<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 December 31, 1997
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 February 2, 1997
- ---------------------------- -------------------------------
Common Stock, $.01 par value 1,154,963 shares
<PAGE>
FIRSTFED BANCORP, INC.
----------------------
PART I
FINANCIAL INFORMATION
---------------------
Page
----
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1997 AND MARCH 31, 1997.......................... 2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE
MONTHS ENDED DECEMBER 31, 1997 AND 1996 AND THE NINE MONTHS
ENDED DECEMBER 31, 1997 AND 1996.................................... 3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996........................ 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS................ 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................... 6
PART II
OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS................................................. 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................... 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITIES HOLDERS................................................ 13
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>
FIRSTFED BANCORP, INC.
----------------------
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1997
------------------ ---------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents: (Unaudited)
Cash on hand and in banks $ 8,218 $ 5,411
Interest-bearing deposits in other banks 1,737 4,354
Federal funds sold 10,125 4,200
-------- --------
20,080 13,965
-------- --------
Securities available for sale, at fair value 12,072 10,330
Assets held for sale, at lower of cost or market 674 331
Securities held to maturity, at amortized cost, fair
value of $6,435 and $6,395, respectively 6,371 6,373
Mortgage-backed securities, at amortized cost,
fair value of $13,025 and $13,382, respectively 12,926 13,329
Loans receivable, net 119,840 126,849
Land, buildings and equipment, net 2,977 2,642
Goodwill 1,416 1,487
Real estate owned or held for investment 644 1,062
Accrued interest receivable 1,444 1,450
Other assets 348 306
-------- --------
$178,792 $178,124
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $160,345 $157,970
Borrowed funds - 1,000
Accrued interest payable 138 156
Income taxes payable 315 318
Dividends payable 144 123
Other liabilities 525 634
-------- --------
161,467 160,201
-------- --------
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, 1,488,845 shares issued and
1,154,963 shares outstanding and 1,477,530
issued and 1,231,582 shares outstanding,
respectively 15 14
Paid-in capital 6,676 6,601
Retained earnings 14,968 14,256
Treasury stock, at cost (333,882 and 245,948
shares, respectively) (4,320) (2,781)
Unearned compensation (26) (95)
Unrealized gain (loss) on securities available for sale, net 12 (72)
-------- --------
17,325 17,923
-------- --------
$178,792 $178,124
======== ========
</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 Nine Months Ended
December 31, December 31,
-------------------------------------- ----------------------------
1997 1996 1997 1996
------------------ ------------------ ------------ --------------
INTEREST INCOME: (Unaudited)
<S> <C> <C> <C> <C>
Interest and fees on loans $ 2,739 $ 2,891 $ 8,387 $ 8,500
Interest on mortgage-backed securities 188 164 591 390
Interest and dividends on securities 265 281 751 783
Other interest income 160 82 408 300
---------- ---------- ---------- ----------
Total interest income 3,352 3,418 10,137 9,973
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 1,835 1,850 5,433 5,390
Interest on other borrowings - 19 37 79
---------- ---------- ---------- ----------
Total interest expense 1,835 1,869 5,470 5,469
---------- ---------- ---------- ----------
Net interest income 1,517 1,549 4,667 4,504
Provision for loan losses 401 50 503 135
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,116 1,499 4,164 4,369
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Fees for customer services 173 164 522 453
Gain on sale of real estate 511 - 511 -
Miscellaneous operating and
non-operating income, net 59 55 149 164
---------- ---------- ---------- ----------
Total noninterest income 743 219 1,182 617
---------- ---------- ---------- ----------
NONINTEREST EXPENSES:
Salaries and employee benefits 627 501 1,798 1,578
Office building and equipment
expenses 148 123 421 381
Deposit insurance expense 22 69 68 228
Loss on real estate owned 12 1 14 3
Amortization of goodwill 27 28 81 84
Other operating expenses 321 302 963 909
Deposit insurance special
assessment - (21) - 704
Litigation expense - (75) - 250
---------- ---------- ---------- ----------
Total noninterest expenses 1,157 928 3,345 4,137
---------- ---------- ---------- ----------
Income before income taxes 702 790 2,001 849
PROVISION FOR INCOME TAXES 289 250 734 274
---------- ---------- ---------- ----------
Net income $ 413 $ 540 $ 1,267 $ 575
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $.36 $.44 $1.08 $.47
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC 1,151,596 1,220,032 1,176,419 1,222,688
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE
(Note 2) $.34 $.43 $1.03 $.46
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES
OUTSTANDING - DILUTED 1,212,076 1,248,980 1,236,827 1,246,326
========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE
(Note 2) $.125 $.10 $.475 $.38
========== ========== ========== ==========
</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>
Nine Months Ended
December 31,
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
--------- ---------
<S> <C> <C>
Net income $ 1,267 $ 575
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 188 193
Amortization of unearned compensation 74 96
Amortization of premiums, net 61 67
Accretion of deferred income (expense), net (20) (32)
Loan fees (cost) deferred, net 6 (106)
(Gain) loss on sale of real estate, net (493) -
Provision for loan losses 503 135
Net loans (originated for sale) sold (343) 538
Amortization of goodwill 81 84
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable 6 (154)
(Increase) decrease in other assets (42) 60
Increase (decrease) in accrued interest payable (18) (38)
Increase (decrease) in income taxes payable (77) (95)
Increase (decrease) in other liabilities (109) 7
------- --------
Net cash provided by (used in) operating activities 1,084 1,330
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 2,050 1,550
Proceeds from the sale of securities available for sale - 857
Purchase of securities available for sale (3,646) (2,341)
Proceeds from maturities of securities 3,102 1,061
Purchase of securities (3,100) (4,103)
Principal payments received on mortgage-backed securities 2,569 1,613
Purchase of mortgage-backed securities (2,225) (6,876)
Proceeds from sale of real estate 1,794 22
Net loan (originations) repayments 5,716 (3,416)
Capital expenditures (602) (151)
------- --------
Net cash provided by (used in) investing activities 5,658 (11,784)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net 2,375 11,055
Payment of FHLB advances (1,000) (1,002)
Proceeds from exercise of stock options 71 76
Purchase of treasury stock (1,539) -
Dividends paid (534) (439)
------- --------
Net cash provided by (used in) financing activities (627) 9,690
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,115 (764)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,965 12,114
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $20,080 $ 11,350
======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for -
Income taxes $ 801 $ 369
======= ========
Interest $ 5,488 $ 5,507
======= ========
Noncash transactions -
Transfers of loans receivable to real estate owned $ 804 $ 76
Declaration of cash dividends $ 144 $ 123
Issuance of stock for stock plans $ 5 $ 6
(Decrease) increase in unrealized loss on securities
available for sale, net of deferred tax $ (84) $ 46
======= ========
</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 of 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 December 31,
1997, (unaudited) and March 31, 1997, and for the three and nine months ended
December 31, 1997, and 1996 (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 nine months ended December 31, 1997, 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, 1997. 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,
1997, Consolidated Financial Statements.
2. EARNINGS AND DIVIDENDS PER SHARE:
---------------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This Statement established standards for computing and presenting
earnings per share ("EPS"). This Statement simplified the standards for
computing EPS previously found in APB Opinion No. 15, "Earnings per Share," and
made them comparable to international EPS standards. It replaced the
presentation of primary EPS with a presentation of basic EPS and required dual
presentation of basic and diluted EPS on the face of the income statement. Also,
disclosure is made of a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. This Statement became effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and required
restatement of all prior-period EPS data presented. The Company adopted the
Statement as of December 31, 1997. The following is a reconciliation of the
numerator and denominator in the EPS calculations:
5
<PAGE>
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended December 31, 1997 Ended December 31, 1996
------------------------------------ ----------------------------------
Dilutive Dilutive
Effect of Effect of
Options Options
Basic Issued Diluted Basic Issued Diluted
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Income $1,267,000 --- $1,267,000 $ 575,000 --- $ 575,000
Shares available to
common shareholders 1,176,419 60,408 1,236,827 1,222,688 23,638 1,246,326
---------- ------- ---------- ---------- ------- ----------
Earnings per share $ 1.08 $ 0.05 $ 1.03 $ 0.47 $ 0.01 $ 0.46
========== ======= ========== ========== ======= ==========
</TABLE>
Dividends declared for the quarter ended December 31, 1997, consisted of a
$.125 per share quarterly dividend.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
Comparison of Financial Condition as of December 31, 1997, and March 31, 1997
- ------------------------------------------------------------------------------
Fed funds increased $5,925, or 141.07%, to $10,125 at December 31, 1997. This
increase is primarily the result of funds received from the repayments of loans
receivable and an increase in deposits.
