<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
Commission File Number: 0-19609
-------
FirstFed Bancorp, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 63-1048648
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1630 Fourth Avenue North
Bessemer, Alabama 35020
- -------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 428-8472
--------------
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 1, 1996
- ---------------------------- -------------------------------
Common Stock, $.01 par value 610,540 shares
<PAGE>
FIRSTFED BANCORP, INC.
----------------------
FINANCIAL INFORMATION
---------------------
Page
----
FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF September 30, 1996 AND MARCH 31, 1996 . . . . . . . . . . . . . . . 2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE
MONTHS ENDED SEPTEMBER 30, l996 AND 1995 AND THE SIX
MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 . . . . . . . . . . . . . . . . . 3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 . . . . . . . . . . . . . . . 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . 7
PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE NOT BEEN
AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN
THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS NECESSARY FOR A FAIR
PRESENTATION OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS FOR
THE PERIODS PRESENTED.
i.
<PAGE>
FIRSTFED BANCORP, INC.
----------------------
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
ASSETS September 30, March 31,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Cash and Cash Equivalents:
Cash on hand and in banks $ 2,382 $ 2,221
Interest-bearing deposits in other banks 5,539 5,018
Federal funds sold 5,400 4,875
-------- --------
13,321 12,114
-------- --------
Securities available for sale, at fair value 11,781 10,845
Assets held for sale, at lower of cost or market 1,720 1,582
Securities, at amortized cost, fair value of
$6,881 and $3,821, respectively 6,728 3,808
Mortgaged-backed securities, at amortized cost,
fair value of $9,560 and $4,778, respectively 9,802 4,766
Loans receivable, net 127,381 126,199
Land, buildings and equipment, net 2,526 2,606
Goodwill 1,542 1,598
Real estate owned 99 12
Real estate held for investment 997 997
Accrued interest receivable 1,414 1,326
Other assets 444 331
-------- --------
$177,755 $166,184
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $157,126 $145,858
Borrowed funds 1,650 2,002
Accrued interest payable 163 172
Income taxes payable - 232
Dividends payable 122 97
Other liabilities (Notes 3 and 4) 1,677 592
--------- --------
160,738 148,953
--------- --------
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued and
outstanding - -
Common stock, $.01 par value 3,000,000 shares
authorized, 733,214 shares issued and 610,540
shares outstanding 7 7
Paid-in capital 6,496 6,457
Retained earnings 13,523 13,831
Treasury stock (2,774) (2,774)
Unearned compensation (127) (204)
Unearned loss on securities available
for sale, net (108) (86)
---------- ---------
17,017 17,231
---------- ---------
$177,755 $166,184
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
FIRSTFED BANCORP, INC.
----------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
September 30 September 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 2,835 $ 2,221 $ 5,609 $ 4,357
Interest on mortgage-backed
securities 142 89 226 178
Interest and dividends on
securities 282 89 502 205
Other interest income 113 67 218 113
------- ------- ------- ------
Total interest income 3,372 2,466 6,555 4,853
------- ------- ------- ------
INTEREST EXPENSE:
Interest on deposits 1,847 1,329 3,540 2,595
Interest on other borrowings 29 50 60 103
------- ------- ------- ------
Total interest expense 1,876 1,379 3,600 2,698
------- ------- ------- ------
Net interest income 1,496 1,087 2,955 2,155
Provision for loan losses 55 15 85 30
------- ------- ------- ------
Net interest income after
provision for loan losses 1,441 1,072 2,870 2,125
------- ------- ------- ------
NONINTEREST INCOME:
Fees for customer service 147 54 289 105
Miscellaneous operating and
non-operating income, net 57 21 109 29
------- ------- ------- -------
Total noninterest income 204 75 398 134
------- ------- ------- -------
NONINTEREST EXPENSES:
Salaries and employee benefits 544 423 1,077 850
Office building and equipment
expenses 128 87 258 175
Deposit insurance expense 79 71 159 136
Loss on real estate owned 2 - 2 -
Amortization of goodwill 28 - 56 -
Other operating expenses 310 218 607 441
Deposit insurance special
assessment (Note 3) 725 - 725 -
Accrual for pending litigation
(Note 4) 325 - 325 -
------- ------- ------- -------
Total noninterest expenses 2,141 799 3,209 1,602
------- ------- ------- -------
Income (loss) before
income taxes (496) 348 59 657
PROVISION (CREDIT) FOR INCOME TAXES (171) 146 24 273
------- ------- ------- -------
Net income (loss) $ (325) $ 202 $ 35 $ 384
======= ======= ======= =======
EARNINGS (LOSS) PER SHARE (Note 2) $ (.52) $ .31 $ .06 $ .58
======= ======= ======= =======
AVERAGE NUMBER OF SHARES
OUTSTANDING 624,002 652,618 623,189 667,672
======= ======= ======= =======
DIVIDENDS DECLARED PER SHARE $ .20 $ .16 $ .56 $ .96
======= ======= ======= =======
</TABLE>
(Note 2)
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
FIRSTFED BANCORP, INC.
