================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2003
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
From the Transition Period From ________ to __________
Commission File Number: 1-9566
FIRSTFED FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 95-4087449
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
401 Wilshire Boulevard, Santa Monica, California 90401-1490
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 319-6000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock $0.01 par value
Title of Class
Securities registered pursuant to section 12(g) of the Act: None
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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes |X| No |_|
As of October 29, 2003, 17,012,817 shares of the Registrant's $.01 par value
common stock were outstanding.
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FirstFed Financial Corp.
Index
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of September 30, 2003, 3
December 31, 2002 and September 30, 2002
Consolidated Statements of Operations and Comprehensive Earnings for the 4
three and nine months ended September 30, 2003 and 2002
Consolidated Statements of Cash Flows for the nine months ended 5
September 30, 2003 and 2002
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results 8
of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
Part II. Other Information (omitted items are inapplicable)
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 19
Exhibits
31.1 Certification of Chief Executive Officer pursuant to Section 302 of 21
the Sarbanes-Oxley Act of 2002
22
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial 23
Officer pursuant to 18 USC Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
2
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
FirstFed Financial Corp. and Subsidiary
Consolidated Statements of Financial Condition
(In thousands, except share data)
(Unaudited)
September 30, December 31, September 30,
2003 2002 2002
----------------- ---------------- ------------------
ASSETS
Cash and cash equivalents $ 62,144 $ 45,199 $ 43,122
Investment securities, available-for-sale (at fair
value) 63,559 103,055 109,858
Mortgage-backed securities, available-for-sale (at
fair value) 151,130 200,585 218,424
Loans receivable, held-for-sale (fair value of
$1,517, $2,300 and $2,861) 1,515 2,293 2,848
Loans receivable, net 4,106,131 3,766,942 3,804,495
Accrued interest and dividends receivable 17,205 17,752 18,567
Real estate, net -- 347 506
Office properties and equipment, net 10,418 10,342 10,461
Investment in Federal Home Loan Bank (FHLB) stock, at
cost 80,243 78,728 79,666
Other assets 32,782 28,486 29,335
----------------- ---------------- ------------------
$ 4,525,127 $ 4,253,729 $ 4,317,282
================= ================ ==================
LIABILITIES
Deposits $ 2,504,692 $ 2,527,026 $ 2,508,768
FHLB advances 1,429,000 1,167,000 1,247,000
Securities sold under agreements to repurchase 129,220 155,273 166,567
Accrued expenses and other liabilities 41,917 32,789 36,163
----------------- ---------------- ------------------
4,104,829 3,882,088 3,958,498
----------------- ---------------- ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share;
Authorized 100,000,000 shares; issued
23,509,436, 23,395,202 and 23,390,742 shares;
outstanding 17,044,740,
16,931,306 and 17,046,446 shares 235 234 234
Additional paid-in capital 37,113 35,680 34,797
Retained earnings - substantially restricted 468,198 418,885 404,594
Unreleased shares to employee stock
ownership plan (560) (597) (1,748)
Treasury stock, at cost, 6,497,696 shares,
6,463,896 and 6,344,296 shares (85,727) (84,762) (81,684)
Accumulated other comprehensive earnings, net of taxes 1,039 2,201 2,591
----------------- ---------------- ------------------
420,298 371,641 358,784
----------------- ---------------- ------------------
$ 4,525,127 $ 4,253,729 $ 4,317,282
================= ================ ==================
See accompanying notes to consolidated financial statements.
3
FirstFed Financial Corp. and Subsidiary
Consolidated Statements of Operations and Comprehensive Earnings
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------------------------- ------------------------------------
2003 2002 2003 2002
---------------- ---------------- --------------- ----------------
Interest income:
Interest on loans $ 55,774 $ 59,941 $ 169,725 $ 185,605
Interest on mortgage-backed securities 1,221 2,026 4,277 7,263
Interest and dividends on investments 1,349 2,774 4,593 8,573
---------------- ---------------- --------------- ----------------
Total interest income 58,344 64,741 178,595 201,441
---------------- ---------------- --------------- ----------------
Interest expense:
Interest on deposits 9,179 14,645 30,433 47,642
Interest on borrowings 12,635 16,667 37,055 53,401
---------------- ---------------- --------------- ----------------
Total interest expense 21,814 31,312 67,488 101,043
---------------- ---------------- --------------- ----------------
Net interest income 36,530 33,429 111,107 100,398
Provision for loan losses -- -- -- --
---------------- ---------------- --------------- ----------------
Net interest income after provision for loan
losses 36,530 33,429 111,107 100,398
---------------- ---------------- --------------- ----------------
Non-interest income:
Loan servicing and other fees 2,492 1,172 5,613 3,062
Retail office fees 1,366 1,173 3,663 3,348
Gain on sale of loans 1,689 6,195 2,382 6,564
Real estate operations, net (49) (60) 315 133
Other operating income 92 231 358 797
---------------- ---------------- --------------- ----------------
Total non-interest income 5,590 8,711 12,331 13,904
---------------- ---------------- --------------- ----------------
Non-interest expense:
Salaries and employee benefits 7,997 8,008 25,026 24,475
Occupancy 2,087 2,249 6,057 6,399
Amortization of core deposit intangible 499 499 1,495 1,464
Other expense 2,939 3,351 8,489 11,313
---------------- ---------------- --------------- ----------------
Total non-interest expense 13,522 14,107 41,067 43,651
---------------- ---------------- --------------- ----------------
Earnings before income taxes 28,598 28,033 82,371 70,651
Income tax provision 10,395 11,807 33,057 29,770
---------------- ---------------- --------------- ----------------
Net earnings $ 18,203 $ 16,226 $ 49,314 $ 40,881
================ ================ =============== ================
Other comprehensive loss, net of taxes (817) (145) (1,162) (400)
---------------- ---------------- --------------- ----------------
Comprehensive earnings $ 17,386 $ 16,081 $ 48,152 $ 40,481
================ ================ =============== ================
Earnings per share:
Basic $ 1.07 $ 0.94 $ 2.91 $ 2.37
================ ================ =============== ================
Diluted $ 1.04 $ 0.92 $ 2.84 $ 2.32
================ ================ =============== ================
Weighted average shares outstanding:
Basic 16,994,566 17,257,643 16,967,043 17,258,970
================ ================ =============== ================
Diluted 17,432,285 17,555,150 17,359,014 17,602,324
================ ================ =============== ================
See accompanying notes to consolidated financial statements.
