<PAGE>1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File Number
March 31, 1997 0-20160
-----------------------------
FIRSTFED BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3820609
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or Number)
organization)
749 Lee Street, Des Plaines, Illinois 60016
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (847) 294-6500
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes --X-- No -----
As of May 12, 1997, the Registrant had issued and outstanding
3,406,616 shares of the Registrant's Common Stock, par value $.01
per share. In addition, 408,910 shares were being held as treasury stock.
<PAGE>2
FIRSTFED BANCSHARES, INC.
Table of Contents
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE NO.
Item 1. Financial Statements...................3
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations..............12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................22
Item 2. Changes in Securities.................22
Item 3. Defaults upon Senior Securities.......22
Item 4. Submission of Matters to a Vote
of Security Holders................22
Item 5. Other Information.....................22
Item 6. Exhibits and Reports of Form 8-K......22
Form 10-Q Signatures............................23
<PAGE>3
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
see notes to condensed consolidated financial statements
(unaudited)
FIRSTFED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited) MAR. 31, DEC. 31,
(Dollars in thousands except 1997 1996
per share amounts) --------- ---------
ASSETS
- ------
CASH AND CASH EQUIVALENTS:
Cash and Amounts Due from
Depository Institutions $ 9,718 $ 12,837
Federal Funds Sold -0- -0-
--------- ---------
TOTAL CASH AND CASH EQUIVALENTS 9,718 12,837
INVESTMENTS:
Securities Available-for-Sale 61,366 53,751
Mortgage-Backed Securities and
Related Securities Available-
for-Sale 108,821 111,935
Federal Home Loan Bank Stock 7,190 7,190
--------- ---------
TOTAL INVESTMENTS 177,377 172,876
LOANS RECEIVABLE:
Mortgage Loans 257,452 253,473
Commercial Loans, Leases and
Commercial Real Estate Loans 34,517 29,596
Consumer Loans 57,250 56,900
--------- ---------
TOTAL LOANS RECEIVABLE 349,219 339,969
Less Allowance for Possible Loan Losses ( 1,513) ( 1,424)
--------- ---------
LOANS RECEIVABLE, NET 347,706 338,545
ACCRUED INTEREST RECEIVABLE 4,545 3,608
PREMISES AND EQUIPMENT 9,775 9,859
OTHER ASSETS 3,437 3,444
--------- ---------
TOTAL ASSETS $552,558 $541,169
========= =========
<PAGE>4
MAR. 31, DEC. 31,
1997 1996
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits $406,798 $402,090
Short-Term Borrowings
Sold U/A to Repurchase 61,687 53,690
Long-Term Advances from Federal
Home Loan Bank 25,000 25,000
Advances from Borrowers for
Taxes and Insurance 2,183 3,724
Accrued Expenses and Other Liabilities 7,536 6,721
--------- ---------
TOTAL LIABILITIES 503,204 491,225
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share;
5,000,000 authorized shares; 3,406,616
and 3,406,616 shares issued at
3/31/97 and 12/31/96 respectively 34 34
Additional Paid-in Capital 22,155 22,155
Retained Earnings 34,804 33,990
Treasury Stock, at cost, 389,010
and 343,300 shares held at
3/31/97 and 12/31/96 respectively ( 6,649) ( 5,838)
ESOP Loan ( 825) ( 858)
Unearned Stock Award ( 73) ( 73)
Unrealized Gain (Loss) on Assets
Available-for-Sale ( 92) 534
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 49,354 49,944
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $552,558 $541,169
========= =========
<PAGE>5
FIRSTFED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED
(Unaudited) MAR. 31, MAR. 31,
(Dollars in thousands) 1997 1996
--------- ---------
INTEREST INCOME
Loans Receivable $ 6,638 $ 6,448
Mortgage-Backed and Related Securities 1,936 3,097
Securities 959 792
Other Interest and Dividend Income 145 346
--------- ---------
Total Interest Income 9,678 10,683
INTEREST EXPENSE
Deposits 4,740 6,119
Advances from Federal Home Loan Bank 908 1,360
Other Borrowed Money 208 105
--------- ---------
Total Interest Expense 5,856 7,584
NET INTEREST INCOME 3,822 3,090
Provision for Possible Loan Losses 351 190
NET INTEREST INCOME AFTER PROVISION --------- ---------
FOR POSSIBLE LOAN LOSSES 3,471 2,909
NON-INTEREST INCOME
Loan Charged and Servicing Fees 267 205
Deposit Related Charges and Fees 178 118
