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, 1999
|_| 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, 1999
- ----------------------------- -------------------------------
Common Stock, $.01 par value 2,489,680 shares
Transitional Small Business Disclosure Format
(Check one):
YES __ NO X
<PAGE>
FIRSTFED BANCORP, INC.
----------------------
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998..............................2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998...........................3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998.......................4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998...............................5
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ...............6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION....................................................8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...........................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.....................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................14
ITEM 5. OTHER INFORMATION...................................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................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>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRSTFED BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
---- ----
Cash and Cash Equivalents:
<S> <C> <C>
Cash on hand and in banks $ 7,591 $ 6,385
Interest-bearing deposits in other banks 5,969 6,025
Federal funds sold 15,425 31,225
----------- -----------
28,985 43,635
----------- -----------
Securities available for sale, at fair value 12,773 6,609
Loans held for sale 504 2,219
Securities held to maturity, at amortized cost, fair
value of $19,361 and $17,180, respectively 19,476 16,976
Loans receivable, net 112,242 109,209
Land, buildings and equipment, net 3,164 3,065
Goodwill 1,227 1,308
Real estate owned 155 724
Accrued interest receivable 1,420 1,345
Other assets 1,375 1,060
----------- -----------
$ 181,321 $ 186,150
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 161,685 $ 167,257
Accrued interest payable 166 141
Dividends payable 174 178
Other liabilities 576 371
----------- -----------
162,601 167,947
----------- -----------
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding -- --
Common stock, $.01 par value, 10,000,000 shares
authorized, 3,066,656 shares issued and 2,331,969
shares outstanding at September 30, 1999 and
3,031,646 shares issued and 2,301,713 shares
outstanding at December 31, 1998 31 30
Paid-in capital 7,673 7,502
Retained earnings 15,949 15,622
Deferred compensation obligation 1,280 1,199
Deferred compensation treasury stock (154,785 shares at
September 30, 1999 and 150,031 shares at December
31, 1998) (1,420) (1,373)
Treasury stock, at cost, 579,902 shares at September
30, 1999, and December 31, 1998 (3,752) (3,752)
Unearned compensation (952) (1,064)
Unrealized (loss) gain on securities available
for sale, net (89) 39
----------- -----------
18,720 18,203
----------- -----------
$ 181,321 $ 186,150
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
FIRSTFED BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
INTEREST INCOME:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 2,516 $ 2,679 $ 7,492 $ 8,081
Interest and dividends on
securities 444 400 1,105 1,246
Other interest income 324 296 1,106 811
---------- ---------- ---------- ----------
Total interest income 3,284 3,375 9,703 10,138
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 1,614 1,835 5,039 5,461
---------- ---------- ---------- ----------
Total interest expense 1,614 1,835 5,039 5,461
---------- ---------- ---------- ----------
Net interest income 1,670 1,540 4,664 4,677
Provision for loan losses 29 28 86 86
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,641 1,512 4,578 4,591
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Fees and other noninterest
income 234 203 703 598
---------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits 738 648 2,100 2,007
Office building and equipment
expenses 155 149 459 430
Deposit insurance expense 18 22 56 66
Amortization of goodwill 27 27 81 81
Other operating expenses 339 328 972 921
---------- ---------- ---------- ----------
Total noninterest expense 1,277 1,174 3,668 3,505
---------- ---------- ---------- ----------
Income before income taxes 598 541 1,613 1,684
Provision for income taxes 220 175 591 556
---------- ---------- ---------- ----------
NET INCOME $ 378 $ 366 $ 1,022 $ 1,128
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC 2,406,485 2,347,828 2,397,957 2,320,638
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ .16 $ .16 $ .43 $ .49
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES
OUTSTANDING - DILUTED 2,471,593 2,475,946 2,469,224 2,445,657
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ .15 $ .15 $ .41 $ .47
