<PAGE>
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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 March 31, 1997
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 May 1, 1997, 10,560,402 shares of the Registrant's $.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 March 31, 1997, December 31, 1996
and March 31, 1996
Consolidated Statements of Operations for the 4
three months ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows for the three 5
months ended March 31, 1997 and 1996
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)
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
<PAGE>
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
FirstFed Financial Corp. and Subsidiary
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 135,623 $ 162,402 $ 148,526
Investment securities, available-for-sale
(at fair value) 84,780 69,440 56,071
Mortgage-backed securities, available-for-sale
(at fair value) 711,286 735,475 806,441
Loans receivable, held-for-sale (market value of
$6,959, $6,238, and $5,307) 6,949 6,195 5,294
Loans receivable, net 3,063,345 3,042,274 3,006,048
Accrued interest and dividends receivable 27,280 26,910 28,031
Real estate 13,223 14,445 26,010
Office properties and equipment, net 9,384 8,944 8,939
Investment in Federal Home Loan Bank
(FHLB) stock, at cost 63,408 62,400 59,699
Other assets 14,459 15,367 20,766
----------- ----------- -----------
$ 4,129,737 $ 4,143,852 $ 4,165,825
=========== =========== ===========
LIABILITIES
Deposits $ 2,033,787 $ 1,957,448 $ 2,256,643
FHLB advances and other borrowings 1,223,000 1,294,000 936,900
Securities sold under agreements to repurchase 628,921 646,482 706,282
Accrued expenses and other liabilities 48,879 51,372 70,689
----------- ----------- -----------
3,934,587 3,949,302 3,970,514
----------- ----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDER'S EQUITY
Common stock, par value $.01 per share;
authorized 25,000,000 shares; issued 11,483,922
11,453,369, and 11,420,816 shares, outstanding
10,560,402, 10,529,849, and 10,624,296 shares 115 115 114
Additional paid-in capital 29,147 28,677 28,306
Retained earnings - substantially restricted 189,133 183,965 179,089
Loan to employee stock ownership plan (2,159) (2,132) (2,533)
Treasury stock, at cost, 923,520
923,520 and 796,520 shares (11,885) (11,885) (9,832)
Unrealized loss on securities
available-for-sale, net of taxes (9,201) (4,190) 167
----------- ----------- -----------
195,150 194,550 195,311
----------- ----------- -----------
$ 4,129,737 $ 4,143,852 $ 4,165,825
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FirstFed Financial Corp. and Subsidiary
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
Interest income:
Interest on loans $ 57,813 $ 57,886
Interest on mortgage-backed securities 12,636 14,715
Interest and dividends on investments 3,236 3,496
--------- ---------
Total interest income 73,685 76,097
--------- ---------
Interest expense:
Interest on deposits 22,898 27,168
Interest on borrowings 26,755 25,784
--------- ---------
Total interest expense 49,653 52,952
--------- ---------
Net interest income 24,032 23,145
Provision for loan losses 6,000 9,000
--------- ---------
Net interest income
after provision for losses 18,032 14,145
--------- ---------
Other income:
Loan and other fees 1,496 1,629
Gain on sale of loans 5 124
Real estate operations, net 631 796
Other operating income 770 724
--------- ---------
Total other income 2,902 3,273
--------- ---------
Non-interest expense 11,911 11,466
--------- ---------
Earnings before income taxes 9,023 5,952
Income tax provision 3,855 2,584
--------- ---------
Net earnings $ 5,168 $ 3,368
========= =========
Earnings per share $ 0.48 $ 0.32
========= =========
Weighted average shares outstanding
for earnings per share calculation 10,681,815 10,674,779
========== ==========
</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>
Three Months Ended
March 31,
---------------------------
1997 1996
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 5,168 $ 3,368
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Net change in loans-held-for-sale (754) 2,083
Provision for loan losses 6,000 9,000
Valuation adjustments on real estate sold (984) (152)
Amortization of fees and discounts (272) (765)
Negative amortization on Loans (701) (1,255)
Increase in taxes payable 3,855 2,583
(Increase) decrease in interest and
dividends receivable (370) 589
