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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2000
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12305
FIRSTFED AMERICA BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3331237
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE FIRSTFED PARK, SWANSEA, MASSACHUSETTS 02777
(Address of principal executive offices)
Registrant's telephone number, including area code: (508) 679-8181
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 February 9, 2001, there were 6,271,757 shares of the Registrant's
Common Stock outstanding.
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FIRSTFED AMERICA BANCORP, INC.
INDEX TO FORM 10-Q
Page
----
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements............................................................
Consolidated Balance Sheets as of December 31, 2000 (unaudited) and March 31, 2000........... 2
Consolidated Statements of Operations for the three months and nine months
ended December 31, 2000 (unaudited) and 1999 (unaudited).................................... 3
Consolidated Statements of Changes in Stockholders' Equity for the nine months ended
December 31, 2000 (unaudited)............................................................... 4
Consolidated Statements of Cash Flows for the nine months ended December 31, 2000
(unaudited) and 1999 (unaudited)............................................................ 5
Notes to Unaudited Consolidated Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................... 16
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 18
Item 2. Changes in Securities and Use of Proceeds.................................................... 18
Item 3. Defaults Upon Senior Securities.............................................................. 18
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 18
Item 5. Other Information............................................................................ 18
Item 6. Exhibits and Reports on Form 8-K............................................................. 18
SIGNATURES............................................................................................. 19
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, March 31,
2000 2000
------------ ----------
(unaudited)
Assets
Cash on hand and due from banks...................... $ 23,683 $ 20,720
Short-term investments............................... 2,660 250
---------- ----------
Total cash and cash equivalents.................... 26,343 20,970
Mortgage loans held for sale......................... 11,193 3,417
Investment in trading securities, at fair value...... 815 587
Investment securities available for sale, at fair
value (amortized cost of $6,405 and $6,260)......... 7,139 5,643
Mortgage-backed securities available for sale, at
fair value (amortized cost of $482,383 and
$550,109)........................................... 482,132 543,627
Mortgage-backed securities held to maturity (fair
value of $2,643 and $2,853)......................... 2,623 2,819
Stock in Federal Home Loan Bank of Boston, at cost... 36,959 30,928
Loans receivable, net (net of allowance for loan
losses of $13,066 and $12,275)...................... 1,002,523 888,760
Accrued interest receivable.......................... 8,297 7,018
Mortgage servicing rights............................ 4,955 6,288
Office properties and equipment, net................. 24,472 25,187
Real estate owned, net............................... 191 --
Bank-Owned Life Insurance............................ 33,351 32,127
Prepaid expenses and other assets.................... 10,304 12,624
---------- ----------
Total assets..................................... $1,651,297 $1,579,995
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits........................................... $ 668,923 $ 664,682
FHLB advances and other borrowings................. 843,893 779,662
Advance payments by borrowers for taxes and insur-
ance.............................................. 4,259 5,984
Accrued interest payable........................... 5,327 4,620
Other liabilities.................................. 21,689 23,342
---------- ----------
Total liabilities................................ 1,544,091 1,478,290
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued........................... -- --
Common stock, $0.01 par value; 25,000,000 shares
authorized; 8,707,152 shares issued............... 87 87
Additional paid-in capital......................... 85,471 85,449
Retained earnings.................................. 68,209 63,270
Accumulated other comprehensive income (loss)...... 196 (4,470)
Unallocated ESOP shares............................ (3,872) (3,872)
Unearned 1997 stock-based incentive plan........... (3,004) (4,438)
Treasury stock..................................... (39,881) (34,321)
---------- ----------
Total stockholders' equity....................... 107,206 101,705
---------- ----------
Total liabilities and stockholders' equity....... $1,651,297 $1,579,995
========== ==========
See accompanying notes to consolidated financial statements.
