UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
R
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
|
For
the Quarterly Period Ended September 30, 2008
OR
*
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
|
Commission
File Number: 1-9566
FIRSTFED FINANCIAL
CORP
.
(Exact
name of registrant as specified in its charter)
Delaware
|
95-4087449
|
(State or
other jurisdiction of incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
12555 W. Jefferson Boulevard,
Los Angeles,
California 90066
|
(Address of principal executive
offices)
(Zip
Code)
|
(310)
302-5600
(Registrant's
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock, $0.01 par value
Title of
Class
Securities
registered pursuant to section 12(g) of the Act:
None
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
R
No
*
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated
filer
R
Accelerated
filer
*
Non-accelerated filer
*
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
*
No
R
As
of November 1, 2008, 13,684,553 shares of the Registrant's $0.01 par value
common stock were outstanding.
|
FirstFed
Financial Corp.
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|
Index
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Report
on Form 10-Q
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For
the Quarterly Period Ended September 30, 2008
|
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Page
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Part
I.
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Financial
Information
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Item
1.
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Financial
Statements
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Consolidated
Balance Sheets as of September 30, 2008, December 31, 2007 and September
30, 2007
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3
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Consolidated
Statements of Operations for the three and nine months ended September 30,
2008 and 2007
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4
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Consolidated
Statements of Cash Flows for the nine months ended September 30, 2008 and
2007
|
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5
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Notes
to Consolidated Financial Statements
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6
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Item
2.
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Management’s
Discussion and Analysis of Consolidated Balance Sheets and Consolidated
Statements of Operations
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17
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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34
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Item
4.
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Controls
and Procedures
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34
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Part
II.
|
Other
Information
(omitted items are inapplicable)
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Item
6.
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Exhibits
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35
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Signatures
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36
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Exhibits
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31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
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37
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31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
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38
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32.1
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Certification
of Chief Executive Officer pursuant to 18 USC Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
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39
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32.2
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Certification
of Chief Financial Officer pursuant to 18 USC Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
40
|
|
PART
I - FINANCIAL STATEMENTS
Item
1. Financial Statements
FirstFed
Financial Corp. and Subsidiary
Consolidated
Balance Sheets
(Dollars
in thousands, except share data)
(Unaudited)
|
|
September
30,
2008
|
|
|
December
31, 2007
|
|
|
September
30,
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
62,661
|
|
|
$
|
53,974
|
|
|
$
|
114,557
|
|
Investment
securities, available-for-sale
(at
fair value)
|
|
|
329,042
|
|
|
|
316,788
|
|
|
|
327,351
|
|
Mortgage-backed
securities, available-for-sale (at fair value)
|
|
|
41,510
|
|
|
|
46,435
|
|
|
|
47,923
|
|
Loans
receivable, held for sale (fair value $0, $0 and
$218)
|
|
|
—
|
|
|
|
—
|
|
|
|
218
|
|
Loans
receivable, net of allowances for loan losses of $264,092, $128,058
and $116,224
|
|
|
6,395,706
|
|
|
|
6,518,214
|
|
|
|
6,632,392
|
|
Accrued
interest and dividends receivable
|
|
|
32,260
|
|
|
|
45,492
|
|
|
|
45,120
|
|
Real
estate owned, net (REO)
|
|
|
132,957
|
|
|
|
21,090
|
|
|
|
18,728
|
|
Office
properties and equipment, net
|
|
|
21,140
|
|
|
|
17,785
|
|
|
|
16,295
|
|
Investment
in Federal Home Loan Bank (FHLB) stock, at cost
|
|
|
130,496
|
|
|
|
104,387
|
|
|
|
76,751
|
|
Other
assets
|
|
|
209,524
|
|
|
|
98,816
|
|
|
|
88,761
|
|
|
|
$
|
7,355,296
|
|
|
$
|
7,222,981
|
|
|
$
|
7,368,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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LIABILITIES
|
|
|
|
|
|
|
|
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Deposits
|
|
$
|
4,328,850
|
|
|
$
|
4,156,692
|
|
|
$
|
4,466,519
|
|
FHLB
advances
|
|
|
2,313,000
|
|
|
|
2,084,000
|
|
|
|
1,501,000
|
|
Securities
sold under agreements to repurchase
|
|
|
—
|
|
|
|
120,000
|
|
|
|
520,000
|
|
Senior
debentures
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Accrued
expenses and other liabilities
|
|
|
64,250
|
|
|
|
57,790
|
|
|
|
87,745
|
|
|
|
|
6,856,100
|
|
|
|
6,568,482
|
|
|
|
6,725,264
|
|
|
|
|
|
|
|
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|
|
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COMMITMENTS
AND CONTINGENCIES
|
|
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|
|
|
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|
|
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STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
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|
Common
stock, par value $.01 per share; authorized 100,000,000
shares;
|
|
|
|
|
|
|
|
|
|
|
|
|
issued 24,002,093,
23,970,227 and 23,966,227 shares; outstanding 13,684,553,
13,640,997,
and 13,636,997 shares
|
|
|
240
|
|
|
|
240
|
|
|
|
240
|
|
Additional
paid-in capital
|
|
|
57,176
|
|
|
|
55,232
|
|
|
|
54,303
|
|
Retained
earnings
|
|
|
708,532
|
|
|
|
865,411
|
|
|
|
856,993
|
|
Unreleased
shares to employee stock ownership plan
|
|
|
(31
|
)
|
|
|
(339
|
)
|
|
|
(870
|
)
|
Treasury
stock, at cost, 10,317,540, 10,329,230, and 10,329,230
shares
|
|
|
(266,040
|
)
|
|
|
(266,040
|
)
|
|
|
(266,040
|
)
|
Accumulated
other comprehensive loss,
net
of taxes
|
|
|
(681
|
)
|
|
|
(5
|
)
|
|
|
(1,794
|
)
|
|
|
|
499,196
|
|
|
|
654,499
|
|
|
|
642,832
|
|
|
|
$
|
7,355,296
|
|
|
$
|
7,222,981
|
|
|
$
|
7,368,096
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FirstFed
Financial Corp. and Subsidiary
Consolidated
Statements of Operations
(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
|
|
|
497
|
|
|
|
(1,269
|
)
|
|
|
1,805
|
|
|
|
(83
|
)
|
Real
estate owned operations
|
|
|
4,277
|
|
|
|
369
|
|
|
|
8,541
|
|
|
|
731
|
|
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
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FirstFed
Financial Corp. and Subsidiary
Consolidated
Statements of Cash Flows
(Dollars
in thousands)
(Unaudited)
|
|
Nine
months ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(156,879
|
)
|
|
$
|
84,456
|
|
Adjustments to reconcile net income to
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Net
change in loans held for sale
|
|
|
—
|
|
|
|
140,642
|
|
Stock
option compensation
|
|
|
1,551
|
|
|
|
1,584
|
|
Excess
tax benefits related to stock option awards
|
|
|
(29
|
)
|
|
|
(1,877
|
)
|
Depreciation
and amortization
|
|
|
1,901
|
|
|
|
1,906
|
|
Provision
for loan losses
|
|
|
350,800
|
|
|
|
11,400
|
|
Amortization
of fees and premiums/discounts
|
|
|
10,355
|
|
|
|
27,481
|
|
Decrease
(increase) in interest income accrued in excess of borrower
payments
|
|
|
12,035
|
|
|
|
(74,153
|
)
|
(Loss)
gain on sale of real estate owned, net
|
|
|
(20,529
|
)
|
|
|
29
|
|
REO
write down
|
|
|
13,172
|
|
|
|
1,785
|
|
Gain
on sale of loans
|
|
|
(20
|
)
|
|
|
(4,746
|
)
|
FHLB
stock dividends
|
|
|
(4,518
|
)
|
|
|
(4,038
|
)
|
Change
in deferred taxes
|
|
|
(54,536
|
)
|
|
|
(19,963
|
)
|
Change
in current taxes
|
|
|
(45,957
|
)
|
|
|
853
|
|
Decrease
in interest and dividends receivable
|
|
|
13,232
|
|
|
|
9,692
|
|
Decrease
in interest payable
|
|
|
(7,967
|
)
|
|
|
(43,364
|
)
|
Amortization
of core deposit intangible asset
|
|
|
380
|
|
|
|
752
|
|
Increase
in other assets
|
|
|
(10,104
|
)
|
|
|
(3,093
|
)
|
Increase
(decrease) in accrued expenses and other liabilities
|
|
|
14,427
|
|
|
|
(2,463
|
)
|
Total
adjustments
|
|
|
274,193
|
|
|
|
42,427
|
|
Net cash provided by operating activities
|
|
|
117,314
|
|
|
|
126,883
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Loans
made to customers and principal collections on loans, net
|
|
|
(495,091
|
)
|
|
|
1,761,989
|
|
Loans
purchased
|
|
|
(6,484
|
)
|
|
|
—
|
|
Proceeds
from sale of real estate
|
|
|
146,194
|
|
|
|
2,849
|
|
Proceeds
from maturities and principal payments of investment securities, available
for sale
|
|
|
38,597
|
|
|
|
50,043
|
|
Principal
reductions on mortgage-backed securities, available for
sale
|
|
|
4,763
|
|
|
|
8,769
|
|
Purchase
of investment securities, available for sale
|
|
|
(51,647
|
)
|
|
|
(65,019
|
)
|
(Purchase)
redemption of FHLB stock, net
|
|
|
(21,591
|
)
|
|
|
46,265
|
|
Purchases
of premises and equipment
|
|
|
(5,256
|
)
|
|
|
(1,632
|
)
|
Net cash (used in) provided by investing activities
|
|
|
(390,515
|
)
|
|
|
1,803,264
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in retail and commercial deposits
|
|
|
(250,104
|
)
|
|
|
185,793
|
|
Net
increase (decrease) in brokered
deposits
|
|
|
422,262
|
|
|
|
(1,609,155
|
)
|
Net
decrease in short term borrowings
|
|
|
(386,000
|
)
|
|
|
(447,448
|
)
|
Net
increase in long term borrowings
|
|
|
495,000
|
|
|
|
50,000
|
|
Proceeds
from stock options exercised
|
|
|
529
|
|
|
|
2,474
|
|
Purchases
of treasury stock
|
|
|
—
|
|
|
|
(152,264
|
)
|
Excess
tax benefits related to stock option awards
|
|
|
29
|
|
|
|
1,877
|
|
Other
|
|
|
172
|
|
|
|
2,043
|
|
Net cash provided by (used in) financing activities
|
|
|
281,888
|
|
|
|
(1,966,680
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
8,687
|
|
|
|
(36,533
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
53,974
|
|
|
|
151,090
|
|
Cash
and cash equivalents at end of period
|
|
$
|
$62,661
|
|
|
$
|
114,557
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
FirstFed
Financial Corp. and Subsidiary
Notes
to Consolidated Financial Statements
(Unaudited)
1.
Basis of Presentation
The
unaudited consolidated financial statements included herein have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission and in accordance with accounting principles generally
accepted in the United States. In the opinion of the Company, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the results of operations for the periods covered have been made. Certain
information and note disclosures normally included in financial statements
presented in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations. The Company believes that the disclosures are adequate to make
the information presented not misleading.
It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and the notes thereto included in the Company’s latest
annual report on Form 10-K, which contains the latest available audited
consolidated financial statements and notes thereto, which are as of and for the
year ended December 31, 2007. The results for the periods covered hereby are not
necessarily indicative of the operating results for a full
year.
2.
(Loss) Earnings per Share
Basic
(loss) earnings per share were computed by dividing net (loss) income by the
weighted average number of shares of common stock outstanding for the period.
