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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, 2003
OR
[ ] 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) (Zip Code)
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 ( )
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes (X) No ( )
As of August 5, 2003, there were 17,379,468 shares of the Registrant's
Common Stock outstanding.
FIRSTFED AMERICA BANCORP, INC.
INDEX TO FORM 10-Q
PAGE
----
PART I FINANCIAL INFORMATION........................................................ 2
Item 1. Financial Statements......................................................... 2
Consolidated Balance Sheets.................................................. 2
Consolidated Statements of Income............................................ 3
Consolidated Statements of Changes in Stockholders' Equity................... 4
Consolidated Statements of Cash Flows........................................ 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................... 15
Item 4. Controls and Procedures...................................................... 15
PART II OTHER INFORMATION............................................................ 16
Item 1. Legal Proceedings............................................................ 16
Item 2. Changes in Securities and Use of Proceeds.................................... 16
Item 3. Defaults Upon Senior Securities.............................................. 16
Item 4. Submission of Matters to a Vote of Security Holders.......................... 16
Item 5. Other Information............................................................ 16
Item 6. Exhibits and Reports on Form 8-K............................................. 16
SIGNATURES................................................................... 17
1
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
JUNE 30, MARCH 31,
2003 2003
----------- -----------
ASSETS
Cash on hand and due from banks .......................................... $ 57,939 $ 53,529
Short-term investments ................................................... -- 2,000
----------- -----------
Total cash and cash equivalents ........................................ 57,939 55,529
Mortgage loans held for sale ............................................. 309,237 245,745
Investment securities available for sale, at fair value
(amortized cost of $16,710 and $16,659) ............................. 23,214 22,730
Mortgage-backed securities available for sale, at fair value
(amortized cost of $685,713 and $623,841) ........................... 694,081 634,965
Mortgage-backed securities held to maturity (fair value of $932
and $956) ........................................................... 905 934
Stock in Federal Home Loan Bank of Boston, at cost ....................... 58,433 58,433
Loans receivable
Residential mortgages .............................................. 698,347 605,507
Commercial real estate mortgages ................................... 157,964 142,974
Construction and land mortgages .................................... 44,510 43,946
Commercial ......................................................... 295,015 282,955
Consumer ........................................................... 202,517 185,284
Allowance for loan losses .......................................... (19,521) (19,335)
----------- -----------
Loans receivable, net ........................................... 1,378,832 1,241,331
Accrued interest receivable .............................................. 8,034 7,588
Mortgage servicing rights, net of valuation allowance of
$3,263 and $3,095 ................................................... 5,178 5,971
Office properties and equipment, net ..................................... 37,984 38,298
Bank-owned life insurance ................................................ 37,957 37,513
Goodwill and other intangible assets ..................................... 53,106 53,659
Prepaid expenses and other assets ........................................ 15,626 11,782
----------- -----------
Total assets ................................................... $ 2,680,526 $ 2,414,478
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Demand ............................................................. $ 656,201 $ 573,344
Savings ............................................................ 313,666 286,719
Time ............................................................... 558,657 567,044
----------- -----------
Total deposits .................................................. 1,528,524 1,427,107
FHLB advances and other borrowings ..................................... 873,038 712,253
Company obligated, mandatorily redeemable securities ................... 11,278 11,324
Advance payments by borrowers for taxes and insurance .................. 6,901 5,974
Accrued interest payable ............................................... 3,857 3,607
Other liabilities ...................................................... 57,541 61,129
----------- -----------
Total liabilities .............................................. 2,481,139 2,221,394
----------- -----------
Stockholders' equity:
Common stock ........................................................... 219 216
Additional paid-in capital ............................................. 127,884 125,198
Retained earnings ...................................................... 101,630 97,100
Accumulated other comprehensive income ................................. 8,868 9,777
Unallocated ESOP shares ................................................ (1,549) (1,549)
Unearned 1997 stock-based incentive plan ............................... (39) (112)
Treasury stock ......................................................... (37,626) (37,546)
----------- -----------
Total stockholders' equity ..................................... 199,387 193,084
----------- -----------
Total liabilities and stockholders' equity ..................... $ 2,680,526 $ 2,414,478
=========== ===========
See accompanying notes to consolidated financial statements.
