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 MARCH 31, 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 May 9, 1999
----- --------------------------
Common Stock, $.01 par value 2,479,395 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 MARCH 31, 1999 AND DECEMBER 31, 1998 2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND 1998 3
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND 1998 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 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 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
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>
March 31, December 31,
ASSETS 1999 1998
--------- ------------
Cash and Cash Equivalents:
<S> <C> <C>
Cash on hand and in banks $ 4,610 $ 6,385
Interest-bearing deposits in other banks 5,890 6,025
Federal funds sold 26,775 31,225
--------- ---------
37,275 43,635
--------- ---------
Securities available for sale, at fair value 7,203 6,609
Loans held for sale 808 2,219
Securities held to maturity, at amortized cost, fair
value of $17,831 and $17,180, respectively 17,687 16,976
Loans receivable, net 111,507 109,209
Land, buildings and equipment, net 3,147 3,065
Goodwill 1,281 1,308
Real estate owned 198 724
Accrued interest receivable 1,302 1,345
Income taxes receivable 456 602
Other assets 656 458
--------- ---------
$ 181,520 $ 186,150
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 162,498 $ 167,257
Accrued interest payable 159 141
Dividends payable 173 178
Other liabilities 407 371
--------- ---------
163,237 167,947
Stockholders' Equity: --------- ---------
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none outstanding - -
Common stock, $.01 par value, 10,000,000 shares
authorized, 3,056,351 shares issued and 2,324,918 shares outstanding
at March 31, 1999 and 3,031,646 shares issued and 2,301,713 shares
outstanding at
December 31, 1998 31 30
Paid-in capital 7,608 7,502
Retained earnings 15,586 15,622
Deferred compensation obligation 1,224 1,199
Deferred compensation treasury stock (151,531 shares at
March 31, 1999 and 150,031 shares at December 31, 1998) (1,390) (1,373)
Treasury stock, at cost (579,902 shares at March 31, 1999
and December 31, 1998) (3,752) (3,752)
Unearned compensation (1,026) (1,064)
Unrealized gain on securities available for sale, net 2 39
--------- ---------
18,283 18,203
--------- ---------
$ 181,520 $ 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)
Three Months Ended
March 31,
------------------
1999 1998
---- ----
INTEREST INCOME:
Interest and fees on loans $ 2,480 $ 2,697
Interest and dividends on
securities 299 447
Other interest income 425 236
---------- ----------
Total interest income 3,204 3,380
---------- ----------
INTEREST EXPENSE:
Interest on deposits 1,779 1,819
---------- ----------
Total interest expense 1,779 1,819
---------- ----------
Net interest income 1,425 1,561
Provision for loan losses 29 29
---------- ----------
Net interest income after
provision for loan losses 1,396 1,532
---------- ----------
NONINTEREST INCOME:
Fees and other noninterest income 239 192
---------- ----------
Total noninterest income 239 192
---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits 650 658
Office building and equipment
expenses 147 141
Deposit insurance expense 19 22
Amortization of goodwill 27 27
Other operating expenses 304 299
---------- ----------
Total noninterest expenses 1,147 1,147
---------- ----------
Income before income taxes 488 577
Provision for income taxes 177 191
---------- ----------
NET INCOME $ 311 $ 386
========== ==========
AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC 2,386,377 2,310,722
========== ==========
BASIC EARNINGS PER SHARE $ .13 $ .17
========== ==========
AVERAGE NUMBER OF SHARES
OUTSTANDING - DILUTED 2,464,437 2,435,974
========== ==========
DILUTED EARNINGS PER SHARE $ .13 $ .16
========== ==========
DIVIDENDS DECLARED PER SHARE $ .14 $ .0625
========== ==========
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
FIRSTFED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1999 and 1998
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Unrealized
Deferred Gain (Loss)
Deferred Compen- on Securities Compre-
Compen- sation Unearned Available hensive
Common Paid-In Retained sation Treasury Treasury Compen- for Sale, Income
Stock Capital Earnings Obligation Stock Stock sation Net (Note 1)
----- ------- -------- ---------- ----- ----- ------ --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 14 $ 6,676 $ 14,968 $ - $ - $ (4,320) $ (26) $ 12
Net income - - 386 - - - - - $ 386
Change in unrealized gain
(loss) on securities
available for sale, net
of tax of $ 3 - - - - - - - 5 5
------
Comprehensive income - - - - - - - - $ 391
======
Amortization of unearned
compensation - - - - - - 28 -
