FED Firstfed Financial Corp

FirstFed Financial Corp. (NYSE:FED), parent company of First Federal Bank of California, today announced a net loss of $51.6 million or $3.77 per diluted share of common stock for the third quarter of 2008 compared to a net loss of $35.5 million or $2.60 per diluted share of common stock for the second quarter of 2008 and net income of $23.0 million or $1.57 per diluted share of common stock for the third quarter of 2007. The third quarter loss resulted primarily from a $110.3 million provision for loan losses. The loan loss provision was due to ongoing charge-offs and modifications of single family loans as well as the continuing weakness in the California real estate market. The Company recorded a $90.2 million provision for loan losses during the second quarter of 2008 and a $4.5 million loan loss provision during the third quarter of 2007. Non-accrual single family loans (loans greater than 90 days delinquent or in foreclosure) decreased to $445.2 million as of September 30, 2008 from $491.7 million at June 30, 2008. In comparison, single family non-accrual loans were $179.7 million at December 31, 2007 and $83.0 million at September 30, 2007. Single family loans less than 90 days delinquent increased to $212.1 million at September 30, 2008 from $207.7 million at June 30, 2008 and decreased compared to $273.3 million at March 31, 2008 and $236.7 million at December 31, 2007. Single family loans less than 90 days delinquent were $71.7 million as of September 30, 2007. The level of delinquent loans during 2008 was significantly impacted by adjustable rate mortgages that reached their maximum allowable negative amortization and required an increased payment. The Bank estimates that 1,560 loans with balances totaling approximately $722.8 million were scheduled to recast during the nine months of 2008. 181 loans with balances totaling approximately $79.5 million are scheduled to recast during the remainder of 2008. Another 1,304 loans, with balances totaling $577.9 million, are scheduled to recast during 2009. In comparison, 1,801 loans with balances totaling approximately $823.0 million were scheduled to recast during 2007. All of the recasts during 2007 occurred during the last two quarters of that year. The Bank continues to actively reach out to borrowers faced with loan recasts to encourage them to modify their loans before the recast date. Total modified loans were $559.0 million as of September 30, 2008. Among these modified loans, $542.8 million were considered troubled debt restructurings (�TDRs�) and valuation allowances of $42.7 million were established as of September 30, 2008. Another $16.2 million in adjustable rate mortgages were modified as of September 30, 2008 but were not considered TDRs, and therefore no valuation allowances were established. Modified loans totaled $308.7 million at June 30, 2008, $108.1 million at March 31, 2008, and $1.8 million at December 31, 2007. At September 30, 2007, the Bank had $1.1 million in modified loans. Third quarter net earnings were also impacted by lower net interest income which decreased by $16.4 million or 26% compared to the third quarter of 2007. Net interest income decreased due to lower interest-earning assets, increased non-accrual loans and lower interest rate spreads compared to the prior year. Net interest income for the third quarter was approximately the same as the second quarter due to similar levels of interest-earning assets and interest rate spread. On a year-to-date basis, the Company reported a net loss of $156.9 million or $11.48 per diluted share for the nine months ended September 30, 2008 compared to net income of $84.5 million or $5.25 per diluted share for the nine months ended September 30, 2007. The year-to-date loss was attributable to the increased loan loss provision recorded during the nine months of 2008 and a 32% decrease in net interest income compared to the same period of the prior year. Net loan charge-offs totaled $103.4 million and $212.3 million for the third quarter and the nine months ended September 30, 2008 compared to $3.2 million and $4.9 million for the third quarter and the nine months ended September 30, 2007. The Bank�s non-performing assets to total assets ratio decreased to 7.87% at September 30, 2008 from 8.20% at June 30, 2008, but increased compared to 2.79% at December 31, 2007 and 1.40% at September 30, 2007. The decrease from the second quarter of 2008 to the third quarter of 2008 was due to lower levels of single family non-accrual loans at the end of the third quarter. Total allowances for loan losses (general valuation allowances plus allowances for impaired loans) as a percentage of gross loans were 3.96% or $264.1 million at September 30, 2008, consistent with 3.96% or $259.7 million at June 30, 