Increase in interest payable 2,494 1,723
Other (4,938) (5,423)
----------- ------------
Total adjustments 4,330 8,383
----------- ------------
Net cash provided by operating activities 9,498 11,751
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers net of principal
collection on loans (32,108) 20,356
Loans repurchased under recourse arrangements (4,561) (7,297)
Proceeds from sales of real estate owned 16,294 20,000
Proceeds from maturities and principal payments
on investment securities held for sale 12,519 19,913
Principal reduction of mortgage-backed
securities held for sale 15,936 21,588
Purchase of investment securities held for sale (28,300) -
Other 350 (1,652)
----------- ------------
Net cash provided by (used in) investing activities (19,870) 72,908
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in savings deposits 76,339 51,607
Net decrease in short term borrowings (88,561) (18,761)
Repayment of long term borrowings - (5,000)
Other (4,185) (857)
----------- ------------
Net cash provided by (used in) financing activities (16,407) 26,989
----------- ------------
Net increase (decrease) in cash and cash equivalents (26,779) 111,648
Cash and cash equivalents at beginning of period 162,402 36,878
----------- ------------
Cash and cash equivalents at end of period $ 135,623 $ 148,526
=========== ============
</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 per share were computed by dividing net earnings by
the weighted average number of shares of common stock outstanding
for the period, plus the effect of stock options, if dilutive.
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.
6
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION
At March 31, 1997, FirstFed Financial Corp. (the "Company"),
holding company for First Federal Bank of California and its
subsidiaries (the "Bank"), had consolidated assets totaling $4.1
billion, compared to $4.1 billion at December 31, 1996 and $4.2
billion at March 31, 1996. The decrease in assets from March 31,
1996 to March 31, 1997 was due primarily to a decline in the
balance of mortgage-backed securities which resulted from
principal reductions on the underlying loans.
The Bank's primary market area is Southern California.
Throughout the past year the Southern California economy has
continued to improve from the economic recession which began in
1990. According to the UCLA Business Forecast for California,
March, 1997 Report (the "UCLA Report"), the state is expected to
continue to generate jobs at a rate of over 2% annually which
should reduce the unemployment rate to below 6% in 1999 for the
first time since 1991. The UCLA Report forecasts that real
estate prices, which have already begun to firm, will continue to
show gradual improvement over the next three years. Further, the
Los Angeles Magazine, in the January, 1997 Real Estate edition,
reports trends that "suggest a great deal of pent-up demand" led
by strong home sales in the entry-level market. Further,
Los Angeles Magazine, in the January, 1997 Real Estate edition,
reports trends that "suggest a great deal of pent-up demand"
led by strong home sales in the entry-level market.
Due to improvement in the real estate market, net loan charge-
offs declined to $3.7 million for the first three months of 1997
compared to $8.1 million for the first three months of 1996. The
ratio of non-performing assets to total assets was 1.74% as of
March 31, 1997, compared to 1.78% at December 31, 1996 and 2.56%
at March 31, 1996. (See "Non-performing Assets" for further
discussion.)
The Bank's general valuation allowances for loans totaled $51.8
million at March 31, 1997 compared to $54.9 million at December
31, 1996 and $46.2 million at March 31, 1996. The Bank also
maintains valuation allowances for impaired loans which totaled
$13.2 million at March 31, 1997 compared to $12.4 million at
December 31, 1996 and $23.9 million at March 31, 1996.
Loan originations increased by 94% to $87.7 million in the first
three months of 1997 compared $45.3 million in the first three
months of 1996. The Bank has successfully expanded its emphasis
on loan products originated for its portfolio.
The Bank's portfolio of loans and mortgage-backed securities
remained at $3.8 billion as of March 31, 1997, December 31, 1996
and March 31, 1996 because principal reductions on loans and
and mortgage-backed securities were slightly in excess of loan
originations.