Dividends declared ($.0625
per share) - - (150) - - - - -
Exercise of stock options - 10 - - - - - -
Stock issued under Dividend
Reinvestment Plan - 30 - - - - - -
Issuance of treasury stock
to Employee Stock
Ownership Plan - 382 - - - 568 (950) -
Two-for-one stock split 14 (14) - - - - - -
------- -------- -------- ------ ------- ------- ------ -----
BALANCE, March 31, 1998 $ 28 $ 7,084 $ 15,204 $ - $ - $(3,752) $ (948) $ 17
======= ======== ======== ====== ======= ======= ====== =====
BALANCE, December 31, 1998 $ 30 $ 7,502 $ 15,622 $1,199 $(1,373) $(3,752) $(1,064) $ 39
Net income - - 311 - - - - - $ 311
Change in unrealized gain
(loss) on securities
available for sale, net
of tax of $21 - - - - - - - (37) (37)
------
Comprehensive income - - - - - - - - $ 274
======
Amortization of unearned
compensation - - - - - - 38 -
Dividends declared ($.14
per share) - - (347) - - - - -
Exercise of stock options 1 45 - - - - - -
Amortization of Deferred
Compensation Plan
Obligation - - - 8 - - - -
Addition to Deferred
Compensation Plan - - - 17 (17) - - -
Stock issued under Dividend
Reinvestment Plan - 61 - - - - - -
------ ------- -------- ------ -------- ------- ------ -----
BALANCE, March 31, 1999 $ 31 $ 7,608 $ 15,586 $1,224 $ (1,390) $(3,752) $(1,026) $ 2
====== ======= ======== ====== ======== ======= ======= =====
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
FIRSTFED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
---- ----
<S> <C> <C>
Net income $ 311 $ 386
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation 62 62
Amortization of unearned compensation and deferred compensation obligation 47 28
Amortization (accretion) of purchase premiums (discounts), net 67 (8)
(Accretion) amortization of deferred (income) expense, net (95) 66
Loan fees (cost) deferred, net 84 (41)
Credit for deferred income taxes - (258)
Provision for loan losses 29 29
(Gain) loss on sale of real estate, net (26) 2
Origination of loans held for sale (4,315) (2,922)
Proceeds from loans held for sale 5,726 2,818
Amortization of goodwill 27 27
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable 43 45
(Increase) decrease in other assets (198) (32)
Increase (decrease) in accrued interest payable 18 59
(Increase) decrease in income taxes receivable 166 59
Increase (decrease) in other liabilities 36 (7)
-------- --------
Net cash provided by operating activities 1,982 313
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 1,350 3,642
Purchase of securities available for sale (2,000) (750)
Proceeds from maturities and payments received on securities held to maturity 3,220 728
Purchase of securities held to maturity (4,000) (552)
Proceeds from sale of real estate and repossessed assets 645 112
Net loan repayments (originations) (2,409) 2,103
Capital expenditures (144) -
-------- --------
Net cash provided by (used in) investing activities (3,338) 5,283
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net (4,759) 2,514
Proceeds from exercise of stock options 45 9
Dividends paid (351) (144)
Proceeds from dividend reinvestment 61 30
-------- --------
Net cash provided by (used in) financing activities (5,004) 2,409
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,360) 8,005
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 43,635 20,080
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 37,275 $ 28,085
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for -
Income taxes $ 31 $ 400
Interest 1,761 1,760
Non-cash transactions -
Transfer of loan receivable to real estate owned 93 147
Declaration of cash dividends 173 150
</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 March 31,
1999 (unaudited), and December 31, 1998, and for the three months ended March
31, 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
months ended March 31, 1999, 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-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 months ended March 31, 1999 and 1998,
respectively, were as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, 1999 Ended March 31, 1998
-------------------------------- --------------------------------
Dilutive Dilutive
Effect of Effect of
Options Options
Basic Issued Diluted Basic Issued Diluted
----- ------ ------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 311,000 --- $ 311,000 $ 386,000 --- $ 386,000
Shares available to
common shareholders 2,386,377 78,060 2,464,437 2,310,722 125,252 2,435,974
Earnings per share $ 0.13 --- $ 0.13 $ 0.17 --- $ 0.16
========= ====== ========= ========= ======= =========
</TABLE>
Dividends declared for the quarter ended March 31, 1999, consisted of a $.07 per
share special dividend and $.07 per share quarterly dividend.
6
<PAGE>
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 months ended March 31, 1999 and 1998.