4
FirstFed Financial Corp. and Subsidiary
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine months ended September 30,
-------------------------------------------
2003 2002
-------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 49,314 $ 40,881
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Net change in loans held-for-sale 778 2,398
Depreciation 1,040 1,222
Valuation adjustments on real estate sold (35) (204)
Amortization of fees and premiums/discounts 1,114 2,658
Decrease in servicing asset 180 180
Change in taxes payable 11,231 1,270
Decrease in interest and dividends receivable 547 3,509
Decrease in interest payable (3,238) (5,891)
Amortization of core deposit intangible asset 1,495 1,464
Increase in other assets (11,916) (9,099)
Increase (decrease) in accrued expenses and
other liabilities 1,135 (5,140)
-------------------- --------------------
Total adjustments 2,331 (7,633)
-------------------- --------------------
Net cash provided by operating activities 51,645 33,248
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers and principal
collections on loans (329,077) 194,996
Loans purchased (77) --
Net change in unearned loan fees (8,108) (3,249)
Proceeds from sales of real estate owned 716 2,746
Proceeds from maturities and principal payments
of investment securities, available-for-sale 124,149 61,458
Purchase of investment securities,
available-for-sale (86,240) (61,241)
Principal reductions on mortgage-backed securities,
available-for-sale 48,566 65,147
Purchases of FHLB stock (3,347) --
Redemptions of FHLB stock 4,600 15,573
-------------------- --------------------
Net cash (used by) provided by investing activities (248,818) 275,430
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (22,334) (37,879)
Net increase (decrease) in short term borrowings 130,947 (544,473)
Increase in long term borrowings 105,000 150,000
Purchases of treasury stock (965) (5,754)
Other 1,470 (1,621)
-------------------- --------------------
Net cash provided by (used by) financing activities 214,118 (439,727)
-------------------- --------------------
Net increase (decrease) in cash and cash equivalents 16,945 (131,049)
Cash and cash equivalents at beginning of period 45,199 174,171
-------------------- --------------------
Cash and cash equivalents at end of period $ 62,144 $ 43,122
==================== ====================
See accompanying notes to consolidated financial statements.
5
FirstFed Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
1. The unaudited consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of the Company, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
results of operations for the periods covered have been made. Certain
information and note disclosures normally included in financial statements
presented in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations. The Company believes that the disclosures are adequate to make
the information presented not misleading.
It is suggested that these condensed financial statements be read in conjunction
with the financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K. The results for the periods covered hereby
are not necessarily indicative of the operating results for a full year.
2. Basic earnings per share were computed by dividing net earnings by the
weighted average number of shares of common stock outstanding for the period.
Diluted earnings per share additionally include the effect of stock options, if
dilutive.
3. For purposes of reporting cash flows on the "Consolidated Statements of Cash
Flows", cash and cash equivalents include cash, overnight investments and
securities purchased under agreements to resell which mature within 90 days of
the date of purchase.
4. The Company applies the intrinsic-value-based method of accounting prescribed
by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations including FASB Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation, an
interpretation of APB Opinion No. 25, issued in March 2000, to account for its
fixed-plan stock options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based
Compensation, established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 123, the Company has elected to continue to apply
the intrinsic-value-based method of accounting described above, and has adopted
only the disclosure requirements of SFAS No. 123. The following table
illustrates the effect on net income if the fair-value-based method had been
applied to all outstanding and unvested awards in each period.
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------ ----------------------------------
2003 2002 2003 2002
---------------- ---------------- --------------- ---------------
(In thousands, except per share data)
Net income as reported...........................$ 18,203 $ 16,226 $ 49,314 $ 40,881
Deduction: total stock-based compensation
expense determined under fair-value-based
method for all awards, net of tax.............. (100) (100) (439) (569)
---------------- ---------------- --------------- ---------------
Pro forma net income...........................$ 18,103 $ 16,126 $ 48,875 $ 40,312
================ ================ =============== ===============
Earnings per share:
Basic:
As reported....................................$ 1.07 $ 0.94 $ 2.91 $ 2.37
Pro forma......................................$ 1.07 $ 0.93 $ 2.88 $ 2.34
Diluted:
As reported....................................$ 1.04 $ 0.92 $ 2.84 $ 2.32
Pro forma......................................$ 1.04 $ 0.92 $ 2.82 $ 2.30
6
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 2003 and 2002, respectively: no dividend yield in
any year; expected volatility of 34% and 36%; risk free interest rates of 3.8%
and 5.3%; and expected average lives of 5.5 years in both periods. The
weighted-average grant date fair value of options granted during the periods are
$11.31 and $11.48 for 2003 and 2002, respectively. The Company has elected to
recognize forfeitures in the year they occur.
5. Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities
("VIE's"). The recognition and measurement provisions of this Interpretation are
effective for newly created VIEs formed after January 31, 2003. On October 9,
2003, the FASB issued FIN 46-6 which delayed the recognition and measurement
provisions of FIN 46 for existing VIEs to the first interim or annual reporting
period ending after December 15, 2003. The Company adopted the disclosure
provisions of FIN 46 effective December 31, 2002. The Company adopted the
recognition and measurement provisions of FIN 46 for newly formed VIEs effective
February 1, 2003, which did not have a material effect on the Company's
financial statements. The Company intends to adopt the recognition and
measurement provisions of FIN 46 for existing VIEs on December 31, 2003. The
Company does not expect that the adoption of FIN 46 will have a material effect
on the Company's financial statements as the Company has no variable interest
entities.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS 149). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133. In particular, this Statement clarifies under what circumstances a contract
with an initial net investment meets the characteristic of a derivative and when
a derivative contains a financing component that warrants special reporting in
the statement of cash flows. This Statement is generally effective for contracts
entered into or modified after September 30, 2003 and is not expected to have a
material impact on the Company's financial statements as the Company has no
material derivative contracts.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity "
(SFAS 150). SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. This Statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is generally effective at the beginning of the first interim
period beginning after September 15, 2003 and is not expected to have a material
impact on the Company's financial statements.
