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
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