<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
--------- ----------
Commission File Number: 0-19609
----------
FirstFed Bancorp, Inc.
--------------------------------------------
(Exact name of Small Business Issuer 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)
Issuer's telephone number, including area code: (205) 428-8472
----------------
Check whether the issuer (1) 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at October 30, 1998
- ------------------ -------------------------------
Common Stock, $.01 par value 2,444,680 shares
Transitional Small Business Disclosure Format
(Check one):
YES NO X
--- ---
<PAGE>
FIRSTFED BANCORP, INC.
----------------------
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 1998 AND MARCH 31, 1998................................2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997...................................3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997...............................4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ........................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION...................................................7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..........................12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................12
ITEM 5. OTHER INFORMATION..................................................13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................13
SIGNATURES..................................................................14
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.
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
FIRSTFED BANCORP, INC.
----------------------
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
ASSETS September 30, March 31,
1998 1998
------------- ----------
<S> <C> <C>
Cash and Cash Equivalents:
Cash on hand and in banks $ 4,134 $ 3,443
Interest-bearing deposits in other banks 5,723 5,592
Federal funds sold 18,975 19,050
--------- ---------
28,832 28,085
--------- ---------
Securities available for sale, at fair value 8,459 9,191
Assets held for sale 841 778
Securities held to maturity, at amortized cost, fair
value of $21,772 and $19,291, respectively 21,465 19,118
Loans receivable, net 114,792 117,541
Land, buildings and equipment, net 3,089 2,922
Goodwill 1,335 1,389
Real estate owned 692 665
Accrued interest receivable 1,346 1,399
Other assets 583 380
--------- ---------
$ 181,434 $ 181,468
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 162,582 $ 162,859
Accrued interest payable 157 197
Income taxes payable 10 111
Dividends payable 177 150
Other liabilities 380 518
--------- ---------
163,306 163,835
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding -- --
Common stock, $.01 par value, 10,000,000 shares
authorized at September 30, 1998, and 3,000,000 at
March 31, 1998, 3,022,392 share issued at September
30, 1998, and 2,981,595 at March 31, 1998 30 14
Paid-in capital 7,445 7,098
Retained earnings 15,454 15,204
Treasury stock, at cost, 579,902 shares at September
30, 1998, and March 31, 1998 (3,752) (3,752)
Unearned compensation (1,086) (948)
Unrealized gain on securities available
for sale, net 37 17
--------- ---------
18,128 17,633
--------- ---------
$ 181,434 $ 181,468
========= =========
</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 Ended Six Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 2,679 $ 2,796 $ 5,384 $ 5,648
Interest and dividends on
securities 400 421 799 889
Other interest income 296 154 575 248
---------- ---------- ---------- ----------
Total interest income 3,375 3,371 6,758 6,785
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 1,835 1,792 3,642 3,598
Interest on other borrowings -- 19 -- 37
---------- ---------- ---------- ----------
Total interest expense 1,835 1,811 3,642 3,635
---------- ---------- ---------- ----------
Net interest income 1,540 1,560 3,116 3,150
Provision for loan losses 28 51 57 102
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,512 1,509 3,059 3,048
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Fees and other noninterest
income 203 210 406 439
---------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits 648 573 1,349 1,171
Office building and equipment
expenses 149 139 289 273
Deposit insurance expense 22 23 44 46
Amortization of goodwill 27 27 54 54
Other operating expenses 328 319 622 644
---------- ---------- ---------- ----------
Total noninterest expenses 1,174 1,081 2,358 2,188
---------- ---------- ---------- ----------
Income before income taxes 541 638 1,107 1,299
Provision for income taxes 175 218 365 445
---------- ---------- ---------- ----------
NET INCOME $ 366 $ 420 $ 742 $ 854
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC 2,347,828 2,298,542 2,324,598 2,388,287
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ .16 $ .18 $ .32 $ .36
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES
OUTSTANDING - DILUTED 2,475,946 2,400,598 2,451,498 2,490,342
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ .15 $ .17 $ .30 $ .34
========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE $ .07 $ .0625 $ .2025 $ .175
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
FIRSTFED BANCORP, INC.
