 1995
and $25.7 million at September 30, 1995.
The Bank's portfolio of loans, including mortgage-backed securities, at
September 30, 1996 totaled $3.8 billion, compared to $3.9 billion at December
31, 1995 and September 30, 1995. The decline in the loan portfolio during the
first nine months of 1996 occured because loan payoffs, loan sales and other
principal reductions exceeded the volume of loan originations during the
period.
Loan originations were $223.8 million for the first nine months of 1996 compared
to $240.1 million for the first nine months of 1995. Originations for the third
quarter of 1996 were $101.1 million compared to $49.3 million for the third
quarter of 1995. The Bank primarily focuses on the origination of adjustable
rate mortgages. The level of loan originations has also been impacted by the
Bank's decision to limit multi-family lending. Due to inadequate market pricing
for the risks and costs associated with multi-family lending, since 1994, the
Bank has originated multi-family loans primarily to finance the sale of its REO.
7
<PAGE>
The following table shows the components of the Bank's portfolio of loans and
mortgage-backed securities by collateral type as of the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
REAL ESTATE LOANS:
First trust deed residential loans:
One unit $1,247,016 $1,217,848 $1,229,844
Two to four units 341,590 350,553 354,548
Five or more units 1,289,167 1,334,570 1,341,541
---------- ---------- ----------
Residential loans 2,877,773 2,902,971 2,925,933
OTHER REAL ESTATE LOANS:
Commercial and industrial 211,626 220,494 222,308
Second trust deeds 17,782 19,416 18,558
Other 2,427 3,206 3,471
---------- ---------- ----------
Real estate loans 3,109,608 3,146,087 3,170,270
NON-REAL ESTATE LOANS:
Manufactured housing 1,563 1,938 2,118
Deposit accounts 1,270 1,104 1,618
Consumer 231 359 469
---------- ---------- ----------
Loans receivable 3,112,672 3,149,488 3,174,475
LESS:
General valuation allowances-
loan portfolio 49,248 42,876 37,938
Valuation allowances - impaired loans 16,965 26,101 25,695
Unrealized loan fees 17,432 20,731 22,330
---------- ---------- ----------
Net loans receivable 3,029,027 3,059,780 3,088,512
FHLMC AND FNMA MORTGAGE-
BACKED SECURITIES (at fair value):
Secured by single family dwellings 727,577 810,980 820,047
Secured by multi-family dwellings 20,270 24,468 24,846
---------- ---------- ----------
Mortgage-backed securities 747,847 835,448 844,893
---------- ---------- ----------
TOTAL $3,776,874 $3,895,228 $3,933,405
========== ========== ==========
</TABLE>
Because the Bank structures mortgage-backed securities with loans from its own
portfolio, 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.
As permitted by a Special Report issued by the Financial Accounting Standards
Board in November of 1995 to assist in the implementation and understanding of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"), the Bank
reclassified its entire portfolio of mortgage-backed securities to the
available-for-sale category from the held-to-maturity category. In accordance
with SFAS No. 115, the mortgage-backed securities portfolio was recorded at fair
value as of September 30, 1996. A negative fair value adjustment of $7.2
million, net
8
<PAGE>
of taxes, was reflected in stockholders' equity as of September 30, 1996. This
compares with a positive fair value adjustment of $4.9 million as of December
31, 1995.
The Bank also reclassified its investment securities portfolio to the available-
for-sale category from the held for sale category. A negative fair value
adjustment of $369 thousand, net of taxes, was reflected in stockholders' equity
as of September 30, 1996. This compares with a $322 thousand negative
adjustment as of December 31, 1995.
Deposits totaled $2.1 billion at September 30, 1996 compared to $2.2 billion as
of December 31, 1995 and September 30, 1995. The Bank is experiencing increased
competition from other institutions offering special rates in its market areas.
The Bank has also noted increased competition from alternative investments
available to depositors, particularly stock market mutual funds. To compensate
for deposit outflows, borrowings increased to $1.9 billion as of September 30,
1996, from $1.7 billion as of December 31, 1995 and September 30, 1995.
Asset/Liability Management
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 $198.6 million or 4.73% as of September 30, 1996. In comparison,
the one year GAP ratio was a positive $347.7 million or 8.40% of total assets as
of December 31, 1995 and a positive $382.6 million or 9.13% as of September 30,
1995.
Since over 95% of the Bank's loans adjust based upon monthly changes in the
Eleventh District Cost of Funds Index ("COFI Index"), 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. The positive one year GAP decreased during the first nine months
of 1996 due to an increase in short term borrowings.
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.
Capital
The Bank's capital as of September 30, 1996 exceeded the minimum amounts
required by its primary regulatory agency, the Office of Thrift Supervision
("OTS"). The Bank is required to maintain tangible capital of at least 1.5% of
adjusted total assets, core capital of at least 3.0% of adjusted total assets,
and risk-based capital of at least 8.0% of risk-weighted assets. The Bank's
core and tangible capital ratios were both 5.50% and the risk-based capital
ratio was 10.89% at September 30, 1996. These ratios meet the OTS' requirements
necessary to be deemed well capitalized.
Pursuant to the Board of Directors' authorization in 1987, the Company's may
repurchase up to 10% of its outstanding shares of stock as of December 31, 1987.
The Company has repurchased 127,000 shares during the first nine months of 1996
at an average price of $16.17. None of the shares were repurchased in the third
quarter. The number of shares eligible for repurchase as of September 30, 1996
totaled 137,000.
9
<PAGE>
RESULTS OF OPERATIONS
The Company reported a consolidated net loss of $5.2 million for the third
quarter of 1996 compared to net earnings of $2.0 million for the third quarter
of 1995. The decrease in earnings is due to the accrual of a special assessment
to members of the Savings Association Insurance Fund ("SAIF") by the Federal
Deposit Insurance Corporation ("FDIC") during the third quarter. (See "Non-
interest Expense.") Excluding the special assessment, the Company recorded net
earnings of $3.5 million during the third quarter. Quarterly earnings,
excluding the special assessment, improved compared to the prior year due to a
9% increase in net interest income and an 8% decline in non-interest expense
(not considering the special assessment which was $15.1 million pre-tax and $8.7
million after tax.) The improved earnings, excluding the special assessment,
were offset by an increase in the provision for loan losses to $8.7 million for
the third quarter of 1996 from $6.2 million for the third quarter of 1995.
