8-K 1 er1206.txt EARNINGS RELEASE, 4TH QUARTER 2006 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 26, 2007 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 26, 2007, the registrant, FirstFed Financial Corp., issued a press release setting forth the Company's fourth quarter 2006 earnings. A copy of this press release is attached and incorporated herein as Exhibit 99.1. ITEM 9.01 Financial Statements and Exhibits. (d) Exhibits: Exhibit 99.1 - Press Release dated January 26, 2007, regarding results for the fourth quarter 2006. 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 26, 2007 By: /s/ Douglas J. Goddard ---------------------- Douglas J. Goddard Chief Financial Officer Exhibit 99.1 FIRSTFED REPORTS RESULTS FOR THE FOURTH QUARTER OF 2006 Santa Monica, California, January 26, 2007 -- FirstFed Financial Corp. (NYSE-FED), parent company of First Federal Bank of California, today announced net income of $33.4 million or $1.97 per diluted share of common stock for the fourth quarter of 2006 compared to net income of $32.1 million or $1.90 per diluted share for the third quarter of 2006 and $28.2 million or $ 1.67 per diluted share of common stock for the fourth quarter of 2005. The increase in net income during the fourth quarter of 2006 compared to the third quarter of 2006 resulted primarily from higher net interest income and additional gain on the sale of loans. Although average interest-earning assets for the fourth quarter of 2006 decreased 6% compared to the third quarter of 2006 and 5% compared to the fourth quarter of 2005, net interest income for the fourth quarter of 2006 increased 4% over the third quarter and 11% over the fourth quarter of last year. The interest rate spread increased to 2.90% during the fourth quarter of 2006 from 2.68% during the third quarter of 2006 and 2.59% during the fourth quarter of 2005. Loan prepayment fees, included as part of the yield on loans, increased to $7.9 million during the fourth quarter of 2006 from $7.4 million during the third quarter of 2006 and $7.6 million during the fourth quarter of 2005. Due to an increase in loans originated for sale, gain on sale of loans increased to $2.4 million during the fourth quarter of 2006 from $1.8 million during the third quarter of 2006 and $139 thousand during the fourth quarter of 2005. Loans sold increased to $161.8 million during the fourth quarter of 2006 compared to $134.5 million during the third quarter of 2006 and $12.8 million during the fourth quarter of 2005. Net income for the year ended December 31, 2006 increased to $129.1 million or $7.64 per diluted share of common stock compared to $91.7 million or $5.43 per diluted share of common stock for 2005. Net interest income increased 23% during 2006 compared to 2005 due to an 11% increase in average interest-earning assets and a 0.17% increase in the net interest margin. For 2006, loan prepayment fees totaled $30.4 million compared to $20.5 million for 2005. Also, gain on sale of loans increased to $6.2 million during 2006 compared to $125 thousand during 2005. Loans sold increased to $481.6 million during 2006 compared to $12.8 million during 2005. Loan originations were $365 million for the fourth quarter and $2.2 billion for the year ended December 31, 2006. This compares with originations of $1.1 billion for the fourth quarter of 2005 and $4.8 billion for the prior year. Loan payoffs and principal reductions totaled $831.8 million for the fourth quarter and $2.8 billion for the year ended December 31, 2006. These levels compare to loan payoffs and principal reductions of $635.2 million and $2.0 billion for the comparable periods in the prior year. Based on the loan sales mentioned above and the high level of loan payoffs during the year, the Company's total assets decreased to $9.3 billion at the end of 2006 from $10.1 billion at the end of the third quarter and $10.5 billion at the end of 2005. Single family loans comprised 89% and 88% of loan originations during the fourth quarter and year ended 2006 compared to 93% and 90% of loan originations during the same periods of 2005. Negative amortization, which