Additionally diluted earnings per share include the effect of stock options and
non-vested restricted stock, if dilutive. (Loss) earnings per common share have
been computed based on the following:
|
|
Three
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands, except share data)
|
Net
(loss) income
|
|
$
|
(51,586
|
)
|
|
$
|
23,001
|
|
|
|
|
|
|
|
|
|
|
Average
number of common shares outstanding
|
|
|
13,668,576
|
|
|
|
14,536,615
|
|
Effect
of dilutive stock
options
|
|
|
—
|
|
|
|
156,611
|
|
Average
number of common shares outstanding used
to calculate
diluted
(loss) earnings per common
share
|
|
|
13,668,576
|
|
|
|
14,693,226
|
|
There was
no dilutive effect during the third quarter of 2008 since the Company was in a
net loss position. There were 863,197 and 390,272 anti-dilutive shares excluded
from the weighted average shares outstanding calculation during the third
quarter of 2008 and 2007, respectively.
|
|
Nine
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
(Dollars
in thousands, except share data)
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(156,879
|
)
|
|
$
|
84,456
|
|
|
|
|
|
|
|
|
|
|
Average
number of common shares outstanding
|
|
|
13,663,059
|
|
|
|
15,865,884
|
|
Effect
of dilutive stock
options
|
|
|
—
|
|
|
|
209,252
|
|
Average
number of common shares outstanding used
to calculate
diluted (loss) earnings per common share
|
|
|
13,663,059
|
|
|
|
16,075,136
|
|
There was
no dilutive effect during the first nine months of 2008 since the Company was in
a net loss position. There were 863,197 and 245,624 anti-dilutive shares
excluded from the weighted average shares outstanding calculation during the
first nine months of 2008 and 2007, respectively.
3.
Cash and Cash Equivalents
For
purposes of reporting cash flows on the Consolidated Statements of Cash Flows,
cash and cash equivalents include cash, overnight investments, and securities
purchased under agreements to resell which mature within 90 days of the date of
purchase.
4.
Loan Loss Allowances
Listed
below is
a summary of activity in the general valuation allowance and the valuation
allowance for impaired loans during the periods indicated.
|
|
General
Valuation Allowance
|
|
|
Valuation
Allowances
For
Impaired
Loans
|
|
|
Total
|
|
|
|
(Dollars
in thousands)
|
|
Balance
at December 31, 2007:
|
|
$
|
127,503
|
|
|
$
|
555
|
|
|
$
|
128,058
|
|
Provision
for loan losses
|
|
|
306,180
|
|
|
|
44,620
|
|
|
|
350,800
|
|
Yield
adjustment on troubled
debt
restructurings
(1)
|
|
|
—
|
|
|
|
(2,434
|
)
|
|
|
(2,434
|
)
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Single
family
|
|
|
(207,060
|
)
|
|
|
(6,523
|
)
|
|
|
(213,583
|
)
|
Total
charge-offs
|
|
|
(207,060
|
)
|
|
|
(6,523
|
)
|
|
|
(213,583
|
)
|
Recoveries
|
|
|
1,251
|
|
|
|
—
|
|
|
|
1,251
|
|
Net
charge-offs
|
|
|
(205,809
|
)
|
|
|
(6,523
|
)
|
|
|
(212,332
|
)
|
Transfers
|
|
|
(6,514
|
)
|
|
|
6,514
|
|
|
|
—
|
|
Balance
at September 30, 2008:
|
|
$
|
221,360
|
|
|
$
|
42,732
|
|
|
$
|
264,092
|
|
(1)
The
Bank establishes an impaired loan valuation allowance for the difference between
the recorded investment of the original loan at the time of modification and the
expected cash flows of the modified loan (discounted at the effective interest
rate of the original loan during the modification period). The difference is
recorded as a provision for loan losses during the current period and
subsequently amortized over the expected life of the loan as an adjustment to
the loan yield or as adjustment to the loan loss provision if the loan is
prepaid.
|
|
General
Valuation Allowance
|
|
|
Valuation
Allowances
For
Impaired
Loans
|
|
|
Total
|
|
|
|
(Dollars
in thousands)
|
|
Balance
at December 31, 2006:
|
|
$
|
109,768
|
|
|
$
|
—
|
|
|
$
|
109,768
|
|
Provision
for loan losses
|
|
|
11,400
|
|
|
|
—
|
|
|
|
11,400
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Single
family
|
|
|
(5,008
|
)
|
|
|
—
|
|
|
|
(5,008
|
)
|
Commercial
loans
|
|
|
(52
|
)
|
|
|
|
|
|
|
(52
|
)
|
Consumer
loans
|
|
|
(50
|
)
|
|
|
—
|
|
|
|
(50
|
)
|
Total
charge-offs
|
|
|
(5,110
|
)
|
|
|
—
|
|
|
|
(5,110
|
)
|
Recoveries
|
|
|
166
|
|
|
|
—
|
|
|
|
166
|
|
Net
charge-offs
|
|
|
(4,944
|
)
|
|
|
—
|
|
|
|
(4,944
|
)
|
Balance
at September 30, 2007:
|
|
$
|
116,224
|
|
|
$
|
—
|
|
|
$
|
116,224
|
|
5.
Impaired Loans and Troubled Debt Restructurings
The
Company considers a loan impaired when management believes that it is probable
that the Company will not be able to collect all amounts due under the
contractual terms of the loan agreement. Estimated impairment losses are
recorded as separate valuation allowances and may be subsequently adjusted based
upon changes in the measurement of impairment. Impaired loans, net of
valuation allowances, include non-accrual major loans (commercial business loans
with an outstanding principal amount greater than or equal to $500 thousand,
single family loans greater than or equal to $1.0 million, and income property
loans with an outstanding principal amount greater than or equal to $1.5
million), modified loans which are considered troubled debt restructurings
because they do not meet the Company’s current product offerings and
underwriting standards, and major loans less than 90 days delinquent for which
full payment of principal and interest is not expected to be
received.
The following is a summary of impaired loans, net of valuation
allowances for impairment, at the dates indicated:
|
|
September
30,
2008
|
|
|
December
31,
2007
|
|
|
September
30,
2007
|
|
|
|
(Dollars
in thousands)
|
|
Restructured
loans
|
|
$
|
500,139
|
|
|
$
|
1,799
|
|
|
$
|
—
|
|
Non-accrual
loans
|
|
|
30,670
|
|
|
|
20,112
|
|
|
|
11,907
|
|
Other
impaired loans
|
|
|
—
|
|
|
|
1,625
|
|
|
|
4,478
|
|
|
|
$
|
530,809
|
|
|
$
|
23,536
|
|
|
$
|
16,385
|
|
When a
loan is considered impaired, the Company measures impairment based on the
present value of expected future cash flows discounted at the loan's effective
interest rate. However, if the loan is "collateral-dependent" or foreclosure is
probable, impairment is measured based on the fair value of the collateral. When
the measure of an impaired loan is less than the recorded investment in the
loan, the Company records an impairment allowance equal to the excess of the
recorded investment in the loan over its measured value.
The following is a summary of information pertaining to impaired
loans at the dates indicated:
|
|
September
30,
2008
|
|
|
December
31,
2007
|
|
|
September
30,
2007
|
|
|
(Dollars in
thousands)
|
|
Impaired
loans without valuation allowances
|
|
$
|
31,027
|
|
|
$
|
16,606
|
|
|
$
|
16,385
|
|
Impaired
loans with valuation allowances
|
|
|
542,514
|
|
|
|
7,485
|
|
|
|
—
|
|
Valuation
allowances on impaired loans
|
|
|
(42,732
|
)
|
|
|
(555
|
)
|
|
|
—
|
|
|
|
Nine
months ended
|
|
|
|
September
30,
2008
|
|
|
September
30,
2007
|
|
|
|
(Dollars
in thousands)
|
|
Average
investment in impaired loans
|
|
$
|
465,047
|
|
|
$
|
15,164
|
|
Interest
recognized on impaired loans
|
|
|
5,719
|
|
|
|
258
|
|
Interest
recognized on impaired loans using the
cash basis
|
|
|
3,365
|
|
|
|
213
|
|
6.
Real Estate Owned Activity
The
following table shows activity in real estate owned (REO) during the periods
indicated:
|
|
Nine
months ended
|
|
|
|
September
30, 2008
|
|
|
September
30,
2007
|
|
|
|
(Dollars
in thousands)
|
|
Beginning
Balance
|
|
$
|
21,090
|
|
|
$
|
1,094
|
|
Acquisitions
|
|
|
250,705
|
|
|
|
22,297
|
|
Write-downs
|
|
|
(13,172
|
)
|
|
|
(1,785
|
)
|
Sales
of REO
|
|
|
(125,666
|
)
|
|
|
(2,878
|
)
|
Ending
Balance
|
|
$
|
132,957
|
|
|
$
|
18,728
|
|
Net gain (loss) on real estate
owned is comprised of the following items for the periods indicated:
|
|
Three
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Gain
on sale of REO
|
|
$
|
12,342
|
|
|
$
|
111
|
|
Loss
on sale of REO
|
|
|
(1,518
|
)
|
|
|
(60
|
)
|
Write
downs on REO
|
|
|
(6,654
|
)
|
|
|
(1,676
|
)
|
|
|
$
|
4,170
|
|
|
$
|
(1,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Gain
on sale of REO
|
|
$
|
22,348
|
|
|
$
|
213
|
|
Loss
on sale of REO
|
|
|
(1,819
|
)
|
|
|
(242
|
)
|
Write
downs on REO
|
|
|
(13,172
|
)
|
|
|
(1,785
|
)
|
|
|
$
|
7,357
|
|
|
$
|
(1,814
|
)
|
|
|
|
|
|
|
|
|
|
The
following items are included in real estate owned operations for the periods
indicated:
|
|
Three
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Single
family expense
|
|
$
|
(4,306
|
)
|
|
$
|
(370
|
)
|
Single
family income
|
|
|
29
|
|
|
|
1
|
|
|
|
$
|
(4,277
|
)
|
|
$
|
(369
|
)
|
|
|
Nine
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Single
family expense
|
|
$
|
(8,602
|
)
|
|
$
|
(732
|
)
|
Single
family income
|
|
|
61
|
|
|
|
1
|
|
|
|
$
|
(8,541
|
)
|
|
$
|
(731
|
)
|
7.
Income Taxes
Statement
of Financial Accounting Standards (SFAS) No. 109,
Accou
nting for Income Taxes
,
requires that, when determining the need for a valuation
allowance
against a deferred tax asset, management must assess both positive and negative
evidence
with
regard to the realizability of the tax losses represented by that asset. To the
extent that available sources of taxable income are insufficient to absorb tax
losses, a valuation allowance is necessary. Sources of taxable income for this
analysis include prior years’ tax returns, the expected reversals of taxable
temporary differences between book and tax income, prudent and feasible tax
planning strategies and future taxable income. The Company’s tax asset has
increased substantially during the first nine months of 2008 due to a
significant increase in its loan loss allowances. The deferred tax asset related
to loan loss allowances will be realized when actual charge-offs are made
against the loan loss allowances. For federal income tax purposes, future
charge-offs that result in a net operating loss for a period may be carried back
and offset against the taxable income of the two prior years. Based on the
availability of these loss carry-backs and projected taxable income during the
periods for which loss carry-forwards are available, management believes that no
valuation allowance is necessary for the Bank’s federal deferred tax
asset. No loss carry-backs are allowed for California tax purposes
during 2008. Because the realizability of the state net operating loss is less
assured due to the lack of a carry back provision, a valuation allowance of $8.5
million has been recorded against that asset at September 30,
2008.
The
deferred tax asset (included in other assets) increased to $135.2 million at
September 30, 2008 compared to $80.7 million at December 31, 2007 and $71.4
million at September 30, 2007. Income taxes receivable (included in other
assets) increased to $55.1 million at September 30, 2008 from $9.1 million at
December 31, 2007. At September 30, 2007, income taxes payable were $853
thousand.
8.
