<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, 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 November 1, 1997, 10,587,618 shares of the Registrant's
$.01 par value common stock were outstanding.
============================================================================
<PAGE>
FirstFed Financial Corp.
Index
<TABLE>
<CAPTION>
<S> <C> <C>
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
as of September 30, 1997, December 31, 1996
and September 30, 1996
Consolidated Statements of Operations for the three 4
months and nine months ended September 30, 1997 and
1996
Consolidated Statements of Cash Flows for the nine 5
months ended September 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)
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>
September 30, December 31, September 30,
1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents $ 92,437 $ 162,402 $ 167,088
Investment securities, available-for-sale
(at fair value) 50,165 58,909 106,277
Mortgage-backed securities, available-for-sale
(at fair value) 691,550 746,006 758,872
Loans receivable, held-for-sale (fair value of
$20,783, $6,238, and $4,330) 20,547 6,195 4,325
Loans receivable, net 3,124,048 3,042,274 3,024,702
Accrued interest and dividends receivable 27,027 26,910 28,951
Real estate 9,386 14,445 18,093
Office properties and equipment, net 9,468 8,944 8,891
Investment in Federal Home Loan Bank
(FHLB) stock, at cost 67,504 62,400 61,425
Other assets 12,515 15,367 18,102
------------- ------------ -------------
$ 4,104,647 $ 4,143,852 $ 4,196,726
============= ============ =============
Liabilities
Deposits $ 1,961,757 $ 1,957,448 $ 2,054,520
FHLB advances and other borrowings 1,287,500 1,294,000 1,236,500
Securities sold under agreements to repurchase 588,839 646,482 659,727
Accrued expenses and other liabilities 54,715 51,372 62,038
------------- ------------ -------------
3,892,811 3,949,302 4,012,785
------------- ------------ -------------
Commitments and Contingent Liabilities
Stockholders' Equity
Common stock, par value $.01 per share;
authorized 25,000,000 shares; issued 11,508,566
11,453,369, and 11,441,117 shares, outstanding
10,585,046, 10,529,849, and 10,517,597 shares 115 115 114
Additional paid-in capital 29,531 28,677 28,524
Retained earnings - substantially restricted 200,452 183,965 177,320
Loan to employee stock ownership plan (2,214) (2,132) (2,599)
Treasury stock, at cost, 923,520 shares (11,885) (11,885) (11,885)
Unrealized loss on securities
available-for-sale, net of taxes (4,163) (4,190) (7,533)
------------- ------------ -------------
211,836 194,550 183,941
------------- ------------ -------------
$ 4,104,647 $ 4,143,852 $ 4,196,726
============= ============ =============
</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,
-------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 60,468 $ 57,101 $176,690 $171,551
Interest on mortgage-backed securities 11,993 13,369 36,898 41,934
Interest and dividends on investments 3,090 3,070 9,594 9,905
-------- -------- -------- --------
Total interest income 75,551 73,540 223,182 223,390
-------- -------- -------- --------
Interest expense:
Interest on deposits 22,905 24,249 69,770 77,662
Interest on borrowings 28,957 26,031 82,661 75,848
-------- -------- -------- --------
Total interest expense 51,862 50,280 152,431 153,510
-------- -------- -------- --------
Net interest income 23,689 23,260 70,751 69,880
Provision for loan losses 5,000 8,700 16,500 26,700
Net interest income ------- -------- -------- --------
after provision for loan losses 18,689 14,560 54,251 43,180
------- -------- -------- --------
Other income:
Loan and other fees 1,560 1,625 4,564 4,895
Gain on sale of loans 45 18 75 215
Real estate operations, net 106 (166) 1,204 1,082
Other operating income 854 666 2,513 2,047
-------- -------- -------- --------
Total other income 2,565 2,143 8,356 8,239
-------- -------- -------- --------
Non-interest expense 10,784 25,561 33,692 48,314
-------- -------- -------- --------
Earnings (loss) before income taxes 10,470 (8,858) 28,915 3,105
Income tax provision (benefit) 4,499 (3,689) 12,428 1,506
-------- -------- -------- --------
Net earnings (loss) $ 5,971 $ (5,169) $ 16,487 $ 1,599
======== ======== ======== ========
Earnings (loss) per share $ 0.55 $ (0.49) $ 1.53 $ 0.15
======== ======== ======== ========
Weighted average shares outstanding
for earnings (loss) per share calculation 10,776,883 10,514,193 10,774,144 10,622,149
========== ========== ========== ==========
</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,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 16,487 $ 1,599
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net change in loans-held-for-sale (14,352) 3,052
Provision for loan losses 16,500 26,700
Valuation adjustments on real estate sold (148) (1,360)
Amortization of fees and discounts (1,127) (1,076)
Increase in negative amortization (1,961) (3,099)
Increase in taxes payable 12,428 1,506
Increase in interest and dividends
receivable (117) (331)
Increase (decrease) in interest payable 1,345 (11,037)
Other 5,994 11,383
---------- ----------
Total adjustments 18,562 25,738
---------- ----------
Net cash provided by operating activities 35,049 27,337
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers net of principal
collection on loans (129,720) (42,242)
Loans repurchased (6,166) (11,404)
Proceeds from sales of real estate 49,926 58,918
Principal reductions on mortgage-backed securities 54,965 38,067
Proceeds from maturities and principal payments
on investment securities 36,626 66,791
Purchase of investment securities (28,400) (79,405)
Purchase of FHLB stock (2,186) -
Treasury stock purchases - (2,053)
Other (646) 2,620
---------- ----------
Net cash provided by (used in) investing activities (25,601) 31,292
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in savings deposits 4,309 (150,516)
Net increase (decrease) in short term borrowings (14,143) 238,284
Repayment of long term borrowings (50,000) (9,000)
Payment of prior period taxes and interest to IRS (12,638) -
Other (6,941) (7,187)
---------- ----------
Net cash provided by (used in) financing activities (79,413) 71,581
---------- ----------
Net increase (decrease) in cash and cash equivalents (69,965) 130,210
Cash and cash equivalents at beginning of period 162,402 36,878
---------- ----------
Cash and cash equivalents at end of period $ 92,437 $ 167,088
========== ==========
</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 September 30, 1997, FirstFed Financial Corp. (the "Company"),
holding company for First Federal Bank of California and its
subsidiaries (the "Bank"), had consolidated assets totaling $4.1
billion, equal to the level at December 31, 1996 and slightly
less than the $4.2 billion level at September 30, 1996.
The Bank's primary market area is Southern California which,
according to the UCLA Forecast for California, September 1997
Report, is nearing the end of its fourth year of economic
expansion following the substantial job losses during 1990 to
1993. The unemployment rate in California is predicted to
average 6.2% for 1997 and to decline to 5.5% by the year 2000.
Real estate values in Los Angeles County are expected to increase
by 4.2% in 1997, 4.9% in 1998 and 5.2% in 1999. This represents
substantial improvement from the declines of 4.4% in 1995, 6.8%
in 1994 and 8.2% in 1993.
Consistent with the improvement in the Southern California
economy and real estate market, the ratio of non-performing
assets to total assets dropped to 1.20% as of September 30, 1997
from 1.78% at December 31, 1996 and 2.15% at September 30, 1996.
Compared to the levels one year ago, non-performing loans, net of
valuation allowances, decreased 45% and foreclosed real estate
decreased 47%. (See "Non-performing Assets" for further
discussion.)
The Bank's general valuation allowances for loans and real estate
totaled $58.4 million or 1.79% of total loans and real estate
owned with loss exposure at September 30, 1997. This compares
with $55.4 million or 1.74% as of December 31, 1996 and $49.9
million or 1.57% at September 30, 1996. The Bank also maintains
valuation allowances for impaired loans which totaled $11.5
million at September 30, 1997, $12.4 million at December 31, 1996
and $17.0 million at September 30, 1996. Loan charge-offs
decreased to $860 thousand and $9.8 million for the third quarter
and first nine months of 1997, respectively, from $11.8 million
and $29.7 million for same periods of 1996, respectively.
The Bank's portfolio of loans, including mortgage-backed
securities, remained at $3.8 billion at September 30, 1997
consistent with the levels at December 31, 1996 and September 30,
1996. Loan originations were $128.9 million and $340.7 million
for the third quarter and first nine months of 1997,
respectively, compared to $101.1 million and $223.8 million for
the third quarter and first nine months of 1996, respectively.
Principal reductions on loans and mortgage-backed securities were
$86.8 million and $237.0 million for the third quarter and first
nine months of 1997, respectively, compared to $67.9 million and
$217.0 million for the third quarter and first nine 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
with the Bank's loans during 1996 or 1997.