----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
-------- --------
<S> <C> <C>
Net income $ 742 $ 854
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation 128 139
Amortization of unearned compensation 69 39
Amortization of premiums, net 135 39
(Accretion) amortization of deferred (income) expense, net (64) 15
Loan fees (cost) deferred, net 66 (38)
Provision for loan losses 57 102
Loss on sale of real estate, net 15 2
Origination of loans held for sale (6,877) (3,919)
Proceeds from loans held for sale 6,814 2,872
Amortization of goodwill 54 54
Change in assets and liabilities:
Decrease in accrued interest receivable 53 87
(Increase) decrease in other assets (203) 10
Increase (decrease) in accrued interest payable (40) 12
Decrease in income taxes payable (116) (101)
Decrease in other liabilities (138) (184)
-------- --------
Net cash provided by (used in) operating
activities 695 (17)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 2,569 950
Purchase of securities available for sale (1,799) (1,499)
Proceeds from maturities and payments received on securities
held to maturity 6,612 3,451
Purchase of securities held to maturity (9,089) --
Proceeds from sale of repossessed assets 334 54
Net loan repayments 2,314 4,672
Capital expenditures (295) (518)
-------- --------
Net cash provided by investing activities 646 7,110
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in deposits, net (277) (538)
Proceeds from exercise of stock options 77 58
Dividends paid (465) (390)
Proceeds from dividend reinvestment 71 --
Purchase of treasury stock -- (1,539)
-------- --------
Net cash used in financing activities (594) (2,409)
-------- --------
NET INCREASE IN CASH & CASH EQUIVALENTS 747 4,684
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,085 13,965
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28,832 $ 18,649
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for-
Income taxes $ 466 $ 536
Interest 3,682 3,623
Noncash transactions-
Transfer of loans receivable to real estate
owned 376 686
Declaration of cash dividends 177 144
Increase in unrealized gain on securities available for
sale, net of deferred tax 20 72
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
FIRSTFED BANCORP, INC.
----------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
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"), which in turn 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 condensed consolidated financial statements as of September 30,
1998 (unaudited), and March 31, 1998, and for the three and six months ended
September 30, 1998 and 1997 (unaudited), include the accounts of the Company and
the Banks. All significant intercompany transactions and accounts have been
eliminated in consolidation.
The Board of Directors has changed the fiscal year-end of the Company from March
31 to December 31 of each year, effective December 31, 1998.
In the opinion of management, all adjustments (none of which are other than
normal recurring accruals) 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, 1998, are not necessarily indicative of the
results of operations which may be expected for the entire fiscal 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-KSB for the year ended March 31, 1998. The
accounting policies followed by the Company are set forth in the Summary of
Significant Accounting Policies in the Company's March 31, 1998, Consolidated
Financial Statements.
2. COMMON STOCK:
------------
The number of common stock shares authorized increased from 3,000,000 to
10,000,000 in July, 1998, when an amendment to the Company's Certificate of
Incorporation received approval from the stockholders.
On July 21, 1998, the Board of Directors declared a two-for-one stock split,
effected in the form of a 100% stock dividend, on the Company's outstanding
common stock to stockholders of record on July 31, 1998. Common stock and
paid-in capital as of September 30, 1998, and March 31, 1998, have been restated
to reflect the split. All share and per share data included in this Form 10-QSB
has been restated to reflect the split.
5
<PAGE>
3. EARNINGS AND DIVIDENDS PER SHARE:
--------------------------------
Earnings per share for the three and six months ended September 30, 1998 and
1997, respectively, were as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Ended September 30, 1998 Ended September 30, 1997
-------------------------------------- --------------------------------------
Dilutive Dilutive
Effect of Effect of
Options Options
Basic Issued Diluted Basic Issued Diluted
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 366,000 -- $ 366,000 $ 420,000 -- $ 420,000
Shares available to
common shareholders 2,347,828 128,118 2,475,946 2,324,598 126,900 2,451,498
---------- ---------- ---------- ---------- ---------- ----------
Earnings per share $ 0.16 -- $ 0.15 $ 0.18 -- $ 0.17
========== ========== ========== ========== ========== ==========
<CAPTION>
Six Months Six Months
Ended September 30, 1998 Ended September 30, 1997
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 742,000 -- $ 742,000 $ 854,000 -- $ 854,000
Shares available to
common shareholders 2,324,598 126,900 2,451,498 2,388,287 102,055 2,490,342
---------- ---------- ---------- ---------- ---------- ----------
Earnings per share $ 0.32 -- $ 0.30 $ 0.36 -- $ 0.34
========== ========== ========== ========== ========== ==========
</TABLE>
Dividends declared for the quarter ended September 30, 1998, consisted of a $.07
per share quarterly dividend.
