Loan Loss Provisions Drive FirstFed’s $244.8 Million Q4 Loss

FirstFed Financial Corp. (FED), the Los Angeles-based parent company of First Federal Bank of California, on Monday reported a fourth-quarter net loss of $244.8 million — or $17.91 per share — compared with the $51.6 million net loss reported for the third quarter. FirstFed attributed the loss to a $220 million loan loss provision and a $112.3 million valuation allowance recorded against the company’s deferred tax assets. Total allowances for loan losses as a percentage of gross loans were 4.97 percent at the end of the quarter. Meanwhile, the ratio of total non-performing assets to total combined assets decreased to 7 percent at the end of the quarter, down considerably from the 7.87 percent recorded at the end of the third quarter. Loan charge-offs increased to $163.5 million during the fourth quarter of 2008 compared to $103.4 million during the third quarter as a “result of continued high levels of loan delinquencies and foreclosures, further deterioration in the California real estate market and the significant increase in unemployment in the fourth quarter,” according to the bank’s earnings statement. FirstFed executives were quick to point out, however, that the company’s risk-based capital ratio totaled 11.26 percent, while its core and tangible capital ratio came in at 5.35 percent, both “in excess” of the 10 and 5 percent ratios respectively required by federal regulators to be considered “well capitalized.” On a bright note, non-accrual single family loans (loans greater than 90 days delinquent or in foreclosure) decreased to $403.8 million in the quarter, down from $445.2 million reported for the third quarter. Single family loans less than 90 days delinquent also decreased, however, to $208.2 million at compared with $212.1 million reported at the end of the previous quarter. FirstFed attributed the level of delinquent single family loans during 2008 to the impact of adjustable-rate mortgages that reached their maximum allowable negative amortization and required an increased payment. In the earnings statement, the bank estimated that 1,741 loans with balances totaling approximately $802.3 million were scheduled to recast during 2008. Another 913 loans, with balances totaling $396.0 million, are scheduled to recast during 2009. “The Bank is continuing its loan modification programs and actively reaching out to borrowers likely to face a recasted payment to encourage them to modify their loans before the recast date,” according to the earnings statement. Earnings were also impacted by lower net interest income, which decreased $17.5 million — or 31 percent — compared with the year-ago quarter due to higher liquid cash balances throughout the fourth quarter and lower interest rate spreads compared to the previous year. Due to decreased rates, negative amortization decreased by $26.7 million from the previous quarter to stand at $262.9 million on Dec. 31. Loan originations for the quarter were at $272.5 million, bringing the total for 2008 to $1.5 billion. The earnings come just days after FirstFed on Jan. 26 announced it had consented to the issuance of an order to cease and desist from the Office of Thrift Supervision, and had promptly cut 10 percent of its workforce to save $4.2 million annually. The order imposes restrictions on FirstFed’s operations and requires that it notify and in some cases receive permission from the OTS before incurring, issuing, renewing, repurchasing or rolling over any debt, as well as increasing its total assets in any quarter in excess of an amount equal to net interest credited on deposits during the quarter. “We have made substantial progress on addressing a number of the OTS’s concerns, and we hope to finalize those plans promptly so that we can focus our energies on meeting the needs of our clients and communities,” said CEO Babette Heimbuch in a media statement regarding the order. Read further details at www.firstgedca.com. Write to Diana Golobay at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade