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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 JUNE 30, 2002
[ ] 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 August 8, 2002, there were 8,383,064 shares of the
Registrant's Common Stock outstanding.
FIRSTFED AMERICA BANCORP, INC.
INDEX TO FORM 10-Q
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2002 (unaudited) and March 31, 2002 2
Consolidated Statements of Operations for the three months ended June 30, 2002 (unaudited) and 2001
(unaudited) 3
Consolidated Statements of Changes in Stockholders' Equity for the three months ended June 30, 2002
(unaudited) 4
Consolidated Statements of Cash Flows for the three months ended June 30, 2002 (unaudited) and 2001
(unaudited) 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Default 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 19
SIGNATURES 20
1
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, MARCH 31,
ASSETS 2002 2002
---------- -----------
(UNAUDITED)
Cash on hand and due from banks $ 56,408 $ 44,159
Short-term investments 25,060 100,890
---------- -----------
Total cash and cash equivalents 81,468 145,049
Mortgage loans held for sale 126,878 126,729
Investment securities available for sale, at fair value
(amortized cost of $42,600 and $81,602) 47,195 84,656
Mortgage-backed securities available for sale, at fair value
(amortized cost of $778,391 and $579,713) 787,380 578,618
Mortgage-backed securities held to maturity
(fair value of $1,088 and $1,235) 1,038 1,203
Stock in Federal Home Loan Bank of Boston, at cost 58,433 58,433
Loans receivable, net
(net of allowance for loan losses of $19,215 and $19,237) 1,130,901 1,125,750
Accrued interest receivable 10,812 11,124
Mortgage servicing rights 6,282 6,505
Office properties and equipment, net 38,799 37,775
Real estate owned 280 240
Bank-Owned Life Insurance 36,135 35,652
Investment in limited partnerships 553 470
Goodwill and other intangible assets 55,716 55,779
Prepaid expenses and other assets 25,798 26,465
---------- -----------
Total assets $2,407,668 $ 2,294,448
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,322,684 $ 1,317,263
FHLB advances and other borrowings 840,527 754,820
Company obligated, mandatorily redeemable securities 25,263 25,657
Advance payments by borrowers for taxes and insurance 5,740 6,163
Accrued interest payable 5,247 4,814
Other liabilities 42,146 30,384
---------- -----------
Total liabilities 2,241,607 2,139,101
---------- -----------
Stockholders' equity:
Common stock 107 106
Additional paid-in capital 120,295 119,149
Retained earnings 82,536 79,245
Accumulated other comprehensive income 7,675 1,401
Unallocated ESOP shares (2,323) (2,323)
Unearned stock incentive plan (1,479) (1,553)
Treasury stock (40,750) (40,678)
---------- -----------
Total stockholders' equity 166,061 155,347
---------- -----------
Total liabilities and stockholders' equity $2,407,668 $ 2,294,448
========== ===========
See accompanying notes to consolidated financial statements.
2
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS
ENDED JUNE 30,
------------------------
2002 2001
--------- ----------
(UNAUDITED)
Interest and dividend income:
Loans $ 20,868 $ 18,938
Mortgage-backed securities 8,929 8,156
Investment securities 1,345 283
Federal Home Loan Bank stock 546 629
---------- ----------
Total interest and dividend income 31,688 28,006
---------- ----------
Interest expense:
Deposits 7,567 6,708
Borrowed funds 10,517 12,175
---------- ----------
Total interest expense 18,084 18,883
---------- ----------
Net interest income before provision for loan losses 13,604 9,123
Provision for loan losses 100 300
---------- ----------
Net interest income after provision for loan losses 13,504 8,823
---------- ----------
Non-interest income:
Service charges on deposit accounts 673 452
Trust fee income 361 343
Loan servicing income 46 327
Insurance commission income 209 254
Earnings on Bank-Owned Life Insurance 483 460
Gain on sale of mortgage loans, net 4,087 873
Gain on sale of investment securities available for sale 1,531 750
Other income 1,583 507
---------- ----------
Total non-interest income 8,973 3,966
---------- ----------
Non-interest expense:
Compensation and employee benefits 8,409 4,643
Office occupancy and equipment 1,964 1,083
Data processing 953 499
Advertising and business promotion 192 267
Federal deposit insurance premiums 102 33
Amortization of intangible assets 607 23
Other expense 3,049 907
---------- ----------
Total non-interest expense 15,276 7,455
---------- ----------
Income before income tax expense 7,201 5,334
Income tax expense 2,767 1,837
---------- ----------
Net income before cumulative effect of accounting change 4,434 3,497
Cumulative effect of change in accounting for derivative
instruments and hedging activities, net of $237 tax benefit -- (461)
---------- ----------
Net income $ 4,434 $ 3,036
========== ==========
Basic earnings per share before cumulative effect of accounting change $ 0.57 $ 0.61
Cumulative effect of accounting change -- (0.08)
---------- ----------
Basic earnings per share $ 0.57 $ 0.53
========== ==========
Diluted earnings per share before cumulative effect of accounting change $ 0.55 $ 0.61
Cumulative effect of accounting change -- (0.08)
---------- ----------
Diluted earnings per share $ 0.55 $ 0.53
========== ==========
Weighted average shares outstanding -- basic 7,789,187 5,708,416
========== ==========
Weighted average shares outstanding -- diluted 8,076,971 5,764,100
========== ==========
See accompanying notes to consolidated financial statements.