Gain on Sale of Securities 563 2,507
Insurance and Annuity Commissions 15 40
Other 48 16
--------- ---------
TOTAL NON-INTEREST INCOME 1,071 2,886
NON-INTEREST EXPENSE
Compensation and Benefits 1,218 1,190
Occupancy and Equipment 395 370
Federal Insurance Premium 7 266
Data Processing 206 213
Advertising 43 48
Other 644 629
--------- ---------
TOTAL NON-INTEREST EXPENSE 2,513 2,716
INCOME BEFORE TAXES 2,029 3,079
Income Tax Provision 712 1,121
--------- ---------
NET INCOME $ 1,317 $ 1,958
========= =========
<PAGE>6
FIRSTFED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED
(Unaudited) MAR. 31, MAR. 31,
(Dollars in thousands) 1997 1996
--------- ---------
OPERATING ACTIVITIES
Net Income $ 1,317 $ 1,958
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities
Depreciation and Amortization of
Premises and Equipment 181 172
Provision for Possible Loan Losses 351 190
Net (Gain) on Sale of Securities ( 563) ( 2,507)
Stock Award Earned -0- 3
Change In:
Prepaid Expenses and Other Assets 448 ( 277)
Accrued Interest Receivable ( 937) ( 1,594)
Accrued Expenses and Other Liabilities 770 1,052
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 1,567 ( 1,003)
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations, Net of Principal
Payments ( 9,512) 370
Principal Payments on Mortgage-Backed
and Related Securities 2,860 12,431
Purchases of Mortgage-Backed and
Related Securities -0- (99,784)
Purchases of Securities ( 9,977) ( 4,623)
Proceeds from Sales and Maturities
of Securities 2,157 97,154
Purchase of Federal Home Loan Bank Stock -0- ( 1,025)
Redemption of Federal Home Loan
Bank Stock -0- 1,216
Purchase of Office Properties and
Equipment ( 97) ( 92)
--------- ---------
NET CASH FROM INVESTING ACTIVITIES ( 14,569) 5,647
<PAGE>7
THREE MONTHS ENDED
MAR. 31, MAR. 31,
1997 1996
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in NOW Accounts, Money Markets,
Passbooks, Savings and Certificates of
Deposit 4,708 1,420
Net Repayments of Federal Home Loan Bank
Advances ( -0-) ( 13,500)
Proceeds from Other Borrowings 7,997 16,456
Net Change in Mortgage Escrow Funds ( 1,541) ( 2,540)
Purchase of Common Stock Net of
Proceeds from Exercise of Stock Options( 1,011) ( 1,349)
Payment Received on Loan to ESOP 33 23
Dividend Paid, Net of Dividend
Reinvestment Program ( 303) ( 228)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES 9,883 282
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ( 3,119) 4,926
CASH AND CASH EQUIVALENTS, BEGINNING 12,837 19,198
--------- ---------
CASH AND CASH EQUIVALENTS, ENDING $ 9,718 $24,124
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid $ 7,681 $ 7,584
Income Taxes Paid -0- -0-
<PAGE>8
<TABLE>
FIRSTFED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
Three months ended March 31, 1997 and 1996
<CAPTION>
UNREALIZED
LOSS ON
ADDITIONAL UNEARNED ASSETS
COMMON PAID-IN RETAINED TREASURY ESOP STOCK AVAILABLE
STOCK CAPITAL EARNINGS STOCK LOAN AWARD FOR SALE TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $28 $27,229 $39,373 ($9,397) ($1,198) ($ 97) $1,739 $57,677
Net Income 1,958 1,958
Cash Dividends ($.0667 per share) ( 228) ( 228)
Purchase of Treasury Stock ( 1,413) (1,413)
Principal Payment on ESOP Loan 23 23
Treasury Stock Reissued in Conjunction
with Stock Option Exercises ( 54) 118 64
Amortization of Stock Award 3 3
Change in Unrealized Loss on Assets
Available-for-Sale ( 1,799) 1,799)
- -----------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 $28 $27,229 $41,049 ($10,692) ($1,175) ($ 94) ($ 60) $56,285
========================================================================================================================
Balance at December 31, 1996 $34 $22,155 $33,990 ($ 5,838) ($ 858) ($ 73) $ 534 $49,944
Net Income 1,317 1,317
Cash Dividends ($.10 per share) ( 303) ( 303)
Purchase of Treasury Stock ( 1,371) ( 1,371)
Principal Payment on ESOP Loan 33 33
Treasury Stock Reissued in Conjunction
with Stock Option Exercises ( 200) 560 360
Change in Unrealized Loss on Assets
Available-for-Sale ( 626) ( 626)
- -----------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $ 34 $22,155 $34,804 ($6,649 ) ($ 825) ($ 73) ($ 92) $49,354
========================================================================================================================
</TABLE>
<PAGE>9
<TABLE>
FIRSTFED BANCSHARES, INC.