Fair Value Measurements
SFAS
No. 157,
Fair Value
Measurements
, defines fair value, establishes a framework for measuring
fair value, establishes a three-level valuation hierarchy for disclosure of fair
value measurement, and enhances disclosure requirements for fair value
measurements. The valuation hierarchy is based upon the transparency of inputs
to the valuation of an asset or liability as of the measurement date. The three
levels are defined as follow:
|
|
|
|
|
•
|
|
Level 1
|
|
inputs
to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
|
|
|
|
•
|
|
Level 2
|
|
inputs
to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the
asset or liability, either directly or indirectly, for substantially the
full term of the financial instrument.
|
|
|
|
•
|
|
Level 3
|
|
inputs
to the valuation methodology are unobservable and significant to the fair
value
measurement.
|
The
following is a description of the valuation methodologies used for instruments
measured at fair value, as well as the general classification of such
instruments pursuant to the valuation hierarchy:
Assets
Securities
Where
quoted prices are available in an active market, securities are classified
within level 1 of the valuation hierarchy. Level 1 includes securities that have
quoted prices in active markets for identical assets. If quoted market prices
are not available, then fair values are estimated by using pricing models,
quoted prices of securities with similar characteristics, or discounted cash
flow. Examples of such instruments, which would generally be classified within
level 2 of the valuation hierarchy, include certain collateralized mortgage and
debt obligations and certain high-yield debt securities. In certain cases where
there is limited activity or less transparency around inputs to the valuation,
securities are classified within level 3 of the valuation hierarchy. The Company
did not have any level 1 or level 3 securities as of September 30,
2008.
Loans held for
sale
Loans
held for sale are required to be measured based on the lower of cost or fair
value. Under SFAS No. 157, market value is used to represent fair value.
When management has loans held for sale, it obtains quotes or bids on all or
part of these loans directly from the purchasing financial institutions. At
September 30, 2008, the Company had no loans held for sale.
Impaired
loans
SFAS No.
157 applies to loans measured for impairment using the practical expedients
permitted by SFAS No. 114,
Accounting by Creditors for
Impairment of a Loan
, including impaired loans measured at an observable
market price (if available), or at the fair value of the loan’s collateral (if
the loan is collateral dependent). When a modified loan is considered impaired,
the Company measures impairment based on the present value of expected future
cash flows discounted at the loan's effective interest rate. The effective
interest rate of the loan is the interest rate of the loan prior to
restructuring, including adjustment for deferred loan fees or costs. However, if
the loan is "collateral-dependent" or a probable foreclosure, impairment is
measured based on the fair value of the collateral. Fair value of the loan’s
collateral, when the loan is dependent on collateral, is determined by
appraisals or independent valuation which is then adjusted for the cost related
to liquidation of the collateral. When the measure of an impaired loan is less
than the recorded investment in the loan, the Company records an impairment
allowance equal to the excess of our recorded investment in the loan over its
measured value.
Real estate
owned
Certain
assets such as real estate owned (REO) are measured at fair value less the
estimated cost to sell. The Company believes that using fair value as a basis
for measuring REO follows the provisions of SFAS No. 157. The fair value of REO
at September 30, 2008 was determined either by appraisals or independent
valuations that were then adjusted for the cost related to liquidation
of the subject property, or by sales agreement.
Assets measured at fair value at September 30, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
Description
|
Total
|
|
Quoted Prices in
Active Markets for
Identical
Assets
(Level
1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
(Dollars
in thousands)
|
Recurring
Items:
|
|
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
Collateralized
mortgage obligations
|
$
|
329,042
|
|
—
|
|
$
|
329,042
|
|
—
|
Mortgage-backed
securities
|
|
41,510
|
|
—
|
|
|
41,510
|
|
—
|
Total
available-for-sale securities
|
$
|
370,552
|
|
—
|
|
$
|
370,552
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
Description
|
Total
|
|
Quoted Prices in
Active Markets for
Identical
Assets
(Level
1)
|
|
Significant Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
(Dollars
in thousands)
|
Non-Recurring
Items:
|
|
|
|
|
Impaired
loans
|
$
|
530,809
|
|
—
|
|
$
|
530,809
|
|
—
|
Real
estate owned
|
|
132,957
|
|
—
|
|
|
132,957
|
|
—
|
|
$
|
663,766
|
|
—
|
|
$
|
663,766
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Liabilities
The Bank did not identify any liabilities to be presented at fair
value as of September 30, 2008.
9.
Stock Options and Restricted Stock
The
Company recorded stock-based compensation expense of $426 thousand and $1.4
million, net of tax, for the third quarter and the first nine months of 2008,
respectively. For the third quarter and the first nine months of 2007, the
Company recorded stock-based compensation expense of $407 thousand and $1.3
million, net of tax, respectively.
At
September 30, 2008, the Company had options outstanding issued under two
share-based compensation programs, the 1994 Stock Option and Appreciation Rights
Plan (“1994 Plan”) and the 1997 Non-employee Directors Stock Incentive Plan
(“Directors 1997 Plan”). At September 30, 2008, the number of shares available
to be granted for option awards under the 1994 Plan totaled 1,669,765. The
Directors 1997 Plan was terminated in connection with the implementation of a
new restricted stock plan during 2007. No new grants were made in 2008 under the
Directors 1997 Plan.
Options
granted under the 1994 Plan are vested over a six year period and have a
maximum contractual term of 10 years. Options previously granted to non-employee
directors under the Directors 1997 Plan were vested in one year and had a
maximum contractual term of 10 years.
Options
under all of the share-based compensation programs are granted with an exercise
price equal to the market price of the Company’s stock at the date of grant. The
fair value of each grant has been estimated as of the grant date using the
Black-Scholes option valuation model. The expected life is estimated based on
the actual weighted average life of historical exercise activity of the grantee
population. The volatility factors are based on the historical volatilities of
the Company’s stock, and these are used to estimate volatilities over the
expected life of the options. The risk-free interest rate is the implied yield
available on zero coupons (U.S. Treasury Rate) at the grant date with a
remaining term equal to the expected life of the options. Estimates of fair
value are not intended to predict actual future events or the value ultimately
realized by employees who receive stock incentive awards, and subsequent events
are not indicative of the reasonableness of the original estimates of fair value
calculated by the Company.
The
weighted average fair value of options granted under the 1994 Plan during the
first quarter of 2008 was $10.91 per share using the following assumptions:
expected volatility of 24%; risk-free interest rate of 3.15%; and an expected
average life of 5.9 years. The weighted average fair value of options granted
under the 1994 Plan during the first quarter of 2007 was $25.30 per share using
the following assumptions; expected volatility of 27%; risk-free interest rate
of 4.87%; and an expected average life of 6.0 years.
The
following is a summary of the Company’s stock option activity for the nine
months ended September 30, 2008:
Stock
Options:
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise Price ($)
|
|
|
Weighted
Average
Remaining Contractual Term (years)
|
|
|
Aggregate
Intrinsic Value
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2008
|
|
|
781,787
|
|
|
$
|
42.67
|
|
|
|
|
|
|
|
Granted
|
|
|
160,800
|
|
|
|
36.07
|
|
|
|
|
|
|
|
Exercised
|
|
|
(31,866
|
)
|
|
|
16.59
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(61,914
|
)
|
|
|
43.77
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2008
|
|
|
848,807
|
|
|
$
|
42.32
|
|
|
|
5.90
|
|
|
$
|
—
|
|
Exercisable
at September 30, 2008
|
|
|
364,111
|
|
|
$
|
31.16
|
|
|
|
7.40
|
|
|
$
|
—
|
|
The total
intrinsic value of options exercised during the first nine months of 2008 was
$445 thousand. This compares to $1.2 million and $5.2 million during the third
quarter and the first nine months of 2007, respectively. Cash received from
options exercised during the first nine months of 2008 was $529 thousand. No
options were exercised during the third quarter of 2008. Cash received from
options exercised during the third quarter and the first nine months of 2007 was
$1.2 million and $2.5 million, respectively.
As of
September 30, 2008, the unearned compensation cost related to non-vested stock
options totaled $3.1 million to be recognized over a weighted average period of
4.1 years.
Restricted
Stock
On April
26, 2007, the stockholders of the Company adopted the 2007 Non-employee
Directors Restricted Stock Plan (“2007 Plan”). Under the 2007 Plan, the Company
may grant up to 200,000 shares to non-employee directors of the Company. For
each grant, 50% of the restricted shares vest on the first anniversary date
of the issuance and the remaining 50% vest on the second anniversary date of the
issuance. The Company issued 1,670 shares of restricted stock to each of its
seven non-employee directors during the first quarter of 2008 compared to 900
shares during the first quarter of 2007. Upon retirement of a non-employee
director, any non-vested shares of restricted stock automatically
vest.
The
following is a summary of the Company’s non-vested restricted stock as of
September 30, 2008.
Non-vested
Restricted Stock:
|
Number
of
Shares
|
|
Weighted
Average
Grant
Date
Fair
Value
|
|
|
|
|
|
|
Outstanding
at January 1, 2008
|
5,400
|
|
$67.26
|
|
Granted
|
11,690
|
|
$36.07
|
|
Vested
|
(2,700)
|
|
$67.26
|
|
Forfeited
|
—
|
|
|
|
Outstanding
at September 30, 2008
|
14,390
|
|
$41.92
|
|
The total
fair value of the restricted stock awards that vested during the nine
months ended September 30, 2008 was $97 thousand compared to $54 thousand during
the same period in the prior year.
Stock-based
compensation expense recorded in connection with the 2007 Plan totaled $177
thousand, net of tax, during the nine months ended September 30, 2008. As of
September 30, 2008, the total unrecognized compensation cost related to
non-vested restricted awards totaled $207 thousand to be recognized over a
weighted average period of 1.1 years.
10.
Supplementary Executive Retirement Plan
The
following table sets forth the net periodic benefit cost attributable to the
Company’s Supplementary Executive Retirement Plan:
|
|
Pension
Benefits
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
86
|
|
|
$
|
76
|
|
|
$
|
258
|
|
|
$
|
152
|
|
Interest
cost
|
|
|
257
|
|
|
|
216
|
|
|
|
771
|
|
|
|
432
|
|
Amortization
of net loss
|
|
|
190
|
|
|
|
96
|
|
|
|
570
|
|
|
|
192
|
|
Amortization
of prior service cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
periodic benefit cost
|
|
$
|
533
|
|
|
$
|
388
|
|
|
$
|
1,599
|
|
|
$
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.25
|
%
|
|
|
5.75
|
%
|
|
|
6.25
|
%
|
|
|
5.75
|
%
|
Rate
of compensation increase
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Expected
return on plan assets
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The
Company does not expect any significant changes to the amounts previously
disclosed as contributions for benefit payments. The expenses during the third
quarter and first nine months of 2008 increased compared to the same periods of
the prior year mainly due to an increase in covered pay for the participants in
2007.
11.
Recent Accounting Pronouncements
In
May 2008, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 162,
The Hierarchy of Generally Accepted
Accounting Principles
. This statement identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles
(“GAAP”) in the Unites States (“GAAP hierarchy”). This statement also clarifies
that the GAAP hierarchy should be directed to entities because it is the entity
(not its auditor) that is responsible for selecting accounting principles for
financial statements that are presented in accordance with GAAP. The statement
is effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411,
The Meaning of
Present Fairly in Conformity with Generally Accepted
Accounting Principles
. The Company does not expect that this statement
will result in a change in current practice. Therefore, management does not
expect this statement to have an impact on the Company’s financial
results.
In March 2008, the FASB issued
SFAS No. 161,
Disclosures
about Derivative Instruments and Hedging Activities
. This standard is
intended to improve financial reporting about derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance, and cash flows. This statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The Company has no derivative
instruments or hedging activities.
In
December 2007, the FASB issued two new statements: (a) SFAS No. 141 (R) (revised
2007),
Business
Combinations
, and (b) SFAS No. 160,
Noncontrolling Interests in
Consolidated Financial Statements.
These statements are effective for
fiscal years beginning after December 15, 2008 and the application of these
standards will improve, simplify, and converge internationally the accounting
for business combinations and the reporting of noncontrolling interests in
financial statements. The Company is in the process of evaluating the impact, if
any, on SFAS No. 141 (R) and SFAS No. 160 and does not anticipate that the
adoption of these standards will have any impact on its financial
statements.
