<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 June 30, 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 August 1, 1997, 10,580,755 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 June 30, 1997, December 31, 1996
and June 30, 1996
Consolidated Statements of Operations for the three 4
months and six months ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows for the six 5
months ended June 30, 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) 18
Item 4. Submission of Matters to a Vote of Securities Holders
Item 6. Exhibits and Reports on Form 8-K
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>
June 30, December 31, June 30,
1997 1996 1996
------------ ------------ -------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents $ 187,978 $ 162,402 $ 79,650
Investment securities, available-for-sale
(at fair value) 67,159 69,440 120,776
Mortgage-backed securities, available-for-sale
(at fair value) 696,530 735,475 765,555
Loans receivable, held-for-sale (fair value of
$11,482, $6,238, and $2,929) 11,335 6,195 2,926
Loans receivable, net 3,101,564 3,042,274 3,000,483
Accrued interest and dividends receivable 27,366 26,910 28,196
Real estate 13,031 14,445 20,548
Office properties and equipment, net 9,498 8,944 8,940
Investment in Federal Home Loan Bank
(FHLB) stock, at cost 66,004 62,400 60,518
Other assets 12,738 15,367 17,262
------------ ------------ -------------
$ 4,193,203 $ 4,143,852 $ 4,104,854
============ ============ =============
Liabilities
Deposits $ 1,960,394 $ 1,957,448 $ 2,158,268
FHLB advances and other borrowings 1,382,500 1,294,000 1,020,875
Securities sold under agreements to repurchase 601,849 646,482 679,006
Accrued expenses and other liabilities 46,004 51,372 57,939
------------ ------------ -------------
3,990,747 3,949,302 3,916,088
------------ ------------ -------------
Commitments and Contingent Liabilities
Stockholders' Equity
Common stock, par value $.01 per share;
authorized 25,000,000 shares; issued 11,498,894
11,453,369, and 11,432,417 shares, outstanding
10,575,374, 10,529,849, and 10,508,897 shares 115 115 114
Additional paid-in capital 29,410 28,677 28,430
Retained earnings - substantially restricted 194,481 183,965 182,489
Loan to employee stock ownership plan (2,187) (2,132) (2,566)
Treasury stock, at cost, 923,520 shares (11,885) (11,885) (11,885)
Unrealized loss on securities
available-for-sale, net of taxes (7,478) (4,190) (7,816)
------------ ------------ -------------
202,456 194,550 188,766
------------ ------------ -------------
$ 4,193,203 $ 4,143,852 $ 4,104,854
============ ============ =============
</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 Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 58,409 $ 56,564 $ 116,222 $ 114,450
Interest on mortgage-backed securities 12,268 13,850 24,904 28,565
Interest and dividends on investments 3,268 3,339 6,505 6,835
---------- ---------- ---------- ----------
Total interest income 73,945 73,753 147,631 149,850
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 23,968 26,245 46,866 53,413
Interest on borrowings 26,949 24,033 53,704 49,817
---------- ---------- ---------- ----------
Total interest expense 50,917 50,278 100,570 103,230
---------- ---------- ---------- ----------
Net interest income 23,028 23,475 47,061 46,620
Provision for loan losses 5,500 9,000 11,500 18,000
---------- ---------- ---------- ----------
Net interest income
after provision for loan losses 17,528 14,475 35,561 28,620
---------- ---------- ---------- ----------
Other income:
Loan and other fees 1,509 1,641 3,005 3,270
Gain on sale of loans 25 73 30 197
Real estate operations, net 467 452 1,098 1,248
Other operating income 889 657 1,659 1,381
---------- ---------- ---------- ----------
Total other income 2,890 2,823 5,792 6,096
---------- ---------- ---------- ----------
Non-interest expense 10,996 11,287 22,908 22,753
---------- ---------- ---------- ----------
Earnings before income taxes 9,422 6,011 18,445 11,963
Income tax provision 4,074 2,611 7,929 5,195
---------- ---------- ---------- ----------
Net earnings $ 5,348 $ 3,400 $ 10,516 $ 6,768
========== ========== ========== ==========
Earnings per share $ 0.50 $ 0.32 $ 0.98 $ 0.64
========== ========== ========== ==========
Weighted average shares outstanding
for earnings per share calculation 10,717,861 10,618,472 10,717,854 10,636,757
========== ========== ========== ==========
</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>