AVERAGE BALANCE SHEET
(Unaudited)
(Dollars in thousands)
The following table sets forth certain information related to the Company's
average balance sheet. It reflects the average yield on assets and average
cost of liabilities for the periods indicated, as derived by dividing
income or expense by the average daily balance of assets or liabilities,
respectively, for the periods indicated.
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------
MARCH 31, 1997 MARCH 31, 1996
----------------------------------------- ---------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
INTEREST-EARNING ASSETS: ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans $252,894 $4,706 7.44% $275,799 $ 5,123 7.43%
Commercial Loans, Leases and
Commercial Real Estate Loans 31,595 623 7.89 2,327 50 8.55
Consumer Loans 57,601 1,309 9.09 53,532 1,275 9.53
Mortgage-Backed and
Related Securities 110,465 1,936 7.01 200,336 3,097 6.18
Investment Securities 59,476 964 6.48 62,183 996 6.41
Other Investments 10,249 140 5.46 8,947 142 6.19
----------------------------------------- ---------------------------------------
Total Interest-Earning Assets $522,280 $9,678 7.41% $603,124 $10,683 7.09%
Non-Interest Earning Assets 18,920 20,124
----------------------------------------- ---------------------------------------
TOTAL ASSETS $541,200 $623,248
========================================= ========================================
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 21,551 $ 95 1.76% $ 22,396 $ 100 1.79%
Money Market & Savings 110,201 930 3.38 80,003 516 2.59
Certificates of Deposit 262,769 3,715 5.66 346,231 5,503 6.41
FHLB Advances 61,378 907 5.91 90,392 1,360 5.95
Other Borrowed Funds 15,988 209 5.23 8,062 105 5.17
----------------------------------------- ---------------------------------------
Total Interest-Bearing
Liabilities $471,887 $ 5,856 4.96% $547,064 $ 7,584 5.56%
Non-Interest Bearing
Deposits 10,029 8,930
Other Liabilities 9,425 10,253
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES $491,341 $566,267
----------------------------------------- ---------------------------------------
Stockholders' Equity 49,859 56,981
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $541,200 $623,248
========================================= =======================================
NET INTEREST INCOME $ 3,822 $ 3,099
----------------------------------------- ---------------------------------------
NET INTEREST RATE SPREAD (1) 2.45% 1.53%
----------------------------------------- ---------------------------- ----------
NET INTEREST MARGIN (2) 2.93% 2.05%
----------------------------------------- ---------------------------------------
(1) Interest Rate Spread is calculated by subtracting the average cost
of interest-bearing liabilities from the average rate on interest-earning
assets.
(2) Net Interest Margin is calculated by dividing net interest income
by average interest-earning assets.
</TABLE>
<PAGE>10
FIRSTFED BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Regulation S-X. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
The results of operations and other data for the quarter ended
March 31, 1997 are not necessarily indicative of results that
may be expected for the entire year ended December 31, 1997.
In the opinion of management, the unaudited condensed consolidated
financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the
financial condition of FirstFed Bancshares, Inc. (the "Company"),
including its wholly owned subsidiary, First Federal Bank (the
"Bank"), as of March 31, 1997 and December 31, 1996, the results of
the Company's operations for the three months ended March 31, 1997
and 1996, its cash flows for the three months ended March 31, 1997
and 1996, its changes in stockholders' equity for the three months
ended March 31, 1997 and 1996, and its average balance sheet for the
three months ended March 31, 1997 and 1996.