(a) SFAS
No. 141 (R) requires an acquiring entity in a business combination to: (i)
recognize all (and only) the assets acquired and the liabilities assumed in the
transaction, (ii) establish an acquisition-date fair value as the measurement
objective for all assets acquired and the liabilities assumed, and (iii)
disclose to investors and other users all of the information they will need to
evaluate and understand the nature of, and the financial effect of, the business
combination, and (iv) recognize and measure the goodwill acquired in the
business combination or a gain from a bargain purchase.
(b) SFAS
No. 160 will improve the relevance, comparability and transparency of financial
information provided to investors by requiring all entities to: (i) report
noncontrolling (minority) interests in subsidiaries in the same manner as equity
but separate from the parent’s equity, in financial statements, (ii) net income
attributable to the parent and to the non-controlling interest must be clearly
identified and presented on the face of the statement of income, and (iii) any
changes in the parent’s ownership interest while the parent retains the
controlling financial interest in its subsidiary be accounted for consistently.
The Company has no minority interest in subsidiaries at the present
time.
In
December 2007, the SEC issued Staff Accounting Bulletin (SAB) No. 110,
Share-Based Payment
, which
amends SAB No. 107,
Share-Based Payment,
to
permit public companies, under certain circumstances, to continue to use the
simplified method in SAB No. 107, to estimate the expected term of their "
plain vanilla"
employee
options. Although the Company’s stock options fit the definition of "
plain vanilla"
according to SAB 110,
because it has sufficient relevant historical option exercise data to provide a
reasonable basis to estimate an option’s expected term, SAB No. 110 does not
apply to the Company.
In
November 2007, the SEC issued SAB No. 109,
Written Loan Commitments Recorded at
Fair Value Through Earnings.
SAB No. 109 was effective for fiscal
quarters beginning after December 15, 2007. SAB No. 109 was issued to
clarify the SEC staff position that internally developed intangible assets
should not be included in the fair value of derivative loan commitments and
other written loan commitments that are accounted for at fair value through
earnings. The Company did not have any derivative loan commitments or written
loan commitments that were accounted for at fair value through earnings as of
September 30, 2008. Therefore, this bulletin did not have any impact on the
Company’s financial results.
In
February 2007, SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities-Including an amendment of FASB Statement No.
115,
was issued. This statement permits entities to choose to measure
many financial instruments and certain other items at fair value. The objective
is to improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This statement was effective for financial statements issued for
fiscal years beginning after November 15, 2007. The Company has not chosen to
measure additional financial instruments at fair value. Therefore, the adoption
of this statement on January 1, 2008 did not have any impact on the Company’s
financial results.
Item
2.
Management’s
Discussion and Analysis of Consolidated Balance Sheets and Consolidated
Statements of Operations
The
following narrative is written with the presumption that the users have
read our 2007 Annual Report on Form 10-K, which contains the latest audited
financial statements and notes thereto, together with Management's Discussion
and Analysis of Financial Condition and Results of Operations, as of December
31, 2007, and for the year then ended. Therefore, only material changes in the
consolidated balance sheets and consolidated statements of operations are
discussed herein.
The
Securities and Exchange Commission (“SEC”) maintains a web site which contains
reports, proxy statements, and other information pertaining to registrants that
file electronically with the SEC, including the Company. The internet address
is: www.sec.gov. In addition, our periodic and current reports are available
free of charge on our website at
www.firstfedca.com
as
soon as reasonably practicable after such material is electronically filed with,
or furnished to, the SEC.
Note regarding forward-looking
statements:
This quarterly report contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities
and Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other
than statements of historical facts, included in this quarterly report that
address activities, events or developments that we expect, believe or anticipate
will or may occur in the future, are forward-looking statements. These
statements are based on certain assumptions and analyses made by us in light of
our experience and perception of historical trends, current conditions, expected
future developments and other factors the Company believe are appropriate in the
circumstances. These forward-looking statements are subject to various factors,
many of which are beyond our 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 margins, the California real estate market, branch openings,
regulatory actions, and competitive conditions in the business and geographic
areas in which the Company conducts business. 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, except to the extent that it is required to do so
under applicable law.
Consolidated
Balance Sheets
At
September 30, 2008, FirstFed Financial Corp. ("Company"), the holding company
for First Federal Bank of California and its subsidiaries ("Bank"), had
consolidated stockholders’ equity of $499.2 million compared to $654.5 million
at December 31, 2007 and $642.8 million at September 30, 2007. Stockholders’
equity decreased from December 31, 2007 to September 30, 2008 due to a $156.9
million loss recorded during the first nine months of 2008. Total assets were
unchanged at $7.4 billion at both September 30, 2008 and September 30, 2007. The
slight increase from $7.2 billion at December 31, 2007 to $7.4 billion at
September 30, 2008 was due primarily to increased loan originations and lower
levels of loan payoffs.
The loss
during the third quarter of 2008 was due primarily to the provision for loan
losses relating to the Bank’s single family loan portfolio. The provision was
necessary due to the level of charge-offs recorded in the third quarter and the
continuing decline in value of single family homes in California. During the
third quarter of 2008, the Bank was successful in modifying loan terms for
borrowers with aggregate loan balances of approximately $223.1 million that were
close to their payment reset date. During the first nine months of 2008, the
Bank modified loans with aggregate loan balances of approximately $559.0
million.
Non-performing
assets as a percentage of total assets increased to 7.87% at September 30, 2008
compared to 2.79% at December 31, 2007 and 1.40% at September 30, 2007. Recently
published reports indicate that most financial institutions that have originated
single family loans over the past few years have experienced increased loan
defaults and foreclosures. The increase in loan defaults and foreclosures is due
to: (1) the inability of borrowers to afford their loan payments after the
payments have recast in accordance with the notes, (2) the inability of
borrowers to sell their homes in the current real estate market, and (3)
the inability of borrowers to refinance their loans due to tighter credit, more
stringent underwriting standards by mortgage lenders and home values which may
be less than the mortgage indebtedness.
In a
press release dated September 25, 2008, the California Association of Realtors
(“CAR”) reported that the median price of an existing home in the State of
California fell 40.5% during August 2008 compared with the same
period a year ago. However, due to increased affordability as a result of
recent price declines, the rate of home sales has continued to increase for the
last several months. According to CAR, the seasonally adjusted annualized sales
rate of home sales in the State of California during August 2008 increased
56.7% compared to the same period a year ago. Additionally, the median
number of days it took to sell a single family home was 47.3 days in
August 2008 compared with 54.7 days (revised) for the same
period a year ago. Furthermore, the Unsold Inventory Index for
existing, single family detached homes in August 2008 was 6.7 months, less than
10.6 months for the same period a year ago (the unsold inventory index
indicates the number of months needed to deplete the supply of homes on the
market at the current sales rate). According to William E. Brown, CAR President,
“While this is encouraging news, we don’t expect to see a housing market
recovery until prices stabilize and the number of distressed properties on the
market declines.” He further stated that, “sales gains continue to be driven by
the large share of deeply-discounted distressed sales in many parts of the
state.” Most economists agree that the single family real estate
market will remain weak throughout 2009 and into 2010.
The
Bank’s single family non-accrual loans (loans greater than 90 days delinquent or
in foreclosure) decreased to $445.3 million as of September 30, 2008 from $491.7
million at June 30, 2008. This compares to $393.6 million at March 31, 2008,
$179.7 million as of December 31, 2007 and $84.2 million as of September 30,
2007.
The Bank’s
loans delinquent less than 90 days have stabilized in recent months.
After having reached $273.3 million as of March 31, 2008, single family loans
delinquent less than 90 days decreased to $212.1 million as of September 30,
2008, which was a slight increase from $207.7 million as of June 30, 2008. In
comparison, single family loans delinquent less than 90 days were $236.7 million
as of December 31, 2007 and $71.7 million as of September 30, 2007.
A
contributing factor to the increase in foreclosures is the high volume of
adjustable rate loans originated by mortgage lenders over the last few years
that give borrowers the option of making less than a fully amortizing loan
payment for initial periods ranging from one to five years. Borrowers who choose
to make less than the fully amortizing loan payment experience high levels of
negative amortization, which causes a large payment increase at the end of the
initial period. Defaults may occur because, very often, the minimum required
payment significantly increases when the payment adjusts to an amount that will
fully amortize the loan. While the Bank did not originate sub prime loans, we
did originate adjustable rate loans with lower payment options that allowed for
negative amortization.
Because
substantially all of our loans are collateralized by properties located in
California, the Company continuously monitors the California real estate market
and the sufficiency of the collateral supporting our real estate loan portfolio.
The Company considers several factors when evaluating the underlying collateral
of the real estate loan portfolio, including the property location, the date of
loan origination, the original loan-to-value ratio, and the current
loan-to-value ratio.
Lending
Activities
The
following table shows the components of our loan portfolio (including loans held
for sale) by type at the dates indicated:
|
|
September
30,
2008
|
|
|
December
31,
2007
|
|
|
September
30,
2007
|
|
|
|
(Dollars
in thousands)
|
|
REAL
ESTATE LOANS:
|
|
|
|
|
|
|
|
|
|
First
trust deed residential loans
|
|
|
|
|
|
|
|
|
|
One-to-four
units
|
|
$
|
4,521,889
|
|
|
$
|
4,652,876
|
|
|
$
|
4,857,093
|
|
Five
or more units
|
|
|
1,857,634
|
|
|
|
1,709,815
|
|
|
|
1,610,892
|
|
Residential
loans
|
|
|
6,379,523
|
|
|
|
6,362,691
|
|
|
|
6,467,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
REAL ESTATE LOANS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
and industrial
|
|
|
149,901
|
|
|
|
159,052
|
|
|
|
157,460
|
|
Second
trust deeds
|
|
|
2,021
|
|
|
|
2,159
|
|
|
|
2,273
|
|
Other
|
|
|
4,212
|
|
|
|
4,242
|
|
|
|
4,251
|
|
Real
estate loans
|
|
|
6,535,657
|
|
|
|
6,528,144
|
|
|
|
6,631,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-REAL
ESTATE LOANS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit
accounts
|
|
|
1,330
|
|
|
|
2,061
|
|
|
|
1,206
|
|
Commercial
business loans
|
|
|
92,605
|
|
|
|
75,848
|
|
|
|
69,244
|
|
Consumer
loans
|
|
|
32,139
|
|
|
|
33,136
|
|
|
|
34,475
|
|
Loans
receivable
|
|
|
6,661,731
|
|
|
|
6,639,189
|
|
|
|
6,736,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LESS:
|
|
|
|
|
|
|
|
|
|
|
|
|
General valuation allowances
|
|
|
221,360
|
|
|
|
127,503
|
|
|
|
116,224
|
|
Valuation allowances for impaired loans
|
|
|
42,732
|
|
|
|
555
|
|
|
|
—
|
|
Deferred
loan origination costs, net
|
|
|
1,933
|
|
|
|
(7,083
|
)
|
|
|
(11,940
|
)
|
Net loans receivable
|
|
$
|
6,395,706
|
|
|
$
|
6,518,214
|
|
|
$
|
6,632,610
|
|
Loan
originations increased by 79% during the first nine months of 2008 compared to
the first nine months of 2007 due to higher originations of both single family
and multi-family real estate loans. Current loan originations are
fully-documented and contain no negative amortization provisions.
Originations of multi-family mortgage loans increased due to the popularity of
the Bank’s standard income property lending programs. Also, unlike the single
family loans, the Bank’s multi-family loan portfolio performance has not
exhibited any weakness. Therefore, the Bank grew multi-family and commercial
mortgage loans to 36% of total loan originations during the first nine months of
2008 from 24% of total loan originations during the first nine months of
2007.
The
following table summarizes total loan funding by type:
|
|
Nine
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Single
family real estate
|
|
$
|
767,313
|
|
|
$
|
518,027
|
|
Single
family loans purchased
|
|
|
6,484
|
|
|
|
—
|
|
Multi-family
and commercial real estate
|
|
|
450,763
|
|
|
|
171,447
|
|
Other
|
|
|
31,676
|
|
|
|
13,356
|
|
Total
|
|
$
|
1,256,236
|
|
|
$
|
702,830
|
|
From
time-to-time the Bank originates loans for other mortgage lenders. These loans
are not funded by the Bank, but are brokered to another mortgage lender for a
fee. Loan originations funded by other mortgage lenders totaled only $10.3
million during the first nine months of 2008 compared to $98.1 million for the
first nine months of 2007. The fees received on brokered loans totaled $100
thousand during the first nine months of 2008 compared to $946 thousand for the
same period in 2007. Brokered loans to other lenders decreased due to the
Bank’s focus on originating loans for its own portfolio.
The
following table summarizes single family loan funding by borrower documentation
type for the periods indicated:
|
|
Nine
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Verified
Income/Verified Asset
|
|
$
|
761,944
|
|
|
$
|
146,983
|
|
Stated
Income/Verified Asset
|
|
|
5,369
|
|
|
|
229,951
|
|
Stated
Income/Stated Asset
|
|
|
—
|
|
|
|
69,392
|
|
No
Income/No Asset
|
|
|
—
|
|
|
|
71,701
|
|
Total
|
|
$
|
767,313
|
|
|
$
|
518,027
|
|
On
Verified Income/Verified Asset loans (VIVA), the borrower includes information
on his/her income and assets, which is then verified. Loans that allow for a
reduced level of documentation at origination are an insignificant
percentage of single family loans originated in our market areas. On Stated
Income/Stated Assets (SISA) loans, the borrower includes information on his/her
level of income and assets that is not subject to verification. On Stated
Income/Verified Assets (SIVA) loans, the borrower includes information on
his/her level of income and that information is not subject to verification,
although information provided by the borrower on his/her assets is verified. For
No Income/No Assets (NINA) loans, the borrower is not required to submit
information on his/her level of income or assets. However, all single family
loans, including NINA loans, require credit reports and appraisals. The Bank
required higher credit scores, higher rates, and lower loan to values on NINA
loans.
The Bank
stopped originating NINA and SISA loans in 2007 and ceased originating SIVA
loans in February 2008. All multi-family loans and other real estate loans have
consistently required complete and customary documentation from the
borrowers.
The
creditworthiness of the borrower is based on the borrower’s credit score
(“FICO”), prior credit use and repayment of credit, job history and stability.
The average borrower FICO score and average loan-to-value ratio on single family
loan originations were 754 and 65.9%, respectively, for the first nine months of
2008, compared to 715 and 73.6% for the first nine months of 2007.
At
September 30, 2008, 73.5% of our loan portfolio was invested in adjustable rate
products. Loans with interest rates that adjust monthly based on the Federal
Home Loan Bank (“FHLB”) Eleventh District Cost of Funds Index (“COFI”) comprised
29.8% of the loan portfolio. Loans with interest rates that adjust monthly based
on the 3-Month Certificate of Deposit Index (“CODI”) comprised 27.6% of the loan
portfolio. Loans with interest rates that adjust monthly based on the 12-month
average U.S. Treasury Security rate (“12MAT”) comprised 13.9% of the loan
portfolio. Loans with interest rates that adjust monthly based on the London
Inter-Bank Offering Rate (“LIBOR”) and other indices comprised 2.2% of the loan
portfolio.
The
following table summarizes total loan fundings by type of index for the periods
indicated:
|
|
Nine
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
CODI
|
|
$
|
—
|
|
|
$
|
4,275
|
|
12MAT
|
|
|
17,808
|
|
|
|
78,201
|
|
COFI
|
|
|
57,634
|
|
|
|
269,403
|
|
Other
|
|
|
37,611
|
|
|
|
21,549
|
|
Hybrid
and Fixed
|
|
|
1,143,183
|
|
|
|
329,402
|
|
Total
|
|
$
|
1,256,236
|
|
|
$
|
702,830
|
|
Only 9%
of loan originations were adjustable rate products during the first nine
months of 2008 compared to 53% of originations during the first nine months of
2007.
The
following table shows the composition of our single family loan portfolio by
borrower documentation type at the dates indicated:
Documentation
Type:
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
|
September
30, 2007
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Verified
Income/Verified Asset
|
|
$
|
1,717,687
|
|
|
$
|
1,135,358
|
|
|
$
|
1,104,439
|
|
Stated
Income/Verified Asset
|
|
|
1,179,708
|
|
|
|
1,468,686
|
|
|
|
1,549,968
|
|
Stated
Income/Stated Asset
|
|
|
1,205,543
|
|
|
|
1,506,627
|
|
|
|
1,629,330
|
|
No
Income/No Asset
|
|
|
418,951
|
|
|
|
542,205
|
|
|
|
573,356
|
|
Total
|
|
$
|
4,521,889
|
|
|
$
|
4,652,876
|
|
|
$
|
4,857,093
|
|
The
following table shows the composition of our single family loan portfolio by
borrower documentation type at the dates indicated with weighted average LTV
Ratio and FICO Score at origination. Due to changes in the real estate market
and in borrower creditworthiness, the average LTV and FICO score at origination
are subject to change.
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
|
September
30, 2007
|
|
|
|
LTV Ratio
|
|
|
FICO Score
|
|
|
LTV Ratio
|
|
|
FICO Score
|
|
|
LTV Ratio
|
|
|
FICO Score
|
|
Verified
Income/Verified Asset
|
|
|
70.2
|
%
|
|
|
708
|
|
|
|
73.3
|
%
|
|
|
709
|
|
|
|
73.5
|
%
|
|
|
707
|
|
Stated
Income/Verified Asset
|
|
|
73.9
|
|
|
|
711
|
|
|
|
74.0
|
|
|
|
715
|
|
|
|
74.0
|
|
|
|
715
|
|
Stated
Income/Stated Asset
|
|
|
74.9
|
|
|
|
712
|
|
|
|
74.6
|
|
|
|
714
|
|
|
|
74.4
|
|
|
|
715
|
|
No
Income/No Asset
|
|
|
70.7
|
|
|
|
726
|
|
|
|
70.8
|
|
|
|
728
|
|
|
|
70.4
|
|
|
|
729
|
|
Total
Weighted Average
|
|
|
72.4
|
%
|
|
|
712
|
|
|
|
73.6
|
%
|
|
|
715
|
|
|
|
73.6
|
%
|
|
|
715
|
|
The
following table shows the composition of our single family loan portfolio at the
dates indicated by the
FICO
score of the borrower at origination:
FICO
Score at Origination:
|
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
|
September
30, 2007
|
|
|
|
|
|
|
|
(Dollars In
thousands
)
|
|
|
|
|
<620
|
|
|
$
|
24,606
|
|
|
$
|
27,667
|
|
|
$
|
28,973
|
|
620-659
|
|
|
|
352,102
|
|
|
|
431,307
|
|
|
|
451,158
|
|
660-719
|
|
|
|
1,927,844
|
|
|
|
2,162,687
|
|
|
|
2,257,252
|
|
>720
|
|
|
|
2,175,160
|
|
|
|
1,982,220
|
|
|
|
2,075,981
|
|
Not
Available
|
|
|
|
42,177
|
|
|
|
48,995
|
|
|
|
43,729
|
|
Total
|
|
|
$
|
4,521,889
|
|
|
$
|
4,652,876
|
|
|
$
|
4,857,093
|
|
The
following table shows the composition of our single family loan portfolio at the
dates indicated by original loan-to-value ratio:
Original
LTV Ratio:
|
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
|
September
30, 2007
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
<65%
|
|
|
$
|
922,295
|
|
|
$
|
817,580
|
|
|
$
|
857,807
|
|
65-70%
|
|
|
|
539,725
|
|
|
|
505,320
|
|
|
|
533,522
|
|
70-75%
|
|
|
|
617,812
|
|
|
|
593,386
|
|
|
|
620,405
|
|
75-80%
|
|
|
|
2,161,945
|
|
|
|
2,348,772
|
|
|
|
2,428,641
|
|
80-85%
|
|
|
|
53,881
|
|
|
|
73,564
|
|
|
|
78,976
|
|
85-90%
|
|
|
|
182,318
|
|
|
|
262,719
|
|
|
|
283,094
|
|
>90%
|
|
|
|
43,913
|
|
|
|
51,535
|
|
|
|
54,648
|
|
Total
|
|
|
$
|
4,521,889
|
|
|
$
|
4,652,876
|
|
|
$
|
4,857,093
|
|
The
following table shows the composition of our single family loan portfolio at
September 30, 2008 by estimated current LTV ratio:
Current
LTV Ratio
Price
Adjusted
(1)
:
|
|
|
Loan
Balance
|
|
|
%
of Portfolio
|
|
|
Average
Current LTV Ratio
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
<70%
|
|
|
$
|
1,090,710
|
|
|
|
24.1
|
%
|
|
|
51.7
|
%
|
70 - 80%
|
|
|
|
851,199
|
|
|
|
18.8
|
|
|
|
76.3
|
|
80 - 90%
|
|
|
|
696,141
|
|
|
|
15.4
|
|
|
|
85.7
|
|
90 -100%
|
|
|
|
798,544
|
|
|
|
17.7
|
|
|
|
94.8
|
|
100-110%
|
|
|
|
674,134
|
|
|
|
14.9
|
|
|
|
104.3
|
|
110-120%
|
|
|
|
334,052
|
|
|
|
7.4
|
|
|
|
119.0
|
|
Not
in MSAs
|
|
|
|
77,109
|
|
|
|
1.7
|
|
|
|
N/A
|
|
Total
|
|
|
$
|
4,521,889
|
|
|
|
100.0
|
%
|
|
|
82.4
|
%
|
(1) The
current estimated loan to value ratio is based on Office of Federal Housing
Enterprise Oversight (“OFHEO”) June 2008 data. The OFHEO housing price index
provides a broad measure of the housing price movements by Metropolitan
Statistical Area (MSA). In evaluating the potential for loan losses within the
bank’s portfolio, the Bank considers both the fact that OFHEO data cannot
reflect price movements for the most recent three months, and that individual
areas within an MSA will perform worse than the average for the larger area. The
Bank therefore also looks at sales data that is available by zip code, as well
as the Bank’s experience with marketing foreclosed properties in estimating the
loan loss allowance that is required.
The Bank
generally requires that borrowers obtain private mortgage insurance on loans in
excess of 80% of the appraised property value. Prior to April 2006, on certain
loans originated for the portfolio, the Bank charged premium rates and/or fees
in exchange for waiving the insurance requirement. Management believes that the
additional rates and fees that the Bank received for these loans compensated for
the additional risk associated with this type of loan. In certain of these cases
when the Bank waived the insurance requirement, the Bank purchased private
mortgage insurance with its own funds. At September 30, 2008, 68.3% of loans
with mortgage insurance were insured by the Republic Mortgage Insurance Company
(RMIC), and 30.5% were insured by the Mortgage Guaranty Insurance Corporation
(MGIC). Under certain mortgage insurance programs, the Bank continues to act as
co-insurer and participates with the insurer in absorbing any future
loss.
As of
September 30, 2008, December 31, 2007 and September 30, 2007, loans with
co-insurance totaled $133.3 million, $212.0 million, and $223.7 million,
respectively. Loans with initial loan-to-value ratios greater than 80% with no
private mortgage insurance totaled $146.8 million at September 30, 2008, $175.9
million at December 31, 2007, and $191.7 million at September 30,
2007.