2008. In comparison, loan loss allowances were 1.93% or $128.1 million as of December 31, 2007 and 1.73% or $116.2 million at September 30, 2007. Allowances allocated to single family loans were 5.5% of gross single family loans at both September 30, 2008 and June 30, 2008. Sales of real estate owned resulted in net gains of $10.8 million for the third quarter of 2008 and $20.5 million for the nine months of 2008. The gains recorded during 2008 resulted from write downs at the time of foreclosure which created gains upon the ultimate disposition of the properties. Offsetting these gains were additional write downs taken on real estate loans during their holding period that amounted to $6.7 million for the third quarter and $13.2 million for the nine months of 2008. In comparison, net gains of $51 thousand were recorded during the third quarter of 2007 and net losses of $29 thousand were recorded for the nine months of 2007. Holding costs associated with foreclosed real estate totaled $4.4 million and $8.7 million during the third quarter and the nine months of 2008 compared to $452 thousand and $1.0 million during the third quarter and the nine months of 2007. Net interest income was $45.8 million and $139.8 million during the third quarter and the nine months ended September 30, 2008 compared to $62.2 million and $207.1 million during the third quarter and the nine months ended September 30, 2007. Net interest income decreased during 2008 compared to 2007 due to declines in average interest-earning assets and lower net interest spreads. Due to loan payoffs, average interest-earning assets decreased by 4% during the third quarter of 2008 compared to the third quarter of 2007 and 13% during the nine months of 2008 compared to same period of 2007. The interest rate spread decreased by 54 basis points during the third quarter of 2008 compared to the third quarter of 2007 and the interest rate spread decreased by 59 basis points during the nine months of 2008 compared to the nine months of 2007. The decreased spreads were primarily caused by interest lost on non-performing loans which lowered the loan yield by 82 basis points during the third quarter of 2008 and 90 basis points during the nine months of 2008. Loan originations were $479.3 million and $1.3 billion during the third quarter and the nine months ended September 30, 2008 compared to $262.9 million and $702.8 million during the third quarter and the nine months ended September 30, 2007. Single family loans comprised 62% of loan originations during the third quarter of 2008 compared with 63% of loan originations during the third quarter of 2007. Multi-family and commercial real estate loans comprised 36% of loan originations during both the third quarter of 2008 and the third quarter of 2007. Total assets were $7.4 billion at September 30, 2008 and September 30, 2007. Due to increased loan originations during the nine months of 2008, total assets at September 30, 2008 slightly increased from $7.2 billion at December 31, 2007. Negative amortization, included in the balance of loans receivable, totaled $289.6 million at September 30, 2008 compared to $301.7 million at December 31, 2007 and $290.0 million at September 30, 2007. Negative amortization represents unpaid interest earned by the Bank that is added to the principal balance of the loan. Due to decreased interest rates on the indices underlying the Bank�s adjustable rate mortgages, negative amortization decreased by $12.7 million and $12.1 million for the third quarter and the nine months ended September 30, 2008. In comparison, negative amortization increased by $22.5 million and $74.2 million for the third quarter and the nine months of 2007. Negative amortization as a percentage of all single family loans that allow negative amortization totaled 9.29% at September 30, 2008 compared to 7.68% at December 31, 2007, and 7.08% at September 30, 2007. The portfolio of adjustable single family loans with one-year fixed monthly payments totaled $2.5 billion at September 30, 2008 compared to $3.2 billion at December 31, 2007 and $3.4 billion at September 30, 2007. The portfolio of adjustable single family loans with three-to-five year fixed monthly payments totaled $784.4 million at September 30, 2008 compared to $1.1 billion at December 31, 2007 and $1.2 billion at September 30, 2007. Non-interest expense was $23.2 million and $70.4 million for the third quarter and the nine months ended September 30, 2008 compared to $19.1 million and $60.9 million for the third quarter and the nine months ended September 30, 2007. The ratio of non-interest expense to average total assets was 1.28% and 1.30% for the third quarter and the nine months ended September 30, 2008 compared to 1.02% and 0.99% for the third quarter and the nine months ended