Six Months Ended
June 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 10,516 $ 6,768
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net change in loans-held-for-sale (5,140) 4,451
Provision for loan losses 11,500 18,000
Valuation adjustments on real estate sold (2,403) (768)
Amortization of fees and discounts (613) (662)
Increase in negative amortization (1,319) (2,257)
Increase in taxes payable 7,929 5,195
(Increase) decrease in interest and
dividends receivable (456) 424
Increase (decrease) in interest payable 631 (6,289)
Other (517) (2,479)
---------- ----------
Total adjustments 9,612 15,615
---------- ----------
Net cash provided by operating activities 20,128 22,383
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers net of principal
collection on loans (91,117) 1,142
Loans repurchased (5,468) (9,479)
Proceeds from sales of real estate 35,525 41,181
Principal reductions on mortgage-backed securities 33,629 49,085
Proceeds from maturities and principal payments
on investment securities 30,166 34,123
Purchase of investment securities (28,300) (79,405)
Purchase of FHLB stock (1,666) -
Treasury stock purchases - (2,053)
Other (491) 2,578
---------- ----------
Net cash provided by (used in) investing activities (27,722) 37,172
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in savings deposits 2,946 (46,768)
Net increase in short term borrowings 93,867 41,938
Repayment of long term borrowings (50,000) (9,000)
Payment of prior period taxes and interest to IRS (9,812) -
Other (3,831) (2,953)
---------- ----------
Net cash provided by (used in) financing activities 33,170 (16,783)
---------- ----------
Net increase in cash and cash equivalents 25,576 42,772
Cash and cash equivalents at beginning of period 162,402 36,878
---------- ----------
Cash and cash equivalents at end of period $ 187,978 $ 79,650
========== ==========
</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 of the date of purchase.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
At June 30, 1997, 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, 1996 and June
30, 1996.
The Bank's primary market area is Southern California which has
continued to improve from the economic recession of the early
1990s. According to the UCLA Forecast for California, June 1997
Report (the "UCLA Report"), the region has shown strong gains in
employment, consumer confidence and personal income over the past
year. Furthermore, according to the UCLA Report, California real
estate prices have risen 2% over the last year, are predicted to
rise 3.6% in 1997 and to remain 1% above inflation thereafter.
Consistent with the improvement noted in the Southern California
economy and real estate market, the Bank's ratio of
non-performing assets to total assets decreased to 1.39% as of
June 30, 1997 from 1.78% at December 31, 1996 and 2.52% at June
30, 1996. Compared to the levels one year ago, non-performing
loans, net of valuation allowances, decreased 45% and foreclosed
real estate decreased 37%. (See "Non-performing Assets" for
further discussion.)
The Bank's general valuation allowances were $54 million or 1.65%
of total loans and real estate owned with loss exposure at June
30 , 1997. This compares with $55 million or 1.73% as of
December 31, 1996 and $49 million or 1.65% at June 30, 1996.
The Bank also maintains valuation allowances for impaired loans
which totaled $12 million at June 30, 1997, $12 million at
December 31, 1996 and $21 million at June 30, 1996. Loan charge-
offs decreased to $5 million and $9 million for the second
quarter and first six months of 1997, respectively, from $10
million and $18 million for same periods of 1996, respectively.
The Bank's portfolio of loans, including mortgage-backed
securities, remained at $3.8 billion at June 30, consistent with
the level at December 31, 1996 and June 30, 1996. Loan
originations were $124 million and $212 million for the second
quarter and first six months of 1997, respectively, compared to
$68 million and $114 million for the second quarter and first six
months of 1996, respectively. Principal reductions on loans and
mortgage-backed securities were $69 million and $150 million for
the second quarter and first six months of 1997, respectively,
compared to $80 million and $149 million for the second quarter
and first six months of 1996, respectively.
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. No new mortgage-backed securities were created
during 1996 or 1997.