3
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2002
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
UNEARNED
1997
STOCK-
ACCUMULATED BASED
ADDITIONAL OTHER UNALLOCATED INCENTIVE TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE ESOP PLAN (SIP) TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS INCOME SHARES SHARES STOCK EQUITY
------- ---------- -------- ------------- ----------- ---------- --------- ------------
Balance at March 31, 2002 $106 $119,149 $79,245 $ 1,401 $(2,323) $(1,553) $(40,678) $155,347
Earned SIP stock awards -- (5) -- -- -- 74 -- 69
Earned ESOP shares charged
to expense -- 299 -- -- -- -- -- 299
Stock options exercised 1 869 -- -- -- -- -- 870
Cash dividends declared and
paid ($0.14 per share) -- -- (1,143) -- -- -- -- (1,143)
Common stock acquired for certain
employee benefit plans (2,751
shares at an average price
of $26.04 per share) -- -- -- -- -- -- (72) (72)
Common stock issuance costs -- (17) -- -- -- -- -- (17)
Comprehensive income:
Net income -- -- 4,434 -- -- -- -- 4,434
Other comprehensive income,
net of tax
Unrealized holding gains on
available for sale securities -- -- -- 13,157 -- -- -- --
Reclassification adjustment for
gains included in net income -- -- -- (1,531) -- -- -- --
-------
Net unrealized (losses) gains -- -- -- 11,626 -- -- -- --
Tax effect -- -- -- (5,352) -- -- -- --
-------
Net-of-tax effect -- -- -- 6,274 -- -- -- 6,274
--------
Total comprehensive income -- -- -- -- -- -- -- 10,708
---- -------- ------- ------- -------- ------- --------- --------
Balance at June 30, 2002 $107 $120,295 $82,536 $ 7,675 $ (2,323) $(1,479) $ (40,750) $166,061
==== ======== ======= ======= ======== ======= ========= ========
See accompanying notes to consolidated financial statements.
4
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED JUNE 30,
------------------------
2002 2001
---------- ----------
Cash flows from operating activities:
Net income $ 4,434 $ 3,036
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Amortization (accretion) of:
Premiums/discounts, net (997) 20
Deferred loan origination costs (175) (377)
Mortgage servicing rights 999 649
Intangible assets 607 23
Provision for loan losses 100 300
Gains on sales of:
Mortgage loans (4,087) (873)
Investment securities available for sale (1,531) (750)
Office properties and equipment (13) --
Net proceeds from sales of mortgage loans 410,675 136,294
Origination of mortgage loans held for sale (407,405) (138,994)
Earnings on Bank-Owned Life Insurance (483) (460)
Unrealized loss on investments in limited partnerships 42 117
Depreciation of office properties and equipment 1,030 589
Appreciation in fair value of ESOP shares 299 135
Earned SIP shares 69 69
Increase or decrease in:
Accrued interest receivable 312 (418)
Other assets (5,677) (526)
Accrued interest payable 433 (171)
Other liabilities 11,762 (2,751)
---------- ----------
Net cash provided by (used in) operating activities 10,394 (4,088)
---------- ----------
Cash flows from investing activities:
Purchase of investment securities available for sale (513) (14,921)
Purchase of mortgage-backed securities available for sale (260,108) (121,693)
Payments received on mortgage-backed securities available for sale 56.725 54,995
Proceeds from sale of investment securities available for sale 40,716 753
Proceeds from sale of mortgage-backed securities available for sale 4,700 --
Maturities of investment securities available for sale 304 -
Net (increase) decrease in loans (5,337) 36,951
Purchase of office properties and equipment (2,055) (55)
Proceeds from sales of office properties and equipment 14 --
Purchase of investments in limited partnerships (125) (173)
---------- ----------
Net cash used in investing activities (165,679) (44,143)
---------- ----------
Cash flows from financing activities:
Net increase in deposits 5,714 22,894
Proceeds from FHLB advances and other borrowings 571,400 367,391
Repayments on FHLB advances and other borrowings (484,625) (312,337)
Net change in advance payments by borrowers for taxes and insurance (423) (468
Cash dividends paid (1,143) (623)
Payments to acquire common stock for treasury stock and stock
issuance costs (89) (49)
Stock options exercised 870 --
---------- ----------
Net cash provided by financing activities 91,704 76,808
---------- ----------
Net (decrease) increase in cash and cash equivalents (63,581) 28,577
Cash and cash equivalents at beginning of period 145,049 23,213
---------- ----------
Cash and cash equivalents at end of period $ 81,468 $ 51,790
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 17,651 $ 19,054
========== ==========
Income taxes $ 2,736 $ 2,630
========== ==========
Supplemental disclosures of noncash investing activities:
Property acquired in settlement of loans $ 40 $ --
========== ==========
See accompanying notes to consolidated financial statements.