The mortgage-backed securities portfolio, classified as available-
for-sale, was recorded at fair value as of September 30, 1997.
An unrealized loss of $3.8 million, net of taxes, was reflected
in stockholders' equity as of September 30, 1997. This compares
to a $4.1 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>
September 30, December 31, September 30,
1997 1996 1996
------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
REAL ESTATE LOANS:
First trust deed residential loans:
One unit $ 1,418,091 $ 1,279,267 $ 1,247,016
Two to four units 346,971 342,230 341,590
Five or more units 1,238,887 1,277,634 1,289,167
------------- ------------ -------------
Residential loans 3,003,949 2,899,131 2,877,773
OTHER REAL ESTATE LOANS:
Commercial and industrial 202,735 210,953 211,626
Second trust deeds 15,928 17,497 17,782
Other 6,364 2,137 2,427
------------- ------------ -------------
Real estate loans 3,228,976 3,129,718 3,109,608
NON-REAL ESTATE LOANS:
Manufactured housing 1,197 1,480 1,563
Deposit accounts 1,313 1,042 1,270
Consumer 111 236 231
------------- ------------ -------------
Loans receivable 3,231,597 3,132,476 3,112,672
LESS:
General valuation allowances-
loan portfolio 57,900 54,900 49,248
Valuation allowances - impaired loans 11,456 12,350 16,965
Unrealized loan fees 17,646 16,757 17,432
------------- ------------ -------------
Net loans receivable 3,144,595 3,048,469 3,029,027
FHLMC AND FNMA MORTGAGE-
BACKED SECURITIES (at fair value):
Secured by single family dwellings 672,687 715,286 727,577
Secured by multi-family dwellings 18,863 20,189 20,270
------------- ------------ -------------
Mortgage-backed securities 691,550 735,475 747,847
------------- ------------ -------------
TOTAL $ 3,836,145 $ 3,783,944 $ 3,776,874
============= ============ =============
</TABLE>
The investment securities portfolio, classified as available-for-
sale, was recorded at fair value as of September 30, 1997. An
unrealized loss of $347 thousand, net of taxes, was reflected in
stockholders' equity as of September 30, 1997. This adjustment
represented a $219 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 $210.7 million or
5.13% of total assets at September 30, 1997. In comparison,
the one year GAP ratio was a positive $240.4 million or 5.80% of
total assets as of December 31, 1996 and a positive $198.6
million or 4.73% as of September 30, 1996.
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 generally 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 the 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 September 30, 1997:
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
-------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Actual Capital:
Amount $253,351 $ 253,351 $ 282,051
Ratio 6.16% 6.16% 12.06%
Minimum required capital:
Amount $ 61,669 $ 123,339 $ 188,013
Ratio 1.50% 3.00% 8.00%
Well capitalized required capital:
Amount - $ 205,565 $ 234,794
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
September 30, 1997 were 923,520 at an average price of $12.87.
No shares were repurchased during the first nine months of 1997.
As of September 30, 1997, 137,000 shares remained eligible for
repurchase.
Results of Operations
The Company reported consolidated net earnings of $6.0 million
for the third quarter of 1997 compared to a net loss of $5.2
million for the third quarter of 1996. Results for the third
quarter of 1996 included an $8.7 million after tax accrual of a
special assessment by the Federal Deposit Insurance Corporation
("FDIC"). Excluding the special assessment, the Company would
have recorded net earnings of $3.5 million during the third
quarter of 1996. The improved earnings, excluding the special
assessment, resulted primarily from a decrease in the provision
for loan losses to $5.0 million for the third quarter of 1997
from $8.7 million for the third quarter of 1996.
9
<PAGE>
The Company reported consolidated net earnings of $16.5 million
for the first nine months of 1997 compared to $1.6 million for
the same period last year. After adjusting for the special
assessment, net earnings for the first nine months of 1996 would
have been $10.3 million. The provision for loan losses for the
first nine months of 1997 was $16.5 million compared to $26.7
million for the first nine months 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 perception of the economic climate in Southern
California.
