1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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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 0-17894
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FIRSTFEDERAL FINANCIAL SERVICES CORP
(Exact name of registrant as specified in its charter)
Ohio 34-1622711
- ---------------------------------- ---------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
135 East Liberty Street, Wooster, Ohio 44691
- ---------------------------------- ---------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (330) 264-8001
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $1.00 par value 5,227,886
- ----------------------------- ------------------------------------------
(Class) (Shares Outstanding at September 30, 1997)
This Form 10-Q contains 15 pages.
(No Exhibit Index)
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Explanatory Note Form 10-Q Amendment as of September 30, 1997:
FirstFederal Financial Services Corp. previously reported net earnings
of $4.2 million or $.71 per common share ($.55 diluted) for the third quarter
of 1997 on Form 10-Q which have been restated by amendment to Form 10-Q to $3.2
million or $.52 per common share ($.42 diluted) to reflect Summit Bank N.A.
(Summit) acquisition transaction costs of $1 million net of tax. These costs
originally were not included in the Company's third quarter 1997 earnings as
Summit had accrued for acquisition transaction costs in its second quarter
prior to Summit's inclusion in the Company's consolidated earnings.
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FIRSTFEDERAL FINANCIAL SERVICES CORP
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996 3
Consolidated Statements of Income for the Three Months and Nine Months
Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Nine Months Ended September, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-8
Management's Discussion and Analysis of Financial Condition and Results of
Operations 9-11
PART II. OTHER INFORMATION 12
Signatures 13
Exhibit 10 Material Contract
Exhibit 27 Financial Data Schedule
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FIRSTFEDERAL FINANCIAL SERVICES CORP
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, 1997 DECEMBER 31,
ASSETS (UNAUDITED) 1996 (1)
- ------ --------------- --------------
Cash and due from banks $ 33,788 $ 26,012
Securities available for sale 2 252,760 141,548
Securities held to maturity 3 74,255 84,984
Other short-term investments 37,546 9,000
Retained interest 27,632 6,491
Loans held for sale (Note 5) 72,087 87,071
Loans and Leases:
Residential Mortgage Loans 522,595 534,046
Commercial Loans 45,408 4,850
Commercial Mortgage Loans 53,043 17,370
Commercial Lease Financing 24,832 -
Finance Contracts 2,408 -
Manufactured Housing Loans 47,539 38,840
Consumer Loans 133,587 77,507
Allowance for credit losses (5,662) (2,916)
--------- --------
Net Loans and Leases 823,750 669,697
Bank premises and equipment 15,346 10,386
Goodwill (Note 6) 30,528 10,572
Other Assets 60,449 34,622
--------- --------
$1,428,141 $1,080,383
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing $ 46,122 $ 21,268
Interest bearing 878,005 650,650
--------- --------
Total Deposits 924,127 671,918
--------- --------
Short-term borrowings 124,366 122,281
Long term debt 210,048 190,132
Other Liabilities 27,979 10,765
Subordinated Debt 40,500 -
--------- --------
Total Liabilities 1,327,020 995,096
========= --------
Shareholders' Equity:
Preferred Stock, no par value:
authorized 1,500,000 shares;
series A 488,086 and 498,287
series B 429,892 and 479,327
issued and outstanding, respectively 21,277 22,693
Common Stock, $1.00 par value; authorized
20,000,000 shares; 5,614,621 and
4,053,194 issued and outstanding, respectively 5,614 4,053
Additional paid-in capital 34,620 29,568
Retained earnings 42,039 32,796
Treasury stock, at cost (386,735 and 428,484 shares, respectively) (2,023) (2,677)
Securities equity valuation account ( 406) (1,146)
---------- ----------
$ 101,121 $ 85,287
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(1) Derived from audited financial statements at December 31, 1996. $1,428,141 $1,080,383
========== ==========
(2) Amortized cost $249,514 and $143,310 for September 30, 1997 and
December 31, 1996, respectively.
(3) Market value $73,555 and $83,958 for September 30, 1997 and December 31,
1996, respectively.
See accompanying notes to consolidated financial statements.