2
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
For the Three
Months Ended For the Nine Months
December 31, Ended December 31,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(unaudited)
Interest and dividend income:
Loans.............................. $ 19,857 $ 15,326 $ 57,416 $ 44,915
Investment securities.............. 120 199 351 623
Mortgage-backed securities......... 8,347 8,091 25,435 21,393
Federal Home Loan Bank stock....... 720 500 2,018 1,451
--------- --------- --------- ---------
Total interest and dividend in-
come: 29,044 24,116 85,220 68,382
--------- --------- --------- ---------
Interest expense:
Deposits........................... 6,755 6,187 19,460 18,761
Borrowed funds..................... 13,915 9,796 39,869 25,987
--------- --------- --------- ---------
Total interest expense............ 20,670 15,983 59,329 44,748
--------- --------- --------- ---------
Net interest income before loan
loss provision................... 8,374 8,133 25,891 23,634
Provision for loan losses........... 300 300 900 900
--------- --------- --------- ---------
Net interest income after loan
loss provision................... 8,074 7,833 24,991 22,734
Non-interest income:
Loan servicing income.............. 341 457 1,093 1,622
Gain (loss) on sale of mortgage
loans, net........................ 195 (80) 348 (1,011)
Service charges on deposit ac-
counts............................ 465 395 1,207 1,039
Earnings on Bank-Owned Life Insur-
ance.............................. 414 383 1,224 1,158
Other income....................... 749 472 2,670 1,740
--------- --------- --------- ---------
Total non-interest income......... 2,164 1,627 6,542 4,548
--------- --------- --------- ---------
Non-interest expense:
Compensation and employee bene-
fits.............................. 4,352 3,710 13,296 10,992
Office occupancy and equipment..... 1,103 961 3,266 3,018
Advertising and business promo-
tion.............................. 280 202 885 763
Data processing.................... 436 327 1,267 999
Federal deposit insurance premi-
ums............................... 35 99 104 297
Other expense...................... 936 981 2,969 2,765
--------- --------- --------- ---------
Total non-interest expense........ 7,142 6,280 21,787 18,834
--------- --------- --------- ---------
Income before income tax expense.... 3,096 3,180 9,746 8,448
Income tax expense................ 966 979 3,047 2,623
--------- --------- --------- ---------
Net income........................ $ 2,130 $ 2,201 $ 6,699 $ 5,825
========= ========= ========= =========
Basic earnings per share............ $ 0.37 $ 0.35 $ 1.14 $ 0.92
========= ========= ========= =========
Diluted earnings per share.......... $ 0.37 $ 0.35 $ 1.14 $ 0.92
========= ========= ========= =========
Weighted average shares outstanding
-- basic........................... 5,795,219 6,228,906 5,892,685 6,318,657
========= ========= ========= =========
Weighted average shares outstanding
-- diluted......................... 5,814,741 6,228,906 5,893,750 6,318,657
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
3
FIRSTFED AMERICA BANCORP, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended December 31, 2000
(Dollars and shares in thousands)
(unaudited)
Unearned
1997
stock-
based
Shares Accumulated incentive
of Additional other plan Total
Preferred common Common paid-in Retained comprehensive Unallocated (SIP) Treasury stockholders'
stock stock stock capital earnings income (loss) ESOP shares shares stock equity
--------- ------ ------ ---------- -------- ------------- ----------- --------- -------- -------------
Balance at March 31,
2000................. -- 8,707 $87 $85,449 $63,270 $(4,470) $(3,872) $(4,438) $(34,321) $101,705
Earned SIP stock
awards............. -- -- -- (154) -- -- -- 1,434 -- 1,280
Earned ESOP shares
charged to ex-
pense.............. -- -- -- 176 -- -- -- -- -- 176
Cash dividends de-
clared and paid
(1st quarter at
$0.07 per share;
2nd and 3rd quar-
ters at $0.10 per
share)............. -- -- -- -- (1,760) -- -- -- -- (1,760)
Common stock ac-
quired under repur-
chase program
(391,471 shares at
a price of $13.21
per share)......... -- -- -- -- -- -- -- -- (5,188) (5,188)
Common stock ac-
quired for certain
employee benefit
plans (34,265
shares at an aver-
age price of $12.62
per share)......... -- -- -- -- -- -- -- -- (433) (433)
Common stock sold
from certain em-
ployee benefit
plans (4,246 shares
at an average price
of $14.37 per
share)............. -- -- -- -- -- -- -- -- 61 61
Comprehensive income
(loss):
Net income........ -- -- -- -- 6,699 -- -- -- -- 6,699
Other comprehen-
sive income, net
of tax
Unrealized hold-
ing gains on
available for
sale securi-
ties........... -- -- -- -- -- 7,584 -- -- -- -
Reclassification
adjustment for
losses
(gains)included
in net in-
come... -- -- -- -- -- -- -- -- -- -
-------
Net unrealized
gains.......... -- -- -- -- -- 7,584 -- -- -- --
Tax effect...... -- -- -- -- -- (2,918) -- -- -- --
-------
Net-of-tax ef-
fect........... -- -- -- -- -- 4,666 -- -- -- 4,666
--------
Total comprehensive
income (loss)...... -- -- -- -- -- -- -- -- -- 11,365
--- ----- --- ------- ------- ------- ------- ------- -------- --------
Balance at December
31, 2000............. -- 8,707 $87 $85,471 $68,209 $ 196 $(3,872) $(3,004) $(39,881) $107,206
=== ===== === ======= ======= ======= ======= ======= ======== ========
See accompanying notes to consolidated financial statements.