March 31, 1999
-------------------------------------------------
Banking Holding Total
Operations Company Elimination Company
---------- ------- ----------- -------
(In thousands)
Net interest income $ 1,400 $ 25 $ - $ 1,425
Provision for loan losses 29 - - 29
Noninterest income 239 - - 239
Noninterest expense 1,059 88 - 1,147
---------- --------- --------- ----------
Income before income
taxes 551 (63) - 488
Income tax expense 200 (23) - 177
---------- ---------- ---------- ----------
Net income $ 351 $ (40) $ - $ 311
========== ========== ========== ==========
Total assets $ 181,016 $ 18,619 $ (18,115) $ 181,520
========== ========== ========== ==========
March 31, 1999
-------------------------------------------------
Banking Holding Total
Operations Company Elimination Company
---------- ------- ----------- -------
(In thousands)
Net interest income $ 1,526 $ 35 $ - $ 1,561
Provision for loan losses 29 - - 29
Noninterest income 192 - - 192
Noninterest expense 1,063 84 - 1,147
---------- --------- ----------- ----------
Income before income
taxes 626 (49) - 577
Income tax expense 212 (21) - 191
---------- --------- ----------- ----------
Net income $ 414 $ (28) $ - $ 386
========== ========= =========== ==========
Total assets $ 179,529 $ 17,885 $ (15,946) $ 181,468
========== ======== =========== ==========
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's discussion and analysis includes certain forward-looking statements
addressing, among other things, the Company's prospects for earnings, asset
growth and net interest margin. Forward-looking statements are accompanied by,
and identified with, such terms as "anticipates," "believes," "expects,"
"intends," and similar phrases. Management's expectations for the Company's
future necessarily involve a number of assumptions and estimates. Factors that
could cause actual results to differ from the expectations expressed herein are:
substantial changes in interest rates, changes in the general economy, and
changes in the Company's strategies for credit-risk management, interest-rate
risk management and investment activities. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized.
Comparison of Financial Condition as of March 31, 1999, and December 31, 1998
All dollar amounts, except per share amounts, included hereafter in Management's
Discussion and Analysis are in thousands.
Fed funds sold decreased $4,450, or 14.3%, to $26,775 at March 31, 1999. The
decrease was primarily the result of a decrease in 19-month certificates of
deposit that matured during the three months ended December 31, 1998. These
certificates of deposit were opened under a special program and a portion of the
rate sensitive funds were not retained.
Securities available for sale and held to maturity increased in the aggregate
$1,305, or 5.5%, to $24,890 at March 31, 1999, primarily due to securities
purchased totaling $6,000, exceeding security repayments, calls and maturities.
Loans receivable, net, at March 31, 1999, were $111,507, an increase of $2,298,
or 2.1%, from $109,209 at December 31, 1998. The increase in loans receivable,
net, was primarily due to an increase in commercial mortgage loans.
The Company's consolidated allowance for loan losses increased slightly to
$1,103 at March 31, 1999, from $1,081 at December 31, 1998. This increase was
primarily due to a provision of $29 offset by net charge-off over recoveries of
$7. Nonperforming loans at March 31, 1999, increased slightly to $1,841, or
1.65%, of loans receivable from $1,735, or 1.48%, of loans receivable at
December 31, 1998. At March 31,1999, 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 $198 at March 31, 1999, a decrease of $526 from December
31, 1998, as a result of the sale of several properties.
Deposits decreased $4,759, or 2.8%, to $162,498 at March 31, 1999, from $167,257
at December 31, 1998. The decrease is the result of the maturing of 19-month
certificates of deposit opened under a special program discussed previously.
The Company had stockholders' equity of $18,283 as of March 31, 1999, an
increase of $80, or 0.4%,
8
<PAGE>
from $18,203 as of December 31, 1998. The increase was primarily attributable to
net income for the three months ended March 31, 1999, of $311, net of dividends
of $.14 per share. Included in such dividend was a special dividend of $.07 per
share, which was declared during the first quarter.
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 March 31, 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 March 31,1999, was 27%, 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 March 31,
1999.