The
following table shows the composition of our single family loan portfolio by
geographic distribution at the date indicated:
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
|
September
30, 2007
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
Los
Angeles County
|
|
$
|
1,224,568
|
|
|
|
27.1
|
%
|
|
$
|
1,148,942
|
|
|
|
24.7
|
%
|
|
$
|
1,166,069
|
|
|
|
24.0
|
%
|
Bay
Area
|
|
|
785,080
|
|
|
|
17.4
|
|
|
|
775,303
|
|
|
|
16.7
|
|
|
|
821,055
|
|
|
|
16.9
|
|
Central
California Coast
|
|
|
612,533
|
|
|
|
13.5
|
|
|
|
592,547
|
|
|
|
12.7
|
|
|
|
635,300
|
|
|
|
13.1
|
|
San
Diego Area
|
|
|
471,140
|
|
|
|
10.4
|
|
|
|
558,452
|
|
|
|
12.0
|
|
|
|
581,401
|
|
|
|
12.0
|
|
Orange
County
|
|
|
478,161
|
|
|
|
10.6
|
|
|
|
428,667
|
|
|
|
9.2
|
|
|
|
446,986
|
|
|
|
9.2
|
|
San
Bernardino/ Riverside
|
|
|
321,616
|
|
|
|
7.1
|
|
|
|
374,303
|
|
|
|
8.1
|
|
|
|
393,920
|
|
|
|
8.1
|
|
San
Joaquin Valley
|
|
|
227,129
|
|
|
|
5.0
|
|
|
|
298,788
|
|
|
|
6.4
|
|
|
|
315,497
|
|
|
|
6.5
|
|
Sacramento
Valley
|
|
|
222,163
|
|
|
|
4.9
|
|
|
|
275,313
|
|
|
|
5.9
|
|
|
|
287,877
|
|
|
|
5.9
|
|
Other
|
|
|
179,499
|
|
|
|
4.0
|
|
|
|
200,561
|
|
|
|
4.3
|
|
|
|
208,988
|
|
|
|
4.3
|
|
Total
|
|
$
|
4,521,889
|
|
|
|
100.0
|
%
|
|
$
|
4,652,876
|
|
|
|
100.0
|
%
|
|
$
|
4,857,093
|
|
|
|
100.0
|
%
|
The
following table shows the composition of our single family loan portfolio by
year of origination as of September 30, 2008
(dollars in
thousands)
:
2003
and Prior
|
|
$
|
317,558
|
|
|
|
7.0
|
%
|
|
2004
|
|
|
603,461
|
|
|
|
13.3
|
|
|
2005
|
|
|
1,554,599
|
|
|
|
34.4
|
|
|
2006
|
|
|
929,907
|
|
|
|
20.6
|
|
|
2007
|
|
|
355,388
|
|
|
|
7.9
|
|
|
2008
|
|
|
760,976
|
|
|
|
16.8
|
|
|
Total
|
|
$
|
4,521,889
|
|
|
|
100.0
|
%
|
|
Substantially
all adjustable single family loans originated prior 2008 in the Bank’s loan
portfolio allow negative amortization when a scheduled monthly payment is not
sufficient to pay the monthly interest accruing on the loan. Adjustable loans
comprised 76.8% of the single family loan portfolio as of September 30, 2008.
Negative amortization, which results when interest earned by the Bank is added
to borrowers’ loan balances, was $289.6 million at September 30, 2008, $301.7
million at December 31, 2007 and $290.0 million at September 30, 2007. Negative
amortization as a percentage of single family loans that have negative
amortization in the Bank’s loan portfolio was 9.29% at September 30, 2008
compared to 7.68% at December 31, 2007 and 7.08% at September 30, 2007. Negative
amortization decreased by $12.5 million during the first nine months of 2008
compared to an increase of $74.2 million during the first nine months of 2007.
Negative amortization is decreasing due to loan payoffs, loan foreclosures,
declines in the underlying indices on adjustable rate loans, and payment
increases required under the terms of our adjustable rate loan notes. During the
first nine months of 2008, hybrid loans with initial fixed interest rates
comprised 91.0% of originations compared to 46.9% of originations during the
same period in the prior year.
The
portfolio of adjustable single family loans with a one-year fixed payment period
totaled $2.4 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 a three-to-five year
fixed payment period 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.
The
amount of negative amortization that may occur in the loan portfolio is
uncertain and is influenced by a number of factors outside of our control,
including changes in the underlying index, the amount, and timing of borrowers’
monthly payments, and unscheduled principal payments. If the applicable index
were to increase and remain at relatively high levels, the amount of negative
amortization occurring in the loan portfolio would be expected to trend higher,
absent other mitigating factors such as increased prepayments or borrowers
making monthly payments that meet or exceed the amount of interest then accruing
on their mortgage loans. Similarly, if the index were to decline and remain at
relatively low levels, the amount of negative amortization occurring in the loan
portfolio would be expected to trend lower.
The
“recast” of adjustable loans to a higher payment amount appears to have been a
substantial factor in the higher delinquency levels experienced by the Bank
during 2007 and the first nine months of 2008 because many borrowers appear to
be unable to afford the higher payments. The percentage increase in the payment
amount and the loan-to-value ratios are important considerations in the future
collectability of the loans.
The
following tables show the number and dollar amount of performing loans expected
to recast by current estimated loan-to-value ratios for the periods indicated
(updated for both current loan balance and current estimated market
value):
|
|
|
2008
|
|
|
2009
|
|
|
Thereafter
|
|
Current
LTV Ratio
Price
Adjusted
(1)
:
|
|
|
Recast
Balance
|
|
|
Number
of Loans
|
|
|
Recast
Balance
|
|
|
Number
of Loans
|
|
|
Recast
Balance
|
|
|
Number
of Loans
|
|
|
|
|
(Dollars
in thousands)
|
|
<
70%
|
|
|
$
|
23,842
|
|
|
|
65
|
|
|
$
|
136,184
|
|
|
|
373
|
|
|
$
|
188,388
|
|
|
|
492
|
|
70-80%
|
|
|
|
12,735
|
|
|
|
31
|
|
|
|
121,543
|
|
|
|
270
|
|
|
|
166,400
|
|
|
|
339
|
|
80-90%
|
|
|
|
6,518
|
|
|
|
13
|
|
|
|
109,552
|
|
|
|
237
|
|
|
|
270,860
|
|
|
|
513
|
|
90-100%
|
|
|
|
14,406
|
|
|
|
28
|
|
|
|
102,318
|
|
|
|
198
|
|
|
|
353,293
|
|
|
|
658
|
|
100-110%
|
|
|
|
16,502
|
|
|
|
31
|
|
|
|
83,399
|
|
|
|
166
|
|
|
|
288,785
|
|
|
|
542
|
|
>110%
|
|
|
|
5,474
|
|
|
|
13
|
|
|
|
24,931
|
|
|
|
60
|
|
|
|
131,006
|
|
|
|
292
|
|
Grand
total
|
|
|
$
|
79,477
|
|
|
|
181
|
|
|
$
|
577,927
|
|
|
|
1,304
|
|
|
$
|
1,398,732
|
|
|
|
2,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The
current estimated loan to value ratio is based on OFHEO June 2008 data. The
OFHEO housing price index provides a broad measure of the housing price
movements by Metropolitan Statistical Area (MSA). In evaluating the potential
for loan losses within the Bank’s portfolio, the Bank considers both the fact
that OFHEO data cannot reflect price movements for the most recent three months,
and that individual areas within an MSA will perform worse than the average for
the larger area. The Bank therefore also looks at sales data that is available
by zip code, as well as the Bank’s experience with marketing foreclosed
properties in estimating the loan loss allowance that is required.
The
following tables show the number and dollar amount of loans expected to recast
by projected payment increase for the periods indicated:
|
|
|
2008
|
|
|
2009
|
|
|
Thereafter
|
|
Projected
Payment Increase
|
|
|
Recast
Balance
|
|
|
Number
of Loans
|
|
|
Recast
Balance
|
|
|
Number
of Loans
|
|
|
Recast
Balance
|
|
|
Number
of Loans
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
<
50%
|
|
|
$
|
7,110
|
|
|
|
21
|
|
|
$
|
55,850
|
|
|
|
153
|
|
|
$
|
232,871
|
|
|
|
494
|
|
50-100
|
|
|
|
52,789
|
|
|
|
115
|
|
|
|
313,360
|
|
|
|
687
|
|
|
|
698,206
|
|
|
|
1,403
|
|
100-125
|
|
|
|
15,154
|
|
|
|
36
|
|
|
|
92,388
|
|
|
|
213
|
|
|
|
169,124
|
|
|
|
331
|
|
125-150
|
|
|
|
4,424
|
|
|
|
9
|
|
|
|
64,770
|
|
|
|
156
|
|
|
|
124,126
|
|
|
|
259
|
|
>150%
|
|
|
|
|
|
|
|
|
|
|
|
51,559
|
|
|
|
95
|
|
|
|
174,405
|
|
|
|
349
|
|
Grand
total
|
|
|
$
|
79,477
|
|
|
|
181
|
|
|
$
|
577,927
|
|
|
|
1,304
|
|
|
$
|
1,398,732
|
|
|
|
2,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
Loss Allowances
Listed
below is a summary of activity in the general valuation allowance and valuation
allowance for impaired loans during the periods indicated.
|
|
General
Valuation Allowance
|
|
|
Valuation
Allowances
For
Impaired
Loans
|
|
|
Total
|
|
|
|
(Dollars
in thousands)
|
|
Balance
at December 31, 2007:
|
|
$
|
127,503
|
|
|
$
|
555
|
|
|
$
|
128,058
|
|
Provision
for loan losses
|
|
|
306,180
|
|
|
|
44,620
|
|
|
|
350,800
|
|
Yield
adjustment on troubled
debt
restructurings
(1)
|
|
|
—
|
|
|
|
(2,434
|
)
|
|
|
(2,434
|
)
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Single
family
|
|
|
(207,060
|
)
|
|
|
(6,523
|
)
|
|
|
(213,583
|
)
|
Total
charge-offs
|
|
|
(207,060
|
)
|
|
|
(6,523
|
)
|
|
|
(213,583
|
)
|
Recoveries
|
|
|
1,251
|
|
|
|
—
|
|
|
|
1,251
|
|
Net
charge-offs
|
|
|
(205,809
|
)
|
|
|
(6,523
|
)
|
|
|
(212,332
|
)
|
Transfers
|
|
|
(6,514
|
)
|
|
|
6,514
|
|
|
|
—
|
|
Balance
at September 30, 2008:
|
|
$
|
221,360
|
|
|
$
|
42,732
|
|
|
$
|
264,092
|
|
|
(1)
|
The
Bank establishes an impaired loan valuation allowance for the difference
between the recorded investment of the original loan at the time of
modification and the expected cash flows of the modified loan (discounted
at the effective interest rate of the original loan during the
modification period). The difference is recorded as a provision for loan
losses during the current period and subsequently amortized over the
expected life of the loan as an adjustment to the loan yield or as
adjustment to the loan loss provision if the loan is
prepaid.
|
|
|
General
Valuation Allowance
|
|
|
Valuation
Allowances
For
Impaired
Loans
|
|
|
Total
|
|
|
|
(Dollars
in thousands)
|
|
Balance
at December 31, 2006:
|
|
$
|
109,768
|
|
|
$
|
—
|
|
|
$
|
109,768
|
|
Provision
for loan losses
|
|
|
11,400
|
|
|
|
—
|
|
|
|
11,400
|
|
Charge-offs:
|
|
|
|
|
|
|
—
|
|
|
|
|
|
Single
family
|
|
|
(5,008
|
)
|
|
|
—
|
|
|
|
(5,008
|
)
|
Commercial
loans
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
(52
|
)
|
Consumer
loans
|
|
|
(50
|
)
|
|
|
—
|
|
|
|
(50
|
)
|
Total
charge-offs
|
|
|
(5,110
|
)
|
|
|
—
|
|
|
|
(5,110
|
)
|
Recoveries
|
|
|
166
|
|
|
|
—
|
|
|
|
166
|
|
Net
charge-offs
|
|
|
(4,944
|
)
|
|
|
—
|
|
|
|
(4,944
|
)
|
Balance
at September 30, 2007:
|
|
$
|
116,224
|
|
|
$
|
—
|
|
|
$
|
116,224
|
|
The Bank
recorded total net loan charge-offs of $103.5 million and $212.3 million for the
third quarter and the first nine months of 2008, respectively. This compares to
net loan charge-offs of $3.2 million and $4.9 million for the third quarter and
the first nine months of 2007, respectively. The allowance for loan losses
totaled $264.1 million or 3.96% of gross loans outstanding at September 30,
2008. This compares with $116.2 million or 1.73% at September 30,
2007.