========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE $ .07 $ .07 $ .28 $ .2650
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
FIRSTFED BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1999 and 1998
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Unrealized
Deferred Gain (Loss)
Deferred Compen- on Securities
Compen- sation Unearned Available Compre-
Common Paid-In Retained sation Treasury Treasury Compen- for Sale, hensive
Stock Capital Earnings Obligation Stock Stock sation Net Income
----- ------- -------- ---------- ----- ----- ------ --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 14 $ 6,676 $ 14,968 $ - $ - $ (4,320) $ (26) $ 12
Net income - - 1,128 - - - - - $ 1,128
Change in unrealized gain
(loss) on securities
available for sale, net
of tax of $3 - - - - - - - 25 25
-------
Comprehensive income - - - - - - - - $ 1,153
=======
Amortization of unearned
compensation - - - - - - 117 -
Awards under stock plans 1 206 - - - - (207) -
Dividends declared ($.2625
per share) - - (642) - - - - -
Exercise of stock options - 84 - - - - - -
Stock issued under Dividend
Reinvestment Plan 1 103 - - - - - -
Issuance of treasury stock
to Employee Stock
Ownership Plan - 382 - - - 568 (950) -
ESOP change in value - 8 - - - - - -
Two-for-one stock split 14 (14) - - - - - -
------ -------- -------- --------- ------- -------- ------- ---------
BALANCE, September 30, 1998 $ 30 $ 7,445 $ 15,454 $ - $ - $ (3,752) $(1,066) $ 37
====== ======== ======== ========= ======= ======== ======= =========
BALANCE, December 31, 1998 $ 30 $ 7,502 $ 15,622 $ 1,199 $(1,373) $ (3,752) $(1,064) $ 39
Net income - - 1,022 - - - - - $ 1,022
Change in unrealized gain
(loss) on securities
available for sale, net
of tax of $84 - - - - - - - (128) (128)
-------
Comprehensive income - - - - - - - - $ 894
=======
Amortization of unearned
compensation - - - - - - 112 -
Dividends declared ($.28
per share) - - (695) - - - - -
Exercise of stock options - 60 - - - - - -
Stock issued under Dividend
Reinvestment Plan 1 124 - - - - - -
Amortization of Deferred
Compensation Plan
Obligation - - - 34 - - - -
Addition to Deferred
Compensation Plan - - - 47 (47) - - -
ESOP change in value - (13) - - - - - -
------ -------- -------- --------- ------- -------- ------- ---------
BALANCE, September 30, 1999 $ 31 $ 7,673 $ 15,949 $ 1,280 $(1,420) $ (3,752) $ (952) $ (89)
====== ======== ======== ========= ======= ======== ======= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
FIRSTFED BANCORP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
---- ----
<S> <C> <C>
Net income $ 1,022 $ 1,128
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion 350 492
Provision for loan losses 86 86
Loan fees (cost) deferred, net 240 25
Loss on sale of real estate, net 17 17
Origination of loans held for sale (10,498) (16,103)
Proceeds from loans held for sale 12,213 15,936
Decrease (increase) in assets:
Accrued interest receivable (75) 98
Other assets (220) (493)
Increase (decrease) in liabilities:
Accrued interest payable 25 19
Income taxes payable -- (57)
Other liabilities 205 (145)
-------- -------
Net cash provided by operating activities 3,365 1,003
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 2,800 6,211
Purchase of securities available for sale (9,184) (2,549)
Proceeds from maturities and payments received on securities held to maturity 7,376 7,340
Purchase of securities held to maturity (10,000) (9,641)
Proceeds from sale of real estate and repossessed assets 768 446
Net loan repayments (originations) (3,393) 4,417
Capital expenditures (296) (290)
-------- --------
Net cash provided by (used in) investing activities (11,929) 5,934
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net (5,572) 2,237
Proceeds from exercise of stock options 60 84
Dividends paid (699) (610)
Proceeds from dividend reinvestment 125 104
-------- --------
Net cash provided by (used in) financing activities (6,086) 1,815
-------- --------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (14,650) 8,752
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 43,635 20,080
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28,985 $ 28,832
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for-
Income taxes $ 404 $ 866
Interest 5,014 5,442
Noncash transactions-
Transfer of loans receivable to real estate
owned 216 523
Declaration of cash dividends 174 327
Recording of deferred compensation 47 --
Noncash compensation under stock plans -- 207
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
FIRSTFED BANCORP, INC.
NOTES TO UNAUDITED 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,
1999 (unaudited), and December 31, 1998, and for the three and nine months ended
September 30, 1999 and 1998 (unaudited), include the accounts of the Company and
the Banks. All significant intercompany transactions and accounts have been
eliminated in consolidation.