Securities available for sale and held to maturity increased $1,740, or 10.4%,
to $18,443 at December 31, 1997. This increase reflects the purchase of $6,746
of government securities and government agency notes, offset by the effect of
securities totaling $5,152 maturing or being called prior to maturity.
Mortgage-backed securities decreased $403, or 3.02%, to $12,926 at December 31,
1997, from $13,329 at March 31, 1997. This decrease is primarily the result of
principal repayments and prepayments exceeding purchases of $2,225 in mortgage-
backed securities.
Loans receivable, net, at December 31, 1997, were $119,840, a decrease of
$7,009, or 5.5%, from $126,849 at March 31, 1997. The decrease in loans
receivable, net, is primarily the result of repayments, as well as the
origination of loans for sale in the secondary market rather than for retention
in the Banks' portfolios.
The Company's consolidated allowances for loan losses increased to $1,157 at
December 31, 1997, from $733 at March 31, 1997. This increase is primarily due
to a provision of $503 (see "Provision for Loan Losses") offset by the net of
charge-offs over recoveries of $79. Non-performing loans at
6
<PAGE>
December 31, 1997, were $1,895, or 1.6% of loans receivable, which approximated
the March 31, 1997, level of $1,900, or 1.5% of loans receivable. At December
31, 1997, there were no 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 $644 at December 31, 1997, an increase of $513 from March
31, 1997, primarily as a result of foreclosures on loans that had been
nonperforming at March 31, 1997. Based on the evaluations of the values of such
properties, management currently does not believe that the Company will suffer
any loss upon their disposition.
Real estate held for investment of $931 at March 31, 1997, represented
investment property which was previously under lease with a purchase option.
The Company sold this property during the quarter ended December 31, 1997, and
recorded a gain of $511 on the sale.
Deposits increased $2,375, or 1.5%, to $160,345 at December 31, 1997, from
$157,970 at March 31, 1997. The increase is primarily the result of normal
growth, including local municipal deposits.
Borrowed funds of $1,000 at March 31, 1997, representing FHLB advances, were
repaid during the quarter ended December 31, 1997.
The Company had stockholders' equity of $17,325 as of December 31, 1997, a
decrease of $598, or 3.3%, from $17,923 as of March 31, 1997. The net decrease
is primarily attributable to the purchase of treasury stock totaling $1,539, and
dividends declared of $555, or $.475 per share, offset by net income for the
nine months ended December 31, 1997 of $1,267. Included in such dividends was a
special dividend of $.10 per share.
Liquidity and Capital Resources
- -------------------------------
Traditionally, the Company's 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 December 31, 1997, the Banks had commitments to
originate and fund loans of $5,208. The Company anticipates that sufficient
funds will be available to meet these current loan commitments.
First Federal is required by regulation to maintain minimum levels of liquid
assets. The liquidity of First Federal at December 31, 1997, was 15.0%, 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 their
actual capital ratios and the minimum regulatory capital requirements as of
December 31, 1997.