----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
----------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
---- ----
<S> <C> <C>
Net income $ 35 $ 384
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 132 116
Amortization of unearned compensation 77 -
Amortization of premiums, net 43 25
Accretion of deferred income (16) (66)
Loan fees (cost) deferred, net (91) (71)
Provision for loan losses 85 30
Net loans originated for sale (138) (1,051)
Amortization of goodwill 56 -
Change in assets and liabilities:
Increase in accrued interest (88) (27)
(Increase) decrease in other assets (113) 77
Increase (decrease) in accrued interest payable (9) 10
Increase (decrease) in income taxes payable (213) 112
Increase in other liabilities 1,085 114
------- -------
Net cash provided by (used in) operating activities 845 (347)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 850 1,995
Purchase of securities available for sale (1,838) -
Proceeds from maturities of securities 1,061 -
Purchase of securities (3,992) -
Principal payments received on mortgage-backed securities 816 387
Purchase of mortgage-backed securities (5,873) -
Proceeds from sale of real estate owned 5 14
Net loan originations (1,252) (1,230)
Capital expenditures (52) (48)
------- -------
Net cash provided by (used in) investing activities (10,275) 1,118
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net 11,268 4,936
Payment of FHLB advances (352) (294)
Proceeds from exercise of stock options 39 53
Purchase of treasury stock - (937)
Dividends paid (318) (639)
------- -------
Net cash provided by financing activities 10,637 3,119
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,207 3,890
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,114 5,656
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,321 $ 9,546
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for-
Income taxes $ 42 $ 161
======= =======
Interest $ 3,609 $ 2,688
======= =======
Noncash transactions-
Transfers of loans receivable to real estate owned $ 92 $ -
Declaration of cash dividends $ 122 $ 102
(Decrease) increase in unrealized loss on securities
available for sale, net of deferred tax $ 22 $ (42)
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
FIRSTFED BANCORP, INC.
----------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Dollar amounts in thousands, except per share amounts)
1. BASIS OF PRESENTATION:
----------------------
FirstFed Bancorp, Inc. (the "Company") is the holding company and sole
shareholder of First Federal Savings Bank ("First Federal") and First State
Corporation ("FSC"). FSC was acquired by the Company on January 2, 1996, and is
the sole shareholder of First State Bank of Bibb County ("First State"). First
Federal and First State are referred to herein collectively as the "Banks".
The accompanying unaudited condensed consolidated financial statements as of
September 30, 1996 (unaudited) and March 31, 1996, and for the three and six
months ended September 30, 1996 and 1995 (unaudited), include the accounts of
the Company, FSC and the Banks. All significant intercompany transactions and
accounts have been eliminated in consolidation.
In the opinion of management, all adjustments necessary for a fair presentation
of the results of such interim periods have been included. The results of
operations for the three and six months ended September 30, 1996, are not
necessarily indicative of the results of operations which may be expected for
the entire year.
These unaudited condensed Financial Statements should be read in conjunction
with the Consolidated Financial Statements and the notes thereto included in the
Company's annual report on Form 10-K for the year ended March 31, 1996. The
accounting policies followed by the Company are set forth in the summary of
Significant Accounting Policies in the footnotes to the Company's March 31, 1996
Consolidated Financial Statements.
2. EARNINGS AND DIVIDENDS PER SHARE:
---------------------------------
Earnings (loss) per share of $(.52) and $.06 for the three and six months ended
September 30, 1996, considers the incremental dilutive effect of shares
represented by stock options outstanding. Dividends declared for the quarter
ended September 30, 1996, consisted of a $.20 per share quarterly dividend.
3. SAVINGS ASSOCIATION INSURANCE FUND ("SAIF") SPECIAL ASSESSMENT
--------------------------------------------------------------
On September 30, 1996, an omnibus appropriations bill was signed into law to
fund a number of government agencies in the 1997 fiscal year, which began
October 1, 1996. Banking provisions to resolve the deposit insurance premium
disparity between the SAIF and the Bank Insurance Fund ("BIF") were included in
the legislation. The deposits of First Federal are insured by SAIF while the
deposits of
5
<PAGE>
First State are insured by BIF. The banking provisions also included extensive
regulatory relief for thrifts and banks.
The major banking provisions contained in the bill included a one-time special
assessment on SAIF deposits to bring the fund's reserve ratio to the statutorily
required minimum level of 1.25 percent of deposits. The assessment rate for
First Federal was 65.7 basis points and applied to First Federal's deposits as
of March 31, 1995. At September 30, 1996, First Federal recorded an accrual of
$725 ($475, net of tax) to reflect this special assessment.
The bill also provides that pro-rata sharing of the Financing Corporation
("FICO") obligation among BIF and SAIF members will begin by January 1, 2000.
From 1997 through 1999, partial sharing will occur, with SAIF deposits assessed
6.44 basis points and BIF deposits assessed 1.29 basis points. The new
assessment rate for institutions with SAIF deposits represents a reduction from
the existing rate of 23 basis points for First Federal, which will have a
positive impact on future earnings.
In addition, under the bill, the BIF and SAIF will merge to form the Deposit
Insurance Fund on January 1, 1999, if there are no savings associations (not
including state savings banks) in existence on that date. In addition, the
Treasury Department has been directed to report to Congress by March 31, 1997,
with its recommendations on a common charter for banks and savings institutions.
4. ACCRUAL FOR PENDING LITIGATION
------------------------------
During the quarter ended September 30, 1996, a jury verdict was rendered in the
Circuit Court of Jefferson County, Alabama, against First Federal for $75 in
compensatory damages and $250 in punitive damages, for a total of $325 ($215,
net of tax). The lawsuit arose from a customer's claim for disability insurance
benefits to be paid by an insurance company to cover monthly mortgage payments.
First Federal has filed a motion for judgment notwithstanding the verdict or, in
the alternative, for a new trial. In the opinion of legal counsel, the motion is
well-founded and substantial grounds exist for relief to be granted. For
financial statement purposes at September 30, 1996, the entire amount of the
original verdict has been recorded.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
Comparison of Financial Condition as of September 30, 1996, and March 31, 1996
- ------------------------------------------------------------------------------
All dollar amounts, except per share amounts, included hereafter in Management's
Discussion and Analysis of Financial Condition and Results of Operations are in
thousands.
Primarily due to an increase in mortgage-backed and other government securities,
the Company's total consolidated assets at September 30, 1996, increased to
$177,755; an increase of $11,571, or 7.0%, from total assets of $166,184 at
March 31, 1996.
Securities available for sale and held to maturity increased $3,856 or 26.3%, to
$18,509 at September 30, 1996. This increase is primarily the result of the
purchase of $5,830 of government securities and government agency notes, net of
securities totalling $1,911 maturing or being called prior to maturity.
Mortgage-backed securities increased $5,036, or 105.7%, to $9,802 at September
30, 1996, from $4,766 at March 31, 1996. This increase is primarily the result
of the purchase of $5,873 of mortgage-backed securities, net of $816 of
principal repayments and
prepayments.
Loans receivable, net, at September 30, 1996, were $127,381, an increase of
$1,182, or 0.9%, from $126,199 at March 31, 1996. The increase in loans
receivable, net, was due to continued loan demand. Lending activity consisted
mainly of one to four family home loans and, to a lesser extent, commercial
loans.
The Banks maintain allowances for loan losses. The allowances had an aggregate
net increase of $7 to $628 at September 30, 1996, from $621 at March 31, 1996.
This increase was primarily due to a provision of $85 offset by the net of
charge-offs over recoveries of $78. Non-performing loans at September 30, 1996,
were $1,805, or 1.4% of loans receivable, up from the March 31, 1996, level of
$599, or 0.5% of loans receivable. At September 30, 1996, there were no loans
not included in nonperforming loans which represent material credits about which
management was aware of any information which caused management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms.
Deposits increased $11,268, or 7.7%, to $157,126 at September 30, 1996, from
$145,858 at March 31, 1996. The increase was primarily
7
<PAGE>
related to a 60th Anniversary certificate of deposit program implemented and
completed during the first quarter of fiscal 1997.
Other liabilities increased $1,085, or 183.3%, to $1,677 at September 30, 1996,
from $592 at March 31, 1996. The increase is primarily the result of the accrual
for the SAIF special assessment of approximately $725 and the accrual of a
lawsuit judgment of $325. See further discussion in Note 3 and Note 4 of the
"Notes to Condensed Consolidated Financial Statements".
The Company had stockholders' equity of $17,017 as of September 30, 1996, a
decrease of $214, or 1.2%, from $17,231 as of March 31, 1996. The net decrease
is primarily attributable to dividends declared of $.56 per share, totalling
$343, slightly offset by net income for the six months ended September 30, 1996
of $35. Included in the dividends was a special dividend of $.16 per share.
Traditionally, the Banks' principal sources of funds have been deposits,
principal and interest payments on loans, and proceeds from maturities of
mortgage-backed securities and other securities. In addition, First Federal has
borrowing ability from the Federal Home Loan Bank of Atlanta if the need for
additional funds arises. At September 30, 1996, the Banks had commitments to
originate and fund loans of $2,404. The Banks anticipate that sufficient funds
will be available to meet current loan commitments.
First Federal is required by regulation to maintain minimum levels of liquid
assets. The liquidity of First Federal at September 30, 1996, was 11.9%, which
exceeded the applicable 5.0% regulatory requirement.
Under applicable regulations, First Federal, First State and the Company are
each required to maintain minimum capital ratios. Set forth below are their
actual capital ratios and the minimum regulatory capital requirements as of
September 30, 1996.
8
<PAGE>
<TABLE>
<CAPTION>
First Federal First State The Company
----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
RISK-BASED CAPITAL RATIOS
Tier 1 Capital
Stockholders' Equity less goodwill $10,011 7.10% $ 2,905 8.49% $15,475 8.71%
Minimum Required 5,637 4.00% 1,368 4.00% 7,110 4.00%
------- ----- ------- ----- ------- -----
Excess $ 4,374 3.10% $ 1,537 4.49% $ 8,365 4.71%
======= ===== ======= ===== ======= =====
Total Capital
Tier 1 Capital plus allowances
for loan losses $10,322 12.97% $ 3,124 18.00% $16,103 16.61%
Minimum Required 6,366 8.00% 1,394 8.00% 7,760 8.00%
------- ----- ------- ----- ------- -----
Excess $ 3,956 4.97% $ 1,730 10.00% $ 8,343 8.61%
======= ===== ======= ===== ======= =====
Total Risk-weighted assets $79,570 $17,351 $96,921
======= ======= =======
LEVERAGE RATIOS
Tier 1 Capital $10,011 7.10% $ 2,905 8.49% $15,475 8.71%
Minimum Leverage Requirement 4,227 3.00% 1,026 3.00% 5,333 3.00%
------- ----- ------- ----- ------- -----
Excess $ 5,784 4.10% $ 1,879 5.49% $10,142 5.71%
======= ===== ======= ===== ======= =====
TANGIBLE CAPITAL RATIO
Tangible Capital $10,011 7.10%
Tangible Capital Requirement 2,113 1.50%
------- -----
Excess $ 7,898 5.60%
======= =====
</TABLE>
Management is not aware of any trends, events or uncertainties that will have or
are reasonably likely to have a material effect on the Banks' liquidity, capital
resources or operations.