4
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Nine Months
Ended December 31,
----------------------
2000 1999
---------- ----------
Cash flows from operating activities:
Net income............................................ $ 6,699 $ 5,825
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization (accretion) of:
Premium (discount) on investment and mortgage-backed
securities.......................................... (385) 461
Deferred loan origination costs...................... (138) (132)
Mortgage servicing rights............................ 1,837 1,462
Provision for loan losses............................. 900 900
(Gains) losses on sales of:
Real estate owned.................................... (8) (52)
Land, building and equipment......................... (2) (30)
Mortgage loans....................................... (348) 1,011
Net proceeds from sales of mortgage loans............. 59,211 210,739
Origination of mortgage loans held for sale........... (67,143) (165,039)
Earnings on Bank-Owned Life Insurance................. (1,224) (1,158)
Unrealized gain on trading securities................. (128) (136)
Real estate owned valuation adjustments............... -- (43)
Depreciation of office properties and equipment....... 2,038 1,890
Appreciation in fair value of ESOP shares............. 176 178
Earned SIP shares..................................... 1,280 1,277
Increase or decrease in:
Accrued interest receivable.......................... (1,279) (168)
Prepaid expenses and other assets.................... (598) (859)
Accrued interest payable............................. 707 1,579
Accrued income taxes and other liabilities........... (1,653) (1,750)
---------- ----------
Net cash provided by (used in) operating
activities......................................... (58) 55,955
---------- ----------
Cash flows from investing activities:
Purchase of trading securities........................ (100) (100)
Purchase of investment securities available for sale.. (142) --
Purchase of mortgage-backed securities available for
sale................................................. -- (218,473)
Payments received on mortgage-backed securities
available for sale................................... 68,110 89,174
Maturities of investment securities held to maturity.. -- 10,000
Payments received on mortgage-backed securities held
to maturity.......................................... 196 2,369
Purchase of Federal Home Loan Bank stock.............. (6,031) (1,118)
Net increase in loans................................. (114,829) (48,607)
Proceeds from sales of real estate owned.............. 121 609
Purchases of office properties and equipment.......... (1,323) (1,843)
Proceeds from sales of office properties and
equipment............................................ 2 103
---------- ----------
Net cash used in investing activities............... (53,996) (167,886)
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposits................... 4,241 (24,780)
Proceeds from FHLB advances and other borrowings...... 3,456,227 1,981,836
Repayments on FHLB advances and other borrowings...... (3,391,996) (1,837,048)
Net change in advance payments by borrowers for taxes
and insurance........................................ (1,725) (1,344)
Cash dividends paid................................... (1,760) (1,336)
Common stock repurchased, net......................... (5,560) (4,631)
---------- ----------
Net cash provided by financing activities........... 59,427 112,697
---------- ----------
Net increase in cash and cash equivalents.............. 5,373 766
Cash and cash equivalents at beginning of period....... 20,970 39,020
---------- ----------
Cash and cash equivalents at end of period............. $ 26,343 $ 39,786
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.............................................. $ 58,622 $ 43,169
========== ==========
Income taxes.......................................... $ 4,175 $ 1,835
========== ==========
Supplemental disclosures of noncash investing
activities:
Property acquired in settlement of loans ........... $ 304 $ 231
========== ==========
See accompanying notes to consolidated financial statements.
5
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of FIRSTFED AMERICA BANCORP, INC. (the "Company"), its wholly-owned
subsidiaries, First Federal Savings Bank of America (the "Bank"), FAB FUNDING
CORPORATION ("FAB FUNDING") and FIRSTFED INSURANCE AGENCY, LLC (the "Agency"),
and its 65% interest in FIRSTFED TRUST COMPANY, N.A. (the "Trust Company").
The remaining 35% interest of the Trust Company is held by M/D Trust, LLC, a
minority owner. First Federal Savings Bank of America includes its wholly-
owned subsidiaries, FIRSTFED MORTGAGE CORPORATION, FIRSTFED INVESTMENT
CORPORATION, and CELMAC INVESTMENT CORPORATION.
The interim consolidated financial statements reflect all normal and
recurring adjustments which are, in the opinion of management, considered
necessary for a fair presentation of the financial condition and results of
operations for the periods presented. The results of operations for the three
months and nine months ended December 31, 2000 are not necessarily indicative
of the results of operations that may be expected for all of fiscal year 2001.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, pursuant to the rules and
regulations of the Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report to Stockholders on Form 10-K
for the fiscal year ended March 31, 2000.
Note 2. Impact of Recent Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities," was issued
in June 2000 and amends the accounting and reporting standards of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," for
certain derivative instruments and hedging activities. These amendments
include the application of the normal purchases and sales exception in SFAS
No. 133, and redefinition of hedged risk. SFAS No. 138 also amends SFAS No.
133 for decisions made by the Financial Accounting Standards Board relating to
the Derivatives Implementation Group process. SFAS No. 138 will be adopted
concurrently with SFAS No. 133 on April 1, 2001. The adoption of these
statements by the Company is not expected to materially affect the results of
operations or financial condition of the Company.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued in September 2000 and replaces
SFAS No. 125 of the same title. This statement revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but carries over most of SFAS No.