2
FIRSTFED AMERICA BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED JUNE 30,
-----------------------
2003 2002
-------- --------
Interest and dividend income:
Loans ....................................................... $ 22,080 $ 20,868
Mortgage-backed securities .................................. 6,317 8,929
Investment securities ....................................... 308 1,345
Federal Home Loan Bank stock ................................ 459 546
-------- --------
Total interest and dividend income ................... 29,164 31,688
-------- --------
Interest expense:
Deposits .................................................... 5,838 7,567
Borrowed funds .............................................. 8,431 10,517
-------- --------
Total interest expense ............................... 14,269 18,084
-------- --------
Net interest income before provision for loan losses.. 14,895 13,604
Provision for loan losses ..................................... 250 100
-------- --------
Net interest income after provision for loan losses... 14,645 13,504
-------- --------
Non-interest income:
Service charges on deposit accounts ......................... 858 673
Trust fee income ............................................ 371 361
Loan servicing (expense) income ............................. (1,105) 46
Insurance commission income ................................. 300 209
Earnings on bank-owned life insurance ....................... 444 483
Gain on sale of mortgage loans, net ......................... 9,698 4,253
Gain on sale of investments securities available for sale.... 1,712 1,531
Other income ................................................ 1,079 637
-------- --------
Total non-interest income ............................ 13,357 8,193
-------- --------
Non-interest expense:
Compensation and employee benefits .......................... 10,734 8,409
Office occupancy and equipment .............................. 2,192 1,964
Data processing ............................................. 625 953
Advertising and business promotion .......................... 423 192
Amortization of intangible assets ........................... 553 607
Other expense ............................................... 3,044 2,371
-------- --------
Total non-interest expense ........................... 17,571 14,496
-------- --------
Income before income tax expense ..................... 10,431 7,201
Income tax expense ............................................ 4,172 2,767
-------- --------
Net income ........................................... $ 6,259 $ 4,434
======== ========
Basic EPS ..................................................... $ 0.37 $ 0.28
======== ========
Diluted EPS ................................................... $ 0.36 $ 0.27
======== ========
Weighted average shares outstanding -- basic .................. 16,795 15,578
======== ========
Weighted average shares outstanding -- diluted ................ 17,332 16,154
======== ========
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, 2003
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME (LOSS)
------- ---------- -------- --------------
Balance at March 31, 2003 .................... $ 216 $ 125,198 $ 97,100 $9,777
Earned SIP stock awards .................... -- (5) -- --
Earned ESOP shares charged to expense ...... -- 399 -- --
Stock options exercised .................... 3 2,292 -- --
Cash dividends declared and paid
(1st quarter at $0.10 per share) ....... -- -- (1,729) --
Common stock acquired for certain
employee benefit plans (5,396 shares at
an average price of $14.85 per share).... -- -- -- --
Comprehensive income:
Net income ............................... -- -- 6,259 --
Other comprehensive income (loss),
net of tax
Unrealized holding losses on
available for sale securities,
net of taxes of ($371) ............ -- -- -- (239)
Reclassification adjustment for
gains included in net income,
net of taxes of $1,042 ............ -- -- -- (670)
------
Net unrealized losses ............... -- -- -- (909)
Total comprehensive income ........ -- -- -- --
------- --------- -------- ------
Balance at June 30, 2003 ................... $ 219 $ 127,884 $101,630 $8,868
======= ========= ======== ======
UNEARNED
1997
STOCK-BASED
UNALLOCATED INCENTIVE TOTAL
ESOP PLAN (SIP) TREASURY STOCKHOLDERS'
SHARES SHARES STOCK EQUITY
----------- ----------- --------- -------------
Balance at March 31, 2003 .................... $(1,549) $(112) $ (37,546) $193,084
Earned SIP stock awards .................... -- 73 -- 68
Earned ESOP shares charged to expense ...... -- -- -- 399
Stock options exercised .................... -- -- -- 2,295
Cash dividends declared and paid
(1st quarter at $0.10 per share) ....... -- -- -- (1,729)
Common stock acquired for certain
employee benefit plans (5,396 shares at
an average price of $14.85 per share).... -- -- (80) (80)
Comprehensive income:
Net income ............................... -- -- -- 6,259
Other comprehensive income (loss),
net of tax
Unrealized holding losses on
available for sale securities,
net of taxes of ($371) ............ -- -- -- --
Reclassification adjustment for
gains included in net income,
net of taxes of $1,042 ............ -- -- -- --
Net unrealized losses ............... -- -- -- (909)
--------
Total comprehensive income ........ -- -- -- 5,350
------- ----- --------- --------
Balance at June 30, 2003 ................... $(1,549) $ (39) $ (37,626) $199,387
======= ===== ========= ========
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,
--------------------------
2003 2002
----------- -----------
Cash flows from operating activities:
Net income ............................................................ $ 6,259 $ 4,434
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Amortization (accretion) of:
Discounts, net ................................................. (640) (997)
Deferred loan origination costs ................................ 364 175
Mortgage servicing rights ...................................... 729 787
Intangible assets .............................................. 553 607
Provision for loan losses ......................................... 250 100
Provision for estimated impairment on mortgage servicing rights ... 1,359 212
(Gains) losses on sales of:
Mortgage loans ................................................. (9,698) (4,253)
Investment and mortgage-backed securities available-for-sale ... (1,712) (1,531)
Office property and equipment .................................. 4 (13)
Net proceeds from sales of mortgage loans ......................... 857,909 410,675
Origination of mortgage loans held for sale ....................... (912,522) (407,405)
