8-K 1 prq0405.txt FOURTH QUARTER EARNINGS RELEASE DECEMBER, 2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): January 25, 2006 FIRSTFED FINANCIAL CORP. (Exact name of registrant as specified in its charter) Delaware 1-9566 95-4087449 (State of Incorporation) (Commission File No.) (IRS Employer Identification No.) 401 Wilshire Boulevard, Santa Monica, California, 90401-1490 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 319-6000 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a 12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 2.02 Results of Operations and Financial Condition On January 25, 2006, the registrant, FirstFed Financial Corp., issued a press release setting forth the Company's fourth quarter 2005 earnings. A copy of this release press release is attached and incorporated herein as Exhibit 99. ITEM 8.01 Other Events On January 24, 2005, the Board of Directors of the Company amended the Company's Corporate Governance Guidelines for the election of directors. The guidelines now provide: A nominee in an uncontested election who receives more votes "withheld" from his or her election than votes "for" his or her election must tender his or her resignation to the Corporate Governance & Nominating Committee. The Corporate Governance & Nominating Committee will recommend to the Board whether to accept or reject the resignation. In deciding what action to recommend, the Committee will consider factors it considers relevant, including: the underlying reasons for the withheld vote (if ascertainable), the length of service and qualifications of the director whose resignation has been tendered, the director's contributions to the Company, the past board evaluations of the performance of the director, compliance with listing standards, and the Company's Corporate Governance Guidelines. The Board will act on the Corporate Governance & Nominating Committee's recommendation within 90 days after the certification of the vote. The nominee will be excluded from participating in the Committee and Board deliberations. The Company will promptly disclose the Board's decision and the process followed by the Board in reaching that decision in a press release to be disseminated in the manner that Company press releases typically are distributed. Exhibit 9.01 Financial Statements and Exhibits (a) Financial Statements Not Applicable. (b) Pro Forma Financial Information Not Applicable. (c) Exhibits: Exhibit 99 - Press Release dated January 25, 2006, regarding results for the fourth quarter 2005. S I G N A T U R E S 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 FINANCIAL CORP. Dated: January 25, 2006 By: /s/ Douglas J. Goddard ---------------------- Douglas J. Goddard Chief Financial Officer Exhibit 99 FIRSTFED REPORTS RESULTS FOR THE FOURTH QUARTER OF 2005 Santa Monica, California, January 25, 2006 -- FirstFed Financial Corp. (NYSE-FED), parent company of First Federal Bank of California, today announced net income of $28.2 million or $1.67 per diluted share of common stock for the fourth quarter of 2005 compared to net income of $16.4 million or $ 0.97 per diluted share of common stock for the fourth quarter of 2004. Quarterly income increased due to higher net interest income resulting from growth in the loan portfolio. Average interest-earning assets increased 46% during the fourth quarter of 2005 compared to the fourth quarter of 2004. The increase in earning assets was offset by a decrease in interest rate spread, which dropped to 2.30% during the fourth quarter of 2005 from 2.51% during the fourth quarter of 2004. Loan prepayment fees were $7.6 million for the fourth quarter of 2005 compared to $2.2 million for the same quarter in 2004. Net income for the year ended December 31, 2005 increased to $91.7 million or $5.43 per diluted share of common stock compared to $65.8 million or $3.85 per diluted share of common stock for 2004. Net interest income increased 36% during 2005 compared to 2004 based on a 58% increase in average interest-earning assets for the same period. The increase was offset by a decrease in interest rate spread to 2.33% for 2005 from 2.68% for 2004. Loan prepayment fees were $20.5 million for 2005 compared to $8.0 million for 2004. The Company's total assets were $10.5 billion at the end of 2005 compared to $7.5 billion at the end of 2004 as a result of record loan production during 2005. Loan originations during 2005 were $4.8 billion compared to $3.9 billion for 2004. However, loan originations