General Results of Operations - Comparison of the Three Months Ended
- --------------------------------------------------------------------
September 30, 1996 and 1995
- ---------------------------
For the three months ended September 30, 1996, the Company recorded a net loss
of $325, compared to net income of $202 for the three months ended September 30,
1995. The decrease was the result of two nonrecurring items: the accrual of the
SAIF special assessment of approximately $725 and the accrual of a lawsuit
judgment of $325. Net income for the three months ended September 30, 1996, was
$365 not considering the two nonrecurring items recorded by the Company. See
further discussion in Note 3 and Note 4 of the "Notes to Condensed Consolidated
Financial Statements".
Interest Income
- ---------------
Total interest income increased $906, or 36.7%, to $3,372 for the three months
ended September 30, 1996. This increase was partially the result of a 32.0%
increase in the average balance of interest earning assets during the three
months ended September 30, 1996, as compared to the three months ended September
30, 1995. This increase in net interest-earning assets is primarily the result
of the acquisition of First State. This increase was also partially the result
of an increase in the average yield on interest earning assets to 8.1% during
the three months ended September 30, 1996, from 7.7% for the corresponding
quarter of the previous year.
9
<PAGE>
Interest income and fees on loans increased $614, or 27.6%, to $2,835 during the
three months ended September 30, 1996, from $2,221 for the three months ended
September 30, 1995. The increase in interest income on loans was attributable to
a 17.1% increase in the average balance of loans during the second quarter of
fiscal 1997 as compared to the second quarter of fiscal 1996 as a result of the
addition of First State. The increase was also the result of an increase in the
average yield on loans to 8.8% for three months ended September 30, 1996,
compared to 8.1% for the corresponding quarter of the previous year.
Interest earned on mortgage-backed securities increased $53, or 59.6%, to $142
for the three months ended September 30, 1996, from $89 for the corresponding
three months ended September 30, 1995. The increase was primarily attributable
to a 79.9% increase in the average balance of mortgage-backed securities during
the quarter ended September 30, 1996, as compared to the quarter ended September
30, 1995. The increase was the result of the purchase of $5,036 in mortgage-
backed securities during fiscal 1997, net of principal repayments and
prepayments.
Interest and dividends on the securities portfolio increased $193, or 216.9%,
during the second quarter of fiscal 1997 from the second quarter of fiscal 1996.
This increase reflects a 227.8% increase in the average balance of securities
from the corresponding quarter of the previous year. The increase in the average
balance is primarily the result of the addition of First State and the purchase
of $5,830 in securities, net of $1,911 of securities called or matured.
Interest Expense
- ----------------
Interest expense for the quarter ended September 30, 1996, increased $497, or
36.0%, to $1,876, from $1,379 during the quarter ended September 30, 1995. This
increase was attributable to an increase in the average balance of deposits of
43.1% partially offset by a decrease in the average rate paid on deposits to
4.7% during the quarter ended September 30, 1996, from 4.9% for the quarter
ended September 30, 1995. The increase in deposits was the result of the
addition of First State and a 60th Anniversary certificate of deposit program.
Net Interest Income
- -------------------
Net interest income for the quarter ended September 30, 1996, increased $409, or
37.6%, to $1,496 from the second quarter of fiscal 1996 level of $1,087. The
increase was due in part to an increase in average net interest spread to 3.3%
in the second quarter of fiscal 1997 from 2.8% in the second quarter of fiscal
1996. The increase was also due to an increase in the average balance of
interest-earning assets and interest-bearing liabilities
10
<PAGE>
primarily as a result of the addition of First State. The net interest margin
was 3.6% in the second quarter of fiscal 1997 as compared to 3.4% in the second
quarter of fiscal 1996.
Provision for Loan Losses
- -------------------------
Management increased its allowance for loan losses by a provision of $55 during
the quarter ended September 30, 1996. The increase in the provision from the
same quarter a year ago is primarily the result of the increase in nonperforming
loans. The nonperforming loan levels of the Banks remain below industry
averages.
The allowance for loan losses is based on management's evaluation of possible
losses inherent in the loan portfolio and considers, among other factors,
historical loss experience, current economic conditions, distribution of the
loan portfolio by risk class and the estimated value of the underlying
collateral.
Noninterest Income
- ------------------
Noninterest income for the quarter ended September 30, 1996, totaled $204 as
compared to $75 for the quarter ended September 30, 1995. The increase was
primarily the result of the fee income arising from the addition of First State.