The mortgage-backed securities portfolio, classified as available-
for-sale, was recorded at fair value as of June 30, 1997. An
unrealized loss of $7 million, net of taxes, was reflected in
stockholders' equity as of June 30, 1997. This adjustment
represents a $3 million increase over the $4 million unrealized
loss recorded as of December 31, 1996.
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>
June 30, December 31, June 30,
1997 1996 1996
----------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
REAL ESTATE LOANS:
First trust deed residential loans:
One unit $ 1,366,157 $ 1,279,267 $ 1,205,993
Two to four units 345,852 342,230 341,550
Five or more units 1,249,930 1,277,634 1,304,150
----------- ------------ ------------
Residential loans 2,961,939 2,899,131 2,851,693
OTHER REAL ESTATE LOANS:
Commercial and industrial 205,491 210,953 215,301
Second trust deeds 17,444 17,497 18,070
Other 6,735 2,137 2,761
----------- ------------ ------------
Real estate loans 3,191,609 3,129,718 3,087,825
NON-REAL ESTATE LOANS:
Manufactured housing 1,314 1,480 1,710
Deposit accounts 1,721 1,042 1,199
Consumer 112 236 320
----------- ------------ ------------
Loans receivable 3,194,756 3,132,476 3,091,054
LESS:
General valuation allowances-
loan portfolio 53,321 54,900 48,630
Valuation allowances - impaired loans 12,019 12,350 21,083
Unrealized loan fees 16,517 16,757 17,932
----------- ------------ ------------
Net loans receivable 3,112,899 3,048,469 3,003,409
FHLMC AND FNMA MORTGAGE-
BACKED SECURITIES (at fair value):
Secured by single family dwellings 677,587 715,286 745,016
Secured by multi-family dwellings 18,943 20,189 20,539
----------- ------------ ------------
Mortgage-backed securities 696,530 735,475 765,555
----------- ------------ ------------
TOTAL $ 3,809,429 $ 3,783,944 $ 3,768,964
=========== ============ ============
</TABLE>
The multi-family loan portfolio (five or more units) continues to
decline due to amortization and payoffs of the underlying loans.
The Bank originates multi-family loans primarily to finance the
sale of its foreclosed properties.
The investment securities portfolio, classified as available-for-
sale, was recorded at fair value as of June 30, 1997. An
unrealized loss of $312 thousand, net of taxes, was reflected in
stockholders' equity as of June 30, 1997. This adjustment
represented a $184 thousand increase over the $128 thousand
unrealized loss recorded as of December 31, 1996.
8
<PAGE>
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 $235 million or 5.60%
of total assets at June 30, 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 $294 million or 7.16% as of
June 30, 1996.
Over 98% of the Bank's rate-sensitive assets reprice within one
year because more than 95% of its loans adjust monthly based upon
changes in the Eleventh District Cost of Funds Index ("COFI
Index"). Therefore, the Bank's one year GAP varies based upon
the extent by which the maturities of its deposits and borrowings
exceed one year.
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 a three month time lag before changes in the
COFI Index can be implemented with respect to the Bank's loans.
Capital
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and
percentage of total capital to risk-weighted assets. The most
recent notification from the OTS indicates 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 June 30, 1997:
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
-------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Actual Capital:
Amount $249,181 $ 249,181 $ 277,550
Ratio 5.92% 5.92% 11.68%
Minimum required capital:
Amount $ 63,085 $ 126,169 $ 191,815
Ratio 1.50% 3.00% 8.00%
Well capitalized required capital:
Amount - $ 210,282 $ 239,360
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 that were outstanding as of December 31, 1987. The
Company repurchased 127,000 shares during 1996 at an average
price of $16.17 per share. Total shares repurchased as of June
30, 1997 were 923,520 at an average price of $11.87. No shares
were repurchased during the first six months of 1997. As of June
30, 1997, 137,000 shares remained eligible for repurchase.
Results of Operations
The Company reported consolidated net earnings of $5.3 million
for the second quarter of 1997 compared to net earnings of $3.4
million for the second quarter of 1996. The improved earnings
resulted primarily from a 39% decrease in the provision for loan
losses to $5.5 million for the second quarter of 1997 from $9.0
million for the second quarter of 1996.
