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 JUNE 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 July 16, 1999
----- ----------------------------
Common Stock, $.01 par value 2,485,422 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 JUNE 30, 1999 AND DECEMBER 31, 1998................................... 2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX
MONTHS ENDED JUNE 30, 1999 AND 1998......................................... 3
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND 1998..................................... 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND 1998..................................... 5
NOTES TO 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........................... 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 13
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.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
- ------ ---- ----
Cash and Cash Equivalents:
<S> <C> <C>
Cash on hand and in banks $ 7,181 $ 6,385
Interest-bearing deposits in other banks 5,774 6,025
Federal funds sold 22,500 31,225
----------- -----------
35,455 43,635
----------- -----------
Securities available for sale, at fair value 11,865 6,609
Loans held for sale 769 2,219
----------- -----------
Securities held to maturity, at amortized cost, fair
value of $15,556 and $17,180, respectively 15,545 16,976
Loans receivable, net 111,277 109,209
Land, buildings and equipment, net 3,164 3,065
Goodwill 1,254 1,308
Real estate owned 224 724
Accrued interest receivable 1,450 1,345
Income taxes receivable 252 602
Other assets 646 458
----------- -----------
$ 181,901 $ 186,150
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 162,903 $ 167,257
Accrued interest payable 139 141
Dividends payable 174 178
Other liabilities 240 371
----------- -----------
163,456 167,947
----------- -----------
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding - -
Common stock, $.01 par value, 10,000,000 shares
authorized, 3,062,139 shares issued and 2,330,134
shares outstanding at June 30, 1999 and 3,031,646
shares issued and 2,301,713 shares outstanding at
December 31, 1998 31 30
Paid-in capital 7,638 7,502
Retained earnings 15,745 15,622
Deferred compensation obligation 1,243 1,199
Deferred compensation treasury stock (152,103 shares at
June 30, 1999 and 150,031 shares at December 31, 1998) (1,396) (1,373)
Treasury stock, at cost, 579,902 shares at June
30, 1999, and December 31, 1998 (3,752) (3,752)
Unearned compensation (989) (1,064)
Unrealized (loss) gain on securities available
for sale, net (75) 39
----------- -----------
18,445 18,203
----------- -----------
$ 181,901 $ 186,150
=========== ===========
</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
June 30, June 30,
------------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
INTEREST INCOME:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 2,496 $ 2,705 $ 4,976 $ 5,402
Interest and dividends on
securities 362 399 661 846
Other interest income 357 279 782 515
---------- ---------- ---------- ----------
Total interest income 3,215 3,383 6,419 6,763
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 1,646 1,807 3,425 3,626
---------- ---------- ---------- ----------
Total interest expense 1,646 1,807 3,425 3,626
---------- ---------- ---------- ----------
Net interest income 1,569 1,576 2,994 3,137
Provision for loan losses 28 29 57 58
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,541 1,547 2,937 3,079
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Fees and other noninterest
income 230 204 469 396
---------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits 712 701 1,362 1,359
Office building and equipment
expenses 157 141 304 282
Deposit insurance expense 19 22 38 44
Amortization of goodwill 27 27 54 54
Other operating expenses 329 294 633 593
---------- ---------- ---------- ----------
Total noninterest expenses 1,244 1,185 2,391 2,332
---------- ---------- ---------- ----------
Income before income taxes 527 566 1,015 1,143
Provision for income taxes 194 190 371 381
---------- ---------- ---------- ----------
NET INCOME $ 333 $ 376 $ 644 $ 762
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC 2,400,787 2,321,010 2,393,622 2,228,051
========== ========== ========== ==========
BASIC EARNINGS PER SHARE $ .14 $ .16 $ .27 $ .34
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES
OUTSTANDING - DILUTED 2,476,106 2,447,685 2,470,880 2,350,262
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE $ .13 $ .15 $ .26 $ .32
========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE $ .07 $ .1325 $ .21 $ .1925
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
FIRSTFED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 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 - - 762 - - - - - $ 762