125's provisions without reconsideration. This statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001 and is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
The adoption of this statement by the Company is not expected to materially
affect the results of operations or financial condition of the Company.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
General
Total assets at December 31, 2000 were $1.651 billion, an increase of $71.3
million, or 4.5%, compared to $1.580 billion at March 31, 2000. Asset growth
was primarily attributable to growth in loans receivable, net, which increased
$113.8 million, or 12.8%, to $1,002.5 million at December 31, 2000 from $888.8
million at March 31, 2000. Partially offsetting this growth was a $61.5
million decrease in mortgage-backed securities available for sale. Balance
sheet growth was primarily funded by increases of $64.2 million in Federal
Home Loan Bank advances and other borrowings and $4.2 million in deposit
balances during the first nine months of fiscal year 2001.
Total stockholders' equity increased $5.5 million, or 5.4%, to $107.2
million at December 31, 2000, from $101.7 million at March 31, 2000. The
increase was due to $6.7 million in net income, a $4.7 million increase in the
fair market value of available for sale securities, net of tax, and $1.4
million in earned Stock-based Incentive Plan awards, partially offset by $5.6
million in treasury stock purchases and $1.8 million in dividends paid to
stockholders. Stockholders' equity to assets was 6.49% at December 31, 2000,
up from 6.44% at March 31, 2000. Book value per share increased 10.8% to
$18.71 at December 31, 2000 from $16.88 at March 31, 2000, due to the $5.5
million increase in stockholders' equity and a decrease in shares outstanding.
As of December 31, 2000, the Company has repurchased 128,800 shares of its
stock, or 40% of the 320,028 shares authorized for repurchase under the
Company's seventh stock repurchase program announced on September 29, 2000.
The Company has repurchased 2,435,395 shares since May 15, 1998 through seven
stock repurchase programs, reducing the legal number of shares outstanding to
6,271,757.
Liquidity and Capital
The Company's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, proceeds from the sale of
loans, FHLB advances, and other borrowings. While maturities and scheduled
amortization of loans are predictable sources of funds, deposit flows and
mortgage prepayments are influenced by general interest rates, economic
conditions and competition. The Bank is required to maintain minimum levels of
liquid assets as defined by Office of Thrift Supervision ("OTS") regulations.
This requirement, which may be varied at the direction of the OTS depending
upon economic conditions and deposit flows, is based upon a percentage of the
Bank's deposits and short-term borrowings ("liquidity ratio"). At December 31,
2000 and March 31, 2000, the Bank's liquidity ratio was 27.99% and 28.35%,
respectively. The OTS required liquidity ratio is 4.0%.
The Company's most liquid assets are cash, short-term investments, mortgage
loans held for sale, investments in trading securities, investment securities
available for sale, and mortgage-backed securities available for sale. The
levels of these assets are dependent on the Company's operating, financing,
lending and investing activities during any given period. At December 31,
2000, cash and cash equivalents, mortgage loans held for sale, investments in
trading securities, investment securities available for sale, and mortgage-
backed securities available for sale totaled $527.6 million, or 32.0% of total
assets.
The Company has other sources of liquidity if a need for additional funds
arises, including a $25.0 million FHLB secured line of credit, FHLB advances,
and other borrowings from securities dealers. At December 31, 2000, the
Company had $843.9 million in advances outstanding from the FHLB and other
borrowings, and an additional borrowing capacity from the FHLB of $127.0
million including the $25.0 million line of credit. The Company uses FHLB
advances and other borrowings to fund asset growth and other cash flow needs,
and may continue to do so in the future, depending on market conditions, the
pricing of deposit products, and the pricing of FHLB advances and other
borrowings.
7
At December 31, 2000, the Company had commitments to originate loans and
unused outstanding lines of credit and undistributed balances of construction
loans totaling $131.6 million. The Company anticipates that it will have
sufficient funds available to meet its current loan origination commitments.
Certificate of deposit accounts scheduled to mature in less than one year from
December 31, 2000 totaled $331.9 million. The Company expects that it will
retain a majority of maturing certificate accounts.
At December 31, 2000, the Bank exceeded all of its regulatory capital
requirements. The Bank's tangible capital of $102.2 million, or 6.22%, of
total adjusted assets, was above the required level of $32.9 million or 2.0%;
core capital of $102.2 million, or 6.22% of total adjusted assets, was above
the required level of $65.7 million, or 4.0%; risk-based capital of $112.3
million, or 13.84% of risk-weighted assets, was above the required level of
$64.9 million or 8.0%, and Tier 1 risk-based capital of $102.2 million, or
12.59% of risk-weighted assets, was above the required level of $32.5 million
or 4.0%. The Bank is considered a "well capitalized" institution under the OTS
prompt corrective action regulations.
8
Asset Quality
At December 31, 2000, non-accrual loans totaled $954,000 and real estate
owned ("REO") totaled $191,000. The Company ceases to accrue interest on loans
90 days or more past due and charges off all accrued interest. Foregone
interest on non-accrual loans for the three months ended December 31, 2000 was
$15,000 and was $27,000 for the nine months ended December 31, 2000. The
following table sets forth information regarding non-accrual loans and REO.