4. REPORTING COMPREHENSIVE INCOME:
------------------------------
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 130,
"Reporting Comprehensive Income." This Statement established standards for
reporting and display of comprehensive income. The Company adopted this
Statement on April 1, 1998. The following is disclosure of comprehensive income
balances for the three and six months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
--------------------- ---------------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Net income $366 $420 $742 $854
Other comprehensive income,
net of tax:
Unrealized gain on securities 20 41 20 72
---- ---- ---- ----
Comprehensive income $386 $461 $762 $926
==== ==== ==== ====
</TABLE>
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
Management's discussion and analysis includes certain forward-looking statements
addressing, among other things, the Company's prospects for earnings, asset
growth and net interest margin. Forward-looking statements are accompanied by,
and identified with, such terms as "anticipates," "believes," "expects,"
"intends," and similar phrases. Management's expectations for the Company's
future necessarily involve a number of assumptions and estimates. Factors that
could cause actual results to differ from the expectations expressed herein are:
substantial changes in interest rates, changes in the general economy, and
changes in the Company's strategies for credit-risk management, interest-rate
risk management and investment activities. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized.
Comparison of Financial Condition as of September 30, 1998, and March 31, 1998
- ------------------------------------------------------------------------------
All dollar amounts, except per share amounts, included hereafter in Management's
Discussion and Analysis are in thousands.
Securities available for sale and held to maturity increased in the aggregate
$1,615, or 5.7%, to $29,924 at September 30, 1998, primarily due to purchases
totaling $10,888 less securities totaling $9,181 maturing, being called prior to
maturity or payments being received.
Loans receivable, net, at September 30, 1998, were $114,792, a decrease of
$2,749, or 2.3%, from $117,541 at March 31, 1998. The decrease in loans
receivable, net, was primarily due to repayments and the origination of loans
for sale in the secondary market rather than for retention in the Banks'
portfolios. The funds received from the reduction of loans receivable were
primarily reinvested in securities.
The Company's consolidated allowance for loan losses decreased slightly to
$1,079 at September 30, 1998, from $1,106 at March 31, 1998. This decrease of
$27 was due to net charge-offs over recoveries of $84 offset by a provision of
$57. Nonperforming loans at September 30, 1998, decreased to $1,295, or 1.13%,
of loans receivable from $1,735, or 1.48%, of loans receivable at March 31,
1998. At September 30, 1998, there were no material loans not included in
nonperforming loans which represented 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.
Real estate owned was $692 at September 30, 1998, an increase of $27 from March
31, 1998, as a result of foreclosures on loans that had previously been
nonperforming. Based on an evaluation of the properties, management does not
believe that the Company will suffer any material loss upon their disposition.
Deposits decreased $277, or .17%, to $162,582 at September 30, 1998, from
$162,859 at March 31, 1998. The slight decrease in deposits was primarily the
result of variations in the balances of large commercial accounts.
The Company had stockholders' equity of $18,128 as of September 30, 1998, an
increase of $495, or 2.8%, from $17,633 as of March 31, 1998. The primary
components of the change were net income for the six months ended September 30,
1998, of $742 less dividends of $.2025 per share totaling $492.
7
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Traditionally, the Banks' principal sources of funds have been deposits,
principal and interest payments on loans and mortgage-backed securities, and
proceeds from interest on and maturities of investments. 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, 1998, the Banks had
commitments to originate and fund loans of $7.1 million. The Banks anticipate
that they will have sufficient funds available to meet their current
commitments.
First Federal is required by regulation to maintain minimum levels of liquid
assets. The liquidity ratio of First Federal at September 30, 1998, was 18.5%,
which exceeded the applicable regulatory requirement.
Under applicable regulations, First Federal, First State and the Company are
each required to maintain minimum capital ratios. Set forth below are actual
capital ratios and the minimum regulatory capital requirements as of September
30, 1998.