9
<PAGE>
The Company reported consolidated net earnings of $10.5 million
for the first six months of 1997 compared to $6.8 million for the
same period last year. The provision for loan losses for the
first six months of 1997 was $11.5 million compared to $18.0
million for the first six months of 1996.
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 economic climate 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>
Six Months Ended June 30, 1997
----------------------------------------------
General Impaired
Valuation Valuation
Allowances Allowances Total
---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at December 31, 1996 $ 54,900 $ 12,350 $ 67,250
Provision for loan losses 6,045 5,455 11,500
Charge-offs:
Single family (3,255) (179) (3,434)
Multi-family (1,568) (5,033) (6,601)
Commercial (574) (574)
---------- ---------- ---------
Total charge-offs (4,823) (5,786) (10,609)
Recoveries 1,433 - 1,433
---------- ---------- ---------
Net charge-offs (3,390) (5,786) (9,176)
---------- ---------- ---------
Transfers to general valuation allowance
for loans sold with recourse (4,234) - (4,234)
---------- ---------- ---------
Balance at June 30, 1997 $ 53,321 $ 12,019 $ 65,340
========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996
----------------------------------------------
General Impaired
Valuation Valuation
Allowances Allowances Total
---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at December 31, 1995 $ 42,876 $ 26,101 $ 68,977
Provision for loan losses 9,515 8,485 18,000
Charge-offs:
Single family (5,550) (165) (5,715)
Multi-family (1,168) (12,849) (14,017)
Commercial - (489) (489)
Non-real estate (180) - (180)
---------- ---------- ---------
Total charge-offs (6,898) (13,503) (20,401)
Recoveries 3,837 - 3,837
---------- ---------- ---------
Net charge-offs (3,061) (13,503) (16,564)
---------- ---------- ---------
Transfers to general valuation
allowance for real estate (700) - (700)
---------- ---------- ---------
Balance at June 30, 1996 $ 48,630 $ 21,083 $ 69,713
========== ========== =========
</TABLE>
10
<PAGE>
The Bank also maintains a valuation allowance for loans sold with
recourse, recorded as a liability. This allowance was 5.80% of
loans sold with recourse as of June 30, 1997, compared to 3.64%
as of December 31, 1996 and 3.54% as of June 30, 1996. The
balance of loans sold with recourse totaled $221 million, $231
million and $239 million as of June 30, 1997, December 31, 1996
and June 30, 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>
Six Months Ended June 30,
---------------------------------
1997 1996
-------- --------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 8,398 $ 9,050
Charge-offs (70) (600)
Recoveries 268 -
Transfers from general loan
valuation allowance 4,234 -
-------- --------
Balance at end of period $ 12,830 $ 8,450
======== ========
</TABLE>
The following table summarizes the activity in the general
valuation allowance for real estate acquired by foreclosure for
the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1997 1996
------- -------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 520 $ -
Provision for losses 581 -
Charge-offs (841) -
Transfers from general loan
valuation allowance - 700
------- -------
Balance at end of period $ 260 $ 700
======= =======
</TABLE>
Net Interest Income
The Company's interest rate margin decreased to 2.07% for the
second quarter of 1997 from 2.13% for the second quarter of last
year. During the first six months of 1997, the interest rate
margin decreased to 2.08% from 2.11% for the same period of last
year. The COFI Index (on a lagged basis) determines the yield
on over 95% of the loan portfolio. The Index in effect during
the three months and six months ended June 30, 1997 decreased
0.17% and 0.22% compared to the same periods of the prior year.