Income from bank-owned life insurance ............................. (444) (483)
Depreciation of office properties and equipment ................... 1,099 1,030
Appreciation in fair value of ESOP shares ......................... 399 299
Earned SIP shares ................................................. 68 69
Increase or decrease in:
Accrued interest receivable .................................... (446) 312
Other assets ................................................... (2,907) (5,594)
Accrued interest payable ....................................... 250 433
Other liabilities .............................................. (3,588) 11,762
----------- -----------
Net cash (used in) provided by operating activities ............ (62,714) 10,619
----------- -----------
Cash flows from investing activities:
Purchase of investment securities available for sale .................. (1,292) (513)
Purchase of mortgage-backed securities available for sale ............. (235,672) (260,108)
Payments received on mortgage-backed securities ....................... 97,489 56,725
Proceeds from sale of investments securities available for sale ....... -- 40,716
Proceeds from sale of mortgage-backed securities available for sale ... 77,772 4,700
Maturities of investment securities available for sale ................ 1,248 304
Net increase in loans ................................................. (138,400) (5,687)
Proceeds from sale of office equipment ................................ -- 14
Purchases of office properties and equipment .......................... (789) (2,055)
----------- -----------
Net cash used in investing activities .......................... (199,644) (165,904)
----------- -----------
Cash flows from financing activities:
Net increase in deposits .............................................. 101,503 5,714
Proceeds from FHLB advances and other borrowings ...................... 2,387,140 571,400
Repayments on FHLB advances and other borrowings ...................... (2,225,288) (484,625)
Net change in advance payments by borrowers for taxes and insurance ... 927 (423)
Cash dividends paid ................................................... (1,729) (1,143)
Payments to acquire common stock and stock issuance costs ............. (80) (89)
Stock options exercised ............................................... 2,295 870
----------- -----------
Net cash provided by financing activities ...................... 264,768 91,704
----------- -----------
Net increase (decrease) in cash and cash equivalents .................... 2,410 (63,581)
Cash and cash equivalents at beginning of period ........................ 55,529 145,049
----------- -----------
Cash and cash equivalents at end of period .............................. $ 57,939 $ 81,468
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ............................................................ $ 14,019 $ 17,651
=========== ===========
Income taxes ........................................................ $ 4,511 $ 2,736
=========== ===========
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 II ("Capital Trust II"), and the Company's 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.
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. Certain amounts previously reported have
been reclassified to conform to the current year's presentation. The results of
operations for the three months ended June 30, 2003 are not necessarily
indicative of the results of operations that may be expected for all of fiscal
year 2004.
Certain information and note disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America 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 on Form 10-K for the fiscal year ended March 31, 2003.
(2) STOCK SPLIT
On June 26, 2003, the Company's Board of Directors declared a 2-for-1 common
stock split distributed on July 17, 2003 to shareholders of record as of July 7,
2003. In the accompanying unaudited consolidated financial statements and in
Management's Discussion and Analysis of Financial Condition and Results of
Operation, the numbers of shares and per share amounts of the Company's common
stock have been retroactively restated to reflect the increased number of common
shares outstanding.
(3) GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill and other intangible assets
for the three months ended June 30, 2003 are as follows (in thousands):
CORE TOTAL
DEPOSIT NON-COMPETE IDENTIFIABLE
INTANGIBLE INTANGIBLE INTANGIBLE
GOODWILL ASSET ASSET ASSETS
-------- ---------- ----------- ------------
Balance at March 31, 2003 $43,825 $ 9,596 $ 238 $ 9,834
Recorded during the period -- -- -- --
Amortization expense -- (488) (65) (553)
Impairment recognized -- -- -- --
------- ------- ------- -------
Balance at June 30, 2003 $43,825 $ 9,108 $ 173 $ 9,281
======= ======= ======= =======
Estimated amortization expense for fiscal
years ended March 31:
2004 $ -- $ 1,933 $ 238 $ 2,171
2005 -- 1,717 -- 1,717
2006 -- 1,500 -- 1,500
2007 -- 1,283 -- 1,283
2008 -- 1,066 -- 1,066
After 2008 -- 2,097 -- 2,097
6
The components of identifiable intangible assets at June 30, 2003 are as
follows (in thousands):
GROSS CARRYING ACCUMULATED NET CARRYING
AMOUNT AMORTIZATION AMOUNT
-------------- ------------ ------------
Core deposit intangible asset $11,926 $2,818 $9,108
Non-compete intangible asset 520 347 173
------- ------ ------
$12,446 $3,165 $9,281
======= ====== ======
(4) STOCK OPTION PLANS
The Company continues to follow the intrinsic value method for accounting
for its stock option plans. Accordingly, no compensation expense has been
recognized in the financial statements. Had the Company determined compensation
expense based on the fair value at the grant date for its stock options under
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," the Company's net income would have been reduced to
the pro forma amounts indicated below (dollars in thousands, except per share
data):
FOR THE THREE MONTHS
ENDED JUNE 30,
--------------------
2003 2002
------ ------
Net income as reported............................................ $6,259 $4,434
Pro forma net income.............................................. 6,132 4,326
Basic earning per share as reported............................... 0.37 0.28
Diluted earnings per share as reported............................ 0.36 0.27
Pro forma basic earnings per share................................ 0.37 0.28
Pro forma diluted earnings per share.............................. 0.35 0.27
The fair value of stock options was determined by using the trinomial option
pricing model. No stock options have been granted since fiscal year 2001.