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 nine months ended September 30, 1999, 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 December 31, 1998. The
accounting policies followed by the Company are set forth in the Summary of
Significant Accounting Policies in the Company's December 31, 1998, Consolidated
Financial Statements.
2. EARNINGS AND DIVIDENDS PER SHARE:
--------------------------------
Earnings per share for the three and nine months ended September 30, 1999 and
1998, respectively, were as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Ended September 30, 1999 Ended September 30, 1998
------------------------------------- -----------------------------------------
Dilutive Dilutive
Effect of Effect of
Options Options
Basic Issued Diluted Basic Issued Diluted
----- ------ ------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 378,000 --- $ 378,000 $ 366,000 --- $ 366,000
Shares available to
common shareholders 2,406,485 65,108 2,471,593 2,347,828 128,118 2,475,946
---------- --------- ---------- ---------- --------- -----------
Earnings per share $ 0.16 --- $ 0.15 $ 0.16 --- $ 0.15
========== ========= ========== ========== ========= ===========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended September 30, 1999 Ended September 30, 1998
------------------------------------- -----------------------------------------
Dilutive Dilutive
Effect of Effect of
Options Options
Basic Issued Diluted Basic Issued Diluted
----- ------ ------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net income $1,022,000 --- $1,022,000 $1,128,000 --- $1,128,000
Shares available to
common shareholders 2,397,957 71,267 2,469,224 2,320,638 125,019 2,445,657
---------- --------- ---------- ---------- --------- ----------
Earnings per share $ 0.43 --- $ 0.41 $ 0.49 --- $ 0.47
========== ========= ========== ========== ========= ==========
</TABLE>
Dividends declared for the quarter ended September 30, 1999, consisted of a $.07
per share quarterly dividend and for the nine months ended September 30, 1999,
consisted of $.21 per share quarterly dividends and a $.07 per share special
dividend.
3. SEGMENT DISCLOSURE:
------------------
The holding company is considered a separate reportable segment from the banking
operations since it does not offer products or services or interact with
customers, but does meet the quantitative threshold as outlined in the
accounting standards. The Company's segment disclosure is as follows for the
three and nine months ended September 30, 1999 and 1998.
Three Months Ended September 30, 1999
--------------------------------------------
Banking Holding Total
Operations Company Eliminations Company
---------- ------- ------------ -------
(In thousands)
Net interest income $ 1,648 $ 22 $ -- $ 1,670
Provision for loan losses 29 -- -- 29
Noninterest income 234 -- -- 234
Noninterest expense 1,118 159 -- 1,277
-------- -------- -------- --------
Income before income
taxes 735 (137) -- 598
Income tax expense 267 (47) -- 220
-------- -------- -------- --------
Net income $ 468 $ (90) $ -- $ 378
======== ======== ======== ========
Total assets $181,000 $ 19,103 $(18,782) $181,321
======== ======== ======== ========
Three Months Ended September 30, 1998
--------------------------------------------
Banking Holding Total
Operations Company Eliminations Company
---------- ------- ------------ -------
(In thousands)
Net interest income $ 1,509 $ 31 $ -- $ 1,540
Provision for loan losses 28 -- -- 28
Noninterest income 203 -- -- 203
Noninterest expense 1,082 92 -- 1,174
-------- -------- -------- --------
Income before income
taxes 602 (61) -- 541
Income tax expense 195 (20) -- 175
-------- -------- -------- --------
Net income $ 407 $ (41) $ -- $ 366
======== ======== ======== ========
Total assets $181,217 $ 18,385 $(18,168) $181,434
======== ======== ======== ========
7
<PAGE>
Nine Months Ended September 30, 1999
--------------------------------------------
Banking Holding Total
Operations Company Eliminations Company
---------- ------- ------------ -------
(In thousands)
Net interest income $ 4,594 $ 70 $ -- $ 4,664
Provision for loan losses 86 -- -- 86
Noninterest income 703 -- -- 703
Noninterest expense 3,296 372 -- 3,668
-------- -------- -------- --------
Income before income
taxes 1,915 (302) -- 1,613
Income tax expense 696 (105) -- 591
-------- -------- -------- --------
Net income $ 1,219 $ (197) $ -- $ 1,022
======== ======== ======== ========
Total assets $181,000 $ 19,103 $(18,782) $181,321
======== ======== ======== ========
Nine Months Ended September 30, 1998
--------------------------------------------
Banking Holding Total
Operations Company Eliminations Company
---------- ------- ------------ -------
(In thousands)
Net interest income $ 4,575 $ 102 $ -- $ 4,677
Provision for loan losses 86 -- -- 86
Noninterest income 598 -- -- 598
Noninterest expense 3,216 289 -- 3,505
-------- -------- -------- --------
Income before income
taxes 1,871 (187) -- 1,684
Income tax expense 622 (66) -- 556
-------- -------- -------- --------
Net income $ 1,249 $ (121) $ -- $ 1,128
======== ======== ======== ========
Total assets $181,217 $ 18,385 $(18,168) $181,434
======== ======== ======== ========
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, 1999, and December 31,
1998
- --------------------------------------------------------------------------------
All dollar amounts, except per share amounts, included hereafter in Management's
Discussion and Analysis are in thousands.