The Company reported consolidated net earnings of $1.6 million for the first
nine months of 1996 compared to $5.7 million for the same period last year. Not
considering the special assessment, the Company recorded net earnings of $10.3
million for the first nine months of 1996. The increase in year-to-date net
earnings, excluding the special assessment, is due to a 24% increase in net
interest income, offset by an increase in the provision for loan losses. For the
first nine months of 1996, the Bank provided $26.7 million in loan loss
provisions compared to $17.4 million for the first nine months of 1995. The
increased provisions during both the third quarter and first nine months of 1996
are due to management's ongoing concerns with respect to real estate values in
Southern California.
Loan Loss Provisions
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, foreclosure activity and management's perceptions of the severity and
duration of the economic recession in Southern California.
Listed below is a summary of the activity in the general valuation allowance and
the valuation allowance for impaired loans for the Bank's loan portfolio during
the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996
---------------------------------------
General Impaired
Valuation Valuation
Allowances Allowances Total
------------ ------------ ---------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning general valuation allowances $ 42,876 $ 26,101 $ 68,977
Provision for loan losses 16,584 10,116 26,700
Charge-offs:
Single family (9,269) (165) (9,434)
Multi-family (2,477) (17,865) (20,342)
Commercial - (1,222) (1,222)
Non-real estate (164) - (164)
-------- -------- --------
Total charge-offs (11,910) (19,252) (31,162)
Recoveries 4,070 - 4,070
-------- -------- --------
Net charge-offs (7,840) (19,252) (27,092)
-------- -------- --------
Transfers to general valuation
allowance for real estate (2,372) - (2,372)
-------- -------- --------
Ending general valuation allowances $ 49,248 $ 16,965 $ 66,213
======== ======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1995
---------------------------------------
General Impaired
Valuation Valuation
Allowances Allowances Total
------------ ------------ ---------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning general valuation allowances $ 55,353 $ 23,887 $ 79,240
Provision for loan losses 588 16,788 17,376
Charge-offs:
Single family (6,076) (171) (6,247)
Multi-family (15,353) (8,727) (24,080)
Commercial - (6,082) (6,082)
Non-real estate - - -
-------- -------- --------
Total charge-offs (21,429) (14,980) (36,409)
Recoveries 3,929 - 3,929
-------- -------- --------
Net charge-offs (17,500) (14,980) (32,480)
-------- -------- --------
Transfers to liability account for
loans sold with recourse (503) - (503)
-------- -------- --------
Ending general valuation allowances $ 37,938 $ 25,695 $ 63,633
======== ======== ========
</TABLE>
The Bank also maintains a valuation allowance for loans sold with recourse,
recorded as a liability. This allowance was 3.76% of loans sold with recourse
as of September 30, 1996, compared to 3.65% as of December 31, 1995 and 4.13% as
of September 30, 1995. The balance of loans sold with recourse totaled $235.5
million, $248.1 million and $257.1 million as of September 30, 1996, December
31, 1995 and September 30, 1995, respectively. The Bank has not entered into
any new recourse arrangements since 1989. Listed below is a summary of the
activity in the valuation allowances for loans sold with recourse during the
periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1996
-------------------------------
Valuation Specific
Allowances Reserves Total
---------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning recourse valuation allowances $ 9,050 $ - $ 9,050
Charge-offs (191) - (191)
Transfers from loan valuation allowance - 157 157
------- -------- -------
Ending recourse valuation allowances $ 8,859 $ 157 $ 9,016
======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1995
-------------------------------
Valuation Specific
Allowances Reserves Total
---------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning recourse valuation allowances $ 7,948 $ - $ 7,948
Provision for losses on recourse loans 2,123 - 2,123
Charge-offs - - -
Transfers from loan valuation allowance 503 - 503
------- -------- -------
Ending recourse valuation allowances $10,574 $ - $10,574
======= ======== =======
</TABLE>
11
<PAGE>
The Bank established a general valuation allowance for REO during 1996. Listed
below is a summary of the activity in the general valuation allowance and the
valuation allowance for REO for the nine months ended September 30,1996:
<TABLE>
<CAPTION>
REO
General REO
Valuation Valuation
Allowances Allowances Total
---------- ----------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning general valuation allowances $ - $ 1,631 $ 1,631
Net transfers from loan general
valuation allowance 700 1,672 2,372
Charge-offs - (2,743) (2,743)
---- ------- -------
Ending general valuation allowances $700 $ 560 $ 1,260
==== ======= =======
</TABLE>
Net Interest Income
Net interest income for the third quarter and first nine months of 1996
increased by 9% and 24%, respectively, compared to the same periods of the prior
year. The Company's interest rate spread increased to 2.11% for both the third
quarter and first nine months of 1996 from 1.92% and 1.65%, respectively, for
the third quarter and first nine months of last year. The COFI Index (on a
lagged basis) determines the yield on over 95% of the Bank's loan portfolio.
The COFI Index in effect during the third quarter and nine months ended
September 30, 1996 decreased by 22 basis points and increased by 32 basis
points, respectively, compared to the same periods of the prior year. The
Bank's cost of funds declined by 45 basis points for the three month period and
28 basis points for the nine month period ended September 30, 1996 compared to
the same periods of the prior year.