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following narrative is written with the presumption that the users have read
or have access to the Company's 2002 Annual Report on Form 10-K, which contains
the latest audited financial statements and notes thereto, together with
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of December 31, 2002, and for the year then ended. Therefore, only
material changes in financial condition and results of operations are discussed
herein.
The Securities and Exchange Commission ("SEC") maintains a web site which
contains reports, proxy and information statements, and other information
pertaining to registrants that file electronically with the SEC, including the
Company. The address is: www.sec.gov. In addition, the Company's periodic and
current reports are available free of charge on its website at
www.firstfedca.com as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the SEC.
Note regarding forward looking statements: This quarterly report contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). All
statements, other than statements of historical facts, included in this
quarterly report that address activities, events or developments that the
Company expects, believes or anticipates will or may occur in the future, are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and perception of
historical trends, current conditions, expected future developments and other
factors it believes are appropriate in the circumstances. These forward-looking
statements are subject to various factors, many of which are beyond the
Company's control, which could cause actual results to differ materially from
such statements. Such factors include, but are not limited to, the general
business environment, interest rate fluctuations that may affect operating
margins, the California real estate market, branch openings, competitive
conditions in the business and geographic areas in which the Company conducts
its business, and regulatory actions. In addition, these forward-looking
statements are subject to assumptions as to future business strategies and
decisions that are subject to change. The Company makes no guarantee or promises
regarding future results and assumes no responsibility to update such
forward-looking statements.
Financial Condition
At September 30, 2003, FirstFed Financial Corp. ("Company"), holding company for
First Federal Bank of California and its subsidiaries ("Bank"), had consolidated
stockholders' equity of $420.3 million compared to $371.6 million at December
31, 2002 and $358.8 million at September 30, 2002. Consolidated total assets at
September 30, 2003 were $4.5 billion compared to $4.3 billion at December 31,
2002 and $4.3 billion at September 30, 2002. The increase in total assets from
December 31, 2002 to September 30, 2003 is primarily attributable to growth in
the loan portfolio. The loan portfolio increased to $4.1 billion at September
30, 2003 from $3.8 billion at December 31, 2002 due to loan originations, which
increased to $1.6 billion during the first nine months of 2003 as compared to
$871.1 million during the first nine months of 2002. Loan payoffs and principal
reductions were $1.3 billion during the first nine months of 2003 compared to
$1.1 billion during the first nine months of 2002.
The Bank's financial results are primarily influenced by the interest rate
environment and Southern California real estate market. Southern California real
estate sales prices and sales volume have continued at record high levels during
2003 as a result of historically low interest rates. According to the UCLA
Forecast for California, September 2003 Report ("Forecast"), "The forecast for
mortgage rates is that they will actually remain flat or may even fall slightly
over the next two quarters as a result of continued economic doldrums. As a
result, price appreciation is expected to continue its upward advance through
the end of this year. However, over the next two years it is expected that
appreciation will slow dramatically." An increase in interest rates would
negatively affect real estate prices and the Bank's interest rate spreads. See
"Asset-Liability Management" for additional information.
8
The following table summarizes loan originations and purchases by property type
for the periods indicated:
Nine months ended
September 30,
2003 2002
-------------- ---------------
(In thousands)
Single family $ 1,201,451 $ 444,766
Multi-family and commercial 377,146 399,990
Other (1) 37,127 26,303
------------ -------------
Total $ 1,615,724 $ 871,059
============ =============
(1) Includes consumer loans and commercial business loans.
At September 30, 2003, 75.5% of the Bank's loan portfolio was comprised of
adjustable rate products. Loans that adjust monthly based on the FHLB Eleventh
District Cost of Funds Index ("COFI") comprised 43.5% of the loan portfolio.
Loans that adjust monthly based on the 12-month average U.S. Treasury Security
rate ("12MAT") comprised 17.8% of the loan portfolio. Loans that adjust monthly
based on the Three-Month Certificate of Deposit Index ("CODI") comprised 10.7%
of the loan portfolio. Loans that adjust monthly based on the prime rate
comprised 1.7% of the loan portfolio. Loans that adjust monthly based on the
London Inter-Bank Offering Rate ("LIBOR") and other loans comprised 1.8% of the
loan portfolio.
The following table summarizes loan originations and purchases by loan type for
the periods indicated:
Nine months ended
September 30,
2003 2002
--------------- --------------
(In thousands)
Fixed $ 61,363 $ 49,264
Hybrid (1) 398,065 289,609
Adjustable:
12MAT 517,334 143,577
CODI 472,794 --
COFI 129,041 342,269
LIBOR -- 20,037
Prime 37,127 26,303
------------- ------------
Total $ 1,615,724 $ 871,059
============= ============
(1) These loan types are adjustable rate loans with initial fixed interest rate
periods ranging from 3 to 7 years.
The Bank's non-performing assets to total assets ratio was 0.12% as of September
30, 2003, compared to 0.17% as of December 31, 2002 and 0.11% as of September
30, 2002. (See "Non-performing Assets" for further discussion.)