7
<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 $11,016 8.02% $ 3,048 7.70% $ 15,897 8.91%
Minimum Required 5,492 4.00% 1,584 4.00% 7,136 4.00%
------- ----- ------- ----- -------- -----
Excess $ 5,524 4.02% $ 1,464 3.70% $ 8,761 4.91%
======= ===== ======= ===== ======== =====
Total Capital:
Tier 1 Capital plus allowances
for loan losses $11,866 15.30% $ 3,332 14.66% $ 17,054 17.01%
Minimum Required 6,205 8.00% 1,818 8.00% 8,022 8.00%
------- ----- ------- ----- -------- -----
Excess $ 5,661 7.30% $ 1,514 6.66% $ 9,032 9.01%
======= ===== ======= ===== ======== =====
Total Risk-weighted assets $77,561 $22,722 $100,283
======= ======= ========
LEVERAGE RATIOS
Tier 1 Capital $11,016 8.02% $ 3,048 7.70% $ 15,897 8.91%
Minimum Leverage Requirement 4,119 3.00% 1,188 3.00% 5,352 3.00%
------- ----- ------- ----- -------- -----
Excess $ 6,897 5.02% $ 1,860 4.70% $ 10,545 5.91%
======= ===== ======= ===== ======== =====
TANGIBLE CAPITAL RATIO
Tangible Capital $11,016 8.02%
Tangible Capital Requirement 2,060 1.50%
------- -----
Excess $ 8,456 6.52%
======= =====
</TABLE>
General Results of Operations - Comparison of the Three Months Ended
- ---------------------------------------------------------------------
December 31, 1997 and 1996
- --------------------------
For the three months ended December 31, 1997, the Company recorded net income of
$413, compared to net income of $540 for the three months ended December 31,
1996. The decrease is primarily the result of the reduction in expense in the
prior year to adjust litigation and deposit insurance special assessment to
actual amounts paid. The Company recorded estimates for these expenses in the
quarter ended September 30, 1996, and the actual amounts paid were less than
estimated which resulted in reduced expense during the prior year quarter ended
December 31.
Interest Income
- ---------------
Total interest income decreased $66, to $3,352 for the three months ended
December 31, 1997. The same level of interest income has been maintained
because the average balance of interest earning assets has been stable. The
average yield on interest earning assets was 8.2% during the three months ended
December 31, 1997, which was also the yield for the corresponding quarter of the
previous year.
Interest and fees on loans decreased $152, or 5.3%, to $2,739 during the three
months ended December 31, 1997, from $2,891 for the three months ended December
31, 1996. The decrease in interest income on loans is attributable to a slight
decrease in the average balance of loans during the
8
<PAGE>
third quarter of fiscal 1998 as compared to the third quarter of fiscal 1997.
The decrease was partially offset by an increase in the average yield on loans
to 9.0% for the three months ended December 31, 1997, compared to 8.9% for the
corresponding quarter of the previous year.
Interest earned on mortgage-backed securities increased $24, or 14.6%, to $188
for the three months ended December 31, 1997, from $164 for the corresponding
three months ended December 31, 1996. The increase is primarily attributable to
a 24.1% increase in the average balance of mortgage-backed securities during the
quarter ended December 31, 1997, as compared to the quarter ended December 31,
1996, partially offset by a decrease in average yield. The increase is the
result of the purchase of mortgage-backed securities during the latter part of
fiscal 1997, net of principal repayments and prepayments.
Interest and dividends on the securities portfolio decreased $16, or 5.7%,
during the third quarter of fiscal 1998 from the third quarter of fiscal 1997.
This decrease reflects a 9.6% decrease in the average balance of securities from
the corresponding quarter of the previous year. The decrease in the average
balance was partially offset by a slight increase in the average yield.
Interest Expense
- ----------------
Interest expense for the quarter ended December 31, 1997, decreased $34, or
1.8%, to $1,835, from $1,869 during the quarter ended December 31, 1996. This
decrease is primarily attributable to a decrease in the average rate paid on
deposits to 4.7% during the quarter ended December 31, 1997, from 4.8% for the
quarter ended December 31, 1996, partially offset by a slight increase in
average balance of deposits.
Net Interest Income
- -------------------
Net interest income for the quarter ended December 31, 1997, decreased $32, or
2.1%, to $1,517 from the second quarter of fiscal 1997 level of $1,549. The
decrease is due in part to a decrease in the average balance of interest-earning
assets partially offset by an increase in net interest spread to 3.5% in the
third quarter of fiscal 1998 from 3.4% in the third quarter of fiscal 1997.
Provision for Loan Losses
- -------------------------
Management recorded a provision of $401 during the quarter ended December 31,
1997. This provision raised the Company's allowance for loan losses to a higher
level within its estimated range of loss exposure. During the quarter,
management reevaluated its methodology for establishing the allowance, and the
resulting increase was considered necessary given the change in loan portfolio
mix. The Company has somewhat broadened its lending, resulting in a shift from
a traditional thrift portfolio to a community bank portfolio. Consumer and
commercial real estate loans have risen to comprise a consistently higher
percentage of the loan portfolio. After the provision, the ratio of the
allowance to total loans of 0.96% is considered reasonable in relation to
estimated loss exposure.