The following table sets forth: (i) the average daily dollar amounts of and
average yields earned on loans, mortgage-backed securities and investment
securities, (ii) the average daily dollar amounts of and average rates paid
on savings and borrowings, (iii) the average daily dollar differences, (iv)
the interest rate spreads, and (v) the effective net spreads for the periods
indicated:
<TABLE>
<CAPTION>
During Nine Months
Ended September 30,
-----------------------
1996 1995
---------- ----------
(Dollars In thousands)
<S> <C> <C>
Average loans and mortgage-backed securities $3,811,785 $3,946,865
Average investment securities 167,647 177,437
---------- ----------
Average interest-earning assets 3,979,432 4,124,302
---------- ----------
Average savings deposits 2,171,076 2,256,933
Average borrowings 1,719,048 1,809,352
---------- ----------
Average interest-bearing liabilities 3,890,124 4,066,285
---------- ----------
Excess of interest-earning assets over
interest-bearing liabilities $ 89,308 $ 58,017
========== ==========
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
Yields earned on average interest
earning assets 7.37% 7.17%
Rates paid on average interest-
bearing liabilities 5.27 5.52
Net interest rate spread 2.11 1.65
Effective net spread/1/ 2.23 1.73
Total interest income $ 220,183 $ 221,896
Total interest expense 153,510 168,427
---------- ----------
66,673 53,469
Total other items/2/ 3,207 2,720
---------- ----------
Net interest income $ 69,880 $ 56,189
========== ==========
</TABLE>
<TABLE>
<CAPTION>
During Nine Months
Ended September 30,
-------------------------
1996 1995
---------- ----------
(Dollars In thousands)
<S> <C> <C>
Average loans and mortgage-backed
securities $3,783,920 $3,955,711
Average investment securities 163,360 180,826
---------- ----------
Average interest-earning assets 3,947,280 4,136,537
---------- ----------
Average savings deposits 2,052,676 2,213,907
Average borrowings 1,787,403 1,852,989
---------- ----------
Average interest-bearing liabilities 3,840,079 4,066,896
---------- ----------
Excess of interest-earning assets over
interest-bearing liabilities $ 107,201 $ 69,641
========== ==========
Yields earned on average interest
earning assets 7.33% 7.49%
Rates paid on average interest-
bearing liabilities 5.22 5.57
Net interest rate spread 2.11 1.92
Effective net spread/1/ 2.25 2.02
Total interest income $ 72,434 $ 77,556
Total interest expense 50,280 57,183
---------- ----------
22,154 20,373
Total other items/2/ 1,106 992
---------- ----------
Net interest income $ 23,260 $ 21,365
========== ==========
</TABLE>
- ------------
/(1)/ 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).
/(2)/ Includes Federal Home Loan Bank Stock and other miscellaneous items.
Non-Interest Income
Real estate operations produced a net loss of $166 thousand for the third
quarter of 1996 and net gains of $72 thousand for the third quarter of 1995.
The Bank changed its policy for accounting for expenses on foreclosed properties
during the third quarter of 1996. Pre-foreclosure costs, such as trustee and
legal fees which had previously been capitalized, are now charged to expense.
For the first nine months of 1996 and 1995, real estate operations produced net
gains of $1.1 million and $1.4 million, respectively. Gains result primarily
from the recovery of excess valuation allowances associated with foreclosed
properties sold.
13
<PAGE>
A net gain on sale of loans and mortgage-backed securities of $18 thousand and a
net loss of $2.1 million were recognized for the third quarter of 1996 and 1995,
respectively. The gain on sale of loans during the third quarter of 1996 was
primarily the result of deferred fees recognized on loans sold. The loss during
the third quarter of 1995 was due to a provision of $2.1 million for loans
previously sold with recourse. There was no such provision during 1996.
For the first nine months of 1996, sales of loans and mortgage-backed securities
produced a net gain of $215 thousand compared to a net loss of $1.9 million for
the first nine months of 1995. The volume of loans sold during the third quarter
and first nine months of 1996 was $7.1 million and $37.5 million, respectively.
In comparison, the volume of loans sold during the third quarter and first nine
months of 1995 was $7.9 million and $9.8 million, respectively.
Non-Interest Expense
The Company recorded $15.1 million in additional expense for a special
assessment by the FDIC against institutions such as the Bank who are members of
the SAIF. The special assessment, computed based on the Bank's deposits as of
March 31, 1995, will be paid on November 27, 1996. After payment of the special
assessment, beginning January 1, 1997, there will be significantly less
disparity between deposit insurance premiums for SAIF institutions the premiums
paid by institutions who are members of the Bank Insurance Fund.
Due to the special assessment, the Company's non-interest expense to total
assets ratios increased to 2.46% for the third quarter and 1.55% for the first
nine months of 1996. However, excluding the special assessment, the non-interest
expense to total assets ratios decreased to 1.01% and 1.07% for the third
quarter and first nine months of 1996, respectively, from 1.07% and 1.09%,
respectively, for the same periods one year ago. Management maintains ongoing
programs to monitor the level of non-interest expense incurred by the Company.
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 $90.2 million at September 30, 1996 compared to
$99.1 million at December 31, 1995 and $92.9 million at September 30, 1995.
The amount of interest that has been reserved for loans 90 days or more
delinquent or in foreclosure was $4.9 million at September 30, 1996, $5.6
million at December 31, 1995 and $4.9 million at September 30, 1995.
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 September 30, 1996, the Bank had modified loans totaling
$15.1 million, net of loan loss allowances totaling $4.0 million. One modified
loan, with an unpaid principal balance of $132 thousand, was 90 days or more
delinquent as of September 30, 1996.
Pursuant to Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("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
14
<PAGE>
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, net of valuation allowances for
impairment, as of the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Non-accrual loans $27,912 $34,503 $27,635
Modified loans 6,971 16,573 22,249
Other impaired loans 9,068 35,333 34,738
------- ------- -------
$43,951 $86,409 $84,622
======= ======= =======
</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 as of the
dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Fair value method $40,935 $70,414 $68,011
Present value method 3,016 15,995 16,611
------- ------- -------
Total impaired loans $43,951 $86,409 $84,622
======= ======= =======
</TABLE>
Impaired loans for which there were no valuation allowances established totaled
$2.2 million, $9.3 million and $10.3 million as of September 30, 1996, December
31, 1995, and September 30, 1995, respectively. See "Results of Operations" for
an analysis of activity in the valuation allowance for impaired loans.
The table below shows the Bank's net investment in non-performing loans
determined to be impaired, by property type, as of the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Single family $ 2,076 1,677 $ 2,170
Multi-family 23,872 32,826 25,465
Commercial 1,964 - -
------- ------- -------
$27,912 $34,503 $27,635
======= ======= =======
</TABLE>
15
<PAGE>
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.