Certain amounts in prior condensed consolidated financial statements
have been reclassified to conform with the March, 1997 presentation.
(2) Plans to Convert Charter and Change Name
Management has filed an application on April 21, 1997 to convert
to a national bank charter and change the name of the Bank to
CoVest Banc, National Association. The Thrift Holding Company, FirstFed
Bancshares, Inc., will change to a Bank Holding Company known as CoVest
Bancshares, Inc., and will be regulated by the Federal Reserve. The
symbol for the Holding Company on the NASDAQ exchange, which is currently
"FFDP", will change on June 2, 1997 to "COVB". The ownership and
management of the Holding Company and Bank remain the same.
<PAGE>11
(3) Regulatory Capital Requirements
Pursuant to the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), as implemented by regulations
promulgated by the Office of Thrift Supervision (the "OTS"), savings
institutions must meet three separate minimum capital requirements.
The following table summarizes, as of March 31, 1997, the Bank's
capital requirements under FIRREA and its actual capital ratios. As
of March 31, 1997, the Bank exceeded all current minimum regulatory
capital requirements.
BANK ONLY
----------------------------------------------------
Actual Regulatory Excess Above
Capital Capital Req. Capital Req.
Amount % Amount % Amount %
------- ------ ------- ----- ------- ------
(Dollars in Thousands)
Risk-Based $44,868 16.51% $21,744 8.00% $23,124 8.51%
Core Capital 43,355 7.89 16,500 3.00 26,855 4.89
Tang. Capital 43,355 7.89 8,247 1.50 35,108 6.39
(4) Earnings Per Share of Common Stock
Primary and fully diluted earnings per share for the quarter were
computed by dividing net income by 3,268,009 and 3,283,721
respectively, the weighted average number of shares of common stock
and common stock equivalents outstanding during the quarter. Stock
options are regarded as common stock equivalents and are computed
using the treasury stock method.
(5) Stock Repurchase Program
On January 28, 1997, the Company announced the completion of the
Stock Repurchase Program dated December 23, 1996. A total of 200,000
shares were repurchased at an average price of $17.09. The Company's
Board of Directors also announced a new Stock Repurchase Program
enabling the Company to repurchase up to 100,000 shares of its
outstanding stock in the open market and/or through privately
negotiated transactions, to be used for the issuance of shares in
connection with the exercises of previously granted stock options.
As of May 12, 1997, 64,700 shares had been repurchased at an average
price of $17.67.
<PAGE>12
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Safe Harbor Statement
- ---------------------
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained
in the Private Securities Reform Act of 1995, and is included in this
statement for purposes of these safe harbor provisions.
Forward-looking statements, strategies and expectations of the Company,
are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project" or similar expressions.
The Company's ability to predict results or the actual effect of future
plans or strategies is inherently uncertain. Factors which could have
a material adverse affect on the operations and future prospects
of the Company and its subsidiaries include, but are not limited
to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of
the U.S. Government, including policies of the U.S. Treasury
and the Federal Reserve Board, the quality or composition of the loan
or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market
area and accounting principles, policies and guidelines. These risks
and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
Further information concerning the Company and its business,
including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with
the Securities and Exchange Commission.
OVERVIEW
- --------
The Company's business activities currently consist of ownership of
the Bank, and investments in other equity securities. The Bank's
principal business consists of attracting deposits from the public
and investing these deposits, together with funds generated from
operations, primarily in loans secured by commercial real estate loans,
mortgages on one-to-four family residences, and consumer loans.
The Bank's deposit accounts are insured to the maximum allowable by
the Federal Deposit Insurance Corporation (the "FDIC").
<PAGE>13
The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the interest earned
on its loans, mortgage-backed securities and investment securities
portfolios, and the interest paid on deposits and borrowed funds.
The Bank's operating results are also affected, to a lesser extent,
by loan commitment and servicing fees, customer service charges,
fees from annuity and insurance products, and other income.
Operating expenses of the Bank include employee compensation and
benefits, equipment and occupancy costs, federal deposit insurance
premiums and other administrative expenses.
The Bank's results of operations are further affected by economic
and competitive conditions, particularly changes in market interest
rates. Results are also affected by monetary and fiscal policies of
federal agencies, and actions of regulatory authorities.