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FIRSTFEDERAL FINANCIAL SERVICES CORP
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
INTEREST INCOME:
Loans and leases $ 18,383 $ 15,076 $ 48,082 $ 40,700
Securities available for sale 4,932 2,088 10,893 8,353
Securities held to maturity 1,221 1,451 3,949 4,303
Other 352 266 974 763
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 24,888 18,881 63,898 54,119
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Deposits 9,114 7,412 24,434 21,408
Short-term borrowings 2,562 1,740 6,448 3,503
Long-term debt 4,974 3,230 11,975 9,969
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 16,650 12,382 42,857 34,880
---------- ---------- ---------- ----------
NET INTEREST INCOME 8,238 6,499 21,041 19,239
Provision for credit losses 265 90 542 270
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 7,973 6,409 20,499 18,969
---------- ---------- ---------- ----------
NON-INTEREST INCOME:
Manufactured housing income 5,057 3,718 12,739 7,732
Mortgage banking income 1,886 120 3,366 1,525
Customer service fee income 971 576 2,984 1,727
Net securities gains 279 -- 353 326
Other 421 468 1,409 438
---------- ---------- ---------- ----------
TOTAL NON-INTEREST INCOME 8,614 4,882 20,851 11,748
---------- ---------- ---------- ----------
NON-INTEREST EXPENSE:
Personnel 4,613 2,784 11,301 7,149
Net occupancy expense 874 538 2,033 1,455
Outside services, data processing & communications 1,052 569 2,444 1,708
Professional fees 414 228 927 683
Amortization of goodwill 354 339 1,019 761
Non-Recurring Charges 1,209 3,341 1,209 3,341
Other 2,844 2,203 6,054 5,117
---------- ---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE 11,360 10,002 24,987 20,214
---------- ---------- ---------- ----------
Income before income taxes 5,227 1,289 16,363 10,503
Provision for income taxes 2,021 507 5,896 3,818
---------- ---------- ---------- ----------
NET INCOME $ 3,206 $ 782 $ 10,467 $ 6,685
========== ========== ========== ==========
NET INCOME APPLICABLE TO COMMON STOCK $ 2,816 $ 365 $ 9,268 $ 5,403
========== ========== ========== ==========
NET INCOME PER COMMON SHARE
PRIMARY $ .52 $ .08 $ 1.88 $ 1.22
DILUTED $ .42 $ .11 $ 1.45 $ .98
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
PRIMARY 5,398,730 4,590,346 4,938,700 4,426,294
DILUTED 7,608,282 6,951,208 7,212,879 6,875,215
See accompanying notes to consolidated financial statements.
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FIRSTFEDERAL FINANCIAL SERVICES CORP
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1996
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,467 $ 6,685
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses 542 270
Net gains from sales (8,064) (1,415)
Accretion of discounts, amortization of premiums and depreciation, net 2,460 1,353
Proceeds from sale of loans held for sale 217,978 58,798
Disbursements for loans held for sale (213,807) (31,897)
Other (16,470) (16,477)
--------- ---------
Net cash provided by operating activities 26,046 17,317
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated (336,076) (396,584)
Loan principal payments 245,542 143,930
Proceeds from sales of:
Securities available for sale 43,177 87,779
Proceeds from maturities of:
Available for sale securities 47,612 47,449
Held to maturity securities 13,987 7,113
Net change in repossessed assets (362) 283
Purchases of:
Available for sale securities (139,338) (41,895)
Held to maturity securities (47,979) (9,638)
Net change in other short-term investments (28,546) 6,872
Net cash received in acquisitions 108,239 24,606
Net change in retained interest - -
Purchase of premises and equipment, net (3,394) (2,233)
--------- ---------
Net cash used by investing activities (97,138) (132,268)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits, excluding acquisitions 28,618 37,925
Proceeds from Federal Home Loan Bank advances 214,821 244,000
Repayments on Federal Home Loan Bank advances (275,913) (177,748)
Net proceeds from subordinated debt and other borrowings 115,593 18,193
Net decrease in advance payments by borrowers for taxes and insurance (1,793) (2,220)
Repurchase of common and preferred stock - (2,375)
Proceeds from common stock transactions 256 5,883
Payment of cash dividends (2,714) (2,515)
--------- ---------
Net cash provided by financing activities 78,868 121,143
--------- ---------
Net increase in cash & due from banks 7,776 6,192
Cash and due from banks at beginning of year 26,012 18,621
--------- ---------
Cash and due from banks at end of period $ 33,788 $ 24,813
========= =========
See accompanying notes to consolidated financial statements.
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FIRSTFEDERAL FINANCIAL SERVICES CORP
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principals for interim
financial information and the instructions to Form 10-Q. It is assumed that the
readers of these interim financial statements have read or have access to the
1996 Annual Report of FirstFederal Financial Services Corp ("FirstFederal" or
the "Company"). Therefore, only material changes in financial condition and
results of operations are discussed in Management's Discussion and Analysis. The
interim consolidated financial statements include the accounts of FirstFederal,
its subsidiaries, Mobile Consultants, Inc. ("MCI") and Signal Bank, N.A.
("Signal") and the Bank's subsidiaries including Alliance Corprate Resources
("ACR"), which was acquired during the third quarter of 1997. Also included in
the interim consolidated financial statements is Summit Bank, N.A. ("Summit"),
which was acquired in the third quarter of 1997. All significant intercompany
transactions have been eliminated.
In the opinion of management, the Consolidated Financial Statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial condition of FirstFederal as of
September 30, 1997 and December 31, 1996, and the results of its operations for
the nine months ended September 30, 1997 and 1996, and its cash flows for the
nine months ended September 30, 1997 and 1996. The results of operations for the
interim period reported herein are not necessarily indicative of results of
operations to be expected for the entire year. Financial statement
reclassifications have been made for 1996 to conform to classifications used in
1997.
(2) Earnings Per Share of Common Stock
Primary earnings per share were computed based on the weighted average
number of common shares and common stock equivalent shares outstanding during
the period, after giving effect to the reduction of earnings by the dividend
paid on the Series A and Series B cumulative serial preferred stock. Exercisable
stock options are included as common share equivalents. The fully diluted
earnings per share assume the conversion of the Series A and Series B cumulative
serial preferred stock. On April 16, 1997, the Board of Directors declared a
five-for-four stock split, effected as a 25% stock dividend, granted to
shareholders of record on May 2, 1997. All share and per share data presented
herein have been restated for the effect of the stock dividends in 1997 and
1996. Primary earnings per share and diluted earnings per share for the three
months ended September 30, 1997 were $.71 and $.55, respectively.
(3) Cash Dividends on Common and Preferred Stock
In addition to the stock dividend discussed previously, the Company
announced a quarterly cash dividend of $.11 per common share. The dividend was
paid on August 22, 1997 to shareholders of record as of August 4, 1997 on
post-split shares. The Board also declared dividends of $ .4375 per share on the
Cumulative Convertible, Series A, Preferred stock and $.40625 per share on the
Cumulative Convertible, Series B, Preferred stock. These dividends were paid on
September 2, 1997 to shareholders of record as of August 11, 1997.
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(4) Recently Issued Accounting Standards
In February 1997, the FASB issued SFAS No. 128, Earnings per Share, which
supersedes Accounting Principles Board (APB) No. 15, Earnings per Share, and
replaces the presentation of primary and fully diluted earnings per share with
basic and diluted earnings per share. SFAS No. 128 was issued to simplify the
computation of earnings per share and make the U. S. Standard more compatible
with the earnings per share standards of other countries and that of the
International Accounting Standards Committee (ISAC). SFAS No. 128 is effective
for financial statements for both interim and annual periods ending after
December 15, 1997. Earlier application is not permitted, however, pro forma
earnings per share is permitted for periods prior to required adoption. The
following table discloses pro forma EPS pursuant to SFAS No. 128 for the nine
months ended September 30, 1997 and September 30, 1996.
Nine months ended September 30,
1997 1996
----------------------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------- ------------------------------------
Basic EPS
Income available to
common stockholders $ 9,268 4,796 $1.93 $5,403 4,426 $1.22
Effect of Dilutive Securities
Stock options 171 0.04 62 0.02
Convertible Preferred Stock 2,246 0.44 2,387 0.22
Diluted EPS
Income available to
common stockholders 9,268 5,403
Convertible Preferred Divid 1,199 1,282
------- ----- ----- ------ ----- -----
Net Earnings $10,467 7,213 $1.45 $6,685 6,875 $0.98
SFAS No. 130, "Reporting Comprehensive Income" was issued in June, 1997 and is
effective for fiscal years beginning after December 15, 1997. The Statement
requires additional reporting of items that affect comprehensive income but not
net income. Examples of these items relevant to the Company include unrealized
gains and losses on securities. Upon its adoption, this statement will result in
additional financial statement disclosures.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" was issued in June, 1997 and is effective for fiscal years
beginning after December 15, 1997. The statement requires financial disclosure
and descriptive information about reportable operating segments. Upon its
adoption, this statement will result in additional financial statement
disclosures.
(5) Loans Held for Sale
Loans held for sale include $22.1 million of residential mortgage loans
and $50 million of manufactured housing loans as of September 30, 1997 compared
to $37.1 million of residential mortgage loans and $50 million of manufactured
housing loans as of December 31, 1996.
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(6) Acquisitions
On July 1, 1997, the Bank completed the acquisition of the stock of
Alliance Corporate Resources, Inc. ("ACR"). ACR originates lease financing of
information technology equipment and provides information technology management
consulting services. ACR has office locations in Columbus, Ohio and Richmond,
Virginia. ACR shareholders received a payment of $2 million for 100% of their
shares and will participate in future ACR earnings for five years. The
acquisition was accounted for under the purchase of stock method. ACR originated
$21 million in lease transactions for the year ended December 31, 1996. At June
30, 1997, ACR had total assets of $22.8 million.
On July 8, 1997, the Company completed the acquisition of the stock
of Summit Bancorp (Summit) which has two subsidiaries, Summit Bank, N.A. and
Summit Bank Investments Corp. Under the terms of the agreement, FirstFederal
exchanged 2.3375 shares, of its common stock for each of the 234,891 shares of
Summit stock. Based on the average of FirstFederal's closing bid and ask price
of $40.50 on July 8, 1997, the transaction value was approximately $24.4
million. The merger was accounted for as a pooling of interests. Summit merger
transaction costs of $1.2 million ($1 million net of tax) were recorded by the
Company in the third quarter ended September 30, 1997. Summit Bancorp's
subsidiary, Summit Bank, has two commercial banking offices located in Summit
County, Ohio. At June 30, 1997, Summit had total assets of $88.6 million,
deposits of $72.8 million, and shareholders equity of $6.0 million.
On September 15, 1997, Signal Bank completed the acquisition of seven
branches of KeyBank, National Association, which have approximately $158 million
in deposits and are located in the cities of Bucyrus, Crestline, Cygnet, Galion,
Tiffin, Wayne and Willard in north central and north western Ohio. The purchase
price was equal to 12.15% of average deposits measured just prior to closing
resulting in approximately $19 million in goodwill which will be amortized over
ten years.
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FIRSTFEDERAL FINANCIAL SERVICES CORP
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
The Company had net earnings of $3.2 million, or $0.52 per common
share, and $10.5 million, or $1.88 per common share, for the three and nine
month periods ended September 30, 1997, respectively. This compares favorably to
$3.0 million, or $0.55 per common share, and $8.9 million, or $1.71 per common
share for the respective three and nine month periods ended September 30, 1996.
Excluding non-recurring charges recorded in the third quarter of both years,
net earnings for the three month period ended September 30, 1997 were $4.2
million, or $.71 per common share ($.55 fully diluted) compared to $3 million
or $.64 per common share ($.42 fully diluted) for 1996. FirstFederal continues
to provide value to shareholders by generating higher levels of non-interest
income, while controlling operating expenses. Increased earnings year-to-date
in 1997 compared to 1996 reflect higher net interest income of $1.8 million,
higher manufactured housing income of $5.1 million and higher mortgage banking
income of $1.8 million partially offset by an increase in non-interest expense
of $4.8 million related to a higher volume of asset originations.
Return on average assets (ROA) before non-recurring charges for the
quarter and nine months ended September 30, 1997, was 1.26% and 1.27% as
compared to 1.10% and 1.15%, for the comparable periods of 1996, respectively.
Return on average shareholders' equity (ROE) before non-recurring charges for
the quarter and nine months ended September 30, 1997 was 17.0% and 16.7% as
compared to 14.1% and 14.7%, for the comparable periods in 1996, respectively.
The Company's ratio of shareholders' equity to total assets decreased from
7.89% at December 31, 1996 to 7.08% at September 30, 1997. Total assets of the
Company grew 32% to $1.43 billion at September 30, 1997, as compared to $1.08
billion at December 31, 1996.
Net interest income increased $1.7 million from $6.5 million in the third
quarter of 1996 to $8.2 million in the third quarter of 1997. This increase
reflects growth in average loan and lease balances of $102 million and a $156
million increase in the average securities balances for the three month period
ended September 30, 1997 compared to 1996. Increased loan and lease balances in
the third quarter of 1997 include $66.3 million and $20.1 million reflecting the
acquisition of Summit and ACR, respectively. The net interest margin increased 2
basis points from 2.59% to 2.61% for the three months ended September 30, 1996
and 1997 respectively. The improved margin is attributed primarily to the
acquisition of Summit in the third quarter of 1997. Summit, on a stand alone
basis, has a net interest margin of 4.0%. Yields on average interest-earning
assets increased 36 basis points in the third quarter of 1997 compared to those
in the third quarter of 1996, primarily due to a favorable change in the mix of
loans and leases to higher yielding assets and the acquisitions of Summit and
ACR. The average cost of interest-bearing liabilities increased 30 basis points
to 5.45% for the three months ended September 30, 1997 compared to 5.15% for the
similar period in 1996. This increase in cost of funds was primarily due to
increased rates paid on borrowings, particularly the subordinated notes.
The provision for credit losses was $265,000 in the third quarter of 1997
and $90,000 in the third quarter of 1996. The increased provision was due
primarily to a continuing increase in commercial and consumer loan originations
which inherently have a higher risk level than residential mortgage loans. Net
chargeoffs for the third quarter were .02 % of average loans and leases,
compared with .01% for last quarter and .01% for the third quarter of 1996.
Nonperforming assets as a percentage of total assets was .31% at September 30,
1997 and .16% at September 30, 1996.
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Non-interest income increased $3.7 million for the third quarter of 1997
versus third quarter 1996 reflecting a $1.3 million increase in manufactured
housing income, the majority of which was contributed by a $1.8 million gain on
the Company's fourth $50 million asset-backed securitization of manufactured
housing loans sold in August 1997. The additional increase in non-interest
income for the quarter is primarily higher gains on sales of mortgage loans.
Non-interest expense before non-recurring charges increased $3.5
million to $10.2 million for the quarter ended September 30, 1997 as compared
to the third quarter of 1996. The increase is comprised primarily of higher
compensation expense generated from the increase in staff associated with the
Company's investments in Summit, ACR and additional commercial and manufactured
housing loan origination capacity. While the dollar amount of non-interest
expense has increased, FirstFederal's efficiency ratio before non-recurring
charges remains fairly consistent at 58.14% for the third quarter of 1997 as
compared to 56.05% for the same quarter in 1996.
Material Changes in Financial Condition
- ---------------------------------------
The material changes that have occurred in the Company's financial
condition during 1997 are as follows ($000's):
Sept. 30 Dec. 31,
1997 1996 $ +/- % +/-
--------- --------- ------- ------
Securities available for sale $252,760 $141,548 $111,212 78.6%
Retained interest 27,632 6,491 21,141 325.7%
Net loans and leases 823,750 669,697 154,053 23.0%
Goodwill 30,528 10,572 19,956 188.8%
Deposits 924,127 671,918 252,209 37.5%
The increase in securities available for sale reflects efforts to leverage the
proceeds of the subordinated debt offering using a wholesale strategy whereby
approximately $100 million of short duration mortgage-backed securities were
purchased using short-term borrowings at a positive spread.
Retained interest increased reflecting completion of three asset-backed
securitizations (ABS) of manufactured housing loans totaling $150 million sold
in 1997. In such transactions, the Company receives a fee for servicing the
loans and receives net interest revenues generated by the loans removed from the
balance sheet which exceed the interest due investors and net credit losses. The
excess interest revenues are recognized as servicing income. As a result of such
securitizations, the Company has recorded an asset known as "retained interest",
which consists of an over collateralization of loans in the various securitized
pools and the unamortized balance of the present value of the interest rate
differential resulting from the sale of loans with servicing rights retained.