(5) IMPACT OF RECENT ACCOUNTING STANDARDS
In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 149 "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS No. 149 requires derivatives contracts with comparable
characteristics be accounted for similarly. In particular, SFAS No. 149 (1)
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative discussed in paragraph 6(b) of
Statement 133, (2) clarifies when a derivative contains a financing component,
and (3) amends the definition of an underlying to conform it to language used in
FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and (4)
amends certain other existing pronouncements. This Statement is effective for
contracts entered into or modified after June 30, 2003. The Company does not
believe the adoption of SFAS No. 149 will have a material impact on the
Company's Consolidated Financial Statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
establishes standards for how an issuer clarifies and measures certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150
requires an issuer to clarify a financial instrument within the scope of the
statement as a liability if the financial instrument embodies an obligation of
the issuer. SFAS No. 150 is effective for financial instruments entered into on
or modified after May 31, 2003, and is effective for the interim period
beginning after June 30, 2003 for financial instruments existing before May 31,
2003. The effect of adoption of SFAS No. 150 is to be reported as a cumulative
effect of change in accounting principle. The Company does not believe the
adoption of SFAS No. 150 will have a material impact on the Company's
Consolidated Financial Statements.
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 gains on sale of loans and investment securities,
service charges on deposit accounts, loan servicing income, revenue from the
Trust Company and Agency operations, earnings on bank-owned life insurance
("BOLI"), 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, amortization of
intangible assets, 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.
The following discussion should be read in conjunction with the financial
statements, notes, discussion and tables included in the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 2003.
RESULTS OF OPERATIONS
OVERVIEW
Net income increased $1.8 million, or 41%, to $6.3 million for the first
quarter of fiscal year 2004 from $4.4 million for the first quarter of fiscal
year 2003. Diluted earnings per share ("EPS") increased 33% to $0.36 for the
first quarter of fiscal year 2004 from $0.27 per share for the first quarter of
fiscal year 2003. Income before income tax expense increased $3.2 million, or
45%, to $10.4 million, the net result of increases in net interest income after
provision for loan losses of $1.1 million, non-interest income of $5.2 million,
and non-interest expense of $3.1 million.
Return on average stockholders' equity increased to 12.86% for the first
quarter of fiscal year 2004 compared to 11.77% for the first quarter of fiscal
year 2003. Return on average assets increased to 1.01% for the first quarter of
fiscal year 2004 compared to 0.78% for the first quarter of fiscal year 2003.
8
NET INTEREST INCOME
Net interest income before provision for loan losses increased $1.3 million,
or 9%, to $14.9 million for the first quarter of fiscal year 2004 from $13.6
million for the first quarter of fiscal year 2003. The net interest rate spread
and net interest margin were 2.31% and 2.60%, respectively, for the first
quarter of fiscal year 2004, compared to 2.45% and 2.66%, respectively, for the
first quarter of fiscal year 2003. The increase in net interest income was due
primarily to growth in interest-earning assets, particularly loans receivable,
net, and mortgage loans held for sale, as funded by interest-bearing and
noninterest-bearing liabilities, particularly demand and savings deposits. The
decreases in the net interest rate spread and net interest margin reflected
declines in market interest rates, with reductions in the Company's interest
yields on interest-earning assets exceeding the reductions in its interest costs
on interest-bearing liabilities.
The following tables set forth certain information relating to the Company
for the periods indicated. The average yields and costs are derived by dividing
income or expense by the average balance of interest earning assets or interest
bearing liabilities, respectively, for the periods shown. Average balances are
derived from the best available daily or monthly data, which management believes
approximates the average balances computed on a daily basis. The yields and the
costs include fees, premiums, and discounts which are considered adjustments to
yields.