Listed below is additional information concerning the Bank's impaired loans for
the periods indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Average recorded investment $44,017 $83,307 $84,230
Interest income recognized:
Accrual method of accounting $ (47) $ - $ 139
Cash basis method of accounting $ 444 $ 1,311 $ 1,280
</TABLE>
ASSET QUALITY
The following table sets forth certain asset quality ratios of the Bank at the
dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
Non-Performing Loans to
Loans Receivable /(1)/ 2.30% 2.44% 2.22%
Non-Performing Assets to
Total Assets /(2)/ 2.15% 2.33% 2.19%
Loan Loss Allowances to
Non-Performing Loans /(3)/ 75.36% 65.62% 64.92%
General Loss Allowances to
Assets with Loss Exposure /(4)/ 1.56% 1.35% 1.18%
General Loss Allowances to
Total Assets with Loss
Exposure /(5)/ 1.71% 1.52% 1.40%
</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. The Bank's
assets with loss exposure include primarily loans and real estate owned,
but exclude mortgage-backed securities.
/(5)/ The Bank's general valuation allowances, including general valuation
allowances for loans sold with full or limited recourse. Assets with loss
exposure include the Bank's portfolio plus loans sold with recourse, but
exclude mortgage-backed securities.
16
<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 by foreclosure
(real estate owned). An analysis of non-performing assets follows as of the
dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Real estate owned:
Single family $ 8,351 $ 7,252 $ 7,599
Multi-family 9,284 9,827 8,642
Commercial 1,043 2,544 4,718
Other - 78 92
-------- -------- --------
Total real estate owned 18,678 19,701 21,051
-------- -------- --------
Non-accrual loans:
Single family 26,236 25,991 23,116
Multi-family 60,689 69,579 65,943
Commercial 3,129 3,313 3,677
Other 144 220 124
Less:
Valuation allowances /(1)/ (18,728) (22,159) (22,347)
-------- -------- --------
Total non-accrual loans 71,470 76,944 70,513
-------- -------- --------
Total non-performing assets $ 90,148 $ 96,645 $ 91,564
======== ======== ========
Non-Performing Assets to
Total Assets 2.15% 2.33% 2.19%
==== ==== ====
</TABLE>
- ------------
/(1)/ Includes valuation allowances for impaired loans and loss allowances
on other non-performing loans requiring fair value adjustments.
REO at September 30, 1996 decreased 5% from the December 31, 1995 level due to
declines in multi-family and commercial foreclosures. Compared to the level
one year ago, REO decreased 11% due to a decline in commercial real estate.
Management continues to dedicate significant attention to the quick resolution
and disposition of foreclosed properties. Sales of foreclosed real estate
totaled $19.0 million and $15.5 million during the third quarter of 1996 and
1995, respectively. For the first nine months of 1996 and 1995, sales of
foreclosed real estate totaled $63.5 million and $49.7 million, respectively.
Non-accrual loans, net of valuation allowances, decreased 7% compared to the
level at December 31, 1995. The decrease was primarily due to a decline in
delinquencies on multi-family loans. The slight increase since the third
quarter of 1995 was due an increase in single family delinquent loans.
The Bank has identified $55.3 million in potential problem loans as of
September 30, 1996 which are not included in non-performing assets.
SOURCES OF FUNDS
External sources of funds include savings deposits from several sources,
advances from the Federal Home Loan Bank of San Francisco ("FHLB"), securitized
borrowings and unsecured term funds.
Savings deposits are accepted from retail savings branches, the telemarketing
department, and national deposit brokers. Excluding $18.4 million and $55.3
million in interest credits during the third quarter and first
17
<PAGE>
nine months of 1996, respectively, total savings deposits decreased by $122.1
million and $205.9 million during the third quarter and first nine months of
1996, respectively.
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
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.
Deposits accepted by retail savings branches decreased by $39.4 million and
$49.0 million during the third quarter and first nine months of 1996,
respectively. The Bank has increased its promotional efforts at retail branches
in an effort to counter increased competition for customer deposits in Southern
California. Retail deposits comprised 71% of total savings deposits as of
September 30, 1996.
Telemarketing deposits decreased by $24.4 million and $93.6 million during the
third quarter and first nine months of 1996, respectively. These deposits are
normally large deposits from pension plans, managed trusts and other financial
institutions. These deposit levels fluctuate based on the attractiveness of the
Bank's rates compared to rates available to investors on alternative
investments. Telemarketing deposits comprised 7% of total deposits at September
30, 1996.
Deposits acquired from national brokerage firms ("brokered deposits") decreased
by $58.3 million and $63.3 million during the third quarter and first nine
months of 1996, respectively. The Bank has used brokered deposits for over 10
years and considers these deposits a stable source of funds. Because the Bank
has sufficient capital to be deemed "well-capitalized" under the standards
established by the Office of Thrift Supervision, it may solicit brokered funds
without special regulatory approval. At September 30, 1996, brokered deposits
comprised 21% of total deposits.
Total borrowings increased by $196.3 million during the third quarter of 1996
due to $220.0 million in additional advances from the FHLB, net of payoffs of
$19.3 million in borrowings under reverse repurchase agreements and payoffs of
$4.4 million in unsecured term funds. For the first nine months of 1996, total
borrowings increased by $229.3 million due to $280.0 million in additional
advances from the FHLB and $14.2 million in additional unsecured term funds, net
of payoffs of $64.9 million in borrowings under reverse repurchase agreements.
Internal sources of funds include both principal payments and payoffs on loans
and mortgage-backed securities, 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 $67.9 million and $217.0 million for the third
quarter and first nine months of 1996, respectively. This compares with
principal payments of $56.8 million and $151.3 million for the third quarter and
first nine months of 1995, respectively.
Loan sales increased to $7.1 million and $37.5 million for the third quarter
and the first nine months of 1996, respectively, due to an increase in the
amount of salable product originated. This compares to loan sales of $7.9
million and $9.8 million, respectively, for the third quarter and first nine
months of 1995.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
(3.) Certificate of Incorporation and By Laws filed as Exhibit (1)(a)
to Form 8-A dated June 4, 1987 and incorporated by reference.
(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.
(10.4) Form of Change in Control Employment agreement effective
September 26,1996 is attached hereto as Exhibit 10.4 and incorporated
herein by reference.
(11.1) Computation of earnings per share. Part I hereof is
incorporated by reference.
(27) Financial Data Schedule.
b) Reports on Form 8-K
The Company filed a current report on Form 8-K/A dated July 31, 1996
which announced that William S. Mortensen, its Chairman of the Board
and Chief Executive Officer, would be retiring as Chief Executive
Officer of the Company and the Bank in January of 1997. He will
continue after that date as Chairman of the Board.