The Bank recorded no loan charge-offs or recoveries for the third quarter of
2003 and had net loan recoveries of $25 thousand during the first nine months of
2003. For the comparable periods last year, the Company recorded net loan
charge-offs of $271 thousand and net loan recoveries of $900 thousand during the
third quarter and first nine months of 2002, respectively. Allowances for loan
losses (including general valuation allowances and valuation allowances for
impaired loans) totaled $75.7 million or 1.81% of gross loans at September 30,
2003. This compares with $75.7 million or 1.96% at December 31, 2002 and $75.7
million or 1.94% at September 30, 2002.
9
The following table shows the components of the Bank's portfolio of loans
(including loans held for sale) and mortgage-backed securities by collateral
type as of the dates indicated:
September 30, December 31, September 30,
2003 2002 2002
----------------- ---------------- ------------------
(In thousands)
REAL ESTATE LOANS
First trust deed residential loans:
One-to-four units $ 2,134,608 $ 1,723,690 $ 1,770,416
Five or more units 1,585,646 1,646,430 1,655,642
----------------- ---------------- ------------------
Residential loans 3,720,254 3,370,120 3,426,058
OTHER REAL ESTATE LOANS
Commercial and industrial 382,531 419,273 401,800
Second trust deeds 6,342 5,965 8,396
Other 7,263 7,130 11,276
----------------- ---------------- ------------------
Real estate loans 4,116,390 3,802,488 3,847,530
NON-REAL ESTATE LOANS
Deposit accounts 616 1,185 1,182
Commercial business loans 26,914 19,582 16,255
Consumer 45,772 35,395 32,208
----------------- ---------------- ------------------
Loans receivable 4,189,692 3,858,650 3,897,175
LESS:
General valuation allowances - loan
portfolio 75,248 75,223 73,515
Valuation allowances - impaired loans 496 496 2,154
Unearned loan fees 6,302 13,696 14,163
----------------- ---------------- ------------------
Net loans receivable 4,107,646 3,769,235 3,807,343
FHLMC AND FNMA MORTGAGE-BACKED
SECURITIES (at fair value):
Secured by single family dwellings 143,850 192,395 209,975
Secured by multi-family dwellings 7,280 8,190 8,449
----------------- ---------------- ------------------
Mortgage-backed securities 151,130 200,585 218,424
----------------- ---------------- ------------------
TOTAL $ 4,258,776 $ 3,969,820 $ 4,025,767
================= ================ ==================
The mortgage-backed securities portfolio, classified as available-for-sale, was
recorded at fair value as of September 30, 2003. An unrealized gain of $1.1
million, net of taxes, was recorded in stockholders' equity as of September 30,
2003. This compares to net unrealized gains of $1.6 million as of December 31,
2002 and $1.6 million as of September 30, 2002.
The investment securities portfolio, classified as available-for-sale, was
recorded at fair value as of September 30, 2003. An unrealized loss of $37
thousand, net of taxes, was reflected in stockholders' equity as of September
30, 2003. This compares to net unrealized gains of $611 thousand as of December
31, 2002 and $1.0 million as of September 30, 2002.
Asset/Liability Management
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The Bank's market risk arises primarily from the interest rate
risk inherent in its lending and liability funding activities.
10
The Bank's net interest income typically improves during periods of decreasing
interest rates because there is a three-month time lag before changes in COFI,
and a two-month time lag before changes in 12MAT, LIBOR and CODI, can be
implemented with respect to the Bank's adjustable rate loans. Therefore, during
periods immediately following interest rate decreases, the Bank's cost of funds
tends to decrease faster than the yield earned on its adjustable rate loan
portfolio. The reverse is true during periods immediately following interest
rate increases. The composition of the Bank's financial instruments that are
subject to market risk has not changed materially since December 31, 2002.
The one year GAP (the difference between rate-sensitive assets and liabilities
repricing within one year or less) was a positive $606.1 million or 13.4% of
total assets at September 30, 2003. In comparison, the one year GAP was a
positive $260.7 million or 6.1% of total assets at December 31, 2002. The
increase in GAP at September 30, 2003 is attributable to an increase in the
balance of loans receivable repricing within one-year compared to December 31,
2002.
Capital
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and percentages of total capital to
assets. The Bank meets the standards necessary to be deemed well capitalized
under the applicable regulatory requirements. The following table summarizes the
Bank's actual capital and required capital as of September 30, 2003:
Tangible Core Capital Risk-based
Capital Capital
-------------- -------------- ----------------
(Dollars in thousands)
Actual Capital:
Amount $ 392,782 $ 392,782 $ 427,618
Ratio 8.70% 8.70% 15.57%
Minimum required capital:
Amount $ 67,743 $ 180,649 $ 219,719
Ratio 1.50% 4.00% 8.00%
Well capitalized required capital:
Amount $ -- $ 225,811 $ 274,649
Ratio --% 5.00% 10.00%
During the first nine months of 2003, the Company repurchased 33,800 shares of
Company common stock at an average market price of $28.53 per share. During
2002, the Company repurchased 353,000 shares of common stock at an average
market price of $25.02 per share. There remain 1,348,677 shares eligible for
repurchase under the Company's stock repurchase program as of November 1, 2003.
11
Loan Loss Allowances
Listed below is a summary of activity in the Bank's general valuation allowance
and the valuation allowance for impaired loans during the periods indicated:
Nine Months Ended September 30, 2003
------------------------------------------------------
General Impaired
Valuation Valuation
Allowances Allowances Total
----------------- ---------------- -------------
(In thousands)
Balance at December 31, 2002 $ 75,223 $ 496 $ 75,719
Charge-offs:
Single family (52) -- (52)
Multifamily (8) -- (8)
Other - non-real estate (32) -- (32)
----------------- ---------------- -------------
Total charge-offs (92) -- (92)
Recoveries 117 -- 117
----------------- ---------------- -------------
Net recoveries 25 -- 25
----------------- ---------------- -------------
Balance at September 30, 2003 $ 75,248 $ 496 $ 75,744
================= ================ =============
Nine Months Ended September 30, 2002
------------------------------------------------------
General Impaired
Valuation Valuation
Allowances Allowances Total
----------------- ---------------- -------------
(In thousands)
Balance at December 31, 2001 $ 72,919 $ 1,850 $ 74,769
Transfers (304) 304 --
Charge-offs:
Single family (374) -- (374)
Other - non-real estate (195) -- (195)
----------------- ---------------- -------------
Total charge-offs (569) -- (569)
Recoveries 1,469 -- 1,469
----------------- ---------------- -------------
Net recoveries 900 -- 900
----------------- ---------------- -------------
Balance at September 30, 2002 $ 73,515 $ 2,154 $ 75,669
================= ================ =============
Management is unable to predict future levels of loan loss provisions. Among
other things, loan loss provisions are based on the level of loan charge-offs,
foreclosure activity, and the economy in Southern California.