FINANCIAL CONDITION
- -------------------
Total consolidated assets of the Company remained relatively
constant at $552.6 million at March 31, 1997, an increase of $11.4
million or 2.1% from the December 31, 1996 balance of $541.2
million.
Total loans receivable increased by $9.2 million or 2.7% from
$340 million at December 31, 1996, to $349.2 million at March 31,
1997. Loans originated during the three month period ended
March 31, 1997 were $25.4 million, of which 41% were
commercial loans, leases, and commercial real estate loans,
and 35% were first-mortgage loans and 24% were consumer
loans. Loans originated for the three months ended March 31, 1996
were $21.9 million, of which 4% were commercial loans, leases,
and commercial real estate loans, 56% were first-mortgage loans and
40% were consumer loans.
Securities Available-For-Sale increased $7.6 million as additional
U.S. Treasury securities were purchased to reduce the state tax
liability.
Mortgage-backed and other mortgage-related securities decreased $3.1
million from December 31, 1996. These principal payments were used
to purchase the treasury securities mentioned before.
<PAGE>14
Deposits increased to $406.8 million at March 31, 1997, from $402.1
million at December 31, 1996, an increase of $4.7 million or 1%.
Most of this increase has been in the Bank's Preferred Money Market
account which was introduced in July, 1996. This account is
indexed to the 91 day U.S. Treasury Bill rate, to reflect the
weekly change that occurs in the bond market.
Short-term borrowings (due within one year) increased $8.0 million
from the December 31, 1996 balance of $53.7 million to $61.7 million
at March 31, 1997. This increase was needed to provide additional
floating rate funding for the commercial real estate loans.
Book value per common share increased to $16.36 at March 31, 1997
from $16.30 at December 31, 1996.
Total non-performing loans as of March 31, 1997 increased to
$1,281,000 or 0.23% of total assets. At December 31, 1996,
non-performing loans were $856,000 or 0.16% of total assets.
Although the level of non-performing loans has increased, it is
below the average rate of .57 percent experienced by the other
358 thrifts in the Bank's peer group during 1996. Management
believes the allowance for possible loan losses to be adequate.
Furthermore, .69% of non-performing loans are single family
mortgages, and the Bank has not incurred a loss on single family
mortgages for a least the last six years.
The following table sets forth the amounts and categories of non-
performing loans.
Mar. 31, 1997 Dec. 31, 1996
------------- -------------
(Dollars in Thousands)
Non-performing loans:
Commercial Loans, Leases and
& Commercial Real Estate $ -0- $ -0-
One-to-four family 887 599
Consumer 394 257
------------- -------------
Total non-performing loans $ 1,281 $ 856
Total non-performing loans as
percentage of net loans .37% .22%
Total non-performing loans as
percentage of total assets .23% .16%
<PAGE>15
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, and funds
provided by other operations. While scheduled loan and mortgage-
backed securities repayments and maturities of short-term
investments are a relatively predictable source of funds, deposit
flows and loan prepayments are greatly influenced by general
interest rates, economic conditions, competition and the
restructuring occurring in the banking industry.
Current OTS regulations require the Bank to maintain cash and
eligible investments in an amount equal to at least 5% of customers'
accounts and short term borrowings to assure its ability to meet
demands for withdrawals and repayments of short term borrowings. As
of March 31, 1997 and December 31, 1996, the Bank's liquidity ratio
was in excess of the required five percent ratio at each date.
The Company's cash flows are a result of three principal activities:
operating activities, investing activities and financing activities.
Net cash provided from in operating activities, primarily interest
paid on deposits and borrowed money less interest and dividends
received, was $1.6 million for the three months ended March 31, 1997.
Net cash used in investing activities was $14.6 million for the three
months ended March 31, 1997. Purchases of investment securities and
loan originations amounted to $19.5 million, and securities sales and
principal repayments were $5 million. Net cash provided by financing
activities amounted to $10 million for the three months ended March 31,
1997.
The Company uses its liquidity to meet its ongoing commitments to
fund maturing certificates of deposit and deposit withdrawals, repay
borrowings, fund existing and continuing loan commitments, and pay
operating expenses. At March 31, 1997, the Company had commitments
to originate loans totaling $13 million, and its customers had
approved but unused lines of credit totaling $61.3 million. The
Company considers its liquidity and capital resources to be adequate
to meet its foreseeable short and long-term needs. The Company
expects to be able to fund or refinance, on a timely basis, its
material commitments and long-term liabilities.