during the fourth quarter of 2005 decreased to $1.1 billion, 20% less than the fourth quarter of 2004. Based on the record loan originations, the loan portfolio grew to $9.7 billion at December 31, 2005 from $6.8 billion as of December 31, 2004. Single family loans comprised 93% and 90% of loan originations during the fourth quarter and year ended December 31, 2005 compared to 82% and 80% of loan originations during the same periods of 2004. Negative amortization, which results when unpaid interest earned by the Bank is added to borrowers' loan balances, totaled $62.6 million at December 31, 2005 and $5.6 million at December 31, 2004. Negative amortization increased by $25.0 million during the fourth quarter of 2005 and $57.0 million for 2005. Negative amortization has increased over the last four quarters due to rising interest rates and an increasing number of single family loans that allow for fixed payment periods of one to five years. The portfolio of single family loans with a one-year fixed payment totaled $4.6 billion at December 31, 2005 and $2.9 billion at December 31, 2004. The portfolio of single family loans with three-to-five year fixed payments totaled $2.7 billion at December 31, 2005 and $1.6 billion at December 31, 2004. Negative amortization as a percentage of all single family loans with fixed payment periods in the Bank's portfolio totaled 0.86% at December 31, 2005 and 0.12% as of December 31, 2004. Loan originations during 2005 were funded with a variety of sources including FHLB advances ($1.2 billion), borrowings under repurchase agreements ($978 million) and deposits ($610 million). On December 29, 2005, FirstFed Financial Corp. completed the placement of $50 million of fixed/floating rate senior debentures due in 2016 (the "Debentures"). The Debentures have a fixed rate of 6.23% for the first five years, and a ten year maturity. An additional $50 million issuance of private-placed senior debt was completed in June of 2005 at 5.65% fixed for the first five years. The proceeds from these debentures will be used to finance the Bank's growth through a capital investment from FirstFed Financial Corp., and for general corporate purposes. The Bank's risk-based capital ratio was 13.10% at December 31, 2005 and its core and tangible capital ratios were 6.23%. Due to growth in the loan portfolio, loan loss provisions of $4.0 million and $19.8 million were recorded during the fourth quarter and year ended 2005. A loss provision of $3.0 million was recorded during 2004, all of which was recorded during the fourth quarter. Net loan charge-offs totaled $36 thousand and $1.4 million for the fourth quarter and full year of 2005. Charge-offs of $6 thousand were recorded during the fourth quarter of 2004 and recoveries of $437 thousand were recorded during the year ended 2004. Non-performing loans were 0.05% and 0.07% as a percentage of total assets at December 31, 2005 and 2004 respectively. Loan servicing and other fees were $8.6 million and $22.8 million for the fourth quarter and year ended December 31, 2005, respectively, compared to $2.6 million and $ 9.5 million for the same periods of 2004. Because a greater number of loans subject to prepayment fees paid off during the year, loan prepayment fees grew to $7.6 million and $20.5 million for the fourth quarter and year ended December 31, 2005 compared to $2.2 million and $8.0 million for the same periods of 2004. An increasing number of loans provide for prepayment fees in order to compensate the Bank for the cost of origination. Loan payoffs and principal reductions were $635 million and $2.0 billion for the fourth quarter and year ended December 31, 2005 compared to $361.5 million and $1.4 billion for the same periods in 2004. Non-interest expense was $18.2 million and $73.5 million for the fourth quarter and year ended December 31, 2005, respectively, compared to $18.0 million and $66.4 million for the same periods of 2004. Lower profit sharing plan contributions offset higher operating losses at the branches during the quarter. Year-to-date expenses increased due to the higher costs associated with loan production. Due to the growth in average total assets, the ratio of non-interest expense to average total assets fell to 0.72% and 0.81% for the fourth quarter and year ended December 31, 2005 compared to 1.04% and 1.13% for the fourth quarter and year ended December 31, 2004. There were no repurchases of common stock during 2005. The Company repurchased 696,900 