All of
the charge-offs recorded during the first nine months of 2008 were for single
family loans. The total valuation allowance associated with single family loans
totaled $250.2 million or 5.53% of single family loans outstanding at September
30, 2008. This compares with $116.7 million or 2.58% at December 31, 2007, and
$97.4 million or 2.01% at September 30, 2007.
Management
is unable to predict future levels of loan loss provisions. Among other things,
loan loss provisions are based on the level of loan charge-offs, foreclosure
activity, other risks inherent in the loan portfolio, and the California
economy.
Investment
Securities
The
mortgage-backed securities portfolio, classified as available-for-sale, was
recorded at fair value as of September 30, 2008. An unrealized loss of $60
thousand, net of taxes, was reflected in stockholders’ equity as of September
30, 2008. This compares to a net unrealized gain of $34 thousand at December 31,
2007 and a net unrealized loss of $210 thousand at September 30,
2007.
The
investment securities portfolio, classified as available-for-sale, was recorded
at fair value as of September 30, 2008. An unrealized gain of $1.5 million, net
of taxes, was reflected in stockholders' equity as of September 30, 2008. This
compares to a net unrealized gains of $2.0 million and $565 thousand at December
31, 2007 and September 30, 2007, respectively.
Asset/Liability
Management
Market
risk is the risk of loss from adverse changes in market prices and interest
rates. Our market risk arises primarily from the interest rate risk inherent in
our lending and liability funding activities.
Our
interest rate spread typically decreases during periods of increasing interest
rates. There is a three-month time lag before changes in COFI, and a two-month
time lag before changes in 12MAT, CODI and LIBOR, can be implemented with
respect to our adjustable rate loans. Therefore, during periods immediately
following interest rate increases, our cost of funds tends to increase faster
than the yield earned on our adjustable rate loan portfolio. The reverse is true
during periods immediately following interest rate decreases.
The one
year GAP, the difference between rate-sensitive assets and liabilities repricing
within one year or less, was a negative $709.8 million or 9.67% of total assets
at September 30, 2008. In comparison, the one year GAP was a positive $119.3
million or 1.65% of total assets at December 31, 2007 and a positive $324.0
million or 4.40% of total assets at September 30, 2007. The change from a
positive GAP at the end of the year to a negative GAP at September 30, 2008 was
due to the fact that we increased our originations of loans with fixed interest
rates for five years. These originations were partially matched with longer term
deposits and FHLB advances. Generally, a negative GAP benefits a company during
periods of decreasing interest rates (because liabilities reprice faster than
assets). The reverse is true during periods of increasing interest
rates.
Capital
Quantitative
measures established by regulations to ensure capital adequacy require the
Company to maintain minimum amounts and percentages of total capital to assets.
The Company meets the standards necessary to be deemed “well–capitalized” under
the applicable regulatory requirements.
The
following table summarizes our actual capital and required capital at September
30, 2008:
|
|
Tangible
Capital
|
|
|
Core
Capital
|
|
|
Tier
1
Risk-
based Capital
|
|
|
Risk-based
Capital
|
|
|
|
(Dollars
in thousands)
|
|
Actual
Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
613,647
|
|
|
$
|
613,647
|
|
|
$
|
613,647
|
|
|
$
|
668,944
|
|
Ratio
|
|
|
8.38
|
%
|
|
|
8.38
|
%
|
|
|
14.56
|
%
|
|
|
15.87
|
%
|
FDICIA
minimum required capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
109,833
|
|
|
$
|
292,887
|
|
|
$
|
—
|
|
|
$
|
337,229
|
|
Ratio
|
|
|
1.50
|
%
|
|
|
4.00
|
%
|
|
|
—
|
|
|
|
8.00
|
%
|
FDICIA
“well-capitalized” required capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
—
|
|
|
$
|
366,109
|
|
|
$
|
252,922
|
|
|
$
|
421,537
|
|
Ratio
|
|
|
—
|
|
|
|
5.00
|
%
|
|
|
6.00
|
%
|
|
|
10.00
|
%
|
As of
September 30, 2008, shares eligible for repurchase totaled 1,181,145 shares. No
shares were repurchased during the first nine months of 2008. Any share
repurchase would require a dividend from the Bank. A dividend from the Bank
would require approval from the Office of Thrift Supervision (OTS). During 2007,
the Company repurchased 3,140,934 shares at an average price of $48.48 per
share.
The
Company had $150.0 million in unsecured fixed/floating rate senior debentures as
of September 30, 2008. The first $50.0 million transaction was completed in June
2005, is due in 2015 with a fixed rate of 5.65% for the first five years and is
adjustable afterwards based on a rate of 1.55% over the three-month LIBOR. The
second $50.0 million transaction was completed in December 2005, is due in 2016
with a fixed rate of 6.23% for the first five years and is adjustable afterwards
based on a rate of 1.55% over the three-month LIBOR. The third $50.0 million
transaction was completed in April 2007, is due in 2017 with a fixed rate of
6.585% for the first five years and is adjustable afterwards based on a rate of
1.60% over the three-month LIBOR. All debentures are redeemable at
par after the first five years.
Negative
covenants contained in the indentures governing the terms of these debentures
generally prohibit us from selling or otherwise disposing of shares of voting
stock of the Company or permitting liens on the Company’s stock other than
certain permitted liens. The indentures also impose certain affirmative
covenants on the Company, none of which is believed to have a material adverse
effect on our ability to operate our business.
Consolidated
Statements of Operations
The
Company reported a consolidated net loss of $51.6 million or $3.77 per diluted
share of common stock during the third quarter of 2008, compared to consolidated
net income of $23.0 million or $1.57 per diluted share of common stock during
the third quarter of 2007.
The third
quarter loss resulted primarily from a $110.3 million provision for loan losses
due to continued delinquencies and charge-offs on single family loans and
declines in the value of single family loan collateral throughout California. In
comparison, the provision for loan losses was $4.5 million during the third
quarter of 2007.
The
Company reported a consolidated net loss of $156.9 million or $11.48 per diluted
share of common stock during the first nine months of 2008, compared to
consolidated net income of $84.5 million or $5.25 per diluted share of common
stock during the first nine months of 2007.
The loss
during the first nine months of 2008 resulted primarily from a $350.8 million
provision for loan losses due to increased delinquencies and charge-offs on
single family loans and declines in the value of single family loan collateral
throughout California. In comparison, the provision for loan losses was $11.4
million during the first nine months of 2007. Also, net interest income
decreased 32% during the first nine months of 2008 compared to the first nine
months of 2007.
Net
Interest Income
Net
interest income decreased by $16.4 million or 26% to $45.8 million for the third
quarter of 2008 from $62.2 million for the third quarter of 2007 due to a 4.2%
decrease in average interest-earning assets during the third quarter of 2008
compared to the third quarter of 2007. The interest rate spread decreased by 54
basis points to 2.54% during the third quarter of 2008 from 3.08% during the
third quarter of 2007 due to an increase in non-accrual loans which lessened the
loan yield by 82 basis points during the third quarter of 2008. Also, early
payoff fees and late charges on loans, which are calculated as part of the loan
yield, decreased to $699 thousand for the third quarter of 2008 from $3.7
million during the third quarter of 2007. An increasing number of the loans in
our portfolio have passed the period for which there is a prepayment
penalty.
Net interest
income decreased by 32% to $139.8 million for first nine months of 2008 from
$207.1 million for the first nine months of 2007 due to a 13% decrease in
average interest-earning assets during the first nine months of 2008 compared to
the first nine months of 2007. The interest rate spread decreased by 59 basis
points during the first nine months of 2008 from 3.11% during the first nine
months of 2007. The decrease was caused by an increase in non-accrual loans
which lessened the loan yield by 90 basis points during the first nine months of
2008. Also, early payoff fees and late charges on loans, which are calculated as
part of the loan yield, decreased to $3.6 million for the first nine months of
2008 from $16.6 million during the first nine months of 2007. An increasing
number of our loans have passed the period for which there is a prepayment
penalty.
The
following table sets forth: (i) the average daily dollar amounts of and average
yields earned on loans and investment securities, (ii) the average daily dollar
amounts of and average rates paid on savings deposits and borrowings, (iii) the
average daily dollar differences, (iv) the interest rate spreads, and (v) the
effective net spreads for the periods indicated:
|
|
Nine
Months Ended September 30,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Average
loans
(1)
|
|
$
|
6,390,301
|
|
|
$
|
7,459,006
|
|
Average
investment securities
|
|
|
511,412
|
|
|
|
477,189
|
|
Average
interest-earning assets
|
|
|
6,901,713
|
|
|
|
7,936,195
|
|
Average
savings deposits
|
|
|
4,084,812
|
|
|
|
5,010,165
|
|
Average
borrowings
|
|
|
2,454,768
|
|
|
|
2,303,286
|
|
Average
interest-bearing liabilities
|
|
|
6,539,580
|
|
|
|
7,313,451
|
|
Excess
of interest-earning assets over
interest-bearing
liabilities
|
|
$
|
362,133
|
|
|
$
|
622,744
|
|
|
|
|
|
|
|
|
|
|
Yields
earned on average interest-earning assets
|
|
|
6.13
|
%
|
|
|
7.82
|
%
|
Rates
paid on average interest-bearing liabilities
|
|
|
3.61
|
|
|
|
4.71
|
|
Interest
rate spread
|
|
|
2.52
|
|
|
|
3.11
|
|
Effective
net spread
(2)
|
|
|
2.70
|
|
|
|
3.48
|
|
|
|
|
|
|
|
|
|
|
Interest
on loans
|
|
$
|
297,807
|
|
|
$
|
445,923
|
|
Interest
and dividends on investments
|
|
|
19,297
|
|
|
|
19,643
|
|
Total
interest income
|
|
|
317,104
|
|
|
|
465,566
|
|
Interest
on deposits
|
|
|
105,738
|
|
|
|
165,724
|
|
Interest
on borrowings
|
|
|
71,541
|
|
|
|
92,753
|
|
Total
interest expense
|
|
|
177,279
|
|
|
|
258,477
|
|
Net
interest income
|
|
$
|
139,825
|
|
|
$
|
207,089
|
|
(1)
|
Non-accrual
loans are included in the average dollar amount of loans outstanding;
however, there was no income included for
the
period in which loans were on
|
(2)
|
The
effective net spread is a fraction, the numerator of which is net interest
income and the denominator of which is the average
amount
of interest-earning assets.
|
Non-Interest
Income and Expense
Non-interest
income increased to $8.5 million during the third quarter of 2008 from $1.5
million during the third quarter of 2007. The increase was primarily due to
larger net gains on the sale of foreclosed real estate and additional income
from investment services and trustee services offered by the Bank’s
subsidiaries.
Non-interest
income increased to $21.2 million during the first nine months of 2008 from
$11.7 million during the first nine months of 2007. The increase during the
first nine months was primarily due to larger net gains on the sale of
foreclosed real estate, offset by a lower gain on the sale of loans. Additional
income was also recognized from investment services and trustee services offered
by the Bank’s subsidiaries.
Net gain
(loss) on real estate owned is comprised of the following items for the periods
indicated:
|
|
Three
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Gain
on sale of REO
|
|
$
|
12,342
|
|
|
$
|
111
|
|
Loss
on sale of REO
|
|
|
(1,518
|
)
|
|
|
(60
|
)
|
Write
downs on REO
|
|
|
(6,654
|
)
|
|
|
(1,676
|
)
|
|
|
$
|
4,170
|
|
|
$
|
(1,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Gain
on sale of REO
|
|
$
|
22,348
|
|
|
$
|
213
|
|
Loss
on sale of REO
|
|
|
(1,819
|
)
|
|
|
(242
|
)
|
Write
downs on REO
|
|
|
(13,172
|
)
|
|
|
(1,785
|
)
|
|
|
$
|
7,357
|
|
|
$
|
(1,814
|
)
|
|
|
|
|
|
|
|
|
|
Non-interest
expense increased to $23.2 million for the third quarter of 2008 from $19.1
million for the third quarter of 2007. The increase was primarily due to higher
expenses on foreclosed assets which increased to $4.3 million during the third
quarter of 2008 from $369 thousand during the third quarter of 2007. Also, third
quarter expenses increased due to higher FDIC insurance premiums compared to the
prior year and increased legal cost due to the reversal of an accrued legal
expense during the third quarter of 2007 as a result of the favorable outcome of
a pending legal matter. The ratio of non-interest expense to average total
assets increased to 1.28% during the third quarter of 2008 from 1.02% during the
third quarter of 2007 due to the increased expenses mentioned above and a
decrease in average total assets compared to the third quarter of
2007.