FOR THE THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
2003 2002
--------------------------------- -------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
-------------------------------- -------------------------------
(DOLLARS IN THOUSANDS)
Assets:
Interest-earning assets:
Loans receivable, net and
mortgage loans held for sale (1) $1,579,963 $22,080 5.59% $1,206,930 $20,868 6.92%
Investment securities (2) 91,633 767 3.36 243,207 1,891 3.12
Mortgage-backed securities (3) 629,181 6,317 4.02 603,764 8,929 5.92
---------- ------- ---- ---------- ------- ----
Total interest-earning assets 2,300,777 29,164 5.07 2,053,901 31,688 6.17
------- ---- ------- ----
Noninterest-earning assets 191,107 221,793
---------- ----------
Total assets $2,491,884 $2,275,694
========== ==========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits (4) $1,294,376 5,838 1.81 $1,171,703 7,567 2.59
FHLB advances and other borrowings 779,023 8,431 4.34 780,428 10,517 5.41
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities 2,073,399 14,269 2.76 1,952,131 18,084 3.72
------- ---- ------- ----
Noninterest-bearing liabilities (5) 223,267 172,431
---------- ----------
Total liabilities 2,296,666 2,124,562
Stockholders' equity 195,218 151,132
---------- ----------
Total liabilities and stockholders'
equity $2,491,884 $2,275,694
========== ==========
Net interest rate spread (6) $14,895 2.31% $13,604 2.45%
======= ==== ======= ====
Net interest margin (7) 2.60% 2.66%
==== ====
Ratio of interest-earning assets to
interest-bearing liabilities 110.97% 105.21%
========== ==========
- -----------
(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 $250,000 for the first quarter
of fiscal year 2004 compared to $100,000 for the first quarter of fiscal year
2003. This increase was based primarily on management's assessment of several
key factors, including portfolio growth and composition changes, internal loan
review classifications, and current economic conditions. For additional
information on the amount of the allowance and the process for evaluating its
adequacy, see "Financial Condition -- Asset Quality -- Allowance for Loan
Losses."
9
NON-INTEREST INCOME
Non-interest income increased $5.2 million, or 63%, to $13.4 million for the
first quarter of fiscal year 2004 from $8.2 million for the first quarter of
fiscal year 2003. This increase was due primarily to increases of $5.4 million
in gain on sale of mortgage loans, $181,000 in gain on sale of securities
available for sale, $185,000 in service charges on deposit accounts and $442,000
in other non-interest income, partially offset by a decrease of $1.2 million 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 during the first quarter of fiscal year
2004. In addition, changes in fair value of derivative instruments utilized in
secondary market hedging activities, as required by SFAS No. 133, resulted in an
addition to gain on sale of mortgage loans of $833,000 for the first quarter of
fiscal year 2004 compared to a reduction of $107,000 for the first quarter of
fiscal year 2003. The increase in service charges on deposit accounts was due
primarily to growth in deposits. The increase in other non-interest income was
due primarily to a net increase in investment portfolio values of certain
employee benefit plans, which is offset by a related increase in other
non-interest expense.
The decrease in loan servicing income was due primarily to additions to the
valuation allowance for mortgage servicing rights of $1.4 million during the
first quarter of fiscal year 2004, compared to $212,000 during the first quarter
of fiscal year 2003. The additions to the valuation allowance were based on
estimated impairment due to a combination of faster than previously expected
actual payoff experience and faster prepayment forecasts for the applicable
periods. Amortization of mortgage servicing rights totaled $729,000 and $787,000
for the first quarters of fiscal year 2004 and 2003, respectively.
NON-INTEREST EXPENSE
Non-interest expense increased $3.1 million, or 21%, to $17.6 million for
the first quarter of fiscal year 2004 from $14.5 million for the first quarter
of fiscal year 2003. This increase was due primarily to increases of $2.3
million in compensation and benefits, $231,000 in advertising and promotion
expenses, $228,000 in office occupancy and equipment expenses, and $673,000 in
other non-interest expenses, partially offset by a decrease of $328,000 in data
processing costs.
The increase in compensation and benefits was due primarily to higher costs
related to growth in mortgage originations, the net accounting impact of market
price increases of FAB stock held by certain employee benefit plans, and higher
employee health plan costs. The increase in advertising and promotion expenses
was due primarily to an expansion of advertising campaigns. The increase in
office occupancy and equipment expenses was due primarily to increases in asset
depreciation and building repairs and maintenance costs. The decrease in data
processing costs was due primarily to acquisition and system conversion costs
incurred in the first quarter of fiscal year 2003.