7
<PAGE>
The following table shows the components of the Bank's portfolio
of loans and mortgage-backed securities by collateral type for
the periods indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
----------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C>
REAL ESTATE LOANS:
First trust deed residential loans:
One unit $ 1,305,199 $ 1,279,267 $ 1,196,701
Two to four units 344,855 342,230 344,867
Five or more units 1,266,426 1,277,634 1,320,392
----------- ----------- -----------
Residential loans 2,916,480 2,899,131 2,861,960
OTHER REAL ESTATE LOANS:
Commercial and industrial 208,795 210,953 216,415
Second trust deeds 17,259 17,497 18,712
Other 6,392 2,137 3,038
----------- ----------- -----------
Real estate loans 3,148,926 3,129,718 3,100,125
NON-REAL ESTATE LOANS:
Manufactured housing 1,414 1,480 1,853
Deposit accounts 1,132 1,042 1,140
Consumer 90 236 292
----------- ----------- -----------
Loans receivable 3,151,562 3,132,476 3,103,410
LESS:
General valuation allowances-
loan portfolio 51,821 54,900 46,152
Valuation allowances - impaired loans 13,217 12,350 23,936
Unrealized loan fees 16,230 16,757 21,980
----------- ----------- -----------
Net loans receivable 3,070,294 3,048,469 3,011,342
FHLMC AND FNMA MORTGAGE-
BACKED SECURITIES:
Secured by single family dwellings 692,391 715,286 783,212
Secured by multi-family dwellings 18,895 20,189 23,229
----------- ----------- -----------
Mortgage-backed securities 711,286 735,475 806,441
----------- ----------- -----------
TOTAL $ 3,781,580 $ 3,783,944 $ 3,817,783
=========== =========== ===========
</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.
The mortgage-backed securities portfolio was classified as
available for sale as of March 31, 1997 in accordance with
Statement of Financial Accounting Standards No. 115. A negative
fair value adjustment of $8.9 million, net of taxes, was
reflected in stockholders' equity as of March 31, 1997. This
represents a $4.8 million increase from the negative $4.1 million
adjustment at December 31, 1996.
The investment securities portfolio, classified as available-for-
sale, was recorded at fair value as of March 31, 1997. A
negative fair value adjustment of $335 thousand, net of taxes,
was reflected in stockholders' equity as of March 31, 1997. This
represents a $207 thousand increase from the negative $128
thousand adjustment at December 31, 1996.
8
<PAGE>
Asset/Liability Management
The one year GAP (the difference between rate-sensitive assets
and liabilities repricing within one year or less) was a
positive $215 million or 5.22% of total assets at the end of
the first quarter of 1997. In comparison, the one year GAP
ratio was a positive $240 million or 5.80% of total assets as of
December 31, 1996 and a positive $308 million or 7.39% of total
assets as of March 31, 1996.
Since over 96% 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.
A positive GAP normally benefits a financial institution in times
of increasing interest rates. However, because there is a three
month time lag before changes in the COFI Index can be
implemented with respect to the Bank's loans, the Bank's net
interest income typically declines during periods of increasing
interest rates.
Capital
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and
percentages of total capital to risk-weighted assets. The most
recent notification from the OTS indicated that the Bank was well
capitalized under the applicable regulatory requirements. The
following table summarizes the Bank's actual capital and required
capital as of March 31, 1997:
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
-------- ------- ----------
<S> <C> <C> <C>
Actual Capital:
Amount $242,665 $242,665 $270,158
Ratio 5.85% 5.85% 11.58%
Minimum required capital:
Amount $ 62,173 $124,346 $188,594
Ratio 1.50% 3.00% 8.00%
Well capitalized required capital:
Amount - $207,243 $235,255
Ratio - 5.00% 10.00%
</TABLE>
Pursuant to the Board of Directors' authorization in 1987, the
Company may repurchase up to 10% of its outstanding shares of
common stock as of December 31, 1987. The Company repurchased
127,000 shares during 1996 at an average price of $16.17 per
share. No shares were repurchased during the first quarter of
1997. As of March 31, 1997, 137,000 shares remained eligible for
repurchase.