<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 $ 11,920 8.77% $ 3,417 7.53% $ 17,000 9.38%
Minimum Required 5,436 4.00% 1,813 4.00% 7,243 4.00%
-------- ---- -------- ---- -------- ----
Excess $ 6,484 4.77% $ 1,604 3.53% $ 9,757 5.38%
======== ==== ======== ==== ======== ====
Total Capital
Tier 1 Capital plus allowances
for loan losses $ 12,704 5.05% $ 3,733 14.76% $ 18,103 16.38%
Minimum Required 6,752 8.00% 2,021 8.00% 8,844 8.00%
-------- ---- -------- ---- -------- ----
Excess $ 5,952 7.05% $ 1,712 6.76% $ 9,259 8.38%
======== ==== ======== ==== ======== ====
Total Risk-weighted Assets $ 84,401 $ 25,264 $110,545
======== ======== ========
LEVERAGE RATIOS
Tier 1 Capital $ 11,920 8.77% $ 3,417 7.53% $ 17,000 9.38%
Minimum Leverage Requirement 5,436 4.00% 1,813 4.00% 7,242 4.00%
-------- ---- -------- ---- -------- ----
Excess $ 6,484 4.77% $ 1,604 3.53% $ 9,758 5.38%
======== ==== ======== ==== ======== ====
TANGIBLE CAPITAL RATIO
Tangible Capital $11,920 8.77% N/A N/A
Tangible Capital Requirement 2,038 1.50%
------- -----
Excess $ 9,882 7.27%
======= =====
</TABLE>
As of March 31, 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 March 31, 1999 and
1998
Net income for the three months ended March 31, 1999, was $311, a decrease of
$75, or 19.4%, from
9
<PAGE>
net income of $386 for the three months ended March 31, 1998. The decrease was
primarily attributable to a decrease in the Banks' interest rate spread and a
high liquidity position.
Interest Income
Total interest income decreased $176, or 5.2%, to $3,204 for the three months
ended March 31, 1999. This decrease was primarily due to a decrease in the
average yield on interest-earning assets to 7.5%. This decrease was partially
offset by an increase in the average balance of interest-earnings assets.
Interest Expense
Interest expense for the quarter ended March 31, 1999, was $1,779, a decrease of
$40, or 2.2%, from $1,819 for the quarter ended March 31, 1998. The decrease was
primarily the result of a reduction in average yield to 4.3% for the three
months ended March 31, 1999, compared to 4.6% for the corresponding quarter of
the previous year, net of an increase in average balance. The decrease in the
average rate paid on deposits is primarily the result of the maturity of
19-month certificates of deposit opened under a special program discussed
previously.
Net Interest Income
Net interest income for the quarter ended March 31, 1999, decreased $136, or
8.7%, to $1,425 from the quarter ended March 31, 1998, level of $1,561. This
decrease was due in part to a decrease in the average net interest spread to
3.2% for the first quarter of fiscal 1999 compared to 3.6% for the same period a
year ago. The decrease was net of a slight increase in the average balance of
interest-earning assets and interest-bearing liabilities during the first
quarter of fiscal 1999 compared to the same period a year ago.The net interest
margin decreased to 3.3% in the first quarter of fiscal 1999.
Provision for Loan Losses
Management increased the Company's total allowance for loan losses by a
provision of $29 during the quarter ended March 31, 1999. The Banks' allowances
for loan losses were based on management's evaluation of inherent losses 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 March 31, 1999, increased $47, to
$239, from the March 31, 1998, level of $192. 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 quarters ended March 31, 1999 and 1998, were the
same for both quarters.
10
<PAGE>
Income Taxes
The provision for income taxes decreased $14, or 7.3%, to $177 for the quarter
ended March 31, 1999, as compared to the corresponding quarter in the previous
year. The decreased tax expense was due primarily to a decrease in pretax income
from the same period a year ago.
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.
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 has been substantially completed at
March 31, 1999. The Banks have adopted Year 2000 Test Plans and are in the
process of conducting testing and evaluating results. If modifications to
existing systems and conversions to new systems proceed as scheduled, management
presently believes that the Year 2000 issue will not pose a substantial internal
operating risk to the Company.
Additionally, the Company has implemented a process for assessing readiness of
various suppliers of other services. There can be no guarantee, however, that
the systems of these outside parties will be Year 2000 compliant on a timely
basis. In turn, this could result in disruption to the operations of the
Company.
The Banks have adopted a Year 2000 Contingency Plan which would replace its
computerized operations with a manual system, if necessary.
The Banks are educating and assisting customers in identifying their Year 2000
issues. It has been determined that this is a relatively low risk area in that
the Banks' customers have a minimal reliance on computers to conduct business.
Total Year 2000 costs include such items as payroll costs, upgrading existing
software applications, and replacing certain hardware. The Banks do not have a
system that specifically tracks all costs and time spent on the Year 2000 issue.
The Company is in the process of estimating total expense related to Year 2000.
Such expenses incurred during the quarter ended March 31, 1999, are not
considered significant.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Banks are parties to routine legal proceedings occurring
in the ordinary course of business. At March 31, 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
Not applicable.
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.
12
<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: May 13, 1999 \s\ B. K. Goodwin, III
---------------------- ----------------------------------
B. K. Goodwin, III,
Chairman of the Board,
Chief Executive Officer
and President
Date: May 13, 1999 \s\ Lynn J. Joyce
---------------------- -------------------------------------
Lynn J. Joyce
Chief Financial Officer, Vice
President, Secretary and
Treasurer
13
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