At March 31, 1997, the Bank had core and tangible capital of $43.4
million or 7.89% of adjusted total assets, which was approximately
$26.9 million and $35.1 million above the minimum capital
<PAGE>16
requirements in effect on that date of 3.0% and 1.5%, respectively,
of adjusted total assets. On March 31, 1997, the Bank had total
risk-based capital of $44.9 million (which included $43.4 million
in core capital), or 16.51% of risk-weighted assets of $271.8 million.
This amount was approximately $23.1 million above the 8.0% total
risk-based capital requirement in effect on that date.
SELECTED RATIOS
- ---------------
Earnings per common share was $.40 for the first quarter of
1997 versus $.53 for the first quarter of 1996.
For the three months ended March 31, 1997, the Company's return on
average common equity was 10.73%, the return on average assets was
0.96%, and the efficiency ratio (non-interest expense divided by
the sum of non-interest income and net interest income) was 50.43%.
For the three months ended March 31, 1996, the return on average
common equity was 13.76% and the return on average assets was 1.24%,
with the efficiency ratio of 45.38%.
<PAGE>17
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
- ---------------------------------------------------------------
AND 1996
- --------
GENERAL. Net income for the three months ended March 31, 1997 was
$1,317,000 compared to $1,958,000 for the three months ended
March 31, 1996. The first quarter of 1996 included gains from the
sale of securities of $2,507,000. Contributing to the results were
a $732,000 increase in net interest income, which was 24% greater
than the first quarter of 1996, plus a $129,000 increase in non-interest
income before security gains, coupled with a decrease in non-interest
expenses of 7 percent or $203,000. This was offset by an increase
in the provision for possible loan losses of $161,000 and a decrease
in the gains on securities sold by almost $2 million pre-tax.
INTEREST INCOME. The Company's interest income totaled $9.7 million
for the first three months of 1997 versus $10.7 million for the same
period in 1996. This decline in interest income was the result of a
decrease in the volume of earning assets by 13.4 percent, which
equates to almost $81 million. The change in volume was partially
offset by an increase in the average yield on interest-earning
assets from 7.09 percent in the first quarter of 1996 to 7.41 percent
in the first quarter of 1997. Both of these factors were the result
of the balance sheet restructuring in the Bank, which has been
underway since the fourth quarter of 1995, when $116 million in
fixed rate mortgages were securitized and $94 million were
subsequently sold in the first quarter of 1996. An additional
$61 million of fixed rate first mortgages were securitized in the
fourth quarter of 1996, but none have yet been sold. These
securities will gradually be converted to higher yielding commercial
and commercial real estate loans.
INTEREST EXPENSE. Interest expense decreased by $1.7 million
or 22.8 percent to $5.9 million for the three month period
ended March 31, 1997 as compared to $7.6 million for the same period
in 1996. This was the result of a 13.7 percent decrease in average
interest-bearing liabilities, from $547.1 million for the quarter
ended March 31, 1996 to $471.9 million for the quarter ended March 31,
1997. The volume of interest-bearing deposits decreased by $54.1
million. Most of this change was the result of reducing the volume
of certificates of deposit upon the maturity of the 18 month
certificates which matured in September of 1996 and carried a rate
of 7.8 percent. The volume increased in Preferred Money Market
accounts which partially offset the decrease in fixed rate deposits.
<PAGE>18
The volume of borrowed money also decreased by over $21 million.
The cost of total interest-bearing liabilities for the three months
ended March 31, 1997 was 4.96% compared to 5.56% for the three months
ended March 31, 1996, a decrease of 60 basis points.
The net interest margin increased from 2.05% for the first quarter
of 1996 to 2.93% for the first quarter of 1997. At the same time,
the net interest spread increased from 1.53 percent for the first
quarter of 1996 to 2.45 percent during the first quarter of 1997.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses for the quarter ended March 31, 1997, included $300,000 for
credit cards and $51,000 for commercial and commercial real estate
loans. This compares to the $190,000 provision booked in the first
quarter of 1996, when $180,000 was provided for credit cards and
$10,000 was provided for commercial real estate lending. Charge-offs
related to credit cards totaled approximately $240,000 for the quarter
just ended, and of that total approximately $150,000 was the result of
bankruptcies by borrowers. This experience is consistent with the
results in prior periods and based upon current experiences of other
credit card lenders, losses will probably continue at this level
for the near term. Management regularly conducts a review of its loan
portfolios, write-off experiences and adequacy of allowances and believes
the allowance to be adequate.