Cash and cash equivalents decreased $14,650, or 33.6%, to $28,985 at September
30, 1999, from $43,635 at December 31, 1998. This decrease is primarily related
to the increase in securities available for sale
8
<PAGE>
and held to maturity. Cash held in fed funds at December 31, 1998, were invested
to increase yield while still managing interest rate risk.
Securities available for sale and held to maturity increased $8,664, or 36.7%,
to $32,249 at September 30, 1999, primarily due to purchases totaling $19,184
less securities totaling $10,176 either maturing, being called prior to
maturity, or payments being received.
Loans receivable, net, at September 30, 1999, were $112,242, an increase of
$3,033, or 2.8%, from $109,209 at December 31, 1998. The increase in loans
receivable, net, was primarily due to an increase in the origination of mortgage
loans that were retained in the Banks' portfolios.
The Company's consolidated allowance for loan losses decreased slightly to
$1,048 at September 30, 1999, from $1,081 at December 31, 1998. This decrease of
$33 was due to net charge-offs over recoveries of $119 offset by a provision of
$86. Nonperforming loans, which includes nonaccruing loans and accruing loans
delinquent ninety days or more, at September 30, 1999, decreased to $1,513, or
1.35% of loans receivable, from $2,525, or 2.31% of loans receivable at December
31, 1998. At September 30, 1999, 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 $155 at September 30, 1999, a decrease of $569 from
December 31, 1998, primarily as a result of the sale of several properties
during the nine months ended September 30, 1999, that were held at December 31,
1998.
Deposits decreased $5,572, or 3.3%, to $161,685 at September 30, 1999, from
$167,257 at December 31, 1998. The decrease in deposits is primarily the result
of the maturity of rate sensitive certificates of deposit and fluctuations in
NOW account balances.
The Company had stockholders' equity of $18,720 as of September 30, 1999, an
increase of $517, or 2.8%, from $18,203 as of December 31, 1998. The primary
components of the change were net income for the nine months ended September 30,
1999, of $1,022 less dividends of $.28 per share totaling $695.
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, 1999, the Banks had
commitments to originate and fund loans of $8.4 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, 1999, was 23.8%,
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, 1999.