Change in unrealized gain
(loss) on securities
available for sale, net
of tax of $3 - - - - - - - 5 5
-------
Comprehensive income - - - - - - - - $ 767
=======
Amortization of unearned
compensation - - - - - - 59 -
Awards under stock plans 1 206 - - - - (207) -
Dividends declared ($.1925
per share) - - (471) - - - - -
Exercise of stock options - 45 - - - - - -
Stock issued under Dividend
Reinvestment Plan 1 71 - - - - - -
Issuance of treasury stock
to Employee Stock
Ownership Plan - 382 - - - 568 (950) -
ESOP change in value - 2 - - - - - -
Two-for-one stock split 14 (14) - - - - - -
------- ------ -------- ------- ------- ------- ------- ------
BALANCE, June 30, 1998 $ 30 $7,368 $ 15,259 $ - $ - $(3,752) $(1,124) $ 17
======= ====== ======== ======= ======= ======= ======= ======
BALANCE, December 31, 1998 $ 30 $7,502 $ 15,622 $1,199 $(1,373) $(3,752) $(1,064) $ 39
Net income - - 644 - - - - - $ 644
Change in unrealized gain
(loss) on securities
available for sale, net
of tax of $84 - - - - - - - (114) (114)
-------
Comprehensive income - - - - - - - - $ 530
=======
Amortization of unearned
compensation - - - - - - 75 -
Dividends declared ($.21
per share) - - (521) - - - - -
Exercise of stock options - 60 - - - - - -
Stock issued under Dividend
Reinvestment Plan 1 89 - - - - - -
Amortization of Deferred
Compensation Plan
Obligation - - - 21 - - - -
Addition to Deferred
Compensation Plan - - - 23 (23) - - -
ESOP change in value - (13) - - - - - -
------- ------ -------- ------- ------- ------- ------- ------
BALANCE, June 30, 1999 $ 31 $7,638 $ 15,745 $ 1,243 $(1,396) $(3,752) $ (989) $ (75)
======= ====== ======== ======= ======= ======= ======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
FIRSTFED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
---- ----
<S> <C> <C>
Net income $ 644 $ 762
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation 130 129
Amortization of unearned compensation and deferred compensation
obligation 109 59
Amortization of purchase premiums, net 99 69
Accretion of deferred income (expense), net (139) 3
Provision (credit) for deferred income taxes - (258)
Provision for loan losses 57 58
Loan fees (cost) deferred, net 196 13
(Gain) loss on sale of real estate, net (26) 12
Origination of loans held for sale (8,003) (12,613)
Proceeds from loans held for sale 9,453 12,017
Amortization of goodwill 54 54
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable (105) 123
(Increase) decrease in other assets (188) (185)
(Increase) decrease in current income taxes receivable 436 -
Increase (decrease) in accrued interest payable (2) (14)
Increase (decrease) in current income taxes payable - (23)
Increase (decrease) in other liabilities (131) (77)
-------- --------
Net cash provided by operating activities 2,584 129
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 1,800 4,738
Purchase of securities available for sale (7,252) (1,249)
Proceeds from maturities and payments received on securities held to maturity 6,330 4,836
Purchase of securities held to maturity (5,000) (552)
Proceeds from sale of real estate and repossessed assets 668 162
Net loan repayments (originations) (2,351) 2,918
Capital expenditures (229) (28)
-------- --------
Net cash provided by (used in) investing activities (6,034) 10,825
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net (4,354) 979
Proceeds from exercise of stock options 60 47
Dividends paid (525) (445)
Proceeds from dividend reinvestment 89 69
-------- --------
Net cash provided by (used in) financing activities (4,730) 650
-------- --------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (8,180) 11,604
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 43,635 20,080
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 35,455 $ 31,684
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for-
Income taxes $ 20 $ 672
Interest 3,427 3,640
Noncash transactions-
Transfer of loans receivable to real estate
owned 169 386
Declaration of cash dividends 173 170
Recording of deferred compensation 23 -
Noncash compensation under stock plans - 207
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<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 June 30, 1999
(unaudited), and December 31, 1998, and for the three and six months ended June
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 six months ended June 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 six months ended June 30, 1999 and 1998,
respectively, were as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Ended June 30, 1999 Ended June 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 $ 333,000 --- $ 333,000 $ 376,000 --- $ 376,000
Shares available to
common shareholders 2,400,787 75,319 2,476,106 2,321,010 126,675 2,447,685