<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 $11,323 8.19% $ 3,184 7.47% $ 16,756 9.26%
Minimum Required 5,531 4.00% 1,704 4.00% 7,237 4.00%
------- ----- ------- ----- --------- -----
Excess $ 5,792 4.19% $ 1,480 3.47% $ 9,519 5.26%
======= ===== ======= ===== ========= =====
Total Capital
Tier 1 Capital plus allowances
for loan losses $12,097 14.39% $ 3,488 14.35% $ 17,835 16.46%
Minimum Required 6,724 8.00% 1,944 8.00% 8,668 8.00%
------- ----- ------- ----- --------- -----
Excess $ 5,373 6.39% $ 1,544 6.35% $ 9,167 8.46%
======= ===== ======= ===== ========= =====
Total Risk-weighted Assets $84,048 $24,304 $108,352
======= ======= ========
LEVERAGE RATIO
Tier 1 Capital $11,323 8.19% $ 3,184 7.47% $ 16,756 9.26%
Minimum Leverage Requirement 4,149 3.00% 1,279 3.00% 5,428 3.00%
------- ----- ------- ----- -------- -----
Excess $ 7,174 5.19% $ 1,905 4.47% $ 11,328 6.26%
======= ===== ======= ===== ======== =====
TANGIBLE CAPITAL RATIO
Tangible Capital $11,323 8.19% N/A N/A
Tangible Capital Requirement 2,074 1.50%
------- -----
Excess $ 9,249 6.69%
======= =====
</TABLE>
As of September 30, 1998, management was not aware of any trends, events or
uncertainties that will have or are reasonably likely to have a material effect
on the Company's or the Banks' liquidity, capital resources or operations.
Results of Operations - Comparison of the Three Months Ended September 30, 1998
- -------------------------------------------------------------------------------
and 1997
- --------
Net income for the three months ended September 30, 1998, was $366, a decrease
of $54, or 12.9%, from net income of $420 for the three months ended September
30, 1997. The decrease was primarily attributable to a decrease in the Banks'
interest rate spread because of a higher liquidity position on average during
the current year and costs incurred in connection with the opening of a new
First Federal branch in Vance, Alabama, in July 1997. These items are expected
to contribute to future earnings and growth.
8
<PAGE>
Interest Income
- ---------------
Total interest income increased $4, or 0.1%, to $3,375 for the three months
ended September 30, 1998. This increase was primarily due to an approximate 2%
increase in the average balance of interest-earning assets, net of a decrease in
yield on interest-earning assets to 8.1%, from 8.3%, for the corresponding
quarter of the previous year.
Interest Expense
- ----------------
Interest expense for the quarter ended September 30, 1998, was $1,835, an
increase of $24, or 1.3%, to $1,811 from the quarter ended September 30, 1997.
The increase was primarily the result of an increase in the average balance of
deposits net of a slight reduction in average yield for the three months ended
September 30, 1998, compared to the corresponding quarter of the previous year.
Net Interest Income
- -------------------
Net interest income for the quarter ended September 30, 1998, decreased $20, or
1.3%, to $1,540 from the quarter ended September 30, 1997, level of $1,560. This
decrease was due primarily to a decrease in the average net interest spread to
3.5% for the three months ended September 30, 1998, from 3.6% for the same
period in the prior year. The decrease was offset by a slight increase in the
average balance of interest-earning assets and interest-bearing liabilities
during the three months ended September 30, 1998, compared to the same period in
the prior year. The net interest margin decreased to 3.7% in the three months
ended September 30, 1998, from 3.8% for the same period in the prior year.
Provision for Loan Losses
- -------------------------
Management increased the Company's total allowance for loan losses by a
provision of $28 during the quarter ended September 30, 1998. The Banks'
allowances for loan losses were based on management's evaluation of possible
losses inherent in the loan portfolio and consider, among other factors, prior
years' loss experience, economic conditions, distribution of portfolio loans by
risk class and the estimated value of the underlying collateral.
Noninterest Income
- ------------------
Noninterest income during the quarter ended September 30, 1998, decreased $7, to
$203, from the September 30, 1997, level of $210. The decrease was primarily
related to a decline in lease income resulting from the sale of property during
the third quarter of the previous year that was under lease until that time.
Noninterest Expenses
- --------------------
Noninterest expenses during the quarter ended September 30, 1998, increased $93
to $1,174 from the September 30, 1997, level of $1,081. The increase in
noninterest expense was primarily the result of opening a new branch in Vance,
Alabama, in July 1997.