Results of Operations
The Company reported consolidated net earnings of $18.2 million or $1.04 per
diluted common share for the third quarter of 2003 compared to net earnings of
$16.2 million or $0.92 per diluted common share for the third quarter of 2002.
Net earnings for the first nine months of 2003 were $49.3 million or $2.84 per
diluted common share compared to $40.9 million or $2.32 per diluted common share
for the first nine months of 2002.
A change in California tax law during 2002 eliminated the bad debt reserve
method for California tax purposes. At that time, the amount of the Bank's bad
debt reserve was under review by the California Franchise Tax Board and the
outcome of that review could not be reasonably estimated. The Bank now estimates
that the outcome of the review will be favorable and has recorded in the third
quarter and first nine months of 2003 a reduction in tax expense of
approximately $1.6 million, or $0.09 per diluted share, net of federal income
tax expense.
12
Net earnings for the third quarter and first nine months of 2003 also include a
$1.5 million gain resulting from a revised estimate of the Bank's repurchase
liability for loans sold with recourse. The Bank revised its estimate of the
repurchase liability because its portfolio of loans sold with recourse has been
experiencing greater payoffs and better credit performance than previously
estimated. After tax, quarterly and year-to-date earnings were increased by $870
thousand or $0.05 per diluted common share during 2003 due to this item.
Net Interest Income
Net interest income increased to $36.5 million and $111.1 million, respectively,
during the third quarter and first nine months of 2003 compared to $33.4 million
and $100.4 million, respectively, during the same periods last year. Net
interest income increased primarily as a result of an increase in the interest
rate spreads over the comparable periods of last year.
The interest rate spread increased to 3.17% and 3.26%, respectively, during the
third quarter and first nine months of 2003 from 2.95% and 2.83%, respectively,
during the same periods last year as the cost of interest-bearing liabilities
re-priced at lower rates more quickly than the yield on interest-earning assets
during the period.
The following tables sets forth: (i) the average daily dollar amounts of and
average yields earned on loans, mortgage-backed securities and investment
securities, (ii) the average daily dollar amounts of and average rates paid on
savings and borrowings, (iii) the average daily dollar differences, (iv) the
interest rate spreads, and (v) the effective net spreads for the periods
indicated:
During the Nine Months Ended
September 30,
--------------------------------------
2003 2002
--------------- ------------------
(Dollars in thousands)
Average loans and mortgage-backed securities $ 4,137,904 $ 4,135,266
Average investment securities 123,176 180,418
--------------- ------------------
Average interest-earning assets 4,261,080 4,315,684
--------------- ------------------
Average savings deposits 2,502,758 2,520,321
Average borrowings 1,500,810 1,574,076
--------------- ------------------
Average interest-bearing liabilities 4,003,568 4,094,397
--------------- ------------------
Excess of interest-earning assets over
Interest-bearing liabilities $ 257,512 $ 221,287
=============== ==================
Yields earned on average interest-earning assets 5.51% 6.11%
Rates paid on average interest-bearing liabilities 2.25 3.28
Net interest rate spread 3.26 2.83
Effective net spread (1) 3.40 3.00
Total interest income $ 176,089 $ 197,766
Total interest expense 67,560 100,722
--------------- ------------------
108,529 97,044
Total other items (2) 2,578 3,354
--------------- ------------------
Net interest income $ 111,107 $ 100,398
=============== ==================
(1) The effective net spread is a fraction, the denominator of which is the
average dollar amount of interest-earning assets, and the numerator of which is
net interest income (excluding stock dividends and miscellaneous interest
income).
(2) Includes Federal Home Loan Bank Stock dividends, accrued interest on tax
assessments and other miscellaneous items.
13
During the Three Months Ended
September 30,
--------------------------------------
2003 2002
--------------- ------------------
(Dollars in thousands)
Average loans and mortgage-backed securities $ 4,229,335 $ 4,067,612
Average investment securities 124,522 152,573
--------------- ------------------
Average interest-earning assets 4,353,857 4,220,185
--------------- ------------------
Average savings deposits 2,489,811 2,521,587
Average borrowings 1,586,806 1,461,129
--------------- ------------------
Average interest-bearing liabilities 4,076,617 3,982,716
--------------- ------------------
Excess of interest-earning assets over
interest-bearing liabilities $ 277,240 $ 237,469
=============== ==================
Yields earned on average interest-earning assets 5.28% 6.03%
Rates paid on average interest-bearing liabilities 2.11 3.08
Net interest rate spread 3.17 2.95
Effective net spread (1) 3.31 3.12
Total interest income $ 57,501 $ 63,619
Total interest expense 21,473 30,667
--------------- ------------------
36,028 32,952
Total other items (2) 502 477
--------------- ------------------
Net interest income $ 36,530 $ 33,429
=============== ==================
(1) The effective net spread is a fraction, the denominator of which is the
average dollar amount of interest-earning assets, and the numerator of which is
net interest income (excluding stock dividends and miscellaneous interest
income).
(2) Includes Federal Home Loan Bank Stock dividends, accrued interest on tax
assessments and other miscellaneous items.