5
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(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"),
People's Bancshares Capital Trust ("Capital Trust I"), People's Bancshares
Capital Trust II ("Capital Trust II"), 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. The Bank includes its
wholly-owned subsidiaries, People's Mortgage Corporation ("PMC"), FIRSTFED
INVESTMENT CORPORATION, and CELMAC INVESTMENT CORPORATION and several inactive
corporations.
On February 28, 2002, the Company completed the acquisition of People's
Bancshares, Inc. ("People's"), New Bedford, Massachusetts, for $40.3 million in
cash and 1.9 million shares of the Company's common stock (the "People's
acquisition"). The People's acquisition was accounted for as purchase in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations," and the total cost, including the fair value of stock
options assumed and certain merger costs, was $75.0 million. The Company
recorded goodwill of $42.5 million and other intangible assets of $12.4 million
in connection with the acquisition. The results of People's operations have been
included in the consolidated financial statements since March 1, 2002.
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 ended June 30, 2002 are not necessarily indicative of the results of
operations that may be expected for all of fiscal year 2003.
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, 2002.
(2) GOODWILL AND OTHER INTANGIBLE ASSETS
The Company adopted the provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets," effective April 1, 2002. As of the date of adoption, the
Company had goodwill in the amount of $43.5 million, a core deposit intangible
asset of $11.7 million and non-compete intangible asset of $498,000, all of
which will be subject to the transition provisions of SFAS No. 142. The Company
has not completed its calculations under the impairment testing provisions of
SFAS No. 142; however, based on evaluation results to date, impairment losses,
if any, are not expected to be material. The Company does not currently have any
other indefinite-lived intangible assets recorded in the consolidated balance
sheet. In addition, no material reclassifications or adjustments to the useful
lives of finite-lived intangible assets were made as a result of adopting the
new standard. The estimated amortization expense of intangible assets for fiscal
year 2003 is expected to increase to $2.4 million from $294,000 in fiscal year
2002 due to amortization of the identifiable intangible assets recorded in
connection with the People's acquisition, partially offset by discontinuing all
goodwill amortization, subject to the results of the required testing for
goodwill impairment. Total amortization expense associated with these intangible
assets in the first quarter of fiscal years
6
2003 and 2002 was $607,000 and $23,000, respectively. The retroactive adoption
of SFAS No. 142 would have resulted in an insignificant effect on net income and
diluted earnings per share for the quarter ended June 30, 2001.
The changes in the carrying amount of goodwill and other intangible
assets are as follows (in thousands):
TOTAL
NON-COMPETE IDENTIFIABLE
CORE DEPOSIT INTANGIBLE INTANGIBLE
GOODWILL INTANGIBLE ASSET ASSET ASSETS
--------- ---------------- ----------- -----------
Balance at March 31, 2002 $43,535 $11,746 $498 $12,244
Recorded during the quarter 95 --
Amortization expense -- (542) (65) (607)
Impairment recognized -- -- -- --
Adjustment of purchase accounting estimates 642 -- -- --
Change in deferred taxes related to purchase
accounting adjustments (192) -- -- --
------- ------- ---- -------
Balance at June 30, 2002 $44,080 $11,204 $433 $11,637
======= ======= ==== =======
Estimated amortization expense for fiscal
years ended March 31:
2003 $ -- $ 2,150 $260 $ 2,410
2004 -- 1,933 238 2,171
2005 -- 1,717 -- 1,717
2006 -- 1,500 -- 1,500
2007 -- 1,283 -- 1,283
The components of identifiable intangible assets are as follows (in
thousands):
GROSS CARRYING ACCUMULATED NET CARRYING
AMOUNT AMORTIZATION AMOUNT
-------------- ------------ -----------
Core deposit intangible asset $11,926 $722 $11,204
Non-compete intangible asset 520 87 433
------- ---- -------
$12,446 $809 $11,637
======= ==== =======
(3) IMPACT OF RECENT ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets." SFAS
No. 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS No. 144 requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to the future net cash flows that are expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized for the amount by which the carrying
amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires
companies to separately report discontinued operations and extend that reporting
to a component of an entity that either has been disposed of (by sale,
abandonment or in a distribution to owners) or is classified as held for sale.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less cost to sell. The Company adopted SFAS No. 144 on April 1, 2002
with no material impact on its financial condition or results of operations.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company's primary business is attracting retail deposits from the
general public and investing those deposits and other borrowed funds in loans,
mortgage-backed securities, U.S. Government securities and other securities. The
Company originates commercial, consumer, and mortgage loans for investment, and
mortgage loans for sale in the secondary market. 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 and securities, FHLB
advances, and other borrowings.
The Company's results of operations are primarily dependent on net
interest income, which is the difference between the income earned on its loan,
investment and mortgage-backed securities portfolios, and its cost of funds,
consisting of the interest paid on deposits and borrowings. Results of
operations are also affected by the Company's provision for loan losses and
non-interest income including service charges on deposit accounts, loan
servicing income, revenue from the Trust Company and Agency operations, earnings
on Bank-Owned Life Insurance ("BOLI"), gains on sale of loans and investment
securities, and other income. The Company's non-interest expense consists of
compensation and employee benefits, office occupancy and equipment expense, data
processing expense, advertising and business promotion, federal deposit
insurance premiums, and other expenses. Results of operations of the Company are
also significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and the actions of
regulatory authorities.