9
<PAGE>
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. In the opinion of management, the allowance for loan losses at
December 31, 1997, was adequate to cover losses inherent in the loan portfolios.
Noninterest Income
- ------------------
Noninterest income for the quarter ended December 31, 1997, totaled $743 as
compared to $219 for the quarter ended December 31, 1996. The increase is
primarily the result of the gain of $511 recorded on the sale of real estate
held for investment discussed previously.
Noninterest Expenses
- --------------------
Noninterest expenses during the quarter ended December 31, 1997, increased $229
to $1,157 from the fiscal 1997 third quarter level of $928. The increase in
noninterest expense is primarily the result of a reduction in litigation expense
and deposit insurance special assessment expense in the prior year to adjust
expenses to the actual amounts paid. Amounts had previously been estimated
based on information available at the time.
Income Taxes
- ------------
The provision for income taxes increased $39 to $289 for the quarter ended
December 31, 1997, as compared to $250 for the corresponding quarter of the
prior year. The tax liability is estimated at each quarter end.
General Results of Operations - Comparison of the Nine Months Ended December 31,
- --------------------------------------------------------------------------------
1997 and 1996
- -------------
Net income for the nine months ended December 31, 1997, was $1,267, an increase
of $692 from net income of $575 for the nine months ended December 31, 1996.
The increase is primarily attributable to two nonrecurring items recorded in the
prior year: the SAIF special assessment of approximately $461 (after taxes) and
the accrual of a lawsuit judgement in the amount of $165 (after taxes).
Interest Income
- ---------------
Total interest income increased $164, or 1.6% to $10,137 for the nine months
ended December 31, 1997. This increase is primarily the result of an increase
in the average yield on interest-earning assets to 8.3% during the nine months
ended December 31, 1997, from 8.0% during the nine months ended December 31,
1996. This increase was partially offset by a decrease in the average balance of
interest earning assets during the periods.
Interest and fees on loans decreased $113, or 1.3% to $8,387 during the nine
months ended December 31, 1997, from $8,500 for the nine months ended December
31, 1996. The decrease is
10
<PAGE>
primarily the result of an approximate 4.1% decrease in the average balance of
loans during the third quarter of fiscal 1998 as compared to the same period of
fiscal 1997. The decrease was partially offset by an increase in the average
yield on loans of 9.0% for the nine months ended December 31, 1997, from 8.7% at
December 31, 1996.
Interest earned on mortgage-backed securities increased $201, or 51.5%, to $591
for the nine months ended December 31, 1997, from $390 for the corresponding
nine months ended December 31, 1996. The increase reflects a 56.4% increase in
the average balance of mortgage-backed securities during the nine months ended
December 31, 1997, as compared to the nine months ended December 31, 1996. The
increase was the result of the purchase of mortgage-backed securities during the
latter part of fiscal 1997, net of principal repayments and prepayments. The
increase is partially offset by a slight decrease in yield for the nine months
ended December 31, 1997, compared to the same period a year ago.
Interest and dividends on the securities portfolio decreased $32, or 4.1%, for
the nine months ended December 31, 1997, compared to the nine months ended
December 31, 1996, reflecting a decrease in the average balance of investment
securities net of a slight increase in yield.
Interest Expense
- ----------------
Interest expense for the nine months ended December 31, 1997, remained stable as
compared to the nine months ended December 31, 1996. There was a slight
increase in the average level of deposits for the nine months ended December 31,
1997, offset by a decrease in the average rate paid on deposits to 4.7%,
compared to 4.8% for the same period a year ago.
Net Interest Income
- -------------------
Net interest income for the nine months ended December 31, 1997, increased $163,
or 3.6%, to $4,667 from $4,504 for the nine months ended December 31, 1996.
This increase was due primarily to an increase in the average net interest
spread to 3.6% for the first nine months of fiscal 1998 from 3.3% for the first
nine months of fiscal 1997. The increase is partially offset by a slight
decline in the average balance of interest earning assets. The net interest
margin increased to 3.8% in the first nine months of fiscal 1998 from 3.6% in
the first nine months of fiscal 1997.