The Company filed a current report on Form 8-K dated August 28, 1996
which announced the retirement of William S. Mortensen as Chief
Executive Officer effective January 1, 1997. The press release further
indicated that Babette E. Heimbuch, the Company's President and Chief
Operating Officer, had been elected Chief Executive Officer effective
with Mortensen's retirement.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRSTFED FINANCIAL CORP.
------------------------
Registrant
Date: November 14, 1996
By /s/ WILLIAM MORTENSEN
--------------------------------
William S. Mortensen
Chairman of the Board
and Chief Executive Officer
By /s/ JAMES GIRALDIN
--------------------------------
James P. Giraldin
Chief Financial Officer and
Executive Vice President
20
<PAGE>
EXHIBIT 10.4
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
THIS CHANGE OF CONTROL EMPLOYMENT AGREEMENT (the "Agreement") is entered
into this ____ day of _________, 199_, by and among FirstFed Financial Corp., a
Delaware corporation (the "Company" or "FFC"), First Federal Bank of
California, a federal savings bank (the "Bank" or "FFB"), and ______________
(the "Employee").
A. The Employee currently holds the position of _____________________ of
the Bank, which is a wholly-owned subsidiary of the Company. The Employee is a
highly experienced and knowledgeable executive whose creativity, expertise and
efforts have been instrumental in the development of the business of the
Company, the Bank and its subsidiaries.
B. The Board of Directors of the Company (the "FFC Board") and the Board
of Directors of the Bank (the "FFB Board") have determined that it is in the
best interests of the Company and its shareholders, and the Bank and its
subsidiaries, to assure that the Bank will have the continued dedication of the
Employee, notwithstanding the possibility, threat, or occurrence of a Change of
Control (as defined below) of the Company. The FFC and FFB Boards believe it is
imperative to diminish the inevitable distraction of the Employee by virtue of
the personal uncertainties and risks created by a pending or threatened Change
of Control, to encourage the Employee's full attention and dedication to the
Company and the Bank currently and in the event of any threatened or pending
Change of Control, and to provide the Employee with compensation arrangements
upon a Change of Control which provide the Employee with individual financial
security competitive with those of other corporations.
C. In order to accomplish these objectives, the FFC and FFB Boards have
caused the Company and the Bank to enter into this Agreement with respect to the
Employee's employment with the Bank.
<PAGE>
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) The "Effective Date" shall be the first date during the "Change of
Control Period" (as defined in Section l (b) hereof) on which a Change of
Control occurs. Notwithstanding anything in this Agreement to the contrary, if
the Employee's employment with the Bank is terminated prior to the date on which
a Change of Control occurs, and it is reasonably demonstrated that such
termination (i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control or (ii) otherwise arose in
connection with, or in anticipation of, a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination.
(b) The "Change of Control Period" is the period commencing on the date
hereof and ending on the earlier to occur of (i) the second anniversary of the
date hereof or (ii) the first day of the month next following the Employee's
normal retirement date ("Normal Retirement Date") as established pursuant to the
Bank's then existing retirement policy as set forth in its Personnel Policy
Manual or any successor retirement policy or plan (the "Retirement Plan");
provided, however, that such period may be extended or renewed upon FFB Board
- --------- -------
resolution and approval.
2. Change of Control. For the purpose of this Agreement, a "Change of
-----------------
Control" shall mean:
(a) An acquisition (other than from the Company) by any person, entity or
group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act"), (excluding, for this purpose, the
Company or any employee benefit plan of the Company which acquires beneficial
ownership of voting securities of the Company) of beneficial ownership, (within
the meaning of Rule 13d-
2
<PAGE>
- -3 promulgated under the Exchange Act) of 15% or more of either (i) the then
outstanding shares of the Company's common stock or (ii) the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally in the election of directors; or
(b) Individuals who, as of the date hereof, constitute the FFC Board (as of
the date hereof the "Incumbent Board") cease for any reason to constitute at
least a majority of the FFC Board, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board; or
(c) Approval by the stockholders of the Company of a reorganization,
merger, consolidation, (other than a reorganization, merger or consolidation in
which persons who were the stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own more
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities), or a liquidation or dissolution of the Company
or of the sale of all or substantially all of the assets of the Company.
3. Employment Period. The Bank hereby agrees to continue the Employee in its
------------------
employ, and the Employee hereby agrees to remain in the employ of the Bank, for
the period commencing on the Effective Date and ending on the earlier to occur
3
<PAGE>
of (a) the second anniversary of such date or (b) the first day of the month
coinciding with or next following the Employee's Normal Retirement Date (the
"Employment Period").
4. Terms of Employment.
--------------------
(a) Position and Duties.
--- -------------------
(i) During the Employment Period, the Employee's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 90-day period immediately preceding the Effective Date. Additionally, the
Employee's services shall be performed at the location where the Employee was
employed immediately preceding the Effective Date or any office or location less
than thirty-five (35) miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Employee is entitled, the Employee agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Bank and, to the extent necessary to discharge the
responsibilities assigned to the Employee hereunder, to use the Employee's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Employee to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Employee's responsibilities as an employee of the Bank in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Employee prior to the
4
<PAGE>
Effective Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere with the performance of the
Employee's responsibilities to the Bank.
(b) Compensation.
------------
(i) Base Salary. During the Employment Period the Employee shall
-----------
receive a base salary ("Base Salary") at a monthly rate equal to the average
monthly base salary paid or payable to the Employee by the Bank during the
previous five years immediately preceding the month in which the Effective Date
occurs. Such Base Salary shall be payable not less often than monthly. During
the Employment Period, the Base Salary shall be reviewed at least annually and
shall be increased at any time and from time to time as shall be substantially
consistent with increases in base salary awarded in the ordinary course of
business to other senior executive employees of the Bank. Any increase in Base
Salary shall not serve to limit or reduce any other obligation to the Employee
under this Agreement. Base Salary shall not be reduced after any such increase.