RESULTS OF OPERATIONS
The Company reported consolidated net earnings of $5.2 million
for the first quarter of 1997 compared to net earnings of $3.4
million for the first quarter of 1996. The improved earnings
resulted primarily from a $3.0 million decrease in the loan loss
provision and an $887 thousand increase in net interest income,
$486 thousand of which was interest received on California tax
refunds.
9
<PAGE>
For the first three months of 1997, loan charge-offs, net of
recoveries, were $3.7 million compared to $8.1 million for the
first three months of 1996. The lower charge-off levels in 1997
resulted primarily from fewer valuation allowances established on
single family and multi-family loans as a result of more stable
real estate prices compared to the first quarter of 1996. (See
"Non-performing Assets" for further discussion.)
Loan Loss Provisions
Due to improving real estate conditions in Southern California,
$6.0 million was provided for loan losses in the first quarter of
1997 compared to $9.0 million in the first quarter of 1996.
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 economic trends 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>
Three Months Ended March 31, 1997
-----------------------------------------------
General Impaired
Valuation Valuation
Allowance Allowance Total
------------- ------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at December 31, 1996 $ 54,900 $ 12,350 $ 67,250
Provision for loan losses 3,874 2,126 6,000
Charge-offs:
Single family (1,858) (3) (1,861)
Multi family (1,705) (1,256) (2,961)
---------- ---------- ----------
Total charge-offs (3,563) (1,259) (4,822)
Recoveries 844 - 844
---------- ---------- ----------
Net charge-offs (2,719) (1,259) (3,978)
Transfer to valuation allowance
for loans sold with recourse (4,234) - (4,234)
---------- ---------- ----------
Balance at March 31, 1997 $ 51,821 $ 13,217 $ 65,038
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996
----------------------------------------------
General Impaired
Valuation Valuation
Allowance Allowance Total
------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at December 31, 1995 $ 42,876 $ 26,101 $ 68,977
Provision for loan losses 4,552 4,448 9,000
Charge-offs:
Single family (3,238) (165) (3,403)
Multi-family - (6,448) (6,448)
Non-real estate (170) - (170)
---------- --------- ----------
Total charge-offs (3,408) (6,613) (10,021)
Recoveries 2,132 - 2,132
---------- --------- ----------
Net charge-offs (1,276) (6,613) (7,889)
---------- --------- ----------
Balance at March 31, 1996 $ 46,152 $ 23,936 $ 70,088
========== ========= ==========
</TABLE>
10
<PAGE>
The Bank also maintains a valuation allowance for loans sold with
recourse, recorded as a liability. This allowance was 5.74% of
loans sold with recourse as of March 31, 1997, compared to 3.64%
as of December 31, 1996 and 3.64% as of March 31, 1996. The
balance of loans sold with recourse totaled $224.7 million,
$230.8 million and $241.8 million as of March 31, 1997, December
31, 1996 and March 31, 1996, respectively. The Bank has not
entered into any new recourse arrangements since 1989. Listed
below is a summary of the activity in the valuation allowance for
loans sold with recourse during the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1997 1996
-------- --------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 8,398 $ 9,050
Charge-offs - (259)
Recoveries 268 -
Transfers from general loan
valuation allowance 4,234 -
-------- --------
Balance at end of period $ 12,900 $ 8,791
======== ========
</TABLE>
The following table summarizes the activity in the general
valuation allowance for real estate acquired by foreclosure for
the quarter ended March 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1996 $ 520
Provision for losses 125
Charge-offs (244)
--------
Balance at March 31, 1997 $ 401
========
</TABLE>
There was no general valuation allowance for real estate acquired
by foreclosure during the quarter ended March 31, 1996.