At December 31, At March 31,
2000 2000
--------------- ------------
(Dollars in thousands)
Non-accrual loans:
Mortgage loans:
One- to four-family............................ $ 776 $ 941
Multi-family................................... -- --
Commercial real estate......................... -- --
Construction and land.......................... -- --
------ ------
Total mortgage loans......................... 776 941
------ ------
Commercial loans................................ 90 345
------ ------
Consumer loans:
Home equity lines.............................. -- --
Second mortgages............................... 66 12
Other consumer loans........................... 22 12
------ ------
Total consumer loans......................... 88 24
------ ------
Total nonaccrual loans....................... 954 1,310
Real estate owned, net(1)........................ 191 --
------ ------
Total non-performing assets..................... $1,145 $1,310
====== ======
Allowance for loan losses as a percent of
loans(2)........................................ 1.29% 1.36%
Allowance for loan losses as a percent of non-
performing loans(3)............................. 1,370% 937%
Non-performing loans as a percent of
loans(2)(3)..................................... 0.09% 0.15%
Non-performing assets as a percent of total as-
sets(4)......................................... 0.07% 0.08%
--------
(1) REO balances are shown net of related valuation allowances.
(2) Loans includes loans receivable, net, excluding allowance for loan
losses.
(3) Non-performing loans consist of all loans 90 days or more past due and
other loans which have been identified by the Company as presenting
uncertainty with respect to the collectability of interest or principal.
(4) Non-performing assets consist of non-performing loans and REO.
9
Cautionary 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 Litigation
Reform Act of 1995, and is including this statement for purposes of these safe
harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company, are generally identified 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 effect on the operations of the Company and the 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 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 about the Company and its business, including
additional factors that could materially affect the Company's financial
results, is included in the Company's other filings with the Securities and
Exchange Commission.
The Company does not undertake--and specifically disclaims any obligation--
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or
unanticipated events.
10
RESULTS OF OPERATIONS
General
Net income decreased $71,000, or 3.2%, to $2.1 million for the three months
ended December 31, 2000 from $2.2 million for the three months ended December
31, 1999. Basic and diluted earnings per share ("EPS") increased 5.7% to $0.37
for the third quarter of fiscal year 2001 from $0.35 per share for the third
quarter of fiscal year 2000. Pre-tax income decreased $84,000, or 2.6%, to
$3.1 million, the net result of increases in net interest income of $241,000,
non-interest income of $537,000 and non-interest expense of $862,000. The
growth in EPS for the third quarter of fiscal year 2001, compared to the third
quarter of fiscal year 2000, was caused by a reduction in shares outstanding
as a result of the Company's stock repurchases.
Year to date net income increased $874,000, or 15.0%, to $6.7 million for
the nine months ended December 31, 2000 from $5.8 million for the nine months
ended December 31, 1999. Basic and diluted EPS increased 23.9% to $1.14 for
the first nine months of fiscal year 2001 from $0.92 per share for the first
nine months of fiscal year 2000. Pre-tax income increased $1.3 million, or
15.4%, to $9.7 million, the net result of increases in net interest income of
$2.3 million, non-interest income of $2.0 million and non-interest expense of
$3.0 million. The growth in EPS for the first nine months of fiscal year 2001,
compared to the same period of fiscal year 2000, was caused by the growth in
net income and a reduction in shares outstanding as a result of the Company's
stock repurchases.
Net Interest Income
Net interest income before provision for loan losses increased $241,000, or
3.0%, to $8.4 million for the third quarter of fiscal year 2001 from $8.1
million for the third quarter of fiscal year 2000. The net interest rate
spread decreased 20 basis points to 1.88% for the third quarter of fiscal year
2001 from 2.08% for the third quarter of fiscal year 2000.
Year to date net interest income before provision for loan losses increased
$2.3 million, or 9.5%, to $25.9 million for the first nine months of fiscal
year 2001 from $23.6 million for the first nine months of fiscal year 2000.
The net interest rate spread decreased 10 basis points to 1.96% for the first
nine months of fiscal year 2001 from 2.06% for the first nine months of fiscal
year 2000.
The increases in net interest income for the third quarter and year to date
periods of fiscal year 2001, compared to the same periods of fiscal year 2000,
were primarily due to growth in loans receivable funded by increases in FHLB
advances and other borrowings. Rising interest rates during most of the past
year, however, contributed to a narrowing of the net interest rate spreads
during the fiscal year 2001 periods. The growth in the average balances of
loans receivable during the third quarter and year to date periods of fiscal
year 2001, compared to the same periods of fiscal year 2000, was due to
several key factors. Rising market interest rates resulted in the Company's
shift to origination of adjustable-rate mortgages that are generally retained
for portfolio, from origination of fixed-rate mortgages that are generally
sold in the secondary market, and decreased prepayment speeds on loans. In
addition, favorable economic conditions, combined with the Company's
promotional efforts, resulted in growth in commercial and consumer loans.
11
Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest
income is a function of both the relative amounts of interest earning assets
and interest-bearing liabilities, and the interest rates earned or paid on
them.