Noninterest Expenses
- --------------------
Noninterest expenses during the quarter ended September 30, 1996, increased
$1,342 to $2,141 from the fiscal 1996 second quarter level of $799. The increase
in noninterest expense is the result of three factors; the accrual of the SAIF
special assessment of approximately $725, the accrual of a lawsuit judgment of
$325 and the addition of First State.
Income Taxes
- ------------
The provision for income taxes decreased $317 to a credit of $171 for the
quarter ended September 30, 1996, as compared to a provision of $146 for the
corresponding quarter of the prior year. The tax credit was the result of the
net operating loss for the quarter ended September 30, 1996, that was caused by
the increase in noninterest expense.
General Results of Operations - Comparison of the Six Months Ended
- ------------------------------------------------------------------
September 30, 1996 and 1995
- ---------------------------
Net income for the six months ended September 30, 1996, was $35, a decrease of
$349, or 90.9%, from net income of $384 for the six months ended September 30,
1995. The decrease was primarily attributable to two nonrecurring items: the
accrual of the SAIF special assessment of approximately $725 and the accrual of
a lawsuit judgement in the amount of $325. Net income for the six
11
<PAGE>
months ended September 30, 1996 was $725, not considering the two nonrecurring
items recorded by the Company. See additional discussion in Note 3 and Note 4 of
the "Notes to Condensed Consolidated Financial Statements".
Interest Income
- ---------------
Total interest income increased $1,702, or 35.1% to $6,555 for the six months
ended September 30, 1996. This increase was primarily the result of a 29.1%
increase in the average balance of interest earning assets during the six months
ended September 30, 1996, as compared to the six months ended September 30,
1995. The increase in interest-earning assets was primarily due to the addition
of First State. In addition, the average yield on interest-earning assets
increased to 8.0% during the six months ended September 30, 1996, from 7.7%
during the six months ended September 30, 1995.
Interest and fees on loans increased $1,252, or 28.7% to $5,609 during the six
months ended September 30, 1996, from $4,357 for the six months ended September
30, 1995. The increase in interest income on loans was attributable to a 17.8%
increase in the average balance of loans during the second quarter of fiscal
1997 as compared to the same period of fiscal 1996 resulting from the addition
of First State. The increase was also the result of an increase in the average
yield on loans to 8.7% for six months ended September 30, 1996, from 7.9% at
September 30, 1995.
Interest earned on mortgage-backed securities increased $48, or 27.0%, to $226
for the six months ended September 30, 1996, from $178 for the corresponding six
months ended September 30, 1995. The increase reflects a 33.8% increase in the
average balance of mortgage-backed securities during the six months ended
September 30, 1996, as compared to the six months ended September 30, 1995. The
increase was the result of the investment of excess liquidity into
mortgage-backed securities, net of principal repayments and prepayments.
Interest and dividends on the securities portfolio increased $297, or 144.9%,
for the six months ended September 30, 1996, compared to the six months ended
September 30, 1995, reflecting a 160.4% increase in the average balance of
investment securities. The increase in the average balance of securities was the
result of the addition of First State and the purchase of securities.
Interest Expense
- ----------------
Interest expense for the six months ended September 30, 1996, increased $902, or
33.4%, to $3,600, from $2,698 during the six months ended September 30, 1995.
This increase was attributable to an increase in the average level of deposits
of 39.7% for the six months ended September 30, 1996, partially offset by a
decrease in
12
<PAGE>
the average rate paid on deposits to 4.7% from 4.8% for the six months ended
September 30, 1995. The increase in deposits was the result of the addition of
First State and a 60th Anniversary certificate of deposit program.
Net Interest Income
- -------------------
Net interest income for the six months ended September 30, 1996, increased $800,
or 37.1%, to $2,955 from $2,155 for the six months ended September 30, 1995.
This increase was due in part to an increase in the average net interest spread
to 3.3% for the first six months of fiscal 1997 from 2.8% for the first six
months of fiscal 1996. The increase was also due to an increase in the volume of
interest earning assets and interest bearing liabilities primarily as a result
of the addition of First State. The net interest margin increased to 3.6% in the
first six months of fiscal 1997 from 3.4% in the first six months of fiscal
1996.