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 on the Company and its
business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
Subject to applicable laws and regulations, 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.
8
RESULTS OF OPERATIONS
OVERVIEW
Net income increased $1.4 million, or 46.0%, to $4.4 million for the
first quarter of fiscal year 2003 from $3.0 million for the first quarter of
fiscal year 2002. Before the cumulative effect of the prior year change in
accounting for derivative instruments of $461,000 upon adoption of SFAS No. 133,
net income was $3.5 million for the first quarter of fiscal year 2002. Diluted
earnings per share ("EPS") increased 3.8% to $0.55 for the first quarter of
fiscal year 2003 from $0.53 per share for the first quarter of fiscal year 2002.
Before the cumulative effect of the prior year accounting change of $0.08 per
share, EPS was $0.61 for the first quarter of fiscal year 2002. Income before
income tax expense increased $1.9 million, or 35.0%, to $7.2 million, as a
result of increases in net interest income of $4.5 million and non-interest
income of $5.0 million, and a decrease in the provision for loan losses of
$200,000, partially offset by an increase in non-interest expense of $7.8
million.
Return on average stockholders' equity increased to 11.77% for the
first quarter of fiscal year 2003, compared to 10.22% for the first quarter of
fiscal year 2002. Return on average assets increased to 0.78% for the first
quarter of fiscal year 2003, compared to 0.72% for first quarter of fiscal year
2002.
The Company completed the acquisition of People's, as well as People's
Savings Bank of Brockton and its mortgage banking subsidiary, PMC, on February
28, 2002. In May 2002, the Company completed the systems conversion and
consolidation of three banking offices. The statement of operations for the
first quarter of fiscal year 2003 includes the combined operating results for
the full period.
NET INTEREST INCOME
Net interest income before provision for loan losses increased $4.5
million, or 49.1%, to $13.6 million for the first quarter of fiscal year 2003
from $9.1 million for the first quarter of fiscal year 2002. The net interest
rate spread and net interest margin were 2.45% and 2.66% for the first quarter
of fiscal year 2003, compared to 1.90% and 2.29%, respectively, for the first
quarter of fiscal year 2002.
The increases in net interest income and the average balances of
interest-earning assets and interest-bearing liabilities during the first
quarter of fiscal year 2003, compared to the first quarter of fiscal year 2002,
were due primarily to improved balance sheet composition and growth resulting
from the People's acquisition, as well as the pre-payment of certain FHLB
advances and other borrowings during March 2002. In addition, a low market
interest rate environment and related consumer preferences resulted in the
Company's continued high origination volume of fixed-rate mortgages that are
generally sold in the secondary market, and increased prepayment speeds on
portfolio mortgage loans due primarily to refinancing activity.
The following tables set forth certain information relating to the
Company for the periods indicated. 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. Income from BOLI is excluded from
interest income, and the BOLI cash value balances are excluded from
interest-earning assets. 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.
9
FOR THE THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------------
2002 2001
------------------------------------- -----------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
----------- -------- ------- ---------- -------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
Assets:
Interest-earning assets:
Loans receivable, net and
mortgage loans held for sale (1) $1,206,930 $20,868 6.92% $1,004,677 $18,938 7.54%
Investment securities (2) 243,207 1,891 3.12 67,561 912 5.41
Mortgage-backed securities (3) 603,764 8,929 5.92 522,775 8,156 6.24
----------- ------- ---- ---------- ------- ----
Total interest-earning assets 2,053,901 31,688 6.17 1,595,013 28,006 7.02
------- ---- ------- ----
Noninterest-earning assets 221,793 104,049
------------ ----------
Total assets $2,275,694 $1,699,062
============ ==========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits (4) $ 1,171,703 7,567 2.59 $ 637,521 6,708 4.22
FHLB advances and other borrowings 780,428 10,517 5.41 841,228 12,175 5.81
----------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities 1,952,131 18,084 3.72 1,478,749 18,883 5.12
------- ---- ------- ----
Noninterest-bearing liabilities (5) 172,431 101,214
----------- ----------
Total liabilities 2,124,562 1,579,963
Stockholders' equity 151,132 119,099
------------ ----------
Total liabilities and
stockholders' equity $ 2,275,694 $1,699,062
=========== ==========
Net interest rate spread (6) $13,604 2.45% $9,123 1.90%
======= ==== ====== ====
Net interest margin (7) 2.66% 2.29%
==== ====
Ratio of interest-earning assets to
interest- bearing liabilities 105.21% 107.86%
========== ======
- -----------
(1) Amount is net of deferred loan origination costs, undisbursed proceeds of
construction mortgages in process, allowance for loan losses and includes
non-performing loans.
(2) Includes short-term investments, investment securities available for sale
and FHLB stock.
(3) Consists of mortgage-backed securities available for sale and held to
maturity.
(4) Includes the net effect of interest rate swaps.
(5) Consists primarily of business checking accounts.