Provision for Loan Losses
- -------------------------
The allowance for loan losses was increased by a provision of $503 for the nine
months ended December 31, 1997. This provision raised the Company's allowance
for loan losses to a higher level within its estimated range of loss exposure.
During the quarter, management reevaluated its methodology for establishing the
allowance, and the resulting increase was considered necessary given the change
in loan portfolio mix. The Company has somewhat broadened its lending,
resulting in a shift from a traditional thrift portfolio to a community bank
portfolio. Consumer and commercial
11
<PAGE>
real estate loans have risen to comprise a consistently higher percentage of the
loan portfolio. After the provision, the ratio of the allowance to total loans
of 0.96% is considered reasonable in relation to estimated loss exposure.
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. In the opinion of management, the allowance for loan losses at
December 31, 1997, was adequate to cover losses inherent in the loan portfolios.
Noninterest Income
- ------------------
Noninterest income for the nine months ended December 31, 1997, totaled $1,182
as compared to $617 for the nine months ended December 31, 1996. The increase
is primarily the result of a gain of $511 recorded on the sale of real estate
held for investment.
Noninterest Expenses
- --------------------
Noninterest expenses during the nine months ended December 31, 1997, decreased
$792 to $3,345 from the fiscal 1997 level of $4,137. The decrease in
noninterest expense is primarily the result of the accrual of the SAIF special
assessment of approximately $461 (after taxes) and the accrual of a lawsuit
judgement of $165 (after taxes) recorded in the prior year.
Income Taxes
- ------------
The provision for income taxes increased $460, to $734 for the nine months ended
December 31, 1997, as compared to the corresponding period of the prior year.
The increased tax expense was due to the increase in pretax income.
This report on Form 10-Q contains forward-looking statements. Additionally,
from time to time, in written reports and oral statements, the Company discusses
its expectations regarding future performance. These forward-looking statements
are based on currently available competitive, financial and economic data and
the Company's operating plans. These statements are also inherently subject to
risks and uncertainties, including without limitation the risks described in the
Company's periodic reports and other filings with the Securities and Exchange
Commission. Because of the risks and uncertainties, events and results could
turn out to be significantly different from what the Company had expected.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Banks are parties to routine legal proceedings
occurring in the ordinary
12
<PAGE>
course of business. At December 31, 1997, there were no legal proceedings to
which the Company or either of the Banks was a party, or to which any of their
property was subject, which were expected by management to result in a material
loss.
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
None.
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.
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 there unto duly authorized.
FIRSTFED BANCORP, INC.
Date: February 13, 1998 /s/ B.K. Goodwin, III
---------------------
B. K. Goodwin, III
Chairman of the Board,
Chief Executive Officer
and President
(Duly Authorized Officer)
Date: February 13, 1998 /s/ Lynn J. Joyce
-----------------
Lynn J. Joyce
Chief Financial Officer,
Vice President, Secretary
and Treasurer
(Principal Financial and
Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,218
<INT-BEARING-DEPOSITS> 1,737
<FED-FUNDS-SOLD> 10,125
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,746
<INVESTMENTS-CARRYING> 19,297
<INVESTMENTS-MARKET> 19,460
<LOANS> 119,840
<ALLOWANCE> 1,157
<TOTAL-ASSETS> 178,792
<DEPOSITS> 160,345
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,122
<LONG-TERM> 0
0
0
<COMMON> 15
<OTHER-SE> 17,310
<TOTAL-LIABILITIES-AND-EQUITY> 178,792
<INTEREST-LOAN> 8,387
<INTEREST-INVEST> 1,342
<INTEREST-OTHER> 408
<INTEREST-TOTAL> 10,137
<INTEREST-DEPOSIT> 5,433
<INTEREST-EXPENSE> 5,470
<INTEREST-INCOME-NET> 4,667
<LOAN-LOSSES> 503
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,345
<INCOME-PRETAX> 2,001
<INCOME-PRE-EXTRAORDINARY> 2,001
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,267
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 8.3
<LOANS-NON> 1,121
<LOANS-PAST> 774
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 733
<CHARGE-OFFS> 136
<RECOVERIES> 57
<ALLOWANCE-CLOSE> 1,157
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,157
</TABLE>