Provision for Loan Losses
- -------------------------
The allowance for loan losses is based on management's evaluation of possible
losses inherent in the loan portfolio and considers, among other factors,
historical loss experience, current economic conditions, distribution of the
loan portfolio by risk class and the estimated value of the underlying
collateral. The allowance for loan losses was increased by a provision of $85
for the six months ended September 30, 1996. The increase in the provision from
the same period a year ago is primarily the result of the increase in
nonperforming loans. The nonperforming loan levels remain below industry
averages.
Noninterest Income
- ------------------
Noninterest income for the six months ended September 30, 1996, totaled $398 as
compared to $134 for the six months ended September 30, 1995. The increase was
primarily the result of the addition of First State.
Noninterest Expenses
- --------------------
Noninterest expenses during the six months ended September 30, 1996, increased
$1,607 to $3,209 from the fiscal 1996 level of $1,602. The increase in
noninterest expense was the result of three factors; the accrual of the SAIF
special assessment of approximately $725, the accrual of a lawsuit judgement of
$325, and the addition of First State.
Income Taxes
- ------------
The provision for income taxes decreased $249, or 91.2%, to $24 for the six
months ended September 30, 1996, as compared to the corresponding period of the
prior year. The lower tax expense was due to the 91.0% decrease in pretax
income.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 9, 1996, a jury verdict in the Circuit Court of Jefferson County,
Alabama was rendered against First Federal in connection with a civil lawsuit.
The total amount of the damages set forth in the verdict is $325. First Federal
has filed a motion to overturn the verdict or, in the alternative, to obtain a
new trial. For further information, see Note 4 to the "Notes to Condensed
Consolidated Financial Statements" set forth herein.
ITEM 2. CHANGE IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 23, 1996, the Company held an Annual Meeting of Stockholders. The
election of James E. Mulkin, E. H. Moore, Jr. and James B. Koikos as directors
was submitted to a vote of the stockholders. The following is the result of the
vote:
<TABLE>
<CAPTION>
FOR WITHHELD
------------- ----------------
<S> <C> <C>
James E. Mulkin 501,739 1,000
E. H. Moore, Jr. 501,739 1,000
James B. Koikos 501,739 1,000
</TABLE>
In addition, the FirstFed Bancorp, Inc. 1995 Stock Option and Incentive
Plan was submitted to a vote of the stockholders for approval. The result of the
vote was 498,814 for, 3,400 against and 525 abstain.
There were 23,266 broker non-votes in each of the above matters.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(i) Exhibit 27 (SEC use only)
(b) Reports on Form 8-K
None.
14
<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 BANCORP, INC.
Date: November 13, 1996 /s/B. K. Goodwin, III
---------------------- -----------------------------
B. K. Goodwin, III
Chairman of the Board,
Chief Executive Officer
and President
(Duly Authorized Officer)
Date: November 13, 1996 /s/Lynn J. Joyce
---------------------- -----------------------------
Lynn J. Joyce
Vice President, Secretary
and Treasurer
(Principal Financial Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,382
<INT-BEARING-DEPOSITS> 5,539
<FED-FUNDS-SOLD> 5,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,501
<INVESTMENTS-CARRYING> 16,530
<INVESTMENTS-MARKET> 16,441
<LOANS> 127,381
<ALLOWANCE> 628
<TOTAL-ASSETS> 177,755
<DEPOSITS> 157,126
<SHORT-TERM> 1,650
<LIABILITIES-OTHER> 1,962
<LONG-TERM> 0
0
0
<COMMON> 7
<OTHER-SE> 17,010
<TOTAL-LIABILITIES-AND-EQUITY> 177,755
<INTEREST-LOAN> 5,609
<INTEREST-INVEST> 728
<INTEREST-OTHER> 218
<INTEREST-TOTAL> 6,555
<INTEREST-DEPOSIT> 3,540
<INTEREST-EXPENSE> 3,600
<INTEREST-INCOME-NET> 2,955
<LOAN-LOSSES> 85
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,209
<INCOME-PRETAX> 59
<INCOME-PRE-EXTRAORDINARY> 59
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
<YIELD-ACTUAL> 8.0
<LOANS-NON> 643
<LOANS-PAST> 1,162
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 621
<CHARGE-OFFS> 106
<RECOVERIES> 28
<ALLOWANCE-CLOSE> 628
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 628
</TABLE>