Loan Loss Allowances
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, 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 9,519 6,981 16,500
Charge-offs:
Single family (4,759) (179) (4,938)
Multi-family (2,659) (6,954) (9,613)
Commercial (471) (616) (1,087)
Non real estate (21) - (21)
---------- ---------- ---------
Total charge-offs (7,910) (7,749) (15,659)
Recoveries 3,785 - 3,785
Adjustments and reclassifications 1,840 (126) 1,714
---------- ---------- ---------
Net charge-offs (2,285) (7,875) (10,160)
---------- ---------- ---------
Transfers to general valuation allowance
for loans sold with recourse (4,234) - (4,234)
---------- ---------- ---------
Balance at September 30, 1997 $ 57,900 $ 11,456 $ 69,356
========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 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 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 (700) - (700)
Transfers to REO valuation
allowance (1,672) - (1,672)
---------- ---------- ---------
Balance at September 30, 1996 $ 49,248 $ 16,965 $ 66,213
========== ========== =========
</TABLE>
10
<PAGE>
The Bank also maintains a valuation allowance for loans sold with
recourse, recorded as a liability. This allowance was 5.89% of
loans sold with recourse as of September 30, 1997, compared to
3.64% as of December 31, 1996 and 3.76% as of September 30, 1996.
The balance of loans sold with recourse totaled $219.9 million,
$230.8 million and $235.6 million as of September 30, 1997,
December 31, 1996 and September 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>
Nine Months Ended September 30,
-------------------------------
1997 1996
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 8,398 $ 9,050
Transfers from general loan
valuation allowance 4,234 -
Charge-offs (70) (191)
Recoveries 392 -
---------- ----------
Balance at end of period $ 12,954 $ 8,859
========== ==========
</TABLE>
The following table summarizes the activity in the general
valuation allowance for real estate acquired by foreclosure for
the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 520 $ -
Provision for losses 1,046 -
Charge-offs (1,066) -
Transfers from general loan
valuation allowance - 700
---------- ----------
Balance at end of period $ 500 $ 700
========== ==========
</TABLE>
Net Interest Income
The Company's interest rate margin increased to 2.15% for the
third quarter of 1997 from 2.11% for the third quarter of last
year despite a 0.09% increase in the Bank's cost of funds during
the same period. The COFI Index (on a lagged basis) determines
the yield on over 95% of the loan portfolio and the Index in
effect during the three months ended September 30, 1997 increased
0.02% compared to same period of the prior year. Also, a decline
in loans delinquent greater than 90 days had a positive effect on
the loan yield during the period. On a year-to-date basis, the
Company's interest rate margin increased to 2.11% from 2.10% for
the same period of last year due to a slight decrease in the
Bank's cost of funds.
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 Nine Months Ended September 30,
-------------------------------------------
1997 1996
------------ ------------
(Dollars In Thousands)
<S> <C> <C>
Average loans and mortgage-backed
securities $ 3,804,603 $ 3,811,785
Average investment securities 162,725 167,647
------------ ------------
Average interest-earning assets 3,967,328 3,979,432
------------ ------------
Average savings deposits 1,983,330 2,171,076
Average borrowings 1,876,446 1,719,048
------------ ------------
Average interest-bearing liabilities 3,859,776 3,890,124
------------ ------------
Excess of interest-earning assets over
interest-bearing liabilities $ 107,551 $ 89,308
============ ============
Yields earned on average interest
earning assets 7.37% 7.37%
Rates paid on average interest-
bearing liabilities 5.26 5.27
Net interest rate spread 2.11 2.10
Effective net spread (1) 2.25 2.23
Total interest income $ 219,212 $ 220,183
Total interest expense 152,196 153,510
------------ ------------
67,016 66,673
Total other items (2) 3,735 3,207
------------ ------------
Net interest income $ 70,751 $ 69,880
============ ============
</TABLE>
<TABLE>
<CAPTION>
During the Three Months Ended September 30,
-------------------------------------------
1997 1996
------------ ------------
(Dollars In Thousands)
<S> <C> <C>
Average loans and mortgage-backed
securities $ 3,824,892 $ 3,783,920
Average investment securities 159,755 163,360
------------ ------------
Average interest-earning assets 3,984,647 3,947,280
------------ ------------
Average savings deposits 1,933,402 2,052,676
Average borrowings 1,936,304 1,787,403
------------ ------------
Average interest-bearing liabilities 3,869,706 3,840,079
------------ ------------
Excess of interest-earning assets over
interest-bearing liabilities $ 114,941 $ 107,201
============ ============
Yields earned on average interest
earning assets 7.46% 7.33%
Rates paid on average interest-
bearing liabilities 5.31 5.22
Net interest rate spread 2.15 2.11
Effective net spread(1) 2.30 2.25
Total interest income $ 74,287 $ 72,434
Total interest expense 51,853 50,280
------------ ------------
22,434 22,154
Total other items(2) 1,255 1,106
------------ ------------
Net interest income $ 23,689 $ 23,260
============ ============
</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 a net gain of $106 thousand for
the third quarter of 1997 and a net loss of $166 thousand for the
third quarter of 1996. For the first nine months of 1997 and
1996, real estate operations produced net gains of $1.2 million
and $1.1 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 gain fluctuates based on the
volume of loans sold. Loan sales totaled $10.6 million and $13.8
million during the third quarter and first nine months of 1997
compared to $7.1 million and $37.5 million during the third
quarter and first nine months of 1996.