The Company's interest rate margin was the same for the three
month periods ended March 31, 1997 and 1996 at 2.09%. The
Eleventh District Cost of Funds Index (on a lagged basis)
determines the yield on over 96% of the Bank's loan portfolio and
was 0.26% lower during the first three months of 1997 compared to
the same period of 1996. A lower balance in non-performing loans
and a higher yielding investment portfolio offset the reduction
in the loan yield. In addition, the Bank's cost of funds was
0.16% lower in the first quarter of 1997 than in the first
quarter of 1996.
11
<PAGE>
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>
Three Months Ended March 31,
-----------------------------
1997 1996
----------- ------------
(Dollars In thousands)
<S> <C> <C>
Average loans and mortgage-backed
securities $ 3,785,302 $ 3,852,566
Average investment securities 167,209 181,653
------------ ------------
Average interest-earning assets 3,952,511 4,034,219
------------ ------------
Average savings deposits 1,986,081 2,246,137
Average borrowings 1,865,609 1,714,861
------------ ------------
Average interest-bearing liabilities 3,851,690 3,960,998
------------ ------------
Excess of interest-earning assets over
interest-bearing liabilities $ 100,821 $ 73,221
============ ============
Yields earned on average interest
earning assets 7.29% 7.45%
Rates paid on average interest-
bearing liabilities 5.20 5.36
Net interest rate spread 2.09 2.09
Effective net spread (1) 2.23 2.18
Total interest income $ 72,085 $ 75,102
Total interest expense 49,653 52,952
------------ ------------
22,432 22,150
Total other items (2) 1,600 995
------------ ------------
Net interest income $ 24,032 $ 23,145
============ ============
</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, including interest on
California tax refunds.
NON-INTEREST INCOME AND EXPENSE
Real estate operations produced net gains of $631 thousand and
$796 thousand for the first quarter of 1997 and 1996,
respectively. Gains result primarily from the recovery of excess
valuation allowances associated with foreclosed properties sold.
A net gain on sale of loans of $5 thousand and $124 thousand was
recognized for the first quarter of 1997 and 1996, respectively.
The volume of loans sold during the first quarter of 1997 and
1996 was $1.2 million and $14.5 million, respectively.
Total non-interest expense increased by 4% during the first
quarter of 1997 to $11.9 million compared to $11.5 million for
the prior year period. Expenses increased as a result of
compensation-related items associated with the Bank's development
of new business products and servicies as well as certain costs
associated with
12
<PAGE>
evaluating new data processing and occupancy requirements. The
expense-to-assets ratio was 1.15% of average assets for the first
quarter of 1997, up from 1.10% for the same quarter of last year.
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 $71.8 million at March 31, 1997 compared
to $72.6 million at December 31, 1996 and $98.4 million at March
31, 1996.
The amount of interest that has been reserved for loans 90 days
or more delinquent or in foreclosure was $4.3 million at March
31, 1997, $4.2 million at December 31, 1996 and $4.5 million at
March 31, 1996.
The Bank has debt restructurings which result from temporary
modifications of principal and interest payments. Under these
arrangements, loan terms are typically reduced to no less than a
monthly interest payment required under the note. Any loss of
revenues under the modified terms would be immaterial to the
Bank. Generally, if the borrower is unable to return to
scheduled principal and interest payments at the end of the
modification period, foreclosure proceedings are initiated. As
of March 31, 1997, the Bank had modified loans totaling $13.5
million, net of loan loss allowances totaling $3.9 million. One
modified loan, with an unpaid principal balance of $113 thousand,
was 90 days or more delinquent as of March 31, 1997.
Pursuant to Statement of Financial Accounting Standards No. 114
("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.