INCOME TAXES
Income tax expense increased $1.4 million, or 51%, to $4.2 million for the
first quarter of fiscal year 2004 from $2.8 million for the first quarter of
fiscal year 2003. The Company's effective tax rate increased to 40.0% for the
first quarter of fiscal year 2004 from 38.4% for the first quarter of fiscal
year 2003, due primarily to the effects of increased state taxes.
FINANCIAL CONDITION
OVERVIEW
Total assets increased $266.0 million, or 11%, to a record $2.681 billion at
June 30, 2003 from $2.414 billion at March 31, 2003. This growth was due
primarily to increases of $137.5 million in loans receivable, net, $63.5 million
in mortgage loans held for sale, and $59.1 million in mortgage-backed securities
available for sale. The net increase in mortgage-backed securities was due
primarily to purchases of mortgage-backed securities available for sale totaling
$235.7 million, partially offset by sales totaling $77.8 million and payments
received of $97.5 million.
10
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, 2003 MARCH 31, 2003
---------------------- ---------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
Mortgage Loans:
Residential $ 693,529 49.17% $ 601,063 47.21%
Commercial real estate 157,964 11.20 142,974 11.23
Construction and land 62,410 4.43 61,698 4.85
---------- ------ ---------- ------
Total mortgage loans 913,903 64.80 805,735 63.29
---------- ------ ---------- ------
Commercial Loans 295,129 20.92 283,137 22.24
---------- ------ ---------- ------
Consumer Loans:
Home equity lines 159,976 11.34 140,189 11.01
Second mortgages 30,854 2.19 32,914 2.58
Other consumer loans 10,567 0.75 11,158 0.88
---------- ------ ---------- ------
Total consumer loans 201,397 14.28 184,261 14.47
---------- ------ ---------- ------
Total loans receivable 1,410,429 100.00% 1,273,133 100.00%
====== ======
Less:
Allowance for loan losses (19,521) (19,335)
Undisbursed proceeds of
construction mortgages
in process (17,900) (17,752)
Purchase premium on
loans, net 3,092 3,377
Deferred loan origination
costs, net 2,732 1,908
---------- ----------
Loans receivable, net $1,378,832 $1,241,331
========== ==========
Mortgage loan originations totaled $1.148 billion for the first quarter of
fiscal year 2004, including $912.5 million originated for sale of which $800.5
million were originated by PMC. During this time, $842.2 million of mortgage
loans were sold in the secondary market, including $678.1 million sold servicing
released by PMC.
Mortgage loans sold to others and serviced by the Bank on a fee basis under
various agreements decreased $120.5 million, or 9%, to $1.292 billion at June
30, 2003 from $1.412 billion at March 31, 2003, due primarily to refinancing
activity. Loans serviced for others are not included in the Consolidated Balance
Sheets. Mortgage servicing rights, net of the valuation allowance, decreased
$793,000, or 13%, to $5.2 million at June 30, 2003, from $6.0 million at March
31, 2003. The valuation allowance related to the impairment of mortgage
servicing rights increased $168,000 to $3.3 million at June 30, 2003, from $3.1
million at March 31, 2003, due to additions of $1.4 million for estimated
impairment, less write-downs of $1.2 million for permanent impairment during the
first quarter of fiscal year 2004. Mortgage servicing rights were 0.40% of loans
serviced for others at June 30, 2003, compared to 0.42% at March 31, 2003.
Balance sheet growth during the first quarter of fiscal year 2004 was
primarily funded by increases of $160.8 million in FHLB advances and other
borrowings and $101.4 million in deposit balances. The 7% increase in deposits,
to $1.529 billion at June 30, 2003, included increases in demand deposits of
$82.9 million, or 14%, and savings deposits of $26.9 million, or 9%, partially
offset by a decrease in time deposits of $8.4 million, or 1%. The Company's
demand and savings accounts, or core deposits, were 63.5% of total deposits at
June 30, 2003 compared to 60.3% at March 31, 2003.
Total stockholders' equity increased $6.3 million, or 3%, to $199.4 million
at June 30, 2003, from $193.1 million at March 31, 2003. The increase was due
primarily to $6.3 million in net income and a $2.3 million increase from common
shares issued for stock options exercised, partially offset by $1.7 million in
dividends paid to stockholders and a $909,000 decrease in the fair market value
of available for sale securities, net of tax. Stockholders' equity to assets was
7.44% at June 30, 2003, compared to 8.00% at March 31, 2003. Book value per
share increased to $11.80 at June 30, 2003 from $11.63 at March 31, 2003.
Tangible book value per share increased to $8.66 at June 30, 2003 from $8.40 at
March 31, 2003.