Other operating income increased to $854 thousand during the
third quarter of 1997 from $666 thousand for the same period last
year. For the first nine months of 1997 other operating income
increased to $2.5 million from $2.0 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 remote ATMs.
Non-interest expense was 1.04% of average assets for the third
quarter of 1997 and 1.08% of average assets for the first nine
months of 1997. These amounts are slightly higher than 1.01% and
1.07%, for the third quarter and first nine months of 1996,
respectively, after excluding the $15.1 million special SAIF
assessment that was accrued during the third quarter of 1996. The
small increase in the expense ratios after excluding the special
SAIF assessment results from the higher operating costs of
expanding the Bank's business lines and reviewing and
implementing new computer systems. There was also a slight
decrease in average assets..
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 $46.9 million at September 30, 1997
compared to $72.6 million at December 31, 1996 and $90.2 million
at September 30, 1996.
The amount of interest that has been reserved for loans 90 days
or more delinquent or in foreclosure was $2.7 million at
September 30, 1997, $4.2 million at December 31, 1996 and $4.9
million at September 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 September 30, 1997, the Bank had modified loans totaling $10.7
million, net of loan loss allowances totaling $3.6 million.
There were no modified loans 90 days or more delinquent as of
September 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>
September 30, December 31, September 30,
1997 1996 1996
------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Non-accrual loans $ 16,054 $ 20,052 $ 27,912
Modified loans 10,984 5,996 6,971
Other impaired loans 9,468 11,586 9,068
------------- ------------ -------------
$ 36,506 $ 37,634 $ 43,951
============= ============ =============
</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,
1997 1996 1996
------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Fair value method $ 35,439 $ 34,642 $ 40,935
Present value method 1,067 2,992 3,016
------------- ------------ -------------
Total impaired loans $ 36,506 $ 37,634 $ 43,951
============= ============ =============
</TABLE>
Impaired loans for which there were no valuation allowances
established totaled $4.4 million, $4.1 million and $2.2 million
as of September 30, 1997, December 31, 1996, and September 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>
September 30, December 31, September 30,
1997 1996 1996
------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Single family $ 1,220 $ 2,002 $ 2,076
Multi-family 14,337 17,417 23,872
Commercial 497 633 1,964
------------- ------------ -------------
$ 16,054 $ 20,052 $ 27,912
============= ============ =============
</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>
September 30, December 31, September 30,
1997 1996 1996
------------ ----------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Average recorded investment $ 38,638 $ 36,632 $ 44,017
Interest income recognized
on impaired loans $ 527 $ 445 $ 397
</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,
1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
Non-Performing Loans to
Loans Receivable (1) 1.21% 1.89% 2.30%
Non-Performing Assets to
Total Assets (2) 1.20% 1.78% 2.15%
Loan Loss Allowances to
Non-Performing Loans (3) 139.81% 94.27% 75.36%
General Loss Allowances to
Assets with Loss Exposure (4) 1.79% 1.74% 1.57%
General Loss Allowances to
Total Assets with Loss
Exposure (5) 2.05% 1.87% 1.71%
</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, include valuation allowances
for non-performing loans and general valuation
allowances but exclude 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 exclude 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.