The following tables set forth certain information relating to the Company
for the periods indicated. The average yields and costs are derived by
dividing income or expense by the average balance of interest earning assets
or interest bearing liabilities, respectively, for the periods shown. Average
balances are derived from the best available daily or monthly data, which
management believes approximates the average balances computed on a daily
basis. The yields and the costs include fees, premiums and discounts which are
considered adjustments to yields.
For the Three Months Ended December 31,
---------------------------------------------------------
2000 1999
---------------------------- ----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- -------- ------- ---------- -------- -------
(Dollars in thousands)
Assets:
Interest-earning
assets:
Loans receivable, net
and mortgage loans
held for sale........ $1,006,240 $19,857 7.89% $ 811,354 $15,326 7.56%
Investment
securities........... 46,747 840 7.13 46,865 699 5.93
Mortgage-backed
securities........... 492,806 8,347 6.78 532,156 8,091 6.08
---------- ------- ---- ---------- ------- ----
Total interest-
earning assets..... 1,545,793 29,044 7.52 1,390,375 24,116 6.94
------- ---- ------- ----
Noninterest-earning
assets................. 99,146 98,608
---------- ----------
Total assets........ $1,644,939 $1,488,983
========== ==========
Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Deposits.............. $ 609,129 6,755 4.40 $ 608,884 6,187 4.04
FHLB advances and
other borrowings..... 845,875 13,915 6.53 699,625 9,796 5.57
---------- ------- ---- ---------- ------- ----
Total interest-
bearing
liabilities........ 1,455,004 20,670 5.64 1,308,509 15,983 4.86
------- ---- ------- ----
Noninterest-bearing
liabilities.......... 84,846 76,708
---------- ----------
Total liabilities... 1,539,850 1,385,217
Stockholders' equity.. 105,089 103,766
---------- ----------
Total liabilities
and stockholders'
equity............. $1,644,939 $1,488,983
========== ==========
Net interest rate
spread................. $ 8,374 1.88% $ 8,133 2.08%
======= ==== ======= ====
Net interest margin..... 2.15% 2.33%
==== ====
Ratio of interest-
earning assets to
interest-bearing
liabilities............ 106.24% 106.26%
========== ==========
12
For the Nine Months Ended December 31,
---------------------------------------------------------
2000 1999
---------------------------- ----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- -------- ------- ---------- -------- -------
(Dollars in thousands)
Assets:
Interest-earning
assets:
Loans receivable, net
and mortgage loans
held for sale........ $ 976,591 $57,416 7.84% $ 799,079 $44,915 7.49%
Investment
securities........... 44,570 2,369 7.05 47,763 2,074 5.78
Mortgage-backed
securities........... 514,733 25,435 6.59 487,341 21,393 5.85
---------- ------- ---- ---------- ------- ----
Total interest-
earning assets..... 1,535,894 85,220 7.40 1,334,183 68,382 6.83
------- ---- ------- ----
Noninterest-earning
assets................. 99,903 98,397
---------- ----------
Total assets........ $1,635,797 $1,432,580
========== ==========
Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Deposits.............. $ 608,449 19,460 4.25 $ 611,588 18,761 4.08
FHLB advances and
other borrowings..... 839,102 39,869 6.31 636,939 25,987 5.43
---------- ------- ---- ---------- ------- ----
Total interest-
bearing
liabilities........ 1,447,551 59,329 5.44 1,248,527 44,748 4.77
------- ---- ------- ----
Noninterest-bearing
liabilities.......... 84,380 78,391
---------- ----------
Total liabilities... 1,531,931 1,326,918
Stockholders' equity.. 103,866 105,662
---------- ----------
Total liabilities
and stockholders'
equity............. $1,635,797 $1,432,580
========== ==========
Net interest rate
spread................. $25,891 1.96% $23,634 2.06%
======= ==== ======= ====
Net interest margin..... 2.24% 2.33%
==== ====
Ratio of interest-
earning assets to
interest-bearing
liabilities............ 106.10% 106.86%
========== ==========
Provision for Loan Losses
The Company's provision for loan losses remained unchanged at $300,000 for
the third quarters of fiscal years 2001 and 2000, and $900,000 for the first
nine months of fiscal years 2001 and 2000. The allowance for loan losses was
$13.1 million, or 1.29% of loans receivable, at December 31, 2000, compared to
$12.3 million, or 1.36% of loans receivable, at March 31, 2000.
Non-performing loans decreased to $954,000, or 0.09% of loans receivable,
at December 31, 2000, from $1.3 million, or 0.15% of loans receivable, at
March 31, 2000. At December 31, 2000, the Company's non-performing assets,
which include non-performing loans and REO, decreased $165,000 to $1.1 million
compared to $1.3 million at March 31, 2000. The current levels of non-
performing loans and assets are primarily a result of the strength of the
local economy and conservative loan underwriting.