Non-Interest Income and Expense
Loan servicing and other fees were $2.5 million and $5.6 million, respectively,
for the third quarter and first nine months of 2003 compared to $1.2 million and
$3.1 million for the same periods of last year. The increase is primarily the
result of increased prepayment fees as borrowers paid off loans early to
refinance into loans with lower payments.
Gain on sale of loans was $1.7 million and $2.4 million, respectively, for the
third quarter and first nine months of 2003 compared to gains of $6.2 million
and $6.6 million, respectively for the same periods in 2002. Gain on sale
activity during the third quarters of 2003 and 2002 includes $1.5 million and
$5.9 million, respectively, as a result of revised estimates of the Bank's
repurchase liability for loans sold with recourse. The Bank revised its estimate
of the repurchase liability because its portfolio of loans sold with recourse
has been experiencing greater payoffs and better credit performance than
previously estimated.
Real estate operations resulted in a net loss of $49 thousand and a net gain of
$315 thousand, respectively, for the third quarter and first nine months of 2003
compared to a net loss of $60 thousand and a net gain of $133 thousand,
respectively, for the same periods in 2002. Real estate operations for the nine
months ended September 2003 include the reversal of $200 thousand in general
valuation allowance, as there was no real estate owned as of September 30, 2003.
Real estate operations normally include gains and losses on the sale of
foreclosed properties as well as rental income, legal costs and operating
expense during the holding period.
Non-interest expense decreased to $13.5 million and $41.1 million, respectively,
for the third quarter and first nine months of 2003 from $14.1 million and $43.7
million, respectively, from the third quarter and first nine months of 2002. The
decrease in non-interest expense during the third quarter and first nine months
of 2003 resulted from reductions in legal and advertising expenses. Advertising
expenses have been delayed due to the development of new marketing programs.
14
Due to the reductions in non-interest expense, the ratio of non-interest expense
to average assets decreased to 1.20% and 1.24%, respectively, for the third
quarter and first nine months of 2003 compared to 1.26% and 1.27%, respectively,
during the same periods in 2002.
Non-accrual, Past Due, Modified and Restructured Loans
The Bank accrues interest earned but uncollected for every loan without regard
to its contractual delinquency status and establishes a specific interest
allowance for each loan which becomes 90 days or more past due or in
foreclosure. Loans requiring delinquent interest allowances (non-accrual loans)
totaled $5.2 million at September 30, 2003 compared to $6.7 million at December
31, 2002 and $4.5 million at September 30, 2002.
The amount of interest allowance for loans 90 days or more delinquent or in
foreclosure was $303 thousand, $373 thousand, and $339 thousand as of September
30, 2003, December 31, 2002, and September 30, 2002, respectively.
Delinquent loans as a percentage of the Bank's total gross loan portfolio for
the periods indicated are as follows:
September 30, December 31, 2002 September 30,
2003 2002
------------------- ------------------ -------------------
(Percentage of Gross Loans)
Period of delinquency
1 monthly payment 0.09% 0.24% 0.27%
2 monthly payments 0.01% 0.08% 0.06%
3 or more monthly payments or in foreclosure 0.12% 0.17% 0.11%
The Bank has debt restructurings that result from temporary modifications of
principal and interest payments. Under these arrangements, loan terms are
typically reduced to no less than a monthly interest payment required under the
note. Any loss of revenues under the modified terms would be immaterial to the
Bank. Generally, if the borrower is unable to return to scheduled principal and
interest payments at the end of the modification period, foreclosure proceedings
are initiated. As of September 30, 2003, the Bank had net modified loans
totaling $5.3 million. No modified loans were 90 days or more delinquent as of
September 30, 2003.
The Bank considers a loan impaired when management believes that it is probable
that the Bank will not be able to collect all amounts due under the contractual
terms of the loan. Estimated impairment losses are recorded as separate
valuation allowances and may be subsequently adjusted based upon changes in the
measurement of impairment. Impaired loans, disclosed net of valuation
allowances, include non-accrual major loans (commercial business loans with an
outstanding principal amount greater than or equal to $500 thousand and
single-family loans greater than or equal to $750 thousand, and income property
loans with an outstanding principal amount greater than or equal to $1.5
million), modified loans, and major loans less than 90 days delinquent in which
full payment of principal and interest is not expected to be received.
The following is a summary of impaired loans, net of valuation allowances for
impairment, as of the periods indicated:
September 30, December 31, September 30,
2003 2002 2002
------------------- ------------------ -------------------
(In thousands)
Non-accrual loans $ 1,312 $ -- $ --
Modified loans 1,508 1,567 5,197
------------------- ------------------ -------------------
$ 2,820 $ 1,567 $ 5,197
=================== ================== ===================
15
The Bank evaluates loans for impairment whenever the collectibility of
contractual principal and interest payments is questionable. When a loan is
considered impaired the Bank measures impairment based on the present value of
expected future cash flows (over a period not to exceed 5 years) discounted at
the loan's effective interest rate. However, if the loan is
"collateral-dependent" or foreclosure is probable, impairment is measured based
on the fair value of the collateral. When the measure of an impaired loan is
less than the recorded investment in the loan, the Bank records an impairment
allowance equal to the excess of the Bank's recorded investment in the loan over
its measured value.
All impaired loans were measured using the fair value method as of September 30,
2003, December 31, 2002 and September 30, 2002, respectively.
Impaired loans for which valuation allowances had been established totaled $496
thousand for the quarter ended September 30, 2003, $496 thousand for the quarter
ended December 31, 2002 and $3.7 million for the quarter ended September 30,
2002. Impaired loans for which there was no valuation allowance established
totaled $2.8 million for the quarter ended September 30, 2003, $1.6 million for
the quarter ended December 31, 2002 and $1.6 million for the quarter ended
September 30, 2002. See "Results of Operations" for an analysis of activity in
the valuation allowance for impaired loans.
Cash payments received from impaired loans are recorded in accordance with the
contractual terms of the loan. The principal portion of the payment is used to
reduce the principal balance of the loan, whereas the interest portion is
recognized as interest income.