The declines in the Index since the prior year offset the
positive effects of the decrease in non-performing assets during
the same period. In addition, the Bank's cost of funds increased
by 0.06% during the three months ended June 30, 1997 over the
same period of last year and by 0.05% during the first six months
of 1996 compared to the same period of last 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:
11
<PAGE>
<TABLE>
<CAPTION>
During the Six Months Ended June 30,
------------------------------------
1997 1996
---------- ----------
(Dollars In Thousands)
<S> <C> <C>
Average loans and mortgage-backed
securities $3,794,458 $3,822,478
Average investment securities 164,210 169,790
---------- ----------
Average interest-earning assets 3,958,668 3,992,268
---------- ----------
Average savings deposits 2,008,295 2,230,165
Average borrowings 1,846,517 1,684,870
---------- ----------
Average interest-bearing liabilities 3,854,812 3,915,035
---------- ----------
Excess of interest-earning assets over
interest-bearing liabilities $ 103,856 $ 77,233
========== ==========
Yields earned on average interest
earning assets 7.32% 7.40%
Rates paid on average interest-
bearing liabilities 5.24 5.29
Net interest rate spread 2.08 2.11
Effective net spread1 2.22 2.21
Total interest income $ 144,925 $ 147,683
Total interest expense 100,554 103,230
---------- ----------
44,371 44,453
Total other items2 2,690 2,167
---------- ----------
Net interest income $ 47,061 $ 46,620
========== ==========
</TABLE>
<TABLE>
<CAPTION>
During the Three Months Ended June 30,
--------------------------------------
1997 1996
---------- ----------
(Dollars In Thousands)
<S> <C> <C>
Average loans and mortgage-backed
securities $3,803,616 $3,799,176
Average investment securities 161,210 157,927
---------- ----------
Average interest-earning assets 3,964,826 3,957,103
---------- ----------
Average savings deposits 2,030,509 2,214,194
Average borrowings 1,827,425 1,654,879
---------- ----------
Average interest-bearing liabilities 3,857,934 3,869,073
---------- ----------
Excess of interest-earning assets over
interest-bearing liabilities $ 106,892 $ 88,030
========== ==========
Yields earned on average interest
earning assets 7.34% 7.34%
Rates paid on average interest-
bearing liabilities 5.27 5.21
Net interest rate spread 2.07 2.13
Effective net spread1 2.22 2.24
Total interest income $ 72,813 $ 72,581
Total interest expense 50,908 50,278
---------- ----------
21,905 22,303
Total other items2 1,123 1,172
---------- ----------
Net interest income $ 23,028 $ 23,475
========== ==========
</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.
12
<PAGE>
Non-Interest Income and Expense
Real estate operations produced net gains of $467 thousand and
$452 thousand for the second quarter of 1997 and 1996,
respectively. For the first six months of 1997 and 1996, real
estate operations produced net gains of $1.1 million and $1.2
million, respectively. Gains result primarily from the recovery
of excess valuation allowances associated with foreclosed
properties sold.
Gain on the sale of loans results primarily from loan fees
recognized at the time of sale. The decrease in gain on the sale
of loans during the second quarter and first six months of 1997
results from a lower volume of loans sold during 1997 compared to
the prior year period. Loan sales totaled $2 million and $3
million during the second quarter and first six months of 1998
compared to $7 million and $21 million during the second quarter
and first six months of 1997.
Other operating income increased to $889 thousand during the
second quarter of 1997 from $657 thousand for the same period
last year. For the first six months of 1997 other operating
income increased to $1.7 million from $1.4 million the year
before. The improved amounts are due to increased fees
collected for services rendered at the retail savings branches
and additional fees collected from stand-alone ATMs.
.
Non-interest expenses decreased to 1.06% of average total assets
during the second quarter of 1997 compared to 1.09% the year
before. On a year-to-date comparative basis, non-interest
expenses were 1.09% of total assets for the both first six months
of 1997 and the first six months of 1996. FDIC insurance
premiums decreased to $462 thousand and $947 thousand for the
second quarter and first six months of 1997 from $1.4 million and
$2.8 million for the second quarter and first six months of 1996
due to the lump sum payment made to recapitalize the insurance
fund in the third quarter of 1996. This decrease in expenses
was offset by higher operating costs of expanding the Bank's
business lines and reviewing and implementing new computer
systems.
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 $55 million at June 30, 1997 compared to
$73 million at December 31, 1996 and $102 million at June 30,
1996.