LOAN LOSS ALLOWANCE ANALYSIS. The following table sets forth an
analysis of the Company's allowance for possible loan losses for the
periods indicated.
Three Months Ended
Mar. 31, Mar. 31,
1997 1996
--------- ---------
(Dollars in Thousands)
Balance at beginning of period $ 1,424 $ 1,379
Charge-offs:
Commercial Loans, Leases and
Commercial Real Estate -0- -0-
One-to-four family -0- -0-
Consumer 276 356
--------- ---------
Total 276 356
--------- ---------
Recoveries:
Commercial Loans, Leases
and Commercial Real Estate Loans -0- -0-
One-to-four family -0- -0-
<PAGE>19
Consumer 14 39
--------- ---------
Total 14 39
--------- ---------
Net charge-offs 262 317
Additions charged to
operations 351 190
--------- ---------
Balance at end of period $ 1,513 $ 1,252
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.08% 0.10%
Ratio of allowance to non-
performing loans 1.18x 1.46x
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES. Net
interest income after provision for possible loan losses increased
by $562,000 or 19.3% to $3,471,000 for the three month period ended
March 31, 1997 as compared to $2,909,000 for the three month period
ended March 31, 1996.
NON-INTEREST INCOME. Non-interest income excluding securities gains
increased by 34 percent or $129,000 as more fees were generated from
both loan and deposit customers.
Securities gains decreased from $2,507,000 from the first quarter of
1996 to $563,000 in the first quarter of 1997. The gain on
securities in the first quarter of 1996 was the result of balance
sheet restructuring which saw fixed rate mortgage-backed securities,
which had been generated as first mortgages by the Bank, sold and
replaced by floating rate mortgage-backed securities and commercial
real estate loans. The gain on securities for the first quarter of
1997 was generated from thrift and commercial bank stocks which were
held in the securities portfolio of the Company as temporary
investments. When stock prices reached all-time highs in the first
quarter, the Company, at the Holding Company level, decided to reduce
some of these holdings.
NON-INTEREST EXPENSE. Non-interest expense was $2,513,000 for the
quarter ended March 31, 1997, compared to $2,716,000 for the same
period in 1996, a decrease of $203,000 or 7.5%. This entire change
was the result in the Federal Deposit Insurance premiums declining by
$259,000. Most other operating expenses showed minimal increases or
decreases.
<PAGE>20
IMPACT OF NEW ACCOUNTING STANDARDS
- ----------------------------------
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125 ("SFAS No. 125"), "Accounting for Transfers and
Extinguishments of Liabilities." SFAS No. 125 provides accounting
and reporting standard for transfers and servicing of financial assets
and extinguishments of liabilities. SFAS No. 125 requires a consistent
application of a financial components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, and derecognizes liabilities when
extinguished. SFAS No. 125 also supersedes SFAS No. 122 and requires
that serving assets and liabilities be subsequently measured by
amortization in proportion to and over the period of estimated net
servicing income or loss and requires assessment for asset impairment
or increases obligation based on their fair values. SFAS No. 125
applies to transfers and extinguishments occurring after December 31,
1996, and early or retroactive application is not permitted. Because
the volume and variety of certain transactions will make it difficult
for some entities to comply, some provision have been delayed by
SFAS No. 127. The adoption of SFAS No. 125 did not have a material
impact on the results of operations or financial condition of the Bank.
On March 3, 1997, the Financial Accounting Standards Board (FASB)
issued Statement 128, "Earnings Per Share", which is effective for
financial statements beginning with year end 1997. Statement 128
simplifies the calculation of earnings per share (EPS) by replacing
primary EPS with basic EPS. It also requires dual presentation
of basic EPS and diluted EPS for entities with complex capital
structures. Basic EPS include no dilution and is computed by dividing
income available to common shareholders by the weighted average common
shares outstanding for the period. Diluted EPS reflects the potential
dilution of securities that could share in earnings, such as stock
options, warrants or other common stock equivalents. The Company
expects Statement 128 to have little impact on its earnings per share
calculations in future years, other than changing terminology from
primary EPS to basic EPS. All prior period EPS data will be restated
to conform with the new presentation.