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 (real estate owned). An analysis of non-
performing assets follows as of the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Real estate owned:
Single family $ 6,422 $ 6,840 $ 8,351
Multi-family 2,726 7,339 9,284
Commercial 680 673 1,043
Other 19 - -
------------- ------------ -------------
Total real estate owned 9,847 14,852 18,678
------------- ------------ -------------
Non-accrual loans:
Single family 16,027 25,602 26,236
Multi-family 28,500 44,754 60,689
Commercial 2,332 2,223 3,129
Other 34 - 144
Less:
Valuation allowances (1) (7,661) (13,522) (18,728)
------------- ------------ -------------
Total non-accrual loans 39,232 59,057 71,470
------------- ------------ -------------
Total non-performing assets $ 49,079 $ 73,909 $ 90,148
============= ============ =============
</TABLE>
_____________________________
(1) Includes valuation allowances for impaired loans and loss
allowances on other non-performing loans requiring fair
value adjustments.
Real estate owned at September 30, 1997 decreased 34% compared to
December 31, 1996 and 47% compared to September 30, 1996 due to
improvement in the Southern California real estate market.
Properties are selling more quickly and property values are
increasing compared to the prior year.
Non-accrual loans, net of valuation allowances, at September 30,
1997 decreased 34% compared to the level at December 31, 1996 and
decreased 45% from the level one year ago. Substantial
improvement in both 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 $17.0 million and $50.8 million in interest credited
during the third quarter and first nine months of 1997,
respectively, total savings deposits decreased by $15.6 million
and $46.5 million during the third quarter and first nine 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 seeks funds from the lowest cost source
until the relative costs
16
<PAGE>
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 offices decreased by $12.1
million and $42.5 million during the third quarter and first nine
months of 1997, respectively. The Bank is focusing its marketing
efforts on attracting liquid accounts and short term certificate
of deposits. Retail deposits comprised 74% of total savings
deposits as of September 30, 1997.
Telemarketing deposits decreased by $13.3 million and $32.0 million
during the third quarter and first nine 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 September 30, 1997.
Deposits acquired from national brokerage firms ("brokered
deposits") increased by $9.7 million and $27.9 million during
the third quarter and first nine 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 September 30, 1997, brokered deposits
comprised 21% of total deposits.
Total borrowings decreased by $108.0 million during the third
quarter of 1997 due to net payoffs of $13.0 million in borrowings
under reverse repurchase agreements and $95.0 million in advances
from the FHLB. Total borrowings decreased by $64.1 million
during the first nine months of 1997 due to net payoffs of $57.6
million in borrowings under reverse repurchase agreements and $22
million in advances from the FHLB, offset by $15.5 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.
Principal payments on loans and mortgage-backed securities were
$86.8 million and $237.0 million for the third quarter and first
nine months of 1997, respectively, compared to $67.9 million and
$217.0 million for the third quarter and first nine months of
1996, respectively.
Loan sales were $10.6 million and $13.8 million for the third
quarter and the first nine months of 1997, respectively, compared
with sales of $7.1 million and $37.5 million for the third
quarter and first nine months of 1996. The amount of salable
product increased during the third quarter of 1997 due to
borrower preference for the fixed rate loans that the Bank is
originating for sale under its "Lend FFB" program.
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) 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
September 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: November 13, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 37,437
<INT-BEARING-DEPOSITS> 55,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 741,716
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,144,595
<ALLOWANCE> 69,356
<TOTAL-ASSETS> 4,104,647
<DEPOSITS> 1,961,757
<SHORT-TERM> 1,826,339
<LIABILITIES-OTHER> 54,715
<LONG-TERM> 50,000
0
0
<COMMON> 115
<OTHER-SE> 211,721
<TOTAL-LIABILITIES-AND-EQUITY> 4,104,647
<INTEREST-LOAN> 213,588
<INTEREST-INVEST> 5,919
<INTEREST-OTHER> 3,675
<INTEREST-TOTAL> 223,182
<INTEREST-DEPOSIT> 69,770
<INTEREST-EXPENSE> 152,431
<INTEREST-INCOME-NET> 70,751
<LOAN-LOSSES> 16,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 33,692
<INCOME-PRETAX> 28,915
<INCOME-PRE-EXTRAORDINARY> 28,915
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,487
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.53
<YIELD-ACTUAL> 2.30
<LOANS-NON> 39,232
<LOANS-PAST> 0
<LOANS-TROUBLED> 16,054
<LOANS-PROBLEM> 33,117
<ALLOWANCE-OPEN> 67,250
<CHARGE-OFFS> 15,659
<RECOVERIES> 5,499
<ALLOWANCE-CLOSE> 69,356
<ALLOWANCE-DOMESTIC> 69,356
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