results when unpaid interest earned by the Bank is added to borrowers' loan balances, totaled $215.8 million at December 31, 2006, and was $62.6 million at December 31, 2005. Negative amortization increased by $38.0 million during the fourth quarter of 2006 and $153.2 million for the year ended December 31, 2006. Negative amortization has increased over the last two years due to an increase in short-term interest rates. The portfolio of single family loans with a one-year fixed monthly payment totaled $4.6 billion at both December 31, 2006 and December 31, 2005. The portfolio of single family loans with three-to-five year fixed monthly payments totaled $1.8 billion at December 31, 2006 and $2.7 billion at December 31, 2005. Due to interest rate increases during 2006, negative amortization as a percentage of all single family loans with fixed payment periods in the Bank's portfolio totaled 3.44% at December 31, 2006 compared to 0.86% as of December 31, 2005. A $3.0 million loan loss provision was recorded during the fourth quarter of 2006, the same as the third quarter of 2006 and less than the $4.0 million recorded during the fourth quarter of 2005. A loan loss provision of $12.4 million was recorded for the year of 2006 compared with $19.8 million for the prior year. Net loan charge-offs totaled $90 thousand and $190 thousand for the fourth quarter and year of 2006. This compares with net loan charge-offs of $36 thousand and $1.4 million recorded during the comparable periods in 2005. The ratio of non-performing assets to total assets was 0.21% at the end of 2006 compared with 0.05% at the end of 2005. Loan servicing and other fees were $723 thousand and $2.6 million for the fourth quarter and year ended December 31, 2006, respectively, compared to $652 thousand and $1.3 million for the same periods of 2005. The improvement in 2006 was due to increases in appraisal fee income and brokered loan fees. Real estate operations resulted in a small net loss for the fourth quarter of 2006 and year ended 2006 due to write downs on foreclosed properties. A small loss was also recorded for the fourth quarter of 2005, but a $2.0 million gain on real estate operations was recorded during 2005 resulting from gains recorded upon the sale of real estate acquired by the enforcement of judgments. Non-interest expense was $19.8 million and $77.4 million for the fourth quarter and the year of 2006 compared to $18.2 million and $73.5 million for the same periods of 2005. The increase in operating expenses during 2006 is due to salary increases, higher regulatory assessments and increased occupancy costs related to new branch locations. As a result of these increases and a decrease in average total assets, the ratio of non-interest expense to average total assets increased to 0.82% during the fourth quarter of 2006 from 0.72% during the fourth quarter of 2005 .On a year-to-date basis, the ratio of non-interest expense to average total assets for 2006 was 0.76% compared to 0.81% for 2005. The Bank's risk-based capital ratio was 17.53% at December 31, 2006 and its core and tangible capital ratios were 8.49%. In connection with the adoption of SEC Staff Accounting Bulletin No. 108 during the fourth quarter of 2006, the Bank changed its practice for recording dividends on Federal Home Loan Bank stock and adjusted its liabilities for accrued income taxes and pension costs as of December 31, 2005. These changes resulted in a $2.5 million increase in retained earnings as of December 31, 2005. If the Bank had continued to follow its previous practice of recording dividends on FHLB stock, interest on investments for the fourth quarter and year of 2006 would have been $432 thousand and $613 thousand lower, respectively. There were no repurchases of common stock during 2006 or 2005. Shares eligible for repurchase under the Company's stock repurchase program totaled 1,472,079 as of January 25, 2007. First Federal Bank of California operates 32 retail banking offices in Southern California. In keeping with the Bank's retail branch expansion plan, one new retail branch was opened in February of 2006 and another was opened in June of 2006. The Bank plans to open one new branch in February of 2007 and at least one additional branch during the remainder of 2007. The Bank operates 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, 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. 