Income Taxes
- ------------
The provision for income taxes decreased $43, or 19.7%, to $175 for the quarter
ended September 30, 1998, as compared to the corresponding quarter in 1997. The
decreased tax expense was due primarily to a decrease in pretax income from the
same period a year ago.
9
<PAGE>
Results of Operations - Comparison of the Six Months Ended September 30, 1998
- -----------------------------------------------------------------------------
and 1997
- --------
Net income for the six months ended September 30, 1998, was $742, a decrease of
$112, from net income of $854 for the six months ended September 30, 1997. The
decrease was primarily attributable to a decrease in the Banks' interest rate
spread because of a higher liquidity position on average during the current year
and costs incurred in connection with the opening of a new First Federal branch
in Vance, Alabama, in July 1997. These items are expected to contribute to
future earnings and growth.
Interest Income
- ---------------
Total interest income decreased $27, or 0.4%, to $6,758 for the six months ended
September 30, 1998. This decrease was primarily the result of a decrease in the
average yield on the interest-earning assets to 8.1% during the six months ended
September 30, 1998, from 8.3% during the six months ended September 30, 1997.
The decrease was partially offset by an increase in the average balance of
interest earning assets during the six months ended September 30, 1998, as
compared to the six months ended September 30, 1997.
Interest Expense
- ----------------
Interest expense for the six months ended September 30, 1998, increased $7, or
0.2%, to $3,642, from $3,635 during the six months ended September 30, 1997.
This increase was primarily attributable to an increase in the average level of
deposits of approximately 3% for the six months ended September 30, 1998. The
increase is net of a reduction in the average rate paid on deposits to 4.6% for
the six month period ended September 30, 1998, compared to 4.7% for the same
period a year ago.
Net Interest Income
- -------------------
Net interest income for the six months ended September 30, 1998, decreased $34,
or 1.1%, to $3,116, from $3,150 for the six months ended September 30, 1997.
This decrease was due primarily to a decrease in the average net interest spread
to 3.6% for the six months ended September 30, 1998, from 3.7% for the six
months ended September 30, 1997. The net interest margin decreased to 3.7% in
the six months ended September 30, 1998, from 3.9% in the six months ended
September 30, 1997.
Provision for Loan Losses
- -------------------------
The Company's consolidated allowances for loan losses are based on management's
evaluation of possible losses inherent in the loan portfolios. Among other
factors, management considers historical loss experience, current economic
conditions, distribution of the loan portfolios by risk class and the estimated
value of the underlying collateral. The allowances for loan losses were
increased by provisions of $57 for the six months ended September 30, 1998.
These provisions were recorded to maintain the allowances for loan losses at
adequate levels.
Noninterest Income
- ------------------
Noninterest income for the six months ended September 30, 1998, totaled $406 as
compared to $439 for the six months ended September 30, 1997. The decrease was
primarily related to a decline in lease income resulting from the sale of
property during the third quarter of the previous year that was under lease
until that time.
10
<PAGE>
Noninterest Expenses
- --------------------
Noninterest expenses during the six months ended September 30, 1998, increased
$170 to $2,358 from the fiscal 1998 level of $2,188. The increase in noninterest
expense was primarily the result of opening a new branch in Vance, Alabama, in
July 1997.
Income Taxes
- ------------
The provision for income taxes decreased $80, to $365 for the six months ended
September 30, 1998, as compared to the corresponding period of the prior year.
The decreased tax expense was due to the decrease in pretax income.
Year 2000
- ---------
The Company is addressing the issue of Year 2000, which relates to software
being written using a two digit format rather than a four digit format to
represent the year. The date change format requires modification to some
software and computer systems so that dates beyond December 31, 1999, will be
properly recognized. The Banks have formed committees to assess, test, prepare
and overview the applicable software, equipment and related technologies related
to Year 2000 readiness.
The Banks rely primarily upon a third party processor and other vendors rather
than internally generated software. Based on the analysis of software and
equipment, in addition to ongoing discussions with vendors, the Company believes
that upgrades, modifications or conversion of software planned by the Company
and the third party vendors will properly address the Year 2000 issue. The third
party processor, which processes all customer related data, has represented to
the Banks that the testing of the software will be substantially completed prior
to December 31, 1998. The Banks have adopted Year 2000 Test Plans and are in the
process of conducting testing and evaluating results. If modifications to
existing systems and conversions to new systems proceed as scheduled, management
presently believes that the Year 2000 issue will not pose a substantial internal
operating risk to the Company.