--------- ------ --------- --------- ------- ---------
Earnings per share $ 0.14 --- $ 0.13 $ 0.16 --- $ 0.15
========= ====== ========= ========= ======= =========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Six Months Six Months
Ended June 30, 1999 Ended June 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 $ 644,000 --- $ 644,000 $ 762,000 --- $ 762,000
Shares available to
common shareholders 2,393,622 77,258 2,470,880 2,228,051 122,211 2,350,262
--------- ------ --------- --------- ------- ---------
Earnings per share $ 0.27 --- $ 0.26 $ 0.34 --- $ 0.32
========= ====== ========= ========= ======= =========
</TABLE>
Dividends declared for the quarter ended June 30, 1999, consisted of a $.07 per
share quarterly dividend and for the six months ended June 30, 1999, consisted
of $.14 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 six months ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
------------------------------------------------------
Banking Holding Total
Operations Company Eliminations Company
---------- ------- ------------ -------
(In thousands)
<S> <C> <C> <C> <C>
Net interest income $ 1,546 $ 23 $ - $ 1,569
Provision for loan losses 28 - - 28
Noninterest income 230 - - 230
Noninterest expense 1,116 128 - 1,244
---------- -------- ---------- ----------
Income before income
taxes 632 (105) - 527
Income tax expense 229 (35) - 194
---------- -------- ---------- ----------
Net income $ 403 $ (70) $ - $ 333
========== ======== ========== ==========
Total assets $ 181,794 $ 18,446 $ (18,339) $ 181,901
========== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
-------------------------------------------------------
Banking Holding Total
Operations Company Eliminations Company
---------- ------- ------------ -------
(In thousands)
<S> <C> <C> <C> <C>
Net interest income $ 1,540 $ 36 $ - $ 1,576
Provision for loan losses 29 - - 29
Noninterest income 204 - - 204
Noninterest expense 1,071 114 - 1,185
---------- --------- ---------- ----------
Income before income
taxes 644 (78) - 566
Income tax expense 216 (26) - 190
---------- --------- ---------- ----------
Net income $ 428 $ (52) $ - $ 376
========== ========= ========== ==========
Total assets $ 179,662 $ 17,798 $ (17,567) $ 179,893
========== ========= ========== ==========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
-------------------------------------------------------
Banking Holding Total
Operations Company Eliminations Company
---------- ------- ------------ -------
(In thousands)
<S> <C> <C> <C> <C>
Net interest income $ 2,946 $ 48 $ - $ 2,994
Provision for loan losses 57 - - 57
Noninterest income 469 - - 469
Noninterest expense 2,175 216 - 2,391
---------- ------- ---------- ----------
Income before income
taxes 1,183 (168) - 1,015
Income tax expense 429 (58) - 371
---------- ------- ---------- ----------
Net income $ 754 $ (110) $ - $ 644
========== ======= ========== ==========
Total assets $ 181,794 $18,446 $ (18,339) $ 181,901
========== ======= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
-------------------------------------------------------
Banking Holding Total
Operations Company Eliminations Company
---------- ------- ------------ -------
(In thousands)
<S> <C> <C> <C> <C>
Net interest income $ 3,066 $ 71 $ - $ 3,137
Provision for loan losses 58 - - 58
Noninterest income 396 - - 396
Noninterest expense 2,135 197 - 2,332
---------- ------- ---------- ----------
Income before income
taxes 1,269 (126) - 1,143
Income tax expense 428 (47) - 381
---------- ------- ---------- ----------
Net income $ 841 $ (79) $ - $ 762
========== ======= ========== ==========
Total assets $ 179,662 $17,798 $ (17,567) $ 179,893
========== ======= ========== ==========
</TABLE>
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 June 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 $8,180, or 18.7%, to $35,455 at June 30,
1999, from $43,635 at December 31, 1998. This decrease is primarily related to
the decrease in deposits for the same period,
8
<PAGE>
net of an increase in loans and securities. The Banks had 14-month and 19-month
special certificate of deposit programs and these certificates matured primarily
during the first half of 1999. Some rate sensitive funds were not retained.
Securities available for sale and held to maturity increased $3,825, or 16.2%,
to $27,410 at June 30, 1999, primarily due to purchases totaling $12,252 less
securities totaling $8,130 either maturing, being called prior to maturity, or
payments being received.
Loans receivable, net, at June 30, 1999, were $111,277, an increase of $2,068,
or 1.9%, 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
$1,071 at June 30, 1999, from $1,081 at December 31, 1998. This decrease of $10
was due to net charge-offs over recoveries of $67 offset by a provision of $57.