shares of common stock during 2004 at an average market price of $40.25 per share. Shares eligible for repurchase under the Company's stock repurchase program totaled 1,472,079 as of January 25, 2006. First Federal Bank of California operates 30 retail banking offices in Southern California and 6 lending offices in both Southern and Northern 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, the California real estate market, branch openings, 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. Contact: Douglas Goddard, Executive Vice President (310) 319-6014 KEY FINANCIAL RESULTS FOLLOW FIRSTFED FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except share data) (Unaudited) December 31, December 31, 2005 2004 ------------- ------------- ------------- ------------- ASSETS Cash and cash equivalents $ 93,192 $ 68,343 Investment securities, available-for-sale (at fair 294,017 250,586 value) Mortgage-backed securities, available-for-sale (at 74,254 97,059 fair value) Loans receivable, held-for-sale (fair value $2,893) 2,873 - Loans receivable, net 9,678,260 6,837,945 Accrued interest and dividends receivable 48,973 24,115 Real estate held for investment - 986 Office properties and equipment, net 15,759 15,881 Investment in Federal Home Loan Bank (FHLB) stock, at cost 205,696 143,425 Other assets 43,925 30,643 ------------- ------------- $ 10,456,949 $ 7,468,983 ============= ============= LIABILITIES Deposits $ 4,371,657 $ 3,761,165 FHLB advances 4,155,500 3,004,600 Securities sold under agreements to repurchase 1,163,684 187,000 Senior debenture 100,000 - Accrued expenses and other liabilities 95,269 38,744 ------------- ------------- 9,886,110 6,991,509 ------------- ------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, par value $.01 per share; authorized 100,000,000 shares; issued 23,761,825 and 23,693,350 shares; outstanding 16,567,229 and 16,498,754 shares 238 237 Additional paid-in capital 44,147 40,977 Retained earnings - substantially restricted 640,900 549,202 Unreleased shares to employee stock ownership plan (1,104) (53) Treasury stock, at cost 7,194,596 shares (113,776) (113,776) Accumulated other comprehensive earnings, net of taxes 434 887 ------------- ------------- 570,839 477,474 ------------- ------------- $ 10,456,949 $ 7,468,983 ============= =============
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS (Dollars in thousands, except per share data) (Unaudited) Three months ended Twelve months ended December 31, December 31, ------------------------------------ ------------------------------------ 2005 2004 2005 2004 ------------ ------------ ----------- ------------ ------------ ------------ ----------- ------------ Interest income and dividend income: Interest on loans $ 138,508 $ 73,557 $ 450,276 $ 247,892 Interest on mortgage-backed securities 697 729 2,825 3,312 Interest and dividends on investments 4,950 3,560 16,556 11,518 ------------ ------------ ----------- ------------ Total interest income 144,155 77,846 469,657 262,722 ------------ ------------ ----------- ------------ Interest expense: Interest on deposits 32,914 14,545 97,857 42,159 Interest on borrowings 50,914 18,335 151,333 59,031 ------------ ------------ ----------- ------------ Total interest expense 83,828 32,880 249,190 101,190 ------------ ------------ ----------- ------------ Net interest income 60,327 44,966 220,467 161,532 Provision for loan losses 4,000 3,000 19,750 3,000 ------------ ------------ ----------- ------------ Net interest income after provision for loan losses 56,327 41,966 200,717 158,532 ------------ ------------ ----------- ------------ Other income: Loan servicing and other fees 8,589 2,617 22,774 9,545 Retail office fees 1,636 1,512 5,804 5,639 Gain on sale of loans 139 - 125 5,434 Real estate operations, net (47) 202 2,013 308 Other operating income 169 138 499 370 ------------ ------------ ----------- ------------ Total other income 10,486 4,469 31,215 21,296 ------------ ------------ ----------- ------------ Non-interest expense: Salaries and employee benefits 10,340 11,226 45,061 40,907 Occupancy 2,471 2,253 9,726 8,691 Advertising 342 277 754 705 Amortization of core deposit intangible 499 499 1,995 1,995 Federal deposit insurance 132 99 504 388 Legal 181 398 1,381 1,686 Other expense 4,191 3,293 14,060 12,000 ------------ ------------ ----------- ------------ Total non-interest expense 18,156 18,045 73,481 66,372 ------------ ------------ ----------- ------------ Income before income taxes 