The retained interest is amortized over the estimated life of the underlying
loans sold. The carrying value of the retained interest is analyzed quarterly by
management to determine whether prepayment and default experience has any impact
on the carrying value.
Net loans and leases increased reflecting the acquisitions of Summit and ACR as
well as 1997 loan originations, net of loan sales. The Summit acquisition
contributed a loan portfolio of $66.3 million. The ACR acquisition contributed a
lease portfolio of $20.1 million. Loan originations for 1997 were as follows:
residential mortgage loans $172.8 million, manufactured housing loans $227.5
million, consumer loans $70.6 million, commercial mortgage loans $24.2 million
and commercial loans $43.9 million.
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Goodwill increased reflecting the acquisition of seven branches from KeyBank,
N.A. on September 15, 1997 and the acquisition of ACR.
The increase in deposits reflects $150.6 million in deposits obtained from the
KeyBank branch acquisition and $73.6 million of deposits obtained with the
Summit acquisition.
Liquidity and Capital Resources
- -------------------------------
The maintenance of an adequate level of liquidity is necessary to ensure that
sufficient funds are available to meet customers' loan demand and deposit
withdrawals. The banking subsidiaries' liquidity sources consist of short-term
marketable securities, maturing loans and selected securitizable loan assets.
Liquidity has also been obtained through liabilities such as customer-related
core deposits, funds borrowed, certificates of deposit and public funds
deposits. The Company has additional borrowing capacity with the Federal Home
Loan Bank of Cincinnati and additional collateral eligible for repurchase
agreements in the event internally generated funds are insufficient to meet
liquidity needs. The Company anticipates that it has adequate liquidity and
additional sources of funds to meet all of its foreseeable commitments.
At September 30, 1997, shareholders' equity was $101 million, compared to $ 85
million at December 31, 1996, an increase of $16 million, or 18.8%, primarily
reflecting the Summit acquisition as well as net income for the nine months
ending September 30, 1997, net of dividends. Shareholders' equity as a
percentage of total assets as of September 30, 1997 was 7.08% compared to 7.89%
as of December 31, 1996. The Federal Reserve Board has adopted risk-based
capital guidelines which assign risk weightings to assets and off-balance sheet
items and also define and set minimum capital requirements (risk-based capital
ratios). The guidelines also define "well capitalized" ratios of Tier 1, total
capital and leverage as 6%, 10% and 5%, respectively. The Company exceeded these
"well capitalized" ratios as of September 30, 1997 and December 31, 1996. At
September 30, 1997, the Company had a Tier 1 risk-based capital ratio of 10.23%,
a total risk-based capital ratio of 10.79% and a leverage ratio of 6.85%. At
December 31, 1996, the Company had a Tier 1 risk-based capital ratio of 11.1%,
a total risk-based capital ratio of 11.53% and a leverage ratio of 6.42%.
The Company issued $40.5 million in 9.125% subordinated debt in March 1997 which
was used to pay down short-term borrowings, provide funds for loan originations
and as a source of additional capital to support future growth activities.
Interest on the subordinated debt is payable semiannually beginning in September
1997, and the debt is redeemable at the option of the Company any time after
June 30, 2002 until its maturity date of June 30, 2004.
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PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 5. Other Information
----- -----------
Change in Directors
-------------------
On July 2, 1997, Director Robert F. Belden resigned from the Board
due to his equity investment in the Company exceeding limits
mandated by federal banking regulators.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit 10 - Material Contract - Branch Purchase and
Assumption Agreement by and between KeyBank National
Association and First Federal Savings and Loan Association
of Wooster, dated as of May 16, 1997.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
-------------------
One report on Form 8-K was filed on July 10, 1997. This
report discussed the acquisitions of Summit Bancorp and
Alliance Corporate Resources, which both closed during the
third quarter of 1997.
All other items have been omitted as not required and not applicable under the
instructions.
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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.
FIRSTFEDERAL
FINANCIAL SERVICES CORP
-----------------------
(Registrant)
Date November 14, 1997 /s/ Gary G. Clark
------------------------- --------------------------------
Gary G. Clark
Chairman and
Chief Executive Officer
(Duly Authorized Representative)
Date November 14, 1997 /s/ James J. Little
------------------------- --------------------------------
James J. Little
Executive Vice President,
Chief Financial Officer
(Principal Financial and Accounting Officer)
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