Nonperforming loans, which includes nonaccruing loans and accruing loans
delinquent ninety days or more, at June 30, 1999, decreased to $1,291, or 1.16%
of loans receivable, from $1,735, or 1.48% of loans receivable at December 31,
1998. At June 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 $224 at June 30, 1999, a decrease of $500 from December
31, 1998, as a result of the sale of several properties during the six months
ended June 30, 1999.
Deposits decreased $4,354, or 2.6%, to $162,903 at June 30, 1999, from $167,257
at December 31, 1998. The decrease in deposits is primarily the result of the
maturity of certificates of deposit generated in special programs as previously
discussed.
The Company had stockholders' equity of $18,445 as of June 30, 1999, an increase
of $242, or 1.3%, from $18,203 as of December 31, 1998. The primary components
of the change were net income for the six months ended June 30, 1999, of $644
less dividends of $.21 per share totaling $521.
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 June 30, 1999, the Banks had commitments to
originate and fund loans of $8.6 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 June 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 June 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 $ 12,234 9.20% $ 3,535 7.51% $ 17,266 9.49%
Minimum Required 5,320 4.00% 1,884 4.00% 7,276 4.00%
-------- ------- -------- ------ -------- ------
Excess $ 6,914 5.20% $ 1,651 3.51% $ 9,990 5.49%
======== ======= ======== ====== ======== ======
Total Capital:
Tier 1 Capital plus allowances
for loan losses $ 13,027 16.65% $ 3,814 14.50% $ 18,337 16.89%
Minimum Required 6,259 8.00% 2,104 8.00% 8,683 8.00%
-------- ------- -------- ------ -------- ------
Excess $ 6,768 8.65% $ 1,710 6.50% $ 9,654 8.89%
======== ======= ======== ====== ======== ======
Total Risk-weighted Assets $ 78,238 $ 26,300 $105,438
======== ======== ========
LEVERAGE RATIO
Tier 1 Capital $ 12,234 9.20% $ 3,535 7.51% $ 17,266 9.49%
Minimum Leverage Requirement 5,320 4.00% 1,884 4.00% 7,276 4.00%
-------- ------- -------- ------ -------- ------
Excess $ 6,914 5.20% $ 1,651 3.51% $ 9,990 5.49%
======== ======= ======== ====== ======== ======
TANGIBLE CAPITAL RATIO
Tangible Capital $12,234 9.20% N/A N/A
Tangible Capital Requirement 1,995 1.50%
------- -----
Excess $10,239 7.70%
======= =====
</TABLE>
As of June 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 June 30, 1999 and
1998
Net income for the three months ended June 30, 1999, was $333, a decrease of
$43, or 11.4%, from net income of $376 for the three months ended June 30, 1998.
The decrease was primarily attributable to an increase in noninterest expense
related to upgrades in technology including preparation for Year 2000.
Interest Income
Total interest income decreased $168, or 5.0%, to $3,215 for the three months
ended June 30, 1999. This decrease was primarily due to a decrease in the
average yield on interest-earning assets to 7.7%, from 8.2% for the
corresponding quarter of the previous year, offset by a slight increase in the
average balance of interest-earning assets.
Interest Expense
Interest expense for the quarter ended June 30, 1999, was $1,646, a decrease of
$161, or 8.9%, to $1,646 from the quarter ended June 30, 1998. The decrease was
primarily the result of a decrease in the average rate paid on deposits for the
three months ended June 30, 1999, to 4.0% from 4.6% for the corresponding
quarter of the previous year, net of a slight increase in the average balance of
deposits.
Net Interest Income
Net interest income for the quarter ended June 30, 1999, was $1,569 compared to
$1,576 for the quarter
10
<PAGE>
ended June 30, 1998. The average net interest spread increased slightly to 3.7%
for the three months ended June 30, 1999, from 3.6% for the same period in the
prior year. The net interest margin was 3.8% for the three months ended June 30,
1999 and June 30, 1998.
Provision for Loan Losses
Management increased the Company's total allowance for loan losses by a
provision of $28 during the quarter ended June 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 June 30, 1999, increased $26, to
$230, from the June 30, 1998, level of $204. 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 June 30, 1999, increased $59 to
$1,244 from the June 30, 1998, level of $1,185. Increases in noninterest expense
are related to upgrades in technology including preparation for Year 2000.
Income Taxes
The provision for income taxes increased $4, or 2.1%, to $194 for the quarter
ended June 30, 1999, as compared to the corresponding quarter in 1998.