9
<PAGE>
<TABLE>
<CAPTION>
First Federal First State The Company
------------- ----------- -----------
RISK-BASED CAPITAL RATIOS
Tier 1 Capital:
<S> <C> <C> <C> <C> <C> <C>
Stockholders' Equity less goodwill $12,614 9.55% $ 3,668 7.72% $ 17,582 9.70%
Minimum Required 5,285 4.00% 1,901 4.00% 7,253 4.00%
------- ----- ------- ----- --------- -----
Excess $ 7,329 5.55% $ 1,767 3.72% $ 10,329 5.70%
======= ===== ======= ===== ========= =====
Total Capital:
Tier 1 Capital plus allowances
for loan losses $13,381 16.20% $ 3,948 14.83% $ 18,629 16.70%
Minimum Required 6,609 8.00% 2,130 8.00% 8,783 8.00%
------- ----- ------- ----- --------- -----
Excess $ 6,772 8.20% $ 1,818 6.83% $ 6,921 8.70%
======= ===== ======= ===== ========= =====
Total Risk-weighted Assets $82,613 $26,619 $ 109,782
======= ======= =========
LEVERAGE RATIO
Tier 1 Capital $12,614 9.55% $ 3,668 7.72% $ 17,582 9.70%
Minimum Leverage Requirement 5,285 4.00% 1,901 4.00% 7,253 4.00%
------- ----- ------- ----- --------- -----
Excess $ 7,329 5.55% $ 1,767 3.72% $ 10,329 5.70%
======= ===== ======= ===== ========= =====
TANGIBLE CAPITAL RATIO
Tangible Capital $12,614 9.55% N/A N/A
Tangible Capital Requirement 1,982 1.50%
------- -----
Excess $10,632 8.05%
======= =====
</TABLE>
As of September 30, 1999, 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, 1999
and 1998
- --------------------------------------------------------------------------------
Net income for the three months ended September 30, 1999, was $378, an increase
of $12, or 3.3%, from net income of $366 for the three months ended September
30, 1998. The increase was primarily attributable to an increase in net interest
income, offset by a slight increase in nonoperating expense.
Interest Income
- ---------------
Total interest income decreased $91, or 2.7%, to $3,284 for the three months
ended September 30, 1999. This decrease was primarily due to a decrease in the
average yield on interest-earning assets to 8.0%, from 8.1% for the
corresponding quarter of the previous year, combined with a slight decrease in
the average balance of interest-earning assets.
Interest Expense
- ----------------
Interest expense for the quarter ended September 30, 1999, was $1,614, a
decrease of $221, or 12.0%, from $1,835 for the quarter ended September 30,
1998. The decrease was primarily the result of a decrease in the average rate
paid on deposits for the three months ended September 30, 1999, to 4.2% from
4.6% for the corresponding quarter of the previous year, in addition to a
decrease in the average balance of deposits.
10
<PAGE>
Net Interest Income
- -------------------
Net interest income for the quarter ended September 30, 1999, was $1,670
compared to $1,540 for the quarter ended September 30, 1998. The average net
interest spread increased to 3.8% for the three months ended September 30, 1999,
from 3.5% for the same period in the prior year. The net interest margin was
4.0% for the three months ended September 30, 1999, and 3.7% for the three
months ended September 30, 1998.
Provision for Loan Losses
- -------------------------
Management increased the Company's total allowance for loan losses by a
provision of $29 during the quarter ended September 30, 1999. 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, 1999, increased $31,
to $234, from the September 30, 1998, level of $203. The increase in noninterest
income is primarily the result of an increase in secondary market fees for loans
sold.
Noninterest Expenses
- --------------------
Noninterest expenses during the quarter ended September 30, 1999, increased $103
to $1,277 from the September 30, 1998, level of $1,174. Increases in noninterest
expense are primarily related to upgrades in technology including preparation
for Year 2000.
Income Taxes
- ------------
The provision for income taxes increased $45, or 25.7%, to $220 for the quarter
ended September 30, 1999, as compared to the corresponding quarter in 1998. The
increased tax expense was the result of the increase in pretax income.
Results of Operations - Comparison of the Nine Months Ended September 30, 1999
and 1998
- --------------------------------------------------------------------------------
Net income for the nine months ended September 30, 1999, was $1,022, a decrease
of $106, from net income of $1,128 for the nine months ended September 30, 1998.
The decrease was primarily attributable to a slight increase in noninterest
expense which is partially related to the upgrades in technology including
preparation for Year 2000.
Interest Income
- ---------------
Total interest income decreased $435, or 4.3%, to $9,703 for the nine months
ended September 30, 1999. This decrease was primarily the result of a decrease
in the average yield on the interest-earning assets to 7.7% during the nine
months ended September 30, 1999, from 8.1% during the nine months ended
September 30, 1998. The decrease was partially offset by an increase in the
average balance of interest-
11
<PAGE>
earning assets during the nine months ended September 30, 1999, as compared to
the nine months ended September 30, 1998.
Interest Expense
- ----------------
Interest expense for the nine months ended September 30, 1999, decreased $422,
or 7.7%, to $5,039, from $5,461 during the nine months ended September 30, 1998.
This decrease was primarily attributable to a reduction in the average rate paid
on deposits to 4.1% for the nine month period ended September 30, 1999, compared
to 4.5% for the same period a year ago.