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, 2006 2005 ------------ ----------- ASSETS Cash and cash equivalents $ 151,090 $ 93,192 Investment securities, available-for-sale (at fair value) 311,850 294,017 Mortgage-backed securities, available-for-sale (at fair value) 57,197 74,254 Loans receivable, held-for-sale (fair value of $143,141 and $2,893) 140,860 2,873 Loans receivable, net of allowance for loan loss of $109,768 and $97,558 8,376,592 9,678,260 Accrued interest and dividends receivable 54,812 46,750 Real estate owned 1,094 -- Office properties and equipment, net 16,569 15,759 Investment in Federal Home Loan Bank (FHLB) stock, at cost 118,979 205,696 Other assets 66,544 44,860 ----------- ---------- $ 9,295,587 $ 10,455,661 =========== ========== LIABILITIES Deposits $ 5,889,881 $ 4,371,657 FHLB advances 1,490,000 4,155,500 Securities sold under agreements to repurchase 978,448 1,163,684 Senior debenture 100,000 100,000 Accrued expenses and other liabilities 132,543 91,434 ----------- ---------- 8,590,872 9,882,275 ----------- ---------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, par value $.01 per share; authorized 100,000,000 shares; issued 23,842,934 and 23,761,825 shares; outstanding 16,648,338 and 16,567,229 shares 238 238 Additional paid-in capital 49,610 44,147 Retained earnings - substantially restricted 772,537 643,447 Unreleased shares to employee stock ownership plan (2,050) (1,104) Treasury stock, at cost 7,194,596 shares (113,776) (113,776) Accumulated other comprehensive (loss) earnings, net of taxes (1,844) 434 ----------- ---------- 704,715 573,386 ----------- ---------- $ 9,295,587 $ 10,455,661 =========== ==========
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, ----------------------- ----------------------- 2006 2005 2006 2005 ---------- ---------- ---------- ---------- Interest income and dividend income: Interest on loans $ 173,949 $ 146,445 $ 682,716 $ 471,725 Interest on mortgage-backed securities 740 697 2,899 2,825 Interest and dividends on investments 6,454 4,950 27,007 16,556 --------- --------- --------- --------- Total interest income 181,143 152,092 712,622 491,106 --------- --------- --------- --------- Interest expense: Interest on deposits 67,503 32,914 220,932 97,857 Interest on borrowings 38,061 50,914 194,118 151,333 --------- --------- --------- --------- Total interest expense 105,564 83,828 415,050 249,190 --------- --------- --------- --------- Net interest income 75,579 68,264 297,572 241,916 Provision for loan losses 3,000 4,000 12,400 19,750 --------- --------- --------- --------- Net interest income after provision for loan losses 72,579 64,264 285,172 222,166 --------- --------- --------- --------- Non-interest income: Loan servicing and other fees 723 652 2,589 1,325 Retail office fees 1,813 1,636 6,596 5,804 Gain on sale of loans 2,373 139 6,223 125 Real estate operations, net (81) (47) (14) 2,013 Other operating income 257 169 842 499 --------- --------- --------- --------- Total non-interest income 5,085 2,549 16,236 9,766 --------- --------- --------- --------- Non-interest expense: Salaries and employee benefits 11,051 10,340 45,969 45,061 Occupancy 2,863 2,471 10,687 9,726 Advertising 285 342 1,248 754 Amortization of core deposit intangible 500 499 1,995 1,995 Federal deposit insurance 580 132 1,393 504 Legal 548 181 1,467 1,381 Other expense 3,946 4,191 14,689 14,060 --------- --------- --------- --------- Total non-interest expense 19,773 18,156 77,448 73,481 --------- --------- --------- --------- Income before income taxes 57,891 48,657 223,960 158,451 Income tax 24,516 20,494 94,870 66,753 --------- --------- --------- --------- Net income $ 33,375 $ 28,163 $ 129,090 $ 91,698 ========= ========= ========= ========= Net income $ 33,375 $ 28,163 $ 129,090 $ 91,698 Other comprehensive income (loss), net of taxes (1,787) (21) (2,278) (453) --------- --------- --------- --------- Comprehensive income $ 31,588 $ 28,142 $ 126,812 $ 91,245 ========= ========= ========= ========= Earnings per share: Basic $ 2.01 $ 1.70 $ 7.79 $ 5.55 ========= ========= ========= ========= Diluted $ 1.97 $ 1.67 $ 7.64 $ 5.43 ========= ========= ========= ========= Weighted average shares outstanding: Basic 16,589,220 16,541,512 16,571,488 16,518,300 ========== ========== ========== ========== Diluted 16,915,044 16,877,575 16,891,091 16,887,951 ========== ========== ========== ==========