11
ASSET QUALITY
Non-Performing Assets. The following table sets forth information regarding
non-accrual loans and real estate owned ("REO"). 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 $56,000 for the three months ended
June 30, 2003 and $19,000 for the three months ended June 30, 2002.
JUNE 30, MARCH 31,
2003 2003
-------- ---------
(DOLLARS IN THOUSANDS)
Non-accrual loans:
Mortgage loans:
One-to-four family ............................................ $ 957 $1,699
Commercial real estate ........................................ 108 96
------ ------
Total mortgage loans ..................................... 1,065 1,795
------ ------
Commercial loans ................................................. 586 1,388
------ ------
Consumer loans:
Home equity lines ............................................. 151 --
Second mortgages .............................................. 105 107
Other consumer loans .......................................... 9 15
------ ------
Total consumer loans ..................................... 265 122
------ ------
Total non-accrual loans .................................. 1,916 3,305
REO, net (1) ....................................................... 194 194
------ ------
Total non-performing assets .............................. $2,110 $3,499
====== ======
Allowance for loan losses as a percent of loans (2) ................ 1.40% 1.53%
Allowance for loan losses as a percent of non-performing loans (3).. 1,019% 585%
Non-accrual loans as a percent of loans (2)(3) ..................... 0.14% 0.26%
Non-performing assets as a percent of total assets ................. 0.08% 0.14%
- ------------------
(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.
The decrease of $1.4 million in non-performing assets during the first three
months of fiscal year 2004 was due primarily to declines of $742,000 in
one-to-four family mortgage loans and $802,000 in commercial loans.
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 OTS, as an integral part of their examination
process, periodically reviews the Company's allowance for loan losses. The OTS
and the FDIC 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 $19.5 million at June 30, 2003, an
increase of $186,000, or 1%, as compared to $19.3 million at March 31, 2003. The
following table sets forth activity in the Company's allowance for loan losses
for the periods indicated:
12
FOR THE THREE MONTHS
ENDED JUNE 30,
---------------------
2003 2002
-------- --------
(DOLLARS IN THOUSANDS)
Balance at beginning of period ....... $ 19,335 $ 19,237
Provision for loan losses ............ 250 100
-------- --------
Charge-offs:
One-to-four family mortgage loans.. (63) (10)
Commercial loans .................. -- (86)
Consumer Loans:
Home equity lines .............. (11) (9)
Second mortgages ............... -- --
Other consumer ................. (14) (19)
-------- --------
Total ................... (88) (124)
Recoveries ........................... 24 2
-------- --------
Balance at end of period ............. $ 19,521 $ 19,215
======== ========
Ratio of net charge-offs during
the period to average loans
outstanding during the period ........ 0.02% 0.04%
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
provision of loan losses and the allowance for loan losses during the past year.
Although the Company's non-performing loans and charge-offs have remained low,
there has been a shift in the composition of the loan portfolio at June 30, 2003
as compared to June 30, 2002. The residential mortgage portfolio has increased
due primarily to the origination and retention of certain adjustable-rate and
fixed-rate mortgage loans with terms of 15 years or less, and high refinancing
activity reflecting the low fixed rate environment. The commercial and consumer
loan portfolios have also continued to show 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.
Management also considered internal loan review classifications and current
economic conditions, including rising unemployment rates in the Company's key
market area of southeastern New England, which could have an adverse affect on
asset quality and result in higher non-performing 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, 2003, 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) the origination and retention of certain adjustable-rate
and shorter-term (generally 15 years or less) fixed-rate, one-to-four family
mortgage loans; (2) selling mortgage loans originated for sale in the secondary
market with either servicing rights retained or servicing rights released; and
(3) investing primarily in adjustable-rate mortgage-backed securities and
short-term fixed-rate CMOs. In conjunction with its mortgage banking activities,
the
13
Company uses forward contracts in order to reduce exposure to interest-rate
risk. The Company obtains commitments from investors on a loan-by-loan basis for
mortgage loans sold with servicing rights released. The amount of forward
coverage of the "pipeline" of mortgages is managed on a day-to-day basis, 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, from time
to time, 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.
The following table sets forth the Company's estimated NPV and NPV ratios as
of June 30, 2003 and March 31, 2003, as calculated by the Company.