September 30, 2007. The increase in non-interest expense during the third quarter of 2008 compared to the third quarter of 2007 was due primarily to holding costs associated with foreclosed real estate, increased federal deposit insurance costs and increased legal costs. Legal costs in the third quarter of 2007 were lower because of the reversal of accrued legal expense due to the favorable outcome of a pending legal matter. The increase in non-interest expense during the nine months of 2008 compared to the nine months of 2007 was due to increased holding costs on foreclosed real estate, increased federal deposit insurance costs, increased legal costs, increased occupancy costs due to the opening of new branches and a $1.1 million lease write-off for the former corporate headquarters during the first quarter of 2008. The Bank�s risk-based capital ratio was 15.87% at September 30, 2008 and its core and tangible capital ratios were 8.38%, which were in excess of the 10% and 5% ratios, respectively, required by the Bank�s federal regulators to be considered well capitalized. First Federal Bank of California operates 38 retail banking offices in Southern California. In keeping with the Bank�s retail branch expansion plan, three new retail branches were opened during the nine months of 2008. Two more branches are expected to be opened later this year. The Bank operates a central lending office in Los Angeles with agents throughout California. This news release contains certain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Act of 1995. These forward-looking statements are subject to various factors, many of which are beyond the Company�s control, which could cause actual results to differ materially from such statements. Such factors include, but are not limited to, the general business environment, interest rate fluctuations that may affect operating margin, changes in laws and regulations affecting the Company�s business, the California real estate market, and competitive conditions in the business and geographic areas in which the Company conducts its business and regulatory actions. In addition, these forward-looking statements are subject to assumptions as to future business strategies and decisions that are subject to change. The Company makes no guarantees or promises regarding future results and assumes no responsibility to update such forward-looking statements. KEY FINANCIAL RESULTS FOLLOW FIRSTFED FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except share data) (Unaudited) � � September 30, 2008 December 31, 2007 ASSETS Cash and cash equivalents $ 62,661 $ 53,974 Investment securities, available-for-sale (at fair value) 329,042 316,788 Mortgage-backed securities, available-for-sale (at fair value) 41,510 46,435 Loans receivable, net of allowances for loan losses of $264,092 and $128,058 � 6,395,706 6,518,214 Accrued interest and dividends receivable 32,260 45,492 Real estate owned, net (REO) 132,957 21,090 Office properties and equipment, net 21,140 17,785 Investment in Federal Home Loan Bank (FHLB) stock, at cost 130,496 104,387 Other assets 209,524 � 98,816 � $ 7,355,296 � $ 7,222,981 � � LIABILITIES Deposits $ 4,328,850 $ 4,156,692 FHLB advances 2,313,000 2,084,000 Securities sold under agreements to repurchase � 120,000 Senior debentures 150,000 150,000 Accrued expenses and other liabilities 64,250 � 57,790 � 6,856,100 � 6,568,482 � � COMMITMENTS AND CONTINGENCIES � STOCKHOLDERS' EQUITY Common stock, par value $.01 per share; authorized 100,000,000 shares; issued 24,002,093 and 23,970,227 shares; outstanding 13,684,553 and 13,640,997 shares � 240 � 240 Additional paid-in capital 57,176 55,232 Retained earnings 708,532 865,411 Unreleased shares to employee stock ownership plan (31 ) (339 ) Treasury stock, at cost, 10,317,540 and 10,329,230 shares (266,040 ) (266,040 ) Accumulated other comprehensive loss, net of taxes (681 ) (5 ) 499,196 � 654,499 � $ 7,355,296 � $ 7,222,981 � � FIRSTFED FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (Dollars in thousands, except per share data) (Unaudited) � � Three months ended September 30, Nine months ended September 30, 2008 � 2007 2008 � 2007 Interest and dividend income: Interest on loans $ 93,141 $ 134,090 $ 297,807 $ 445,923 Interest on mortgage-backed securities 427 636 1,543 2,026 Interest and dividends on investments 6,356 � 5,687 � 17,754 � 17,617 � Total interest income 99,924 � 140,413 � 317,104 � 465,566 � Interest expense: Interest on deposits 32,280 50,606 105,738 165,724 Interest on borrowings 21,864 � 27,628 � 71,541 � 92,753 � Total interest expense 54,144 � 78,234 � 177,279 � 258,477 � � Net interest income 45,780 62,179 139,825 207,089 Provision for loan losses 110,300 � 4,500 � 350,800 � 11,400 � Net interest (loss) income after provision for loan losses (64,520 ) 57,679 � (210,975 ) 195,689 � � Other income: Loan servicing and other fees 149 550 3,407 2,364 Banking service fees 1,848 1,663 5,306 5,035 Gain on sale of loans � 308 20 4,746 Net gain (loss) on real estate owned 4,170 (1,625 ) 7,357 (1,814 ) Other operating income 2,374 � 610 � 5,098 � 1,369 � Total other income 8,541 � 1,506 � 21,188 � 11,700 � � Non-interest expense: Salaries and employee benefits 11,105 12,366 35,456 37,119 Occupancy 3,029 3,295 10,932 9,095 Advertising 284 194 619 636 Amortization of core deposit intangible 127 127 380 752 Federal deposit insurance 1,074 743 2,970 2,295 Data processing 559 535 1,667 1,738 OTS assessment 439 501 1,347 1,654 Legal 421 (1,352 ) 1,604 (359 ) Real estate owned operations 4,353 452 8,742 1,007 Other operating expense 1,776 � 2,253 � 6,642 � 6,964 � Total non-interest expense 23,167 � 19,114 � 70,359 � 60,901 � � (Loss) income before income taxes (79,146 ) 40,071 (260,146 ) 146,488 Income taxes (benefit) expenses (27,560 ) 17,070 � (103,267 ) 62,032 � Net (loss) income $ (51,586 ) $ 23,001 � $ (156,879 ) $ 84,456 � � Net (loss) income $ (51,586 ) $ 23,001 $ (156,879 ) $ 84,456 Other comprehensive (loss) income, net of taxes (benefits) (756 ) 761 � (676 ) 50 � Comprehensive (loss) income $ (52,342 ) $ 23,762 � $ (157,555 ) $ 84,506 � � (Loss) earnings per share: Basic $ (3.77 ) $ 1.58 � $ (11.48 ) $ 5.32 � Diluted $ (3.77 ) $ 1.57 � $ (11.48 ) $ 5.25 � � Weighted average shares outstanding: Basic 13,668,576 � 14,536,615 � 13,663,059 � 15,865,884 � Diluted 13,668,576 � 14,693,226 � 13,663,059 � 16,075,136 � � FIRSTFED FINANCIAL CORP. AND SUBSIDIARY � KEY FINANCIAL RESULTS (Unaudited) � � � Quarter ended September 30, 2008 2007 � � (Dollars in thousands, except per share data) End of period: Total assets $ 7,355,296 $ 7,368,096 Cash and securities $ 391,703 $ 441,908 Mortgage-backed securities $ 41,510 $ 47,293 Loans, net $ 6,395,706 $ 6,632,610 Core deposit intangible asset $ 84 $ 591 Deposits-retail and commercial $ 3,080,602 $ 3,293,005 Deposits-wholesale $ 1,248,248 $ 1,173,514 Borrowings $ 2,463,000 $ 2,171,000 Stockholders' equity $ 499,196 $ 642,832 Book value per share $ 36.48 $ 47.14 Tangible book value per share $ 36.47 $ 47.10 Stock price (period-end) $ 7.84 $ 49.55 Total loan servicing portfolio $ 6,948,390 $ 6,870,204 Loans serviced for others $ 55,205 $ 66,904 % of adjustable mortgages 73.51 % 94.45 % � Other data: Employees (full-time equivalent) 606 606 Branches 38 33 � Asset quality: Real estate owned (foreclosed) $ 132,957 $ 18,728 Non-accrual loans $ 446,186 � $ 84,218 � Non-performing assets $ 579,143 $ 102,946 Non-performing assets to total assets 7.87 % 1.40 % � Single family loans delinquent less than 90 days $ 212,096 $ 71,654 � General valuation allowance (GVA) $ 221,360 $ 116,224 Allowance for impaired loans 42,732 � � � Allowance for loan losses $ 264,092 116,224 Allowance for loan losses as a percentage of gross loans receivable � 3.96 % 1.73 % � Loans sold with recourse $ 37,720 $ 45,457 Modified loans (not impaired) $ 16,157 $ 1,090 Impaired loans, net $ 530,809 $ 16,385 � Capital ratios: Tangible capital ratio 8.38 % 10.61 % Core capital ratio 8.38 10.61 Risk-based capital ratio 15.87 21.44 Net worth to assets ratio 6.79 8.72 � FIRSTFED FINANCIAL CORP. AND SUBSIDIARY � KEY FINANCIAL RESULTS (continued) (Unaudited) (Dollars in thousands) � � Three months ended September 30, Nine months ended September 30, 2008 � 2007 2008 � 2007 (Dollars in thousands) Selected ratios: Expense ratios: Efficiency ratio 42.65 % � 30.01 % � 43.70 % � 27.84 % Expense to average assets ratio 1.28 1.02 1.30 0.99 Return on average assets (2.84 ) 1.22 (2.90 ) 1.37 Return on average equity (39.30 ) 13.46 (36.51 ) 16.07 � Yields earned and rates paid: Average yield on loans 5.85 % � 7.93 % � 6.21 % � 7.97 % Average yield on investment portfolio 4.92 5.55 5.03 5.49 Average yield on all interest-earning assets 5.78 7.78 6.13 7.82 Average rate paid on deposits 3.12 4.37 3.45 4.41 Average rate paid on borrowings 3.43 5.43 3.89 5.37 Average rate paid on interest-bearing liabilities 3.24 4.70 3.61 4.71 Interest rate spread 2.54 3.08 2.52 3.11 Effective net spread 2.65 3.44 2.70 3.48 � Average balances: Average loans $ 6,367,111 $ 6,764,534 $ 6,390,301 $ 7,459,006 Average investments 551,527 � 455,903 � 511,412 � 477,189 � Average interest-earning assets 6,918,638 � 7,220,437 � 6,901,713 � 7,936,195 � Average deposits 4,135,349 4,627,267 4,084,812 5,010,165 Average borrowings 2,553,089 � 2,035,882 � 2,454,768 � 2,303,286 � Average interest-bearing liabilities 6,688,438 � 6,663,149 � 6,539,580 � 7,313,451 � Excess of interest-earning assets over interest-bearing liabilities $ 230,200 � $ 557,288 � $ 362,133 � $ 622,744 � � Loan originations and purchases $ 479,281 $ 262,945 $ 1,256,236 $ 702,830