<PAGE>21
RECENT REGULATORY DEVELOPMENTS
- -----------------------------------------------------------
Legislation has been introduced in the Congress that would
eliminate the federal thrift charter by requiring each federal
thrift to convert to a national bank or to a state bank or state thrift.
One of the pending bills would require the conversion to occur by
January 1, 1998 while the other would require conversion by June 30,
1998. Assuming the Bank experiences no significant delay in completing
its conversion to a national bank charter (which is presently expected
to occur prior to or on July 1, 1997), the Company anticipates that
the Bank will become a national bank prior to the enactment of the
pending legislation and, therefore, the pending legislation will have
no impact on the operations of the Company or its subsidiaries.
Various bills have also been introduced in the Congress that
would allow bank holding companies to engage in a wider range of
nonbanking activities, including greater authority to engage in
securities and insurance activities. While the scope of permissible
nonbanking activities and the conditions under which the new powers
could be exercised varies among the bills, the expanded powers
generally would be available to a bank holding company only if the
bank holding company and its bank subsidiaries remain
well-capitalized and well-managed. The bills also impose various
restrictions on transactions between the depository institutions
from the risks of the new nonbanking activities permitted to such
affiliates.
Additionally, legislation has been introduced in Illinois that
would generally allow banks to engage in insurance activities,
subject to various conditions, including restrictions on the manner
in which insurance products are marketed to bank customers and
requirements that banks selling insurance provide certain disclosures
to customers. The Illinois legislature is also considering
legislation that would prohibit out-of-state banks from acquiring
a bank located in Illinois unless the Illinois based bank has been
in existence and continuously operated for a period of at least five
years.
At this time, the Company is unable to predict whether any of
these pending bills will be enacted and therefore, is unable to
predict the impact the pending legislation will have on the Company
and its subsidiaries.
<PAGE>22
PART II - OTHER INFORMATION
FIRSTFED BANCSHARES, INC.
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Company or any of its subsidiaries is a party other
than ordinary routine litigation incidental to their
respective businesses.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
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. Exhibit 27 Financial Data Schedule
b. Form 8-K
A report on Form 8-K was filed on January 28, 1997
to report under Item 5 that the Company completed
the Stock Repurchase Program dated December 23, 1996,
and announced a new Stock Repurchase Program.
A report on Form 8-K was filed on February 24, 1997 to
report under Item 5 that the Company announced
the issuance of a regular quarterly dividend.
<PAGE>23
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 BANCSHARES, INC.
Date: May 15, 1997 By: s/Larry G. Gillie
----------------- ---------------------------
Larry G. Gillie
President and
Chief Executive Officer
Date: May 15, 1997 By: s/Paul A. Larsen
----------------- ---------------------------
Paul A. Larsen
Senior Vice President,
Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Financial Statements at March 31, 1997 and is qualified
in its entirety by reference to the December 31, 1996 Consolidated Financial
Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,718
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 177,377
<INVESTMENTS-CARRYING> 177,377
<INVESTMENTS-MARKET> 177,377
<LOANS> 349,219
<ALLOWANCE> 1,513
<TOTAL-ASSETS> 552,558
<DEPOSITS> 406,798
<SHORT-TERM> 61,687
<LIABILITIES-OTHER> 9,719
<LONG-TERM> 25,000
0
0
<COMMON> 34
<OTHER-SE> 49,320
<TOTAL-LIABILITIES-AND-EQUITY> 49,354
<INTEREST-LOAN> 6,638
<INTEREST-INVEST> 2,895
<INTEREST-OTHER> 145
<INTEREST-TOTAL> 9,678
<INTEREST-DEPOSIT> 4,740
<INTEREST-EXPENSE> 5,856
<INTEREST-INCOME-NET> 3,822
<LOAN-LOSSES> 351
<SECURITIES-GAINS> 563
<EXPENSE-OTHER> 2,513
<INCOME-PRETAX> 2,029
<INCOME-PRE-EXTRAORDINARY> 2,029
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,029
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
<YIELD-ACTUAL> 7.41
<LOANS-NON> 92
<LOANS-PAST> 1,189
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,424
<CHARGE-OFFS> 276
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 351
<ALLOWANCE-DOMESTIC> 351
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