JUNE 30, 2003 MARCH 31, 2003
--------------------------------- --------------------------------
CHANGE IN ESTIMATED NPV ESTIMATED NPV
INTEREST RATES NET SENSITIVITY NET SENSITIVITY
IN BASIS PORTFOLIO NPV IN BASIS PORTFOLIO NPV IN BASIS
POINTS VALUE RATIO POINTS VALUE RATIO POINTS
- -------------- --------- ----- ----------- --------- ----- -----------
(DOLLARS IN THOUSANDS)
300 $153,267 5.95% (39) $179,199 7.57% 123
200 169,314 6.44 10 181,195 7.54 120
100 176,321 6.58 24 172,562 7.09 75
Unchanged 172,129 6.34 -- 155,172 6.34 --
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. While maturities and scheduled
amortization of loans are predictable sources of funds, deposit flows and
mortgage prepayments are influenced by general interest rates, economic
conditions and competition. The Bank expects to use deposits, FHLB advances and
other borrowings, and retained earnings 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, 2003, cash, short-term investments,
mortgage loans held for sale, investment securities available for sale, and
mortgage-backed securities available for sale totaled $1.084 billion, or 40.5%
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, 2003, the Bank had $863.0 million in advances
outstanding from the FHLB and other borrowings, and an additional borrowing
capacity from the FHLB of $212.2 million including the $25.0 million line of
credit. At June 30, 2003, the portfolio of putable FHLB advances and putable
reverse repurchase agreements totaled $407.5 million, with an average effective
interest rate of 4.50%, and an average life to maturity and estimated average
life of 6.4 years. The estimated average life calculated by the
14
Bank may or may not mirror the counter-party's actual decision to exercise its
option to terminate 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.
At June 30, 2003, Capital Trust II had $10.0 million of 11.695% trust
preferred securities outstanding, with an average interest cost of 10.29%, that
mature in July 2030 unless the Company elects and obtains regulatory approval to
accelerate the maturity date to as early as July 2010.
At June 30, 2003, the Bank had commitments to originate loans and unused
outstanding lines of credit and undistributed balances of construction loans
totaling $717.2 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, 2003
totaled $385.7 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 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, 2003, the consolidated capital to total assets ratio of the
Company was 7.44%. The Company paid a cash dividend $0.10 per share to
stockholders during the first quarter of fiscal year 2004, and announced the
declaration of a quarterly cash dividend of $0.13 per share to stockholders for
payment during the second quarter of fiscal year 2004. 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.
As of June 30, 2003, the Company had repurchased 360,616 shares of Company
stock at an average price of $7.09 per share, or 56% of the 640,056 shares
authorized for repurchase under the Company's seventh stock repurchase program
announced on September 29, 2000. There was no stock repurchase activity during
the first quarter of fiscal year 2004. The Company has repurchased 4,973,806
shares since May 15, 1998.
At June 30, 2003, the Bank exceeded all of its regulatory capital
requirements. The Bank's Tier 1 core capital of $147.7 million, or 5.66% of
total adjusted assets, was above the required level of $104.4 million, or 4.0%;
risk-based capital of $160.2 million, or 10.58% of risk-weighted assets, was
above the required level of $121.1 million or 8.0%, and Tier 1 risk-based
capital of $147.7 million, or 9.41% of risk-weighted assets, was above the
required level of $60.6 million or 4.0%. The Bank also continued to exceed the
regulatory capital requirements for designation as a "well capitalized"
institution under the OTS prompt corrective action regulations of 5.0% for Tier
1 core capital, 10.0% for risk-based capital and 6% for Tier 1 risk-based
capital. The Trust Company is subject to similar regulatory capital
requirements, and exceeded all of its capital requirements at June 30, 2003.
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.
ITEM 4. CONTROLS AND PROCEDURES.
Under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, the Company evaluates the effectiveness of the design and operation of
its disclosure controls and procedures. Based on an evaluation of such controls
and procedures within 90 days of the filing date of this quarterly report, the
Chief Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures are effective. The Company made 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.
15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In the normal course of the Company's business, there are various
outstanding legal proceedings. In the opinion of management, based on
consultation with legal counsel, the financial position of the Company will not
be affected materially as a result of the outcome of such legal proceedings.
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.
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)
31.1 Certification of CEO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
31.2 Certification of CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
32.1 Certification of CEO and 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 on Form 8-K was filed on April 15, 2003, attaching a
press release announcing the date of the 2003 annual meeting of
shareholders.
A current report on Form 8-K was filed on April 25, 2003, attaching a
press release announcing the Company's financial results for the
quarter and fiscal year ended March 31, 2003.
A current report on Form 8-K was filed on June 27, 2003, attaching a
press release announcing a 2-for-1 stock split, payable on July 17,
2003 to record holders as of July 7, 2003.
16
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, 2003 /s/ Robert F. Stoico
-------------------------
Robert F. Stoico
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 2003 /s/ Edward A. Hjerpe III
-------------------------
Edward A. Hjerpe III
Executive Vice President, Chief Operating
Officer and Chief Financial Officer
(Principal Accounting and Financial Officer)
17