(6) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(7) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses was $100,000 for the first
quarter of fiscal year 2003 compared to $300,000 for the first quarter of fiscal
year 2002, based on management's assessment of the loan loss reserve level as
influenced by several key factors. For additional information on the amount of
the allowance and the process for evaluating its adequacy, see "Financial
Condition -- Asset Quality."
10
NON-INTEREST INCOME
Non-interest income increased $5.0 million, or 126.2%, to $9.0 million
for the first quarter of fiscal year 2003 from $4.0 million for the first
quarter of fiscal year 2002. This increase was due primarily to increases of
$3.2 million in gain on sale of mortgage loans, $781,000 in gain on sale of
investment securities available for sale, $221,000 in service charges on deposit
accounts and $1.1 million in other non-interest income, partially offset by a
decrease of $281,000 in loan servicing income.
The increase in gain on sale of mortgage loans was due primarily to a
higher volume of loans originated for sale, which includes loans sold by PMC
during the first quarter of fiscal year 2003. In addition, changes in fair value
of derivative instruments utilized in secondary market hedging activities
resulted in a reduction to gain on sale of mortgage loans of $107,000 for the
first quarter of fiscal year 2003, as compared to an addition of $262,000 for
the first quarter of fiscal year 2002. Management of the Company believes that
the adoption of SFAS No. 133 has introduced the potential for greater volatility
to quarterly earnings due to valuation changes and accelerated recognition of
gains or losses in the Company's mortgage banking activities. However, such
effects are expected to offset over time as market conditions change.
The increase in gain on sale of investment securities available for
sale included the sale during the first quarter of fiscal year 2003 of certain
investments acquired as part of the People's acquisition. The increases in
service charges on deposit accounts and other non-interest income were due
primarily to growth resulting from the People's acquisition. In addition,
changes in the fair value of interest rate swaps resulted in an addition to
other non-interest income of $163,000 for the first quarter of fiscal year 2003,
as compared to $26,000 for the first quarter of fiscal year 2002. The decrease
in loan servicing income was due primarily to a $212,000 addition to the
valuation reserve for mortgage servicing rights during the first quarter of
fiscal year 2003, based on estimated impairment due to a combination of faster
than previously expected actual payoff experience and faster prepayment
forecasts in June 2002 versus March 2002. The balance of the valuation allowance
amounted to $702,000 at June 30, 2002 and $490,000 at March 31, 2002.
Amortization of mortgage servicing rights, plus the addition to the valuation
allowance, totaled $999,000 and $649,000 for the first quarter of fiscal year
2003 and 2002, respectively.
NON-INTEREST EXPENSE
Non-interest expense increased $7.8 million, or 104.9%, to $15.3
million for the first quarter of fiscal year 2003 from $7.5 million for the
first quarter of fiscal year 2002. This increase was due primarily to increases
of $3.8 million in compensation and benefits, $881,000 in office occupancy and
equipment expenses, $454,000 in data processing costs, $584,000 in amortization
of intangible assets and $2.1 million in other non-interest expenses. The
increases in non-interest expenses were due primarily to growth resulting from
the acquisition of People's and PMC, costs related to banking office and back
office consolidation, and other associated non-recurring integration expenses.
INCOME TAXES
Income tax expense increased $930,000, or 50.6%, to $2.8 million for
the first quarter of fiscal year 2003 from $1.8 million for the first quarter of
fiscal year 2002, due primarily to increased income before income tax expense.
The Company's effective tax rate increased to 38.4% for the first quarter of
fiscal year 2003, from 34.4% for the first quarter of fiscal year 2002, due
primarily to the effects of an increase in the statutory federal income tax rate
based on a higher taxable earnings threshold, increased state taxes and
appreciation of FIRSTFED stock contributed to the Company's Employee Stock
Ownership Plan ("ESOP").
11
FINANCIAL CONDITION
OVERVIEW
Total assets increased $113.2 million, or 4.9%, to $2.408 billion at
June 30, 2002 from $2.294 billion at March 31, 2002. This growth was due
primarily to increases of $208.6 million in mortgage-backed securities,
partially offset by decreases of $63.6 million in cash and cash equivalents and
$37.5 million in investment securities available for sale. The net increase in
mortgage-backed securities was due primarily to purchases of mortgage-backed
securities available for sale totaling $260.1 million, partially offset by
payments received of $56.7 million. The net decrease in investment securities
available for sale was due primarily to sales of $40.7 million, including the
sale of certain securities acquired as part of the People's acquisition.
Corporate bond investments acquired from People's have been reduced from $16.1
million at the time of acquisition to $6.8 million at June 30, 2002. Trust
preferred stock investments have been reduced from $40.3 million at the time of
acquisition to $26.4 million at June 30, 2002.