(ii) Annual Bonus. In addition to Base Salary, the Employee shall be
------------
awarded, for each fiscal year during the Employment Period for which a bonus is
paid to any senior officers of the Bank, an annual bonus (an "Annual Bonus") in
cash equal to or greater than the average bonus payable to the Employee from
the Bank under the terms of the Bank's bonus program in effect immediately prior
to the Effective Date, or, if more favorable to the Employee, as provided at any
time thereafter with respect to other senior officers of the Bank. Such Annual
Bonus shall be payable not later than 90 days after the end of the fiscal year.
(iii) Incentive, Savings and Retirement Plans. In addition to Base
---------------------------------------
Salary and Annual Bonus payable as hereinabove provided, the Employee shall be
entitled to participate during the Employment Period in all incentive, savings
5
<PAGE>
and retirement plans, practices, policies and programs applicable to other
senior executive employees of the Bank (including employee benefit plans, in
each case providing benefits which are the economic equivalent to those in
effect or as subsequently amended). Such plans, practices, policies and
programs, in the aggregate, shall provide the Employee with compensation,
benefits and reward opportunities at least as favorable as the most favorable of
such compensation, benefits and reward opportunities provided by the Bank for
the Employee under such plans, practices, policies and programs as in effect at
any time during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Employee, as provided at any time thereafter with
respect to other senior executive employees of the Bank.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Employee and the Employee's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
and programs), at least as favorable as the most favorable of such plans,
practices, policies and programs in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Employee
and/or the Employee's family, as in effect at any time thereafter with respect
to other senior executive employees of the Bank.
(v) Expenses. During the Employment Period, the Employee shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Employee in accordance with the most favorable policies, practices and
procedures of the Bank in effect at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Employee,
as in effect at any time thereafter with respect to other senior executive
employees of the Bank.
6
<PAGE>
(vi) Fringe Benefits. During the Employment Period, the Employee
---------------
shall be entitled to fringe benefits in accordance with the most favorable
plans, practices, programs and policies of the Bank in effect at any time during
the 90-day period immediately preceding the Effective Date or, if more favorable
to the Employee, as in effect at any time thereafter with respect to other
senior executive employees of the Bank
(vii) Office and Support Staff. During the Employment Period, the
------------------------
Employee shall be entitled to a private office or offices of a size and with
furnishings and other appointments, and to secretarial and other assistance, and
such other facilities, amenities and services at least equal to the most
favorable of the foregoing provided to the Employee by the Bank at any time
during the 90-day period immediately preceding the Effective Date or, if more
favorable to the Employee, as provided at any time thereafter with respect to
other senior executive employees of the Bank.
(viii) Vacation. During the Employment Period, the Employee shall
--------
be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Bank as in effect at any time during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Employee, as in effect at any time thereafter with respect to other senior
executive employees of the Bank.
7
<PAGE>
5. Termination.
-----------
(a) Death or Disability. This Agreement shall terminate automatically upon
-------------------
the Employee's death. If the Bank determines in good faith that the Disability
of the Employee has occurred (pursuant to the definition of "Disability" set
forth below), it may give to the Employee written notice of its intention to
terminate the Employee's employment. In such event, the Employee's employment
with the Bank shall terminate effective on the 30th day after receipt of such
notice by the Employee (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Employee shall not have returned to full-
time performance of the Employee's duties. For purposes of this Agreement,
"Disability" means disability which, at least 26 weeks after its commencement,
is determined to be total and permanent by a physician selected by the Bank or
its insurers and acceptable to the Employee or the Employee's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Cause. The Bank may terminate the Employee's employment for "Cause."
------
For purposes of this Agreement, "Cause" means: (i) an act or acts of personal
dishonesty taken by the Employee and intended to result in substantial personal
enrichment of the Employee at the expense of the Company or its subsidiaries,
(ii) repeated violations by the Employee of the Employee's obligations under
Section 4(a) of this Agreement, which are demonstrably willful and deliberate on
the Employee's part and which are not remedied in a reasonable period of time
after receipt of written notice from the Bank or, (iii) the conviction of the
Employee of a felony.
(c) Good Reason. The Employee's employment may be terminated by the
-----------
Employee for Good Reason. For purposes of this Agreement, "Good Reason" means:
(i) the assignment to the Employee of any duties inconsistent in any
respect with the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of
8
<PAGE>
this Agreement, or any other action by the Bank which results in a diminution in
such position, authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Bank promptly after receipt of notice thereof given by
the Employee;
(ii) any failure by the Bank to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the Bank
promptly after receipt of notice thereof given by the Employee;
(iii) the Bank's requiring the Employee to be based at any office or
location other than that described in Section 4(a)(i) hereof, except for travel
reasonably required in the performance of the Employee's responsibilities;
(iv) any purported termination by the Bank of the Employee's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Bank to comply with and satisfy Section 11(c)
of this Agreement. For purposes of this Section 5(c), any determination of "Good
Reason" made by the Employee shall be conclusive if made in good faith.
Notwithstanding anything in this Agreement to the contrary, a termination by the
Employee for any reason during the 30-day period immediately following the first
anniversary of the Effective Date shall be deemed to be a termination for Good
Reason for all purposes of this Agreement ("Window Period.")
(d) Notice of Termination. Any termination by the Bank for Cause or by the
---------------------
Employee for Good Reason shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 12(b) of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon; (ii) sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for
9
<PAGE>
termination of the Employee's employment under the provision so indicated; and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date shall be not
more than fifteen (15) days after the giving of such notice). The failure by the
Employee to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of the
Employee hereunder or preclude the Employee from asserting such fact or
circumstance in enforcing his or her rights hereunder.
(e) Date of Termination. "Date of Termination" means the date of receipt
-------------------
of the Notice of Termination or any later date specified-therein, as the case
may be; provided, however, that (i) if the Employee's employment is terminated
-----------------
by the Bank other than for Cause or Disability, the Date of Termination shall be
the date on which the Bank notifies the Employee of such termination; and (ii)
if the Employee's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Employee or the Disability
Effective Date, as the case may be.