Net Interest Income
- -------------------
Net interest income for the nine months ended September 30, 1999, decreased $13,
or 0.3%, to $4,664, from $4,677 for the nine months ended September 30, 1998.
The amount was basically unchanged because the average net interest spread for
the nine months ended September 30, 1999, and for the nine months ended
September 30, 1998, remained unchanged at 3.6%. The net interest margin
decreased to 3.7% in the nine months ended September 30, 1999, from 3.8% in the
nine months ended September 30, 1998.
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 totaling $86 for the nine months ended September 30,
1999. These provisions were recorded to maintain the allowances for loan losses
at adequate levels based on management's best estimates.
Noninterest Income
- ------------------
Noninterest income for the nine months ended September 30, 1999, totaled $703 as
compared to $598 for the nine months ended September 30, 1998. The increase in
noninterest income is primarily the result of an increase in secondary market
fees for loans sold.
Noninterest Expenses
- --------------------
Noninterest expenses during the nine months ended September 30, 1999, increased
$162 to $3,668 from the fiscal 1998 level of $3,505. The increase in noninterest
expense is partially related to upgrades in technology including preparation for
Year 2000.
Income Taxes
- ------------
The provision for income taxes increased $35, to $591 for the nine months ended
September 30, 1999, as compared to the corresponding period of the prior year.
The increased tax expense was due to a slight increase in the rate used to
determined the tax provision.
12
<PAGE>
Year 2000
- ---------
The Company has addressed, and will continue to address, the issue of Year 2000,
which relates to software originally 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. This assessment covered
both information technology systems and non-information technology systems.
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 had been substantially completed at
September 30, 1999. The Banks have adopted Year 2000 Test Plans and have
conducted testing and evaluated results. Management presently believes that the
Year 2000 issue will not pose a substantial internal operating risk to the
Company.
Additionally, the Company has assessed the 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 have
substantially completed testing of the Year 2000 Contingency Plan as of
September 30, 1999.
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' commercial customers have a minimal reliance on computers to conduct
business.
Total Year 2000 costs include such items as payroll costs, upgrading existing
software applications, replacing certain hardware and customer awareness program
materials. 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. Externally generated expenses incurred
during the quarter ended September 30, 1999, are not considered significant.
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, 1999, 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.
13
<PAGE>
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
None.
ITEM 5. OTHER INFORMATION
None.
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.
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 11, 1999 \s\ B. K. Goodwin, III
----------------------------------------
B. K. Goodwin, III,
Chairman of the Board,
Chief Executive Officer
and President
Date: November 11, 1999 \s\ Lynn J. Joyce
------------------------- ----------------------------------------
Lynn J. Joyce
Chief Financial Officer, Vice
President, Secretary and Treasurer
15
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<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,591
<INT-BEARING-DEPOSITS> 5,969
<FED-FUNDS-SOLD> 15,425
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,773
<INVESTMENTS-CARRYING> 19,476
<INVESTMENTS-MARKET> 19,361
<LOANS> 112,242
<ALLOWANCE> 1,048
<TOTAL-ASSETS> 181,321
<DEPOSITS> 161,685
<SHORT-TERM> 0
<LIABILITIES-OTHER> 576
<LONG-TERM> 0
0
0
<COMMON> 31
<OTHER-SE> 18,689
<TOTAL-LIABILITIES-AND-EQUITY> 181,321
<INTEREST-LOAN> 7,492
<INTEREST-INVEST> 1,105
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<INTEREST-TOTAL> 9,703
<INTEREST-DEPOSIT> 5,039
<INTEREST-EXPENSE> 5,039
<INTEREST-INCOME-NET> 4,664
<LOAN-LOSSES> 86
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 972
<INCOME-PRETAX> 1,613
<INCOME-PRE-EXTRAORDINARY> 1,613
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,022
<EPS-BASIC> .43
<EPS-DILUTED> .41
<YIELD-ACTUAL> 8.0
<LOANS-NON> 315
<LOANS-PAST> 1,198
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,081
<CHARGE-OFFS> 161
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<ALLOWANCE-CLOSE> 1,048
<ALLOWANCE-DOMESTIC> 0
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</TABLE>