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY KEY FINANCIAL RESULTS (Unaudited) December 31, --------------------------- 2006 2005 ----------- ---------- (Dollars in thousands, except per share data) End of period: Total assets $ 9,295,587 $ 10,455,661 Cash and securities $ 462,940 $ 387,209 Mortgage-backed securities $ 57,197 $ 74,254 Loans $ 8,517,452 $ 9,681,133 Core deposit intangible asset $ 1,343 $ 3,338 Deposits $ 5,889,881 $ 4,371,657 Borrowings $ 2,568,448 $ 5,419,184 Stockholders' equity $ 704,715 $ 573,386 Book value per share $ 42.33 $ 34.61 Tangible book value per share $ 42.25 $ 34.41 Stock price (period-end) $ 66.97 $ 54.52 Total loan servicing portfolio $ 8,785,022 $ 9,884,314 Loans serviced for others $ 128,939 $ 89,074 % of adjustable mortgages 97.11% 96.09% Other data: Employees (full-time equivalent) 603 629 Branches 32 30 Asset quality: Real estate owned (foreclosed) $ 1,094 $ -- Non-accrual loans $ 18,497 $ 4,966 Non-performing assets $ 19,591 $ 4,966 Non-performing assets to total assets 0.21% 0.05% General valuation allowance (GVA) $ 109,768 $ 97,558 Allowance for impaired loans -- -- ----------- ---------- Allowance for loan losses $ 109,768 $ 97,558 Allowances for loan losses as a percent of gross loans receivable 1.28% 1.00% Loans sold with recourse $ 53,245 $ 59,856 Modified loans (not impaired) $ 1,821 $ 1,985 Impaired loans, net $ 5,438 $ 3,027 Capital ratios: Tangible capital ratio 8.49% 6.23% Core capital ratio 8.49 6.23 Risk-based capital ratio 17.53 13.10 Net worth to assets ratio 7.58 5.48
FIRSTFED FINANCIAL CORP. AND SUBSIDIARY KEY FINANCIAL RESULTS (continued) (Unaudited) Three months ended Twelve months ended December 31, December 31, ------------------------ ----------------------- 2006 2005 2006 2005 ---------- ----------- ---------- ---------- (Dollars in thousands) Selected ratios: Expense ratios: Efficiency ratio 24.51% 25.64% 24.68% 29.20% Expense-to-average-assets ratio 0.82 0.72 0.76 0.81 Return on average assets 1.38 1.11 1.27 1.01 Return on average equity 19.45 20.25 20.28 17.62 Yields earned and rates paid: Average yield on loans (1) 7.82% 6.20% 7.24% 5.54% Average yield on investment portfolio (2) 5.58 4.41 5.18 4.01 Average yield on all interest-earning assets 7.69 6.10 7.12 5.46 Average rate paid on deposits 4.51 2.96 4.07 2.40 Average rate paid on borrowings 5.37 3.99 4.87 3.40 Average rate paid on all interest-bearing liabilities 4.79 3.51 4.41 2.92 Interest rate spread 2.90 2.59 2.71 2.54 Effective net spread 3.21 2.74 2.97 2.69 Average balances: Average loans (1) $ 8,901,934 $ 9,453,455 $ 9,427,915 $ 8,509,250 Average investments (2) 516,160 512,014 576,878 483,565 ---------- ----------- ---------- ---------- Average interest-earning assets 9,418,094 9,965,469 10,004,793 8,992,815 ---------- ----------- ---------- ---------- Average deposits 5,933,678 4,413,541 5,425,751 4,078,785 Average borrowings 2,812,863 5,057,275 3,988,806 4,452,325 ---------- ----------- ---------- ---------- Average interest-bearing liabilities 8,746,541 9,470,816 9,414,557 8,531,110 ---------- ----------- ---------- ---------- Excess of interest-earning assets over interest-bearing liabilities $ 671,553 $ 494,653 $ 590,236 $ 461,705 ========== =========== ========== ========== Loan originations and purchases $ 365,054 $ 1,084,524 $ 2,205,270 $ 4,832,038
(1) The loan yield includes the reclassification of prepayment fees and late payment charges to interest income from non-interest income. (2) The investment yield includes FHLB stock and dividends thereon.