Results of Operations - Comparison of the Six Months Ended June 30, 1999 and
1998
Net income for the six months ended June 30, 1999, was $644, a decrease of $118,
from net income of $762 for the six months ended June 30, 1998. 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.
Interest Income
Total interest income decreased $344, or 5.1%, to $6,419 for the six months
ended June 30, 1999. This decrease was primarily the result of a decrease in the
average yield on the interest-earning assets to 7.6% during the six months ended
June 30, 1999, from 8.2% during the six months ended June 30, 1998. The decrease
was partially offset by an increase in the average balance of interest-earning
assets during the six months ended June 30, 1999, as compared to the six months
ended June 30, 1998.
Interest Expense
Interest expense for the six months ended June 30, 1999, decreased $201, or
5.5%, to $3,425, from $3,626 during the six months ended June 30, 1998. This
decrease was primarily attributable to a reduction
11
<PAGE>
in the average rate paid on deposits to 4.2% for the six month period ended June
30, 1999, compared to 4.6% for the same period a year ago.
Net Interest Income
Net interest income for the six months ended June 30, 1999, decreased $142, or
4.6%, to $2,937, from $3,079 for the six months ended June 30, 1998. This
decrease was due primarily to a decrease in the average net interest spread to
3.4% for the six months ended June 30, 1999, from 3.6% for the six months ended
June 30, 1998. The net interest margin decreased to 3.5% in the six months ended
June 30, 1999, from 3.8% in the six months ended June 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 $57 for the six months ended June 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 six months ended June 30, 1999, totaled $469 as
compared to $396 for the six months ended June 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 six months ended June 30, 1999, increased $59 to
$2,391 from the fiscal 1998 level of $2,332. The increase in noninterest expense
is partially related to upgrades in technology including preparation for Year
2000.
Income Taxes
The provision for income taxes decreased $10, to $371 for the six months ended
June 30, 1999, 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 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.
12
<PAGE>
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
June 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 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' 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 June 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 June 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.
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 April 27, 1999, the Company held the 1999 Annual Meeting of Stockholders. The
election of James B. Koikos, E. H. Moore, Jr. and James E. Mulkin as directors
was submitted to a vote of the stockholders. The following is the result of the
vote:
13
<PAGE>
For Withheld
--- --------
James B. Koikos 2,146,092 97,800
E. H. Moore, Jr. 2,146,092 97,800
James E. Mulkin 2,146,092 97,800
There were no broker non-votes in the above matter.
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: August 9, 1999 \s\ B. K. Goodwin, III
------------------------ ----------------------------------
B. K. Goodwin, III,
Chairman of the Board,
Chief Executive Officer
and President
Date: August 9, 1999 \s\ Lynn J. Joyce
------------------------ -------------------------------------
Lynn J. Joyce
Chief Financial Officer, Vice
President, Secretary and
Treasurer
15
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000876947
<NAME> FirstFed Bancorp, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 7,181
<INT-BEARING-DEPOSITS> 5,774
<FED-FUNDS-SOLD> 22,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,865
<INVESTMENTS-CARRYING> 15,545
<INVESTMENTS-MARKET> 15,556
<LOANS> 111,277
<ALLOWANCE> 1,071
<TOTAL-ASSETS> 181,901
<DEPOSITS> 162,903
<SHORT-TERM> 0
<LIABILITIES-OTHER> 240
<LONG-TERM> 0
0
0
<COMMON> 31
<OTHER-SE> 18,414
<TOTAL-LIABILITIES-AND-EQUITY> 181,901
<INTEREST-LOAN> 4,976
<INTEREST-INVEST> 661
<INTEREST-OTHER> 782
<INTEREST-TOTAL> 6,419
<INTEREST-DEPOSIT> 3,425
<INTEREST-EXPENSE> 3,425
<INTEREST-INCOME-NET> 2,994
<LOAN-LOSSES> 57
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,391
<INCOME-PRETAX> 1,015
<INCOME-PRE-EXTRAORDINARY> 1,015
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 644
<EPS-BASIC> .27
<EPS-DILUTED> .26
<YIELD-ACTUAL> 7.7
<LOANS-NON> 320
<LOANS-PAST> 1,138
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,081
<CHARGE-OFFS> 101
<RECOVERIES> 34
<ALLOWANCE-CLOSE> 1,071
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,071
</TABLE>