The amount of interest that has been reserved for loans 90 days
or more delinquent or in foreclosure was $3 million at June 30,
1997, $4 million at December 31, 1996 and $5 million at June 30,
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 June 30, 1997, the Bank had modified loans totaling $8
million, net of loan loss allowances totaling $200 thousand. No
modified loans were 90 days or more delinquent as of June 30,
1997.
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 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.
13
<PAGE>
The following is a summary of impaired loans, net of valuation
allowances for impairment, as of the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Non-accrual loans $ 17,887 $ 20,052 $ 33,025
Modified loans 4,539 5,996 7,819
Other impaired loans 10,969 11,586 14,660
------------ ------------ ------------
$ 33,395 $ 37,634 $ 55,504
============ ============ ============
</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>
June 30, December 31, June 30,
1997 1996 1996
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Fair value method $ 32,324 $ 34,642 $ 48,389
Present value method 1,071 2,992 7,115
------------ ------------ ------------
Total impaired loans $ 33,395 $ 37,634 $ 55,504
============ ============ ============
</TABLE>
Impaired loans for which there were no valuation allowances
established totaled $4 million, $4 million and $1 million as of
June 30, 1997, December 31, 1996, and June 30, 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
dates indicated:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Single family $ 1,879 $ 2,002 $ 847
Multi-family 15,555 17,417 27,372
Commercial 453 633 4,806
------------ ------------ ------------
$ 17,887 $ 20,052 $ 33,025
============ ============ ============
</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.
14
<PAGE>
Listed below is additional information concerning the Bank's
impaired loans for the periods indicated:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Average recorded investment $ 30,565 $ 36,632 $ 52,815
Interest income recognized:
on impaired loans $ 360 $ 445 $ 543
</TABLE>
Asset Quality
The following table sets forth certain asset quality ratios of
the Bank at the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Non-Performing Loans to
Loans Receivable (1) 1.41% 1.89% 2.66%
Non-Performing Assets to
Total Assets (2) 1.39% 1.78% 2.52%
Loan Loss Allowances to
Non-Performing Loans (3) 114.99% 94.27% 66.96%
General Loss Allowances to
Assets with Loss Exposure (4) 1.65% 1.73% 1.56%
General Loss Allowances to
Total Assets with Loss
Exposure (5) 1.92% 1.87% 1.70%
</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.
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:
15
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Real estate owned:
Single family $ 5,125 $ 6,840 $ 10,339
Multi-family 6,550 7,339 9,712
Commercial 1,576 673 1,080
Other 23 - -
------------ ------------ ------------
Total real estate owned 13,274 14,852 21,131
------------ ------------ ------------
Non-accrual loans:
Single family 17,859 25,602 24,187
Multi-family 34,674 44,754 70,064
Commercial 2,369 2,223 7,201
Other 32 - 192
Less:
Valuation allowances (1) (9,850) (13,522) (19,427)
------------ ------------ ------------
Total non-accrual loans 45,084 59,057 82,217
------------ ------------ ------------
Total non-performing assets $ 58,358 $ 73,909 $ 103,348
============ ============ ============
</TABLE>
_____________________________
(1) Includes valuation allowances for impaired loans and loss
allowances on other non-performing loans requiring fair
value adjustments.
Real estate owned at June 30, 1997 decreased 11% compared to
December 31, 1996 and 37% compared to June 30, 1996 due to
improvement in the Southern California real estate market.
Properties are selling more quickly and property values have
increased slightly compared to the prior year.
Non-accrual loans, net of valuation allowances, at June 30, 1997
decreased 24% compared to the level at December 31, 1996 and
decreased 45% from the level one year ago. Substantial
improvement in multi-family and single family delinquencies was
noted compared to the year ago levels.
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 banking offices, the
telemarketing department, and national deposit brokers.
Excluding $17 million and $34 million in interest credits during
the second quarter and first six months of 1997, respectively,
total savings deposits decreased by $90 million and $31 million
during the second quarter and first six months of 1997,
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 banking officies decreased by $29
million and $30 million during the second quarter and first six
months of 1997, respectively. The Bank is focusing its marketing
efforts on attracting
16
<PAGE>
liquid accounts and short term certificate of deposits. Retail
deposits comprised 74% of total savings deposits as of
June 30, 1997.