6. Obligations of the Bank upon Termination.
----------------------------------------
(a) Death. If the Employee's employment is terminated by reason of the
-----
Employee's death, this Agreement shall terminate without further obligations to
the Employee's legal representatives under this Agreement, other than those
obligations accrued or earned and vested (if applicable) by the Employee as of
the Date of Termination, including, for this purpose: (i) the Employee's full
Base Salary through the Date of Termination at the rate in effect on the Date of
Termination or if higher, at the highest rate in effect at any time from the 90-
day period preceding the Effective Date through the Date of Termination (the
"Highest Base Salary); (ii) the product of the Annual Bonus paid to the Employee
for the last full fiscal year and a
10
<PAGE>
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365; and
(iii) any compensation previously deferred by the Employee (together with any
accrued interest thereon) and not yet paid by the Bank and any accrued vacation
pay not yet paid by the Bank (such amounts specified in clauses (i), (ii) and
(iii) are hereinafter referred to as "Accrued Obligations"). All such Accrued
Obligations shall be paid to the Employee's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
Notwithstanding anything in this Agreement to the contrary, the Employee's
family shall be entitled to receive benefits at least equal to the most
favorable benefits provided by the Bank to surviving families of employees of
the Bank under such plans, programs, practices and policies relating to family
death benefits, if any, in accordance with the most favorable plans, programs,
practices and policies of the Bank in effect at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Employee and/or the Employee's family, as in effect on the date of the
Employee's death with respect to other senior executive employees of the Bank
and their families.
(b) Disability. If the Employee's employment is terminated by reason of
----------
the Employee's Disability, this Agreement shall terminate without further
obligations to the Employee, other than those obligations accrued or earned and
vested (if applicable) by the Employee as of the Date of Termination, including
for this purpose, all Accrued Obligations. All such Accrued Obligations shall
be paid to the Employee in a lump sum in cash within 30 days of the Date of
Termination. Notwithstanding anything in this Agreement to the contrary, the
Employee shall be entitled after the Disability Effective Date to receive
disability and other benefits at least equal to the most favorable of those
provided by the Bank to disabled employees and/or their families in accordance
with such plans, programs, practices and policies relating to disability, if
any, in accordance with the most favorable plans, programs,
11
<PAGE>
practices and policies of the Bank in effect at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Employee and/or the Employee's family, as in effect at any time thereafter with
respect to other senior executive employees of the Bank and their families.
(c) Cause; Other than for Good Reason. If the Employee's employment shall
---------------------------------
be terminated for Cause, this Agreement shall terminate without further
obligations to the Employee other than the obligation to pay to the Employee the
full Base Salary through the Date of Termination. If the Employee terminates
employment other than for Good Reason, this Agreement shall terminate without
further obligations to the Employee, other than those obligations accrued or
earned and vested (if applicable) by the Employee through the Date of
Termination, including for this purpose, all Accrued Obligations. All such
Accrued Obligations shall be paid to the Employee in a lump sum in cash within
30 days of the Date of Termination.
(d) Good Reason; Other Than for Cause or Disability. If, during the
-----------------------------------------------
Employment Period, the Bank shall terminate the Employee's employment other than
for Cause, Disability, or death or if the Employee shall terminate his or her
employment during the Window Period for Good Reason:
(i) the Bank shall pay to the Employee in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. to the extent not theretofore paid, the Employee's Base
Salary through the Date of Termination; and
B. a proportionate Annual Bonus based on the Employee's Annual
Bonus for the last three fiscal years, where the numerator in such calculation
is the number of days in the current fiscal year through the Date of Termination
and the denominator of which is 365; and
12
<PAGE>
C. the product of an amount equal to six months of the
Employee's Base Salary plus any Bonus the Employee is entitled to under the
Agreement; and
D. in the case of compensation previously deferred by the
Employee, all amounts previously deferred, together with any accrued interest
thereon and not yet paid by the Bank, any accrued vacation pay not yet paid by
the Bank, any other Accrued Obligations; and
E. the Employee shall be entitled to receive a lump-sum
retirement benefit equal to the difference between (a) the actuarial equivalent
of the benefit under the Retirement Plan the Employee would receive if he or she
remained employed by the Bank at the compensation level provided for in Sections
4(b)(i) and 4(b)(ii) of this Agreement for the remainder of the Employment
Period and (b) the actuarial equivalent of his or her benefit, if any, under the
Retirement Plan; and
F. for the remainder of the Employment Period, or such longer
period as any plan, program, practice or policy may provide, the Bank shall
continue benefits to the Employee and/or the Employee's family at least equal to
those which would have been provided to them in accordance with the plans,
programs, practices and policies described in Section 4(b)(iv) of this Agreement
if the Employee's employment had not been terminated, including health insurance
and life insurance, in accordance with the most favorable plans, practices,
programs or policies of the Bank during the 90-day period immediately preceding
the Effective Date or, if more favorable to the Employee, as in effect at any
time thereafter with respect to other senior executive employees and their
families and for purposes of eligibility for retiree benefits pursuant to such
plans, practices, programs and policies, the Employee shall be considered to
have remained employed until the end of the Employment Period and to have
retired on the last day of such period.
13
<PAGE>
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Employee's continuing or future participation in any benefit, bonus,
incentive or other plans, programs, policies or practices, provided by the Bank
and for which the Employee may qualify, nor shall anything herein limit or
otherwise affect such rights as the Employee may have under any stock option or
other agreements with the Bank or any of its subsidiaries. Amounts which are
vested benefits or which the Employee is otherwise entitled to receive under any
plan, policy, practice or program of the Bank or any of its subsidiaries at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program.
8. Full Settlement. The Bank's obligation to make the payments provided for
---------------
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Bank may have against the Employee or others. In no
event shall the Employee be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Employee under any of
the provisions of this Agreement. The Bank agrees to pay, to the full extent
permitted by law, all legal fees and expenses which the Employee may reasonably
incur as a result of any contest (regardless of the outcome thereof) by the Bank
or others of the validity or enforceability of, or liability under, any
provision of this Agreement or any guarantee of performance thereof (including
as a result of any contest by the Employee about the amount of any payment
pursuant to Section 9 of this Agreement), plus in each case interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Internal
Revenue Code of 1986, as amended (the "Code").