The average recorded investment in impaired loans was $2.8 million for the
quarter ended September 30, 2003 and $5.3 million for the quarter ended
September 30, 2002. The amount of interest income recognized on impaired loans
using the cash basis for the quarters ended September 30, 2003 and September 30,
2002 was $18 thousand and $69 thousand, respectively. Interest income recognized
under the accrual basis for the quarters ended September 30, 2003 and September
30, 2002 was $18 thousand and $74 thousand, respectively.
Asset Quality
The following table sets forth certain asset quality ratios of the Bank at the
periods indicated:
September 30, December 31, September 30,
2003 2002 2002
------------------- ------------------ -------------------
Non-Performing Loans to Loans Receivable (1) 0.12% 0.17% 0.11%
Non-Performing Assets to Total Assets (2) 0.12% 0.17% 0.11%
Allowances for Loan Losses to Non-Performing
Loans (3) 1,447% 1,126% 1,693%
Allowances for Loan Losses to Gross Loans
Receivable (4) 1.81% 1.96% 1.94%
--------------------------
(1) Loans receivable are before deducting unearned loan fees, general
valuation allowances and valuation allowances for impaired loans.
(2) Non-performing assets are net of valuation allowances related to those
assets.
(3) The Bank's loan loss allowance for impaired loans and the general
valuation allowance as a percentage of non-accrual loans.
(4) The Bank's general valuation allowances plus the allowance for impaired
loans as a percentage of gross loans receivable before deducting unearned
loan fees, general valuation allowances and valuation allowances for
impaired loans.
16
Non-performing Assets
The Bank defines non-performing assets as loans delinquent over 90 days
(non-accrual loans), loans in foreclosure and real estate acquired by
foreclosure (real estate owned). The following is an analysis of non-performing
assets as of the periods indicated:
September 30, December 31, September 30,
2003 2002 2002
-------------------- ------------------ ----------------------
(In thousands)
Real estate owned:
Single family $ -- $ 519 $ 827
Less:
General valuation allowance -- (200) (350)
-------------------- ------------------ ----------------------
Total real estate owned $ -- $ 319 $ 477
-------------------- ------------------ ----------------------
Non-accrual loans:
Single family 5,224 5,705 3,306
Multi-family -- 1,017 919
Other 12 -- 245
-------------------- ------------------ ----------------------
Total non-accrual loans 5,236 6,722 4,470
-------------------- ------------------ ----------------------
Total non-performing assets $ 5,236 $ 7,041 $ 4,947
==================== ================== ======================
Real estate owned and non-accrual loans, while varying slightly from quarter to
quarter, have remained at very low levels for the last few years. Historically,
single family non-performing loans have been attributable to factors such as
layoffs and decreased incomes. Historically, multi-family and commercial
non-performing loans have been attributable to factors such as declines in
occupancy rates, employment rates and rental rates.
Sources of Funds
External sources of funds include savings deposits from several sources,
advances from the Federal Home Loan Bank of San Francisco ("FHLB"), and
securitized borrowings.
Savings deposits are accepted from retail banking offices, telemarketing
sources, and national deposit brokers. The cost of funds, operating margins and
net earnings of the Bank associated with brokered and telemarketing deposits are
generally comparable to the cost of funds, operating margins and net earnings of
the Bank associated with retail deposits, FHLB borrowings and repurchase
agreements. As the cost of each source of funds fluctuates from time to time,
based on market rates of interest offered by the Bank and other depository
institutions, the Bank selects funds from the lowest cost source until the
relative costs change. As the cost of funds, operating margins and net earnings
of the Bank associated with each source of funds are generally comparable, the
Bank does not deem the impact of its use of any one of the specific sources of
funds at a given time to be material.
Total savings deposits increased by $42.2 million during the third quarter of
2003 and decreased $22.3 million during the first nine months of 2003. The
increase in deposits for the third quarter of 2003 is attributable to growth in
core deposits. The decrease in deposits for the first nine months of 2003 is
attributable to a reduction in deposits acquired from national brokerage firms
("brokered deposits") and telemarketing deposits.
Brokered deposits decreased by $6.5 million and $161.3 million during the third
quarter and first nine months of 2003, respectively. The Bank decreased its use
of brokered deposits during the first nine months of 2003 due to growth in core
deposits and the availability of lower cost FHLB borrowings. Brokered deposits
comprised 0% and 8% of total deposits at September 30, 2003 and September 30,
2002, respectively. Because the Bank has sufficient capital to be deemed
"well-capitalized" under the standards established by the Office of Thrift
Supervision, it may solicit brokered funds without special regulatory approval.
17
Telemarketing deposits decreased by $8.5 million and $45.0 million during the
third quarter and first nine months of 2003, respectively. These deposits are
normally large deposits from pension plans, managed trusts and other financial
institutions. These deposit levels fluctuate based on the attractiveness of the
Bank's rates compared to returns available to investors on alternative
investments. Telemarketing deposits comprised 1% and 2% of total deposits at
September 30, 2003 and September 30, 2002, respectively.
Deposits accepted by retail banking offices increased by $57.2 million and
$184.0 million during the third quarter and first nine months of 2003,
respectively. Management attributes the increase to customer demand for safe,
liquid investments due to volatility in the equity markets. If the equity
markets improve, the Bank may lose substantial amounts of deposits, particularly
money market deposits, which have increased to 54% of total retail deposits as
of September 30, 2003 from 44% of total retail deposits at September 30, 2002.
Retail deposits comprised 99% and 89% of total deposits as of September 30, 2003
and September 30, 2002, respectively.
Total borrowings decreased by $5.5 million during the third quarter of 2003 and
increased by $235.9 million during the first nine months of 2003. The decrease
during the third quarter of 2003 is due to a $10.5 million decrease in
repurchase agreements and an increase in net borrowings of $5.0 million from the
FHLB. The increase during the first nine months of 2003 is due to a $262.0
million net increase in borrowings from the FHLB and net payoffs of $26.1
million in repurchase agreements. Borrowings from the FHLB increased during the
third quarter and first nine months of 2003 because they were the lowest cost
source of funds.