The following table sets forth the composition of the Company's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated:
JUNE 30, 2002 MARCH 31, 2002
--------------------- ---------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
Mortgage Loans:
Residential $ 606,347 52.05% $ 635,297 54.77%
Commercial real estate 114,816 9.85 115,243 9.93
Construction and land 52,366 4.50 63,810 5.50
---------- ------ ---------- ------
Total mortgage loans 773,529 66.40 814,350 70.20
---------- ------ ---------- ------
Commercial Loans 234,679 20.15 200,016 17.24
---------- ------ ---------- ------
Consumer Loans:
Home equity lines 96,271 8.26 83,013 7.16
Second mortgages 46,194 3.97 48,901 4.22
Other consumer loans 14,267 1.22 13,713 1.18
---------- ------ ---------- ------
Total consumer loans 156,732 13.45 145,627 12.56
---------- ------ ---------- ------
Total loans receivable 1,164,940 100.00% 1,159,993 100.00%
------ ------
Less:
Allowance for loan losses (19,215) (19,237)
Undisbursed proceeds of
construction mortgages
in process (21,460) (21,818)
Purchase premium on
loans, net 5,658 5,869
Deferred loan origination
costs, net 978 943
---------- ----------
Loans receivable, net $1,130,901 $1,125,750
========== ==========
Balance sheet growth was primarily funded by increases of $85.7 million
in FHLB advances and other borrowings and $5.4 million in deposit balances
during the first quarter of fiscal year 2003. The increase in deposits included
an increase in combined demand and savings deposits of $19.8 million, or 3.0%,
partially offset by a decrease in time deposits of $14.3 million, or 2.2%. The
percentage of deposits to total assets was 54.9% at June 30, 2002.
12
Total stockholders' equity increased $10.7 million, or 6.9%, to $166.1
million at June 30, 2002, from $155.3 million at March 31, 2002. The increase
was due primarily to $4.4 million in net income and a $6.3 million increase in
the fair market value of available for sale securities, net of tax, partially
offset by $1.1 million in dividends paid to stockholders. Stockholders' equity
to assets was 6.90% at June 30, 2002, compared to 6.77% at March 31, 2002. Book
value per share increased 5.9% to $21.25 at June 30, 2002 from $20.06 at March
31, 2002.
At June 30, 2002 and March 31, 2002, mortgage loans sold to others and
serviced by the Bank on a fee basis under various agreements amounted to $1.582
billion and $1.588 billion, respectively. Loans serviced for others are not
included in the Consolidated Balance Sheets.
ASSET QUALITY
Non-Performing Assets. The following table sets forth information
regarding non-accrual loans, real estate owned ("REO") and other repossessed
assets. 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 was
$19,000 for the three months ended June 30, 2002 and $13,000 for the three
months ended June 30, 2001.
AT JUNE 30, AT MARCH 31,
2002 2002
----------- ------------
(DOLLARS IN THOUSANDS)
Non-accrual loans:
Mortgage loans:
One-to-four family............................... $1,205 $ 1,855
Commercial real estate.......................... 466 724
Construction and land........................... 185 814
------ -------
Total mortgage loans........................ 1,856 3,393
------ -------
Commercial loans................................... 661 144
------ -------
Consumer loans:
Home equity lines................................ 12 54
Second mortgages................................. 69 77
Other consumer loans............................. 76 36
------ -------
157 167
------ -------
Total consumer loans......................... 2,674 3,704
Total non-accrual loans
Non-performing investment............................ -- 3,285
REO, net (1)......................................... 280 240
Other repossessed assets............................. -- 3
------ -------
Total non-performing assets...................... $2,954 $ 7,232
====== =======
Allowance for loan losses as a percent of loans (2).. 1.67% 1.68%
Allowance for loan losses as a percent
of non-accrual loans (3).......................... 719% 519%
Non-accrual loans as a percent of loans (2)(3)....... 0.23% 0.32%
Non-performing assets as a percent of total assets... 0.12% 0.31%
(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.
13
The decrease in non-performing assets during the first three months of
fiscal year 2003 is primarily due to the sale of a non-performing investment
acquired in the People's acquisition.
Allowance for Loan Losses. The allowance for loan losses is based on
management's ongoing review and estimate of the credit losses inherent in the
loan portfolio. Management's methodology to estimate loss exposure inherent in
the portfolio includes analysis of individual loans deemed to be impaired,
performance of individual loans in relation to contract terms, and allowance
allocations for various loan types based on payment status or loss experience.
An unallocated allowance is also maintained within an established range based on
management's assessment of many factors including current market conditions,
trends in loan delinquencies and charge-offs, the volume and mix of new
originations, and the current type, mix, changing risk profiles and balance of
the portfolio. In addition, the Office of Thrift Supervision ("OTS") and the
Federal Deposit Insurance Corporation ("FDIC"), as an integral part of their
examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to make additional provisions for
estimated loan losses based upon judgments different from those of management.
The allowance for loan losses totaled $19.2 million at June 30, 2002, a
decrease of $22,000, or 0.1%, as compared to $19.2 million at March 31, 2002.