14
<PAGE>
9. Certain Additional Payments by the Bank.
---------------------------------------
(a) Notwithstanding anything in this Agreement to the contrary, in the
event it shall be determined that any payment or distribution by the Bank to or
for the benefit of the Employee, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a
"Payment"), would be subject to the excise-tax imposed by Section 4999 of the
Code or any interest or penalties with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Employee shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax, imposed upon the
Gross-Up Payment, the Employee retains an amount of the Gross -Up Payment equal
to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations required
to be made under this Section 9, including whether a Gross-Up Payment is
required and the amount of such Gross-Up Payment, shall be made by the Bank's
firm of independent auditors (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Bank and the Employee within 15
business days of the Date of Termination, if applicable, or such earlier time as
is requested by the Bank. The initial Gross-Up Payment, if any, as determined
pursuant to this Section 9(b), shall be paid to the Employee within 5 days of
the receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Employee, it shall furnish the
Employee with an opinion that he or she has substantial authority not to report
any Excise Tax on his or her federal income tax return. Any determination by
the Accounting Firm shall be binding upon the Bank and the Employee. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm
15
<PAGE>
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Bank should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Bank exhausts
its remedies pursuant to Section 9(c) and the Employee thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Bank to or for the benefit of the Employee.
(c) The Employee shall notify the Bank in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Bank of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Employee knows of such
claim and shall apprise the Bank of the nature of such claim and the date on
which such claim is requested to be paid. The Employee shall not pay such claim
prior to the expiration of the thirty-day period following the date on which it
gives such notice to the Bank (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If the Bank notifies
the Employee in writing prior to the expiration of such period that it desires
to contest such claim, the Employee shall:
(i) give the Bank any information reasonably requested by the Bank
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Bank shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Bank,
(iii) cooperate with the Bank in good faith in order effectively to
contest such claim,
(iv) permit the Bank to participate in any proceedings relating to
such claim; provided, however, that the Bank shall bear and pay directly all
costs and
16
<PAGE>
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Bank shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Employee to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Employee agrees to prosecute such contest to a
determination before any administrative tribunal, any court of initial
jurisdiction and any one or more appellate courts, as the Bank shall determine;
provided, however, that if the Bank directs the Employee to pay such claim and
sue for a refund, the Bank shall advance the amount of such payment to the
Employee, on an interest-free basis and shall indemnify and hold the Employee
harmless, on an after-tax basis, from any Excise Tax or income tax, including
interest or penalties with respect thereto, imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Employee with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Bank's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Employee
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the Bank
pursuant to Section 9(c), the Employee becomes entitled to receive any refund
17
<PAGE>
with respect to such claim, the Employee shall (subject to the Bank's complying
with the requirements of Section 9(c)) promptly pay to the Bank the amount of
such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Bank pursuant to Section 9(c), a determination is made that the
Employee shall not be entitled to any refund with respect to such claim and the
Bank does not notify the Employee in writing of its intent to contest such
denial of refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Compliance with Safety and Soundness Standards. Notwithstanding
-----------------------------------------------
anything contained herein to the contrary, in no event shall the total
compensation paid out upon the departure of an employee be in excess of that
considered safe and sound at the time of such payment, taking into consideration
all applicable laws, regulations, or other regulatory guidance including but not
limited to Office of Thrift Supervision Regulatory Bulletin 27a or any similar
or successor regulatory pronouncement.
11. Confidential Information. The Employee shall hold in a fiduciary capacity
------------------------
for the benefit of the Bank all secret or confidential information, knowledge or
data relating to the Bank or any of its subsidiaries, and their respective
businesses, which shall have been obtained by the Employee during the Employee's
employment by the Bank and which shall not be or become public knowledge (other
than by acts by the Employee or his representatives in violation of this
Agreement). After termination of the Employee's employment with the Bank, the
Employee shall not, without the prior written consent of the Bank, communicate
or divulge any such information,
18
<PAGE>
knowledge or data to anyone other than the Bank and those designated by it. In
no event shall an asserted violation of the provisions of this Section 10
constitute a basis for deferring or withholding any amounts otherwise payable to
the Employee under this Agreement.
12. Successors.
-----------
(a) This Agreement is personal to the Employee and without the prior
written consent of the Bank shall not be assignable by the Employee otherwise
than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Employee's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
13. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be amended or modified
otherwise than
19
<PAGE>
by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
-------------------
401 Wilshire Boulevard,
Santa Monica, California 90401
If to the Company:
------------------
FirstFed Financial Corp.
401 Wilshire Boulevard
Santa Monica, California 90401
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Bank may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
(e) The Employee's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
20
<PAGE>
(f) This Agreement contains the entire understanding of the Company and the
Employee with respect to the subject matter hereof.
(g) The Employee and the Bank acknowledge that the employment of the
Employee by the Bank is "at will", and, prior to the Effective Date, may be
terminated by either the Employee or the Bank at any time. Upon a termination of
the Employee's employment or upon the Employee's ceasing to be an officer of the
Bank, in each case, prior to the Effective Date, there shall be no further
rights under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
"Employee"
__________________________________
Name:
FirstFed Financial Corp. Attest:
By:__________________________ By:___________________________
Name:________________________ Name:_________________________
Title:_________________________ Title:________________________
21
<PAGE>
First Federal Bank of California Attest:
By:__________________________ By:___________________________
Name:________________________ Name:_________________________
Title:_______________________ Title:________________________
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORAMTION 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 167,088
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 117,302
<INVESTMENTS-MARKET> 117,302
<LOANS> 3,776,874
<ALLOWANCE> 49,248
<TOTAL-ASSETS> 4,196,726
<DEPOSITS> 2,054,520
<SHORT-TERM> 1,846,227
<LIABILITIES-OTHER> 62,038
<LONG-TERM> 50,000
0
0
<COMMON> 114
<OTHER-SE> 183,941
<TOTAL-LIABILITIES-AND-EQUITY> 4,196,726
<INTEREST-LOAN> 213,485
<INTEREST-INVEST> 9,905
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 223,390
<INTEREST-DEPOSIT> 77,662
<INTEREST-EXPENSE> 153,510
<INTEREST-INCOME-NET> 69,880
<LOAN-LOSSES> 26,700
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 48,314
<INCOME-PRETAX> 3,105
<INCOME-PRE-EXTRAORDINARY> 3,105
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,599
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
<YIELD-ACTUAL> 2.23
<LOANS-NON> 71,470
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 55,322
<ALLOWANCE-OPEN> 68,977
<CHARGE-OFFS> 33,534
<RECOVERIES> 4,070
<ALLOWANCE-CLOSE> 66,213
<ALLOWANCE-DOMESTIC> 66,213
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