13
The Company establishes provisions for loan losses, which are charged to
operations, based on management's assessment of the loan loss reserve level,
the existing loan portfolio, current market conditions, and the volume and mix
of new originations. To the extent the Company experiences further increases
in the overall balance of its loan portfolio or increases its concentrations
of loans which bear a higher degree of risk than one- to four-family loans,
the Company anticipates further increases in its allowance for loan losses
through continued provisions for loan losses. While management of the Company
believes that the current level of its allowance for loan losses is sufficient
based on information currently available at this time, no assurances can be
made that future events, conditions or regulatory directives will not result
in increased provisions for loan losses or additions to the Company's
allowance for loan losses which may adversely affect net income.
Non-interest Income
Non-interest income increased $537,000, or 33.0%, to $2.2 million for the
third quarter of fiscal year 2001 from $1.6 million for the third quarter of
fiscal year 2000. This increase was primarily attributable to an improvement
of $275,000 in gain (loss) on sale of mortgage loans, net, and a $277,000
increase in other non-interest income, partially offset by a $116,000 decrease
in loan servicing income.
Year to date non-interest income increased $2.0 million, or 43.8%, to $6.5
million for the first nine months of fiscal year 2001 from $4.5 million for
the first nine months of fiscal year 2000. This increase was primarily
attributable to an improvement of $1.4 million in gain (loss) on sale of
mortgage loans, net, and a $930,000 increase in other non-interest income,
partially offset by a $529,000 decrease in loan servicing income.
The change in gain (loss) on sale of mortgage loans reflected a decrease in
the origination of saleable fixed rate mortgages during the first nine months
of fiscal year 2001 as compared to the first nine months of fiscal year 2000,
and unfavorable secondary market conditions that existed during the first nine
months of fiscal year 2000. The increases in other non-interest income were
primarily attributable to higher insurance commissions and trust fees during
the first nine months of fiscal year 2001 as compared to the first nine months
of fiscal year 2000. The decreases in loan servicing income were primarily
attributable to a $13.9 million decline in the average portfolio of loans
serviced for others during the first nine months of fiscal year 2001 compared
to the same period of fiscal year 2000, reflecting a shift during most of the
past year to production of adjustable rate mortgages that are generally
retained for portfolio, and a $237,000 reduction in the valuation reserve for
mortgage servicing rights during the first nine months of fiscal year 2000.
The average loan servicing fee on the portfolio of loans serviced for others
was approximately 25 basis points during the first nine months of fiscal years
2001 and 2000.
14
Non-interest Expense
Non-interest expense increased $862,000, or 13.7%, to $7.1 million for the
third quarter of fiscal year 2001 from $6.3 million for the third quarter of
fiscal year 2000, due primarily to a $642,000 increase in compensation and
benefits. Year to date non-interest expense increased $3.0 million, or 15.7%,
to $21.8 million for the first nine months of fiscal year 2001 from $18.8
million for the first nine months of fiscal year 2000, due primarily to a $2.3
million increase in compensation and benefits.
The higher level of expenses for the third quarter and year to date periods
of fiscal year 2001, compared to the same periods of fiscal year 2000,
included costs associated with the Company's new retail banking and business
banking offices in downtown Providence, Rhode Island, both of which opened
earlier this year, two insurance agencies acquired in March 2000, FIRSTFED
TRUST COMPANY, N.A., which opened in February 2000, and the accounting impact
of an increase in the market price of the Company's stock held by certain
employee benefit plans.
Income Taxes
Income tax expense decreased $13,000, or 1.3%, to $966,000 for the third
quarter of fiscal year 2001 from $979,000 for the third quarter of fiscal year
2000. Year to date income tax expense increased $424,000, or 16.2%, to $3.0
million for the first nine months of fiscal year 2001 from $2.6 million for
the first nine months of fiscal years 2000. These changes were due primarily
to the changes in income before income tax expense. The Company's effective
tax rate increased slightly to 31.3% during the first nine months of fiscal
year 2001 from 31.0% for the first nine months of fiscal year 2000.
15
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk affecting the Company is interest-rate risk. The
principal objective of the Company's interest rate risk management function is
to evaluate the interest rate risk included in certain balance sheet accounts,
determine the level of risk appropriate given the Company's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with Board of Directors' approved
guidelines. Through such management, the Company seeks to reduce the
vulnerability of its operations to changes in interest rates. The Company
monitors its interest rate risk as such risk relates to its operating
strategies. The Company's Board of Directors has established an
Asset/Liability Committee, responsible for reviewing its asset/liability
policies and interest rate risk position, which meets on a monthly basis and
reports trends and interest rate risk position to the Board of Directors on a
quarterly basis. The extent of the movement of interest rates is an
uncertainty that could have a negative impact on the earnings of the Company.