The following table sets forth activity in the Company's allowance for loan
losses for the periods indicated:
FOR THE THREE MONTHS
ENDED JUNE 30,
-----------------------
2002 2001
--------- --------
(DOLLARS IN THOUSANDS)
Balance at beginning of period......... $19,237 $13,233
Provision for loan losses.............. 100 300
------- -------
Charge-offs:
One-to-four family mortgage loans.. (10) --
Commercial loans................... (86) --
Consumer Loans:
Home equity lines............... (9) --
Second mortgages................ -- --
Other consumer.................. (19) (13)
------- -------
Total (124) (13)
Recoveries............................ 2 1
------- -------
Balance at end of period.............. $19,215 $13,521
======= =======
Ratio of net charge-offs during
the period to average loans
outstanding during the period......... 0.04% 0.01%
Management was influenced by several key factors as a basis for the
level of the Company's provisions for loan losses, which resulted in increases
in the balance of the allowance for loan losses and as a percent of the total
loan portfolio during the past year. Although the Company's non-performing loans
and charge-offs have remained low, there has been a significant shift in the
composition of the loan portfolio at June 30, 2002 as compared to June 30, 2001,
including $308.9 million of loans receivable acquired and $5.2 million of
allowance for loan losses assumed as part of the People's acquisition. The
residential mortgage portfolio has decreased due primarily to a low fixed rate
environment, which resulted in high refinancing activity, while the commercial
and consumer loan portfolios have shown significant growth. Commercial and
consumer loans bear a higher degree of risk than the one-to-four family mortgage
loans that make up substantially all of the Company's residential portfolio. In
addition, management believes that current economic conditions, including rising
unemployment rates in its key market area of southeastern New England, could
have an adverse affect on asset quality and result in higher non-performing
14
loans and charge-offs.
The Company will continue to monitor and modify its allowances for loan
losses as conditions dictate. While management believes the Company's allowance
for loan losses was sufficient to absorb losses inherent in its loan portfolio
at June 30, 2002, no assurances can be given that the Company's level of
allowance for loan losses will be sufficient to cover future loan losses
incurred by the Company or that future adjustments to the allowance for loan
losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance for loan losses.
MARKET RISK AND MANAGEMENT OF INTEREST-RATE 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.
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 ten 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, with the exception of loans originated by PMC,
which are sold servicing released to individual investors; and (3) investing
primarily in adjustable-rate mortgage-backed securities and short-term
fixed-rate CMOs. In conjunction with its mortgage banking activities, the
Company uses forward contracts in order to reduce exposure to interest-rate
risk, except for PMC, where all loans are sold by obtaining commitments from
individual investors on a loan by loan basis. 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. In addition, the Company has engaged in interest rate swap
agreements to synthetically lengthen its liability maturities.
The Company's interest rate risk is monitored by management through the
use of a model that generates estimates of the change in the Company's net
interest income 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 in 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.
15
The following table sets forth the Company's estimated NPV and NPV ratios as
of June 30, 2002 and March 31, 2002, as calculated by the Company.
June 30, 2002 March 31, 2002
---------------------------------------------------- ---------------------------------------------------------
Change in Estimated NPV Estimated NPV
Interest Rates Net Sensitivity Net Sensitivity
in Basis Portfolio NPV Board in Basis Portfolio NPV in Basis
Points Value Ratio Limits Points Value Ratio Points
-------------- --------- ----- ------ ------ ----- ----- ------
(Dollars in thousands)
+ 300 $125,056 5.34% 4.00% (147) $136,524 6.10% (218)
+ 200 146,744 6.17 4.25 (64) 161,250 7.09 (120)
+ 100 162,510 6.74 5.00 (7) 181,372 7.85 (43)
Unchanged 165,840 6.81 6.00 -- 193,892 8.28 --
- 100 144,757 5.93 5.00 (88) 186,886 7.93 (35)
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV require certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV model
presented 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
term 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.
LIQUIDITY AND CAPITAL RESOURCES
The Bank'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. In addition, the Company and
the Bank acquired cash and cash equivalents as part of the People's acquisition.
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. During fiscal year 2002, the Bank
used cash acquired in the People's acquisition to fund asset growth and repay
certain FHLB advances and other borrowings. However, the Bank expects to use
deposits and FHLB advances and other borrowings to fund asset growth in the
future, depending on market conditions, the pricing of deposit products, and the
pricing of FHLB advances and other borrowings.
The Bank's most liquid assets are cash, short-term investments,
mortgage loans held for sale, investment securities available for sale, and
mortgage-backed securities available for sale. The levels of these assets are
dependent on the Bank's operating, financing, lending and investing activities
during any given period. At June 30, 2002, cash, short-term investments,
mortgage loans held for sale, investment securities available for sale, and
mortgage-backed securities available for sale totaled $1.043 billion, or 43.3%
of total assets.
The Bank 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. At June 30, 2002, the Bank had $823.7 million in advances
outstanding from the FHLB and other borrowings, and an additional borrowing
capacity from the FHLB of $338.4 million including the $25.0 million line of
credit. At June 30, 2002, the portfolio of putable FHLB advances and reverse
repurchase agreements totaled $422.5 million, with an average interest rate of
4.52%, an average life to maturity of 7.4 years and an estimated average life of
6.3 years. The estimated average life calculated by the Bank may or may not
mirror the counter-party's actual decision to exercise its option to terminate
16
the advances. The FHLB is required by regulation to offer replacement funding to
the Bank if the FHLB terminates a putable advance prior to the maturity date of
the advance, provided that the Bank is able to satisfy the FHLB's normal credit
and collateral requirements. Such replacement funding would be for the remaining
maturity of the putable advance, and at a market interest rate or a
predetermined interest rate agreed upon between the Bank and the FHLB.