Additionally, the Company has implemented a process for assessing readiness of
various suppliers of other services. There can be no guarantee, however, that
the systems of these outside parties will be Year 2000 compliant on a timely
basis. In turn, this could result in disruption to the operations of the
Company. The Banks have adopted a Year 2000 Contingency Plan which would replace
its computerized operations with a manual system, if necessary.
The Banks are educating and assisting customers in identifying their Year 2000
issues. It has been determined that this is a relatively low risk area in that
the Banks' customers have a minimal reliance on computers to conduct business.
Total Year 2000 costs include such items as payroll costs, upgrading existing
software applications, and replacing certain hardware. The Banks do not have a
system that specifically tracks all costs and time spent on the Year 2000 issue.
The Company is in the process of estimating total expense related to Year 2000.
Such expenses incurred during the quarter and six months ended September 30,
1998, are not considered significant.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Banks are parties to routine legal proceedings occurring
in the ordinary course of business. At September 30, 1998, there were no legal
proceedings to which the Company or the Banks were a party or parties, or to
which any of their property was subject, which were expected by management to
result in a material loss.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 14, 1998, the Company held the 1998 Annual Meeting of
Stockholders. The election of B. K. Goodwin, III, A. W. Kuhn, and Robert E.
Paden as directors was submitted to a vote of the stockholders. The following is
the result of the vote, which was tabulated prior to the stock split on July 31,
1998:
For Withheld
--- --------
B. K. Goodwin, III 1,087,155 0
A. W. Kuhn 1,087,155 0
Robert E. Paden 1,087,155 0
In addition, an amendment to Section A of Article Fourth of the Company's
Certificate of Incorporation to increase the Company's authorized common stock
from 3,000,000 to 10,000,000 shares, and thereby to increase the total number of
shares of authorized capital stock from 4,000,000 to11,000,000 shares, of which
10,000,000 shares shall be common stock and 1,000,000 shares shall be preferred
stock, was submitted to a vote of the stockholders. The result of the vote,
which was taken prior to the stock split on July 31, 1998, was 1,007,240 for,
79,515 against and 400 abstain.
There were no broker non-votes in the above matters.
ITEM 5. OTHER INFORMATION
Effective June 29, 1998, the Securities and Exchange Commission adopted
an amendment to Rule 14a-4 under the Securities Exchange Act of 1934. As
amended, Rule 14a-4(c)(1) relates to the Company's use of its discretionary
proxy voting authority with respect to a stockholder proposal which the
stockholder has not sought to include in the Company's proxy statement. If the
proponent of the proposal fails to notify the Company by the date established by
the notice provision in the Company's Bylaws, management proxies will be allowed
to use their discretionary voting authority if the proposal is raised at the
meeting, without any discussion of the matter in the proxy statement.
12
<PAGE>
The Bylaws of the Company provide an advance notice procedure for
certain business to be brought before an annual meeting of stockholders. In
order for a stockholder to properly bring business before an annual meeting, the
stockholder must give written notice to the Secretary of the Company not less
than 90 days prior to the date of such meeting; provided, however, that if less
than 100 days' notice or prior public disclosure of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be received not
later than the close of business on the tenth day following the day on which
notice of the meeting was mailed or such public disclosure was made.
With respect to the Company's 1999 Annual Meeting of Stockholders,
which will be held at the main office of the Company on April 27, 1999, if the
Company is not provided notice of a stockholder proposal, which the stockholder
has not previously sought to include in the Company's proxy statement, by
January 27, 1999, management proxies will be allowed to use their discretionary
authority as outlined above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27 - Financial Data Schedule (SEC use only).
(b) Reports on Form 8-K.
None.
13
<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, 1998 \s\ B. K. Goodwin, III
------------------------ -------------------------------------
B. K. Goodwin, III,
Chairman of the Board,
Chief Executive Officer
and President
Date: November 13, 1998 \s\ Lynn J. Joyce
------------------------ -------------------------------------
Lynn J. Joyce
Chief Financial Officer, Vice
President, Secretary and
Treasurer
14
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