In recent years, the Company has primarily utilized the following
strategies to manage interest rate risk: (1) emphasizing the origination and
retention of adjustable-rate and shorter-term (generally twelve years or less)
fixed-rate, one- to four-family mortgage loans; (2) selling in the secondary
market longer-term, fixed-rate mortgage loans originated while generally
retaining the servicing rights on such loans; (3) investing primarily in
adjustable rate mortgage-backed securities and short-term fixed-rate
collateralized mortgage obligations ("CMOs"); and (4) reducing the overall
interest rate sensitivity of liabilities by emphasizing longer-term deposits
and longer-term FHLB advances to replace rate sensitive deposits and fund
asset growth. In addition, the Company engaged in two interest rate swap
agreements with a total notional principal amount of $50 million to
synthetically lengthen its liability maturities.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and
by monitoring a bank's interest rate sensitivity "gap." An asset or liability
is said to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap
is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that same time
period.
At December 31, 2000, the Company's cumulative one year interest rate gap
(which is the difference between the amount of interest-earning assets and the
amount of interest-bearing liabilities maturing or repricing within one year)
as a percentage of total assets was approximately zero. Accordingly, during
changing interest rate environments, the Company's interest-earning assets
would tend to reprice at approximately the same rate as its interest-bearing
liabilities, which, consequently, would have a minimal affect on the Company's
net interest income.
Certain shortcomings are inherent in gap analysis. For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable-rate loans, have features which restrict changes in
interest rates both on a short-term basis and over the life of the asset.
Further, in the event of change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in
calculating the cumulative one year interest rate gap. Finally, the ability of
some borrowers to service their adjustable-rate loans may decrease in the
event of an interest rate increase.
16
The Company's interest rate sensitivity is also monitored by management
through the use of a model which generates estimates of the change in the
Company's net interest income ("NII") and net portfolio value ("NPV") over a
range of interest rate scenarios. NPV is the present value of expected cash
flows from assets, liabilities, and off-balance sheet contracts. The NPV
ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the estimated market value of assets in the same scenario.
The OTS produces a similar analysis for the Bank using its own model, based
upon data submitted on the Bank's quarterly Thrift Financial Report, the
results of which may vary from the Company's internal model primarily due to
differences in assumptions utilized between the Company's internal model and
the OTS model, including estimated loan prepayment rates, reinvestment rates
and deposit renewal rates.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV require certain
assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the
Company's NPV model incorporates an assumption that the composition of the
Company's interest sensitive assets and liabilities existing at the beginning
of a period remains constant over the period being measured, and that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration to maturity or repricing of specific assets
and liabilities. Accordingly, although the NPV measurements and net interest
income models provide an indication of the Company's interest rate risk
exposure at a particular point in time, such measurements are not intended to
and do not provide a precise forecast of the effect of changes in market
interest rates on the Company's net interest income and will differ from
actual results.
The Company follows a practice of selling certain fixed-rate and
adjustable-rate mortgage loans while generally retaining the servicing rights.
In conjunction with this mortgage banking activity, the Company uses forward
contracts in order to reduce exposure to interest-rate risk. The amount of
forward coverage of the "pipeline" of mortgages is managed on a day-to-day
basis by an operating officer, within Board approved policy guidelines, based
on the Company's assessment of the general direction of interest rates and
levels of mortgage origination activity.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not engaged in any legal proceedings of a material nature at
the present time. From time to time, the Company is a party to routine legal
proceedings within the normal course of business. Such routine legal
proceedings in the aggregate are believed by management to be immaterial to
the Company's financial condition or results of operations.
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 Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
3.1 Certificate of Incorporation of FIRSTFED AMERICA BANCORP, INC. (/1/)
3.2 Bylaws of FIRSTFED AMERICA BANCORP, INC. (/1/)
4.0 Stock Certificate of FIRSTFED AMERICA BANCORP, INC. (/1/)
10.1 FIRSTFED AMERICA, BANCORP INC. 1997 Stock-based Incentive Plan, as
amended (/2/)(/3/)
10.2 FIRSTFED AMERICA BANCORP, INC. 1998 Stock Option Plan (/3/)
b) Reports on Form 8-K:
None
--------
(/1/) Incorporated into this document by reference from the Exhibits to
Form S-1, Registration Statement, filed on September 27, 1996, as
amended, Registration No. 333-12855.
(/2/) Incorporated into this document by reference from the proxy statement
dated June 20, 1997 and filed with the SEC on June 20, 1997 (SEC No. 1-
12305).
(/3/) Incorporated into this document by reference from Appendices A
(Amendments to the FIRSTFED AMERICA BANCORP, INC. 1997 Stock-Based
Incentive Plan) and B (FIRSTFED AMERICA BANCORP, INC. 1998 Stock Option
Plan), respectively, of the proxy statement dated June 15, 1998 and filed
with the SEC on June 15, 1998 (SEC No. 1-12305).
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, there unto duly authorized.
FIRSTFED AMERICA BANCORP, INC.
_____________________________________
Registrant
Date: February 13, 2001 /s/ Robert F. Stoico
_____________________________________
President and Chief Executive
Officer and Chairman of the Board
(Principal Executive Officer)
Date: February 13, 2001 /s/ Edward A. Hjerpe III
By___________________________________
Executive Vice President and Chief
Operating Officer and Chief
Financial Officer (Principal
Accounting and Financial Officer)
19