Telemarketing deposits decreased by $35 million and $19 million
during the second quarter and first six months of 1997,
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 5% of
total deposits at June 30, 1997.
Deposits acquired from national brokerage firms ("brokered
deposits") decreased by $26 million during the second quarter of
1997 but increased by $18 million during the first six months of
1997, 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 June 30, 1997, brokered deposits
comprised 21% of total deposits.
Total borrowings increased by $132 million during the second
quarter of 1997 due to net payoffs of $27 million in borrowings
under reverse repurchase agreements and $6 million in unsecured
term funds offset by $165 million in additional advances from the
FHLB. Total borrowings increased by $44 million during the
first six months of 1997 due to net payoffs of $45 million in
borrowings under reverse repurchase agreements offset by $16
million in additional unsecured term funds and $73 million in
additional advances from the FHLB.
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 $69 million and $150 million for the
second quarter and first six months of 1997, respectively. This
compares with principal payments of $80 million and $149 million
for the second quarter and first six months of 1996,
respectively.
Loan sales decreased to $1 million and $3 million for the second
quarter and the first six months of 1997. respectively, compared
with sales of $7 million and $21 million for the second quarter
and first six months of 1996. The amount of salable product
originated during 1997 decreased due to borrower preference for
adjustable loan products which are maintained in the Bank's
portfolio.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
On April 23, 1997 the Company held its Annual
Meeting of Stockholders for the purpose of voting on
two proposals. The following are the matters voted
on at the meeting and the votes cast for, against or
withheld, and abstentions as to each such matter.
There were no broker non-votes as to these matters.
<TABLE>
<CAPTION>
1) Election of Directors. For Against Abstain
--------- --------- ---------
<S> <C> <C> <C>
Christopher Harding 9,476,599 202,113 0
James L. Hesburgh 9,476,600 202,112 0
Steven L. Soboroff 9,476,600 202,112 0
</TABLE>
17
<PAGE>
2) Approval of 1997 Nonemployee Directors Stock Incentive Plan.
<TABLE>
<CAPTION>
<S> <C>
For 8,450,629
Against 29,483
Abstain 32,264
</TABLE>
3) Ratification of KPMG Peat Marwick LLP as independent
public auditors for the Company for 1997.
<TABLE>
<CAPTION>
<S> <C>
For 9,616,965
Against: 29,483
Abstain: 32,264
</TABLE>
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) Nonemployee Directors Stock Incentive Plan filed
as Appendix A to the Proxy Statement for the Annual
Meeting of Stockholders held April 23, 1997 and
incorporated by reference.
(11.1) Computation of earnings per share. Part I hereof
is incorporated by reference.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the period ended
June 30, 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: August 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
Statement 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 33,978
<INT-BEARING-DEPOSITS> 154,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 763,689
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,112,899
<ALLOWANCE> 65,340
<TOTAL-ASSETS> 4,193,203
<DEPOSITS> 1,960,394
<SHORT-TERM> 1,934,349
<LIABILITIES-OTHER> 46,004
<LONG-TERM> 50,000
0
0
<COMMON> 115
<OTHER-SE> 202,341
<TOTAL-LIABILITIES-AND-EQUITY> 4,193,203
<INTEREST-LOAN> 141,126
<INTEREST-INVEST> 6,505
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 147,631
<INTEREST-DEPOSIT> 46,866
<INTEREST-EXPENSE> 100,570
<INTEREST-INCOME-NET> 47,061
<LOAN-LOSSES> 11,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 22,908
<INCOME-PRETAX> 18,445
<INCOME-PRE-EXTRAORDINARY> 18,445
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,516
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
<YIELD-ACTUAL> 2.22
<LOANS-NON> 45,084
<LOANS-PAST> 0
<LOANS-TROUBLED> 17,887
<LOANS-PROBLEM> 32,309
<ALLOWANCE-OPEN> 75,648
<CHARGE-OFFS> 10,679
<RECOVERIES> 1,701
<ALLOWANCE-CLOSE> 78,170
<ALLOWANCE-DOMESTIC> 78,170
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