The Company has two subsidiary business trusts acquired as part of the
People's acquisition, Capital Trust I and Capital Trust II, of which the Company
owns all of the common securities. At June 30, 2002 Capital Trust I had $13.8
million of 9.76% trust preferred securities outstanding that mature in June 2027
unless the Company elects and obtains regulatory approval to accelerate the
maturity date to as early as June 2002. Capital Trust II had $10.0 million of
11.695% trust preferred securities outstanding that mature in July 2030 unless
the Company elects and obtains regulatory approval to accelerate the maturity
date to as early as July 2010. On July 1, 2002, the Company completed the
redemption of the Capital Trust I preferred securities, at par.
At June 30, 2002, the Bank had commitments to originate loans and
unused outstanding lines of credit and undistributed balances of construction
loans totaling $347.0 million. The Bank 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 June 30, 2002
totaled $528.6 million. Based on its prior experience and other factors, the
Bank currently expects that it will retain a majority of maturing certificate
accounts.
The Company plans to open a new banking and insurance office in East
Greenwich, Rhode Island in the second quarter of fiscal year 2003, bringing its
total banking and insurance offices to 26. The Company continues to consider
sites for new banking and insurance offices and loan origination centers in or
adjacent to its market area. In addition, the Company may, from time to time,
consider expanding its market share and/or market area through the acquisition
of assets or other banking institutions and may consider acquisitions of other
types of financial services companies. The establishment of additional banking
and insurance offices, loan origination centers, trust service operations,
mergers and acquisitions, and additional capital management strategies by the
Company would result in additional capital expenditures and other associated
costs which the Company has not yet estimated.
At June 30, 2002, the consolidated capital to total assets ratio of the
Company was 6.90%. The Company paid a cash dividend $0.14 per share to
stockholders during the first quarter of fiscal year 2003, and announced the
declaration of a quarterly cash dividend of $0.15 per share to stockholders for
payment during the second quarter of fiscal year 2003. The Company's primary
source of funding for dividends, and payments for periodic stock repurchases,
has been dividends from the Bank. The Bank's ability to pay dividends and other
capital distributions to the Company is generally limited by OTS regulations.
At June 30, 2002, the Bank exceeded all of its regulatory capital
requirements. The Bank's Tier 1 core capital of $128.6 million, or 5.51% of
total adjusted assets, was above the required level of $93.3 million, or 4.0%;
risk-based capital of $138.7 million, or 11.18% of risk-weighted assets, was
above the required level of $99.2 million or 8.0%, and Tier 1 risk-based capital
of $128.6 million, or 10.02% of risk-weighted assets, was above the required
level of $49.6 million or 4.0%. The Bank is considered a "well capitalized"
institution under the OTS prompt corrective action regulations. The Trust
Company is subject to similar regulatory capital requirements, and exceeded all
of its capital requirements at June 30, 2002.
On July 29, 2002, the Company announced that it had completed a private
placement of $5 million of the Company's common stock to M/D Investment, LLC
("M/D"). Under the terms of the transaction, M/D paid $24.70 per share for
202,430 shares of the Company's common stock. In accordance with the parties'
agreement, the per share purchase price was based on the average closing price
of the Company's common stock as reported on the American Stock Exchange during
the month of June 2002. The common stock issued in the private placement
contains customary restrictions for non-registered common stock and was issued
from the Company's treasury
17
stock. M/D is a limited liability Rhode Island company, owned by certain members
of the Metcalf and Danforth families. The owners of M/D also own a minority
interest in the Trust Company. Proceeds from the private placement will be used
for general corporate purposes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See the Section of Item 2 captioned, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial Condition
- -- Market Risk and Management of Interest-Rate Risk" for quantitative and
qualitative information about market risk and its potential effect on the
Company.
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 A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable.
18
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. (2)
4.0 Stock Certificate of FIRSTFED AMERICA BANCORP, INC. (1)
99.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350,
as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith)
99.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350, as
adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith)
---------
(1) Incorporated by reference into this document from the
Exhibits to Form S-1, Registration Statement, and any
amendments thereto, filed on September 27, 1996, Registration
No. 333-12855.
(2) Incorporated by reference into this document from the
Exhibits to the Annual Report on Form 10-K for the fiscal year
ended March 31, 2002.
b) Reports on Form 8-K
A current report of Form 8-K was filed on April 18, 2002,
attaching the press release announcing the date of the 2002
annual meeting of stockholders.
A current report of Form 8-K/A was filed on May 13, 2002,
amending the Form 8-K filed on March 31, 2002.
A current report on Form 8-K was filed on May 29, 2002,
attaching the press release issued on May 28, 2002 announcing
the redemption of the Capital Trust I Trust Preferred
Securities.
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 AMERICA BANCORP, INC.
Registrant
Date: August 13, 2002 /s/ Robert F. Stoico
--------------------------------------------
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 2002 /s/ Edward A. Hjerpe III
--------------------------------------------
Executive Vice President, Chief Operating
Officer and Chief Financial Officer
(Principal Accounting and Financial Officer)
20