48,657 28,390 158,451 13,456 Income tax 20,494 11,950 66,753 47,614 ------------ ------------ ----------- ------------ Net income $ 28,163 $ 16,440 91,698 65,842 ============ ============ =========== ============ Net income $ 28,163 $ 16,440 91,698 65,842 Other comprehensive income (loss), net of taxes (21) (224) (453) (204) ------------ ------------ ----------- ------------ Comprehensive income $ 28,142 $ 16,216 91,245 65,638 ============ ============ =========== ============ Earnings per share: Basic $ 1.70 $ 1.00 5.55 3.95 ============ ============ =========== ============ Diluted $ 1.67 $ 0.97 5.43 3.85 ============ ============ =========== ============ Weighted average shares outstanding: Basic 16,541,512 16,461,945 16,518,300 16,679,927 ============ ============ ============ ============ Diluted 16,877,575 16,879,903 16,887,951 17,090,227 ============ ============ ============ ============
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY KEY FINANCIAL RESULTS (Unaudited) Quarter ended December 31, 2005 2004 ------------ ---------- (Dollars in thousands, except per share data) End of period: Total assets $ 10,456,949 $ 7,468,983 Cash and securities $ 387,209 $ 318,929 Mortgage-backed securities $ 74,254 $ 97,059 Loans $ 9,681,133 $ 6,837,945 Core deposit intangible asset $ 3,338 $ 5,333 Deposits $ 4,371,657 $ 3,761,165 Borrowings $ 5,319,184 $ 3,191,600 Stockholders' equity $ 570,839 $ 477,474 Book value per share $ 34.46 $ 28.94 Tangible book value per share $ 34.25 $ 28.62 Stock price (period-end) $ 54.52 $ 51.87 Total loan servicing portfolio $ 9,884,314 $ 6,985,282 Loans serviced for others $ 89,074 $ 102,546 % of adjustable mortgages 96.09% 91.44% Other data: Employees (full-time equivalent) 629 604 Branches 30 29 Asset quality: Real estate owned (foreclosed) $ - $ - Non-accrual loans $ 4,966 $ 4,985 Non-performing assets $ 4,966 $ 4,985 Non-performing assets to total assets 0.05% 0.07% General valuation allowance (GVA) $ 97,558 $ 78,675 Allowances for impaired loans - 496 ------------ ---------- Allowances for loan losses $ 97,558 79,171 Allowances for loan losses as a percent of gross loans receivable 1.00% 1.16% Loans sold with recourse $ 59,856 $ 76,338 Modified loans (not impaired) $ 1,985 $ 2,086 Impaired loans, net $ 3,027 $ 1,360 Allowance for impaired loans $ - $ 496 Capital ratios: Tangible capital ratio 6.23% 5.99% Core capital ratio 6.23 5.99 Risk-based capital ratio 13.10 11.96 Net worth to assets ratio 5.46 6.39
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY KEY FINANCIAL RESULTS (continued) (Unaudited) Three months ended Twelve months ended December 31, December 31, ------------------------------------ -------------------------------------- 2005 2004 2005 2004 ------------ ------------ ------------ ------------ (Dollars in thousands) Selected ratios: Expense ratios: Efficiency ratio 25.64% 36.50% 29.20% 37.42% Expense-to-average-assets 0.72 1.04 0.81 1.13 ratio Return on average assets 1.11 0.95 1.01 1.12 Return on average equity 20.30 14.06 17.64 14.54 Yields earned and rates paid: Average yield on loans and mortgage-backed securities 5.84% 4.61% 5.27% 4.68% Average yield on investment 4.22 3.16 3.91 2.79 portfolio (1) Average yield on all interest-earning assets (1) 5.80 4.55 5.24 4.59 Average rate paid on deposits 2.96 1.63 2.40 1.42 Average rate paid on borrowings 3.98 2.54 3.37 2.53 Average rate paid on all interest-bearing liabilities 3.50 2.04 2.91 1.91 Interest rate spread 2.30 2.51 2.33 2.68 Effective net spread 2.41 2.60 2.43 2.78 Average balances: Average loans and mortgage-backed securities $ 9,530,912 $ 6,398,547 $ 8,592,880 $ 5,325,910 Average investments (2) 252,967 283,797 231,331 252,708 ------------ ------------ ------------ ----------- Average interest-earning assets (2) 9,783,879 6,682,344 8,824,211 5,578,618 ------------ ------------ ------------ ----------- Average deposits 4,413,541 3,539,945 4,078,785 2,968,757 Average borrowings 5,057,275 2,861,681 4,452,325 2,317,518 ------------ ------------ ------------ ----------- Average interest-bearing liabilities 9,470,816 6,401,626 8,531,110 5,286,275 ------------ ------------ ------------ ----------- Excess of interest-earning assets over interest-bearing liabilities $ 313,063 $ 280,718 $ 293,101 $ 292,343 ============ ============= =========== =========== Loan originations and purchases $ 1,084,524 $ 1,359,502 $ 4,832,038 $ 3,880,809
(1) Excludes FHLB stock dividends and other miscellaneous items. (2) Excludes FHLB stock.