The following is a summary of impaired loans, net of valuation
allowances for impairment, for the periods indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
--------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Non-accrual loans $ 22,959 $ 20,052 $ 29,895
Modified loans 6,628 5,996 11,274
Other impaired loans 18,226 11,586 37,076
---------- ---------- ----------
$ 47,813 $ 37,634 $ 78,245
========== ========== ==========
</TABLE>
The increase as of March 31, 1997 compared to December 31, 1996
was due to the designation of three multi-family residential
loans as impaired during the quarter. 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.
13
<PAGE>
When a loan is considered impaired, the Bank measures impairment
based on the present value of expected future cash flows (over a
period not to exceed 5 years) discounted at the loan's effective
interest rate. However, if the loan is "collateral-dependent" or
a probable 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 impaired loans measured using the fair
value method and loans measured based on the present value of
expected future cash flows discounted at the effective interest
rate of the loan for the periods indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
--------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Fair value method $ 43,750 $ 34,642 $ 59,753
Present value method 4,063 2,992 18,492
--------- --------- ---------
Total impaired loans $ 47,813 $ 37,634 $ 78,245
========= ========= =========
</TABLE>
Impaired loans for which there were no valuation allowances
established totaled $6.7 million, $4.1 million and $4.4 million
as of March 31, 1997, December 31, 1996, and March 31, 1996,
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
periods indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
---------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Single family $ 3,272 $ 2,002 $ 825
Multi-family 18,102 17,417 25,540
Commercial 1,585 633 3,530
---------- ----------- ---------
$ 22,959 $ 20,052 $ 29,895
========== =========== =========
</TABLE>
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.
Listed below is additional information concerning the Bank's
impaired loans for the periods indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
---------- ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C>
Average recorded investment $ 46,559 $ 36,632 $ 77,435
Interest income recognized
on impaired loans $ 574 $ 445 $ 1,164
</TABLE>
14
<PAGE>
ASSET QUALITY
The following table sets forth certain asset quality ratios of
the Bank at the periods indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
-------- ----------- --------
<S> <C> <C> <C>
Non-Performing Loans to
Loans Receivable (1) 1.85% 1.89% 2.61%
Non-Performing Assets to
Total Assets (2) 1.74% 1.78% 2.56%
Loan Loss Allowances to
Non-Performing Loans (3) 90.78% 94.27% 64.66%
General Loss Allowances to
Assets with Loss Exposure (4) 1.63% 1.73% 1.48%
General Loss Allowances to
Total Assets with Loss
Exposure (5) 1.90% 1.86% 1.63%
</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 loan portfolio and real estate owned plus loans
sold with recourse, but exclude mortgage-backed securities.
15
<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. An analysis of non-performing assets
as of the periods indicated follows:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
---------- ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C>
Real estate acquired by foreclosure:
Single family $ 8,897 $ 6,840 $ 9,112
Multi-family 3,806 7,339 13,797
Commercial 809 673 2,806
Other - - 177
-------- --------- ---------
Total real estate acquired by foreclosure 13,512 14,852 25,892
-------- --------- ---------
Non-accrual loans:
Single family 21,652 25,602 26,248
Multi-family 46,913 44,754 65,661
Commercial 3,246 2,223 6,278
Other 21 - 223
Less:
Valuation allowances (1) (13,385) (13,522) (17,482)
-------- --------- ---------
Total non-performing loans 58,447 59,057 80,928
-------- --------- ---------
Total non-performing assets $ 71,959 $ 73,909 $ 106,820
======== ========= =========
</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 March 31, 1997 decreased 9%
compared to December 31, 1996 and 48% compared to March 31,
1996. Real estate acquired by foreclosure decreased compared to
the previous quarter and the same period last year as a result
of a decline in new foreclosed properties. Management continues
to dedicate significant attention to the quick resolution and
disposition of foreclosed properties. Sales of foreclosed real
estate totaled $16.3 million and $20.0 million during the first
quarter of 1997 and 1996, respectively.
Non-accrual loans, net of valuation allowances, decreased slightly
compared to the level at December 31, 1996 and decreased 28%
compared to the March 31, 1996 level. During the first quarter
of 1997, the reduction in single-family non accrual loans was
partly offset by an increase in multi-family non-accrual loans.
The decrease in non-accrual loans since the first quarter of
1996 is primarily due to a decline in multi-family loan
delinquencies.
16
<PAGE>
SOURCES OF FUNDS
External sources of funds include deposits from several sources,
advances from the Federal Home Loan Bank of San Francisco
("FHLB"), securitized borrowings and unsecured term funds.
Deposits are accepted from retail savings branches, a
telemarketing department, and national deposit brokers.
Excluding $16.8 million in interest credits during the first
quarter of 1997, total savings deposits increased by $59.5
million during the first three months of 1997.
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 branches decreased by $1.2 million
during the first three months of 1997. The Bank has increased
its promotional efforts at retail branches in order to counter
increased competition for customer deposits in Southern
California. Retail deposits comprised 72.3% of total savings
deposits as of March 31, 1997.
Telemarketing deposits increased by $16.5 million during the
first three months of 1997. These accounts 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 6.4% of total deposits at March 31, 1997.
Deposits acquired from national brokerage firms ("brokered
deposits") increased by $44.2 million during the first three
months of 1997. 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 March 31, 1997, brokered
deposits comprised 21.3% of total deposits.
Total borrowings decreased by $88.6 million during the first
three months of 1997 due to net payoffs of $92.0 million in FHLB
advances and $17.6 in borrowings under reverse repurchase
agreements, offset by $21.0 million in additional unsecured term
funds.
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 $70.6 million for the first
quarter of 1997. This compares with principal payments of $69.4
million for the first quarter of 1996.
Loan sales decreased to $1.2 million for the first quarter of
1997 compared with loan sales of $14.5 million for the first
quarter of 1996 due to a decrease in the amount of saleable
product originated.
17
<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 filed as Exhibit 10.4 to Form
10-Q for the quarter ended September 30, 1996 and
incorporated by reference.
(10.5) Form of Directors Stock Incentive Plan effective
January 1, 1997 filed as Appendix A to Proxy Statement dated
March 18, 1997 for Annual Meeting of Stockholders 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
March 31, 1997.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
FIRSTFED FINANCIAL CORP.
------------------------
Registrant
Date: May 14, 1997
By /s/ BABETTE E. HEIMBUCH
-----------------------
Babette E. Heimbuch
President and
Chief Executive Officer
By /s/ DOUGLAS J. GODDARD
----------------------
Douglas J. Goddard
Chief Financial Officer
and Executive Vice President
19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
the company's Consolidated Statement 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> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 28,623
<INT-BEARING-DEPOSITS> 107,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 796,066
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,070,294
<ALLOWANCE> 65,038
<TOTAL-ASSETS> 4,129,737
<DEPOSITS> 2,033,787
<SHORT-TERM> 1,801,921
<LIABILITIES-OTHER> 48,879
<LONG-TERM> 50,000
0
0
<COMMON> 115
<OTHER-SE> 195,035
<TOTAL-LIABILITIES-AND-EQUITY> 4,129,737
<INTEREST-LOAN> 70,449
<INTEREST-INVEST> 3,239
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 73,685
<INTEREST-DEPOSIT> 22,898
<INTEREST-EXPENSE> 49,653
<INTEREST-INCOME-NET> 24,032
<LOAN-LOSSES> 6,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,911
<INCOME-PRETAX> 9,032
<INCOME-PRE-EXTRAORDINARY> 9,032
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,168
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
<YIELD-ACTUAL> 2.23
<LOANS-NON> 58,447
<LOANS-PAST> 0
<LOANS-TROUBLED> 6,628
<LOANS-PROBLEM> 26,774
<ALLOWANCE-OPEN> 75,648
<CHARGE-OFFS> 4,663
<RECOVERIES> 953
<ALLOWANCE-CLOSE> 77,938
<ALLOWANCE-DOMESTIC> 77,938
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