Internal sources of funds include both principal payments and payoffs on loans
and mortgage-backed securities, loan sales, and positive cash flows from
operations. Principal payments include amortized principal and prepayments that
are a function of lending activity and the general level of interest rates.
Loan payoffs and principal reductions were $1.3 billion during the first nine
months of 2003 compared to $1.1 billion during the first nine months of 2002.
The high volume of payoffs persisted during 2003 as borrowers continue to
refinance existing loans into new loans with lower payments.
Loan sales were $19.1 million and $81.2 million for the third quarter and first
nine months of 2003, respectively. This compares with sales of $19.3 million and
$53.5 million for the third quarter and first nine months of 2002, respectively.
Loan sale activity varies based upon borrower demand for 15-year and 30-year
fixed rate loans, which the Bank only originates for sale in the secondary
market. The Bank also originates residential hybrid loans for sale from time to
time. Due to the availability of 15-year and 30-year loans at historically low
rates during the first nine months of 2003, loans originated for sale increased
compared to the prior year.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See "Management's and Discussion and Analysis of Financial Condition and Results
of Operations - Asset/Liability Management" on page 10 hereof for Quantitative
and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under SEC rules, the Company is required to maintain disclosure controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms. As of the end of the period
covered by this report, the Company has carried out an evaluation of the
effectiveness of the design and operation of its disclosure controls and
procedures. The Company's management, including the Company's Chief Executive
Officer and Chief Financial Officer, supervised and participated in the
evaluation. Based on this evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that the Company's disclosure controls and
procedures were effective as of the evaluation date.
18
Changes in Internal Controls.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form-8K
(a) Exhibits
(3.1) Restated Certificate of Incorporation filed as Exhibit 3.1 to Form
10-K for the fiscal year ended December 31, 1999 and incorporated by
reference.
(3.2) Bylaws filed as Exhibit 3.2 to Form 10-Q dated August 14, 2003 and
incorporated by reference.
(4.1) Amended and Restated Rights Agreement dated as of September 25, 1998,
filed as Exhibit 4.1 to Form 8-A/A, dated September 25, 1998 and
incorporated by reference.
(10.1) Deferred Compensation Plan filed as Exhibit 10.3 to Form 10-K for the
fiscal year ended December 31, 1983 and incorporated by reference.
(10.2) Supplemental Executive Retirement Plan dated January 16, 1986 filed as
Exhibit 10.5 to Form 10-K for the fiscal year ended December 31,
1992 and incorporated by reference.
(10.3) Change of Control Agreement effective September 26, 1996 filed as Exhibit
10.4 to Form 10-Q for the Quarter ended September 30, 1996 and
Amendment filed as Exhibit 10.3 10.4 for change of control to Form
10-Q for the Quarter ended March 31, 2001 and incorporated by
reference.
(10.4) 1997 Non-employee Directors Stock Incentive Plan filed as Exhibit 1 to
Form S-8 dated August 12, 1997 and Amendment filed as Exhibit 10.5 to
Form 10-Q for the Quarter ended March 31, 2001, and incorporated by
reference.
(21) Registrant's sole subsidiary is First Federal Bank of California,
a federal savings bank.
(31.1) Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
(31.2) Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
(32) Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company filed current reports on Form 8-K during the quarter ended
September 30, 2003 on the following dates: July 24, 2003, August 21, 2003, and
September 22, 2003. These reports are related to the release of certain other
Company financial data.
19
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 FINANCIAL CORP.
------------------------
Registrant
Date: November 10, 2003 By: /s/ Douglas J. Goddard
----------------------
Douglas J. Goddard
Chief Financial Officer and
Executive Vice President
20
EXHIBIT 31.1
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Babette Heimbuch, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of FirstFed
Financial Corp.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over the financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15D-15(f) for the registrant and have:
(i) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
(ii) Designed such internal control over financial reporting, or
caused such disclosure controls and procedures to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principals;
(iii) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(iv) Disclosed in this quarterly report any change in the
registrant's internal control over financial reporting that occurred
in the registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect the registrant's
internal control over financial reporting; and
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons fulfilling the equivalent function):
(i) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(ii) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting
Dated this 10th day of November 2003.
By: /s/ Babette E. Heimbuch
----------------------
Babette E. Heimbuch
Chief Executive Officer
21
EXHIBIT 31.2
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Douglas Goddard, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of FirstFed
Financial Corp.;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over the financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15D-15(f) for the registrant and have:
(i) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
(ii) Designed such internal control over financial reporting, or
caused such disclosure controls and procedures to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principals;
(iii) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(iv) Disclosed in this quarterly report any change in the
registrant's internal control over financial reporting that occurred in
the registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect the registrant's
internal control over financial reporting; and
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons fulfilling the equivalent function):
(i) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(ii) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting
Dated this 10th day of November 2003.
By: /s/ Douglas Goddard
----------------------
Douglas Goddard
Chief Financial Officer
22
EXHIBIT 32
EXHIBIT 32
CEO AND CFO CERTIFICATIONS
The undersigned, as Chief Executive Officer and Chief Financial Officer,
respectively, hereby certify, to the best of her/his knowledge and belief, that:
(1) the Form 10-Q of FirstFed Financial Corp. (the "Company") for
the quarterly period ended September 30, 2003 (the "Report ")
accompanying this certification fully complies with the
requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company for such period.
This certification is made solely for purposes of complying with the provisions
of Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
FIRSTFED FINANCIAL CORP.
------------------------
Registrant
Date: November 10, 2003
By: /s/ Babette E. Heimbuch
-----------------------
Babette E. Heimbuch
Chief Executive Officer
By: /s/ Douglas J. Goddard
----------------------
Douglas J. Goddard
Chief Financial Officer and
Executive Vice President
23