Non-interest
expense increased to $70.4 million for the first nine months of 2008 from $60.9
million for the first nine months of 2007. The increase was primarily 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 related expenses
associated with the early abandonment of our former corporate headquarters
during the first quarter of 2008. Foreclosed asset expense increased to $8.5
million during the first nine months of 2008 from $731 thousand during the
first nine months of 2007. The ratio of non-interest expense to average total
assets increased to 1.30% during the first nine months of 2008 from 0.99% during
the first nine months of 2007 due to the increased expenses mentioned above and
a decrease in average total assets compared to the first nine months of
2007.
The
following items are included in real estate owned operations for the periods
indicated:
|
|
Three
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Single
family expense
|
|
$
|
(4,306
|
)
|
|
$
|
(370
|
)
|
Single
family income
|
|
|
29
|
|
|
|
1
|
|
|
|
$
|
(4,277
|
)
|
|
$
|
(369
|
)
|
|
|
Nine
months ended
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in thousands)
|
|
Single
family expense
|
|
$
|
(8,602
|
)
|
|
$
|
(732
|
)
|
Single
family income
|
|
|
61
|
|
|
|
1
|
|
|
|
$
|
(8,541
|
)
|
|
$
|
(731
|
)
|
Non-accrual,
Past Due, Modified and Restructured Loans
The Bank
establishes allowances for delinquent interest equal to the amount of accrued
interest on all loans 90 days or more past due or in foreclosure. This practice
effectively places such loans on non-accrual status for financial reporting
purposes. Loans requiring delinquent interest allowances (non-accrual loans)
totaled $446.2 million at September 30, 2008, compared to $180.4 million at
December 31, 2007 and $84.2 million at September 30, 2007. Delinquent interest
allowances for loans in foreclosure and delinquent greater than 90 days
increased to $22.1 million at September 30, 2008 compared to $7.8 million at
December 31, 2007 and $3.6 million at September 30, 2007.
Many
loans became delinquent because borrowers chose to make less than a fully
amortizing payment on “payment option” adjustable rate mortgages. This caused
the loans to experience very large amounts of negative amortization which in
turn contributed to a large payment adjustment at the end of the initial term.
Also, if the negative amortization became so large that it caused the loan to
reach its lifetime negative amortization cap, the loan was required to be
re-amortized over its remaining loan term before the end of its initial term. As
a result, many borrowers found their adjusted loan payments difficult to afford
because their adjusted payments may have been significantly higher than their
initial loan payment. Further, due to the weak single family real estate market
and the tighter credit standards required by mortgage lenders, many borrowers
found that they could not sell or refinance their home to remedy their
situation.
The Bank’s
non-performing loans have stabilized in recent months. After having reached
$273.3 million as of March 31, 2008, single family loans delinquent less than 90
days decreased to $207.7 million as of June 30, 2008 and $212.1 million as of
September 30, 2008. In comparison, single family loans delinquent less than 90
days were $236.7 million as of December 31, 2007 and $71.7 million as of
September 30, 2007.
The Bank
has a program to reach out to borrowers faced with loan recasts to encourage
them to modify their loans before the recast date. At September 30, 2008, 1,174
loans with principal balances totaling $559.0 million had been modified. Of
these modified loans, 1,139 loans with principal balances totaling $542.8
million are considered troubled debt restructurings (“TDRs”) and are included in
impaired loans. Valuation allowances on these loans totaled $42.7 million.
Another $16.2 million in loans were modified as of September 30, 2008 but were
not considered TDRs, and therefore had no valuation allowances. Loans on accrual
status prior to modification which continue to make regular payments are
considered performing loans. Loans on non-accrual status prior to modification
remain on non-accrual status after modification. If the borrower makes regular
payments for 6 months, the loan is returned to performing status.
Modified
loans are not considered TDRs when the loan terms are consistent with the Bank’s
current product offerings and the borrowers meet the Bank’s current underwriting
standards with regard to FICO score, debt-to-income ratio, and loan-to-value
ratio. At September 30, 2007, the Bank had $1.1 million in modified
loans.
The Bank
considers a loan impaired when management believes that it is probable that the
Bank will not be able to collect all amounts due under the contractual terms
of
the loan
agreement. Estimated impairment losses are recorded as separate valuation
allowances and may be subsequently adjusted based upon changes in the
measurement of impairment. Impaired loans, net of valuation allowances, include
non-accrual major loans (commercial business loans with an outstanding principal
amount greater than or equal to $500 thousand, single family loans greater than
or equal to $1.0 million, and income property loans with an outstanding
principal amount greater than or equal to $1.5 million), modified loans, and
major loans less than 90 days delinquent in which full payment of principal and
interest is not expected to be received.
The
following is a summary of impaired loans, net of valuation allowances for
impairment, at the dates indicated:
|
|
September
30, 2008
|
|
|
December
31,
2007
|
|
|
September
30,
2007
|
|
|
|
(Dollars
in thousands)
|
|
Restructured
loans
|
|
$
|
500,139
|
|
|
$
|
1,799
|
|
|
$
|
—
|
|
Non-accrual
loans
|
|
|
30,670
|
|
|
|
20,112
|
|
|
|
11,907
|
|
Other
impaired loans
|
|
|
—
|
|
|
|
1,625
|
|
|
|
4,478
|
|
|
|
$
|
530,809
|
|
|
$
|
23,536
|
|
|
$
|
16,385
|
|
When a
loan is considered impaired, the Bank measures impairment based on the present
value of expected future cash flows discounted at the loan's effective interest
rate. However, if the loan is "collateral-dependent" or foreclosure is probable,
impairment is measured based on the fair value of the collateral. When the
measure of an impaired loan is less than the recorded investment in the loan,
the Bank records an impairment allowance equal to the excess of our recorded
investment in the loan over its measured value.
The
following is a summary of information pertaining to impaired loans at the dates
indicated:
|
|
September
30,
2008
|
|
|
December
31,
2007
|
|
|
September
30,
2007
|
|
|
(Dollars
in thousands)
|
|
Impaired
loans without valuation allowances
|
|
$
|
31,027
|
|
|
$
|
16,606
|
|
|
$
|
16,385
|
|
Impaired
loans with valuation allowances
|
|
|
542,514
|
|
|
|
7,485
|
|
|
|
—
|
|
Valuation
allowances related to impaired loans
|
|
|
(42,732
|
)
|
|
|
(555
|
)
|
|
|
—
|
|
|
|
Nine
months ended
|
|
|
|
September
30,
2008
|
|
|
September
30,
2007
|
|
|
|
(Dollars
in thousands)
|
|
Average
investment in impaired loans
|
|
$
|
465,047
|
|
|
$
|
15,164
|
|
Interest
recognized on impaired loans
|
|
|
5,719
|
|
|
|
258
|
|
Interest
recognized on impaired loans using the
cash
basis
|
|
|
3,365
|
|
|
|
213
|
|
Asset
Quality
The
following table sets forth certain asset quality ratios at the dates
indicated:
|
|
September
30,
2008
|
|
|
December
31, 2007
|
|
|
September
30,
2007
|
|
Non-performing
loans to gross loans receivable
(1)
|
|
|
6.70
|
%
|
|
|
2.72
|
%
|
|
|
1.25
|
%
|
Non-performing
assets to total assets
(2)
|
|
|
7.87
|
%
|
|
|
2.79
|
%
|
|
|
1.40
|
%
|
Loan
loss allowances to non-performing loans
(3)
|
|
|
59
|
%
|
|
|
71
|
%
|
|
|
138
|
%
|
Loan
loss allowances to gross loans receivable
|
|
|
3.96
|
%
|
|
|
1.93
|
%
|
|
|
1.73
|
%
|
(1)
|
Loans
receivable are before deducting unrealized loan fees (costs), general
valuation allowance and valuation allowances for impaired
loans.
|
(2)
|
Non-performing
assets are net of valuation allowances related to those assets and include
both loans and real estate acquired by
foreclosure.
|
(3)
|
Loan
loss allowances include the general valuation allowance and valuation
allowances for impaired loans.
|
Non-performing
Assets
The Bank
defines non-performing assets as non-accrual loans (loans delinquent over 90
days or in foreclosure) and real estate acquired by foreclosure (REO). The
following is an analysis of non-performing assets at the dates
indicated:
|
|
September
30,
2008
|
|
|
December
31, 2007
|
|
|
September
30,
2007
|
|
|
|
(Dollars
in thousands)
|
|
Non-accrual
loans :
|
|
|
|
|
|
|
|
|
|
Single
family
|
|
$
|
445,246
|
|
|
$
|
179,679
|
|
|
$
|
82,970
|
|
Multi-family
and commercial
|
|
|
940
|
|
|
|
—
|
|
|
|
1,245
|
|
Other
|
|
|
—
|
|
|
|
734
|
|
|
|
3
|
|
Total
non-accrual loans
|
|
|
446,186
|
|
|
|
180,413
|
|
|
|
84,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate owned
|
|
|
132,957
|
|
|
|
21,090
|
|
|
|
18,728
|
|
Total non-performing assets
|
|
$
|
579,143
|
|
|
$
|
201,503
|
|
|
$
|
102,946
|
|
The Bank
has experienced an increase in non-performing assets primarily due to defaults
on single family loans. Single family real estate owned and non-accrual loans
have continued to increase during the first nine months of 2008 due to the
downturn in the California real estate market and higher payment requirements on
adjustable rate loans that reached their maximum allowed negative amortization.
Because real estate prices in California have decreased substantially over the
past few quarters, delinquent borrowers are no longer able to sell their homes
for sufficient amounts to repay their mortgages. Also, some borrowers have taken
out second trust deeds with other lenders since their loan was originated. This
makes it more likely that the total encumbrances on their property will exceed
its value.
Single
family loan delinquencies are likely to continue during the rest of 2008 and
2009. The Bank forecasts that another 181 loans with principal balances totaling
$79.5 million will recast during the remainder of 2008 and that another 1,304
loans with principal balances totaling $577.9 million will recast during
2009.
The
following table shows activity in real estate owned during the periods
indicated:
|
|
Nine
months ended
|
|
|
|
September
30, 2008
|
|
|
September
30,
2007
|
|
|
|
(Dollars
in thousands)
|
|
Beginning
Balance
|
|
$
|
21,090
|
|
|
$
|
1,094
|
|
Acquisitions
|
|
|
250,705
|
|
|
|
22,297
|
|
Write-downs
|
|
|
(13,172
|
)
|
|
|
(1,785
|
)
|
Sales
of REO
|
|
|
(125,666
|
)
|
|
|
(2,878
|
)
|
Ending
Balance
|
|
$
|
132,957
|
|
|
$
|
18,728
|
Sources
of Funds
External
sources of funds include savings deposits from several sources, advances from
the FHLB of San Francisco, and securitized borrowings.
Savings
deposits are accepted from retail banking offices, national deposit brokers,
telemarketing sources and the internet. As the cost of each source of funds
fluctuates from time to time, based on market rates of interest offered
by us and other depository institutions, the Bank selects funds from
the lowest cost source until the relative costs change. We do not
deem our use of any specific source of funds to have a material impact
on our operations because the cost of funds and operating margins
associated with all of the sources are comparable.
Total
retail and commercial deposits at branch offices decreased by $236.4 million
during the third quarter of 2008, and decreased by $175.8 million during the
first nine months of 2008. This brought total retail and commercial deposits to
68% of deposits at September 30, 2008 compared to 70% at September 30, 2007. The
Bank is actively seeking to expand its retail sources of deposits through the
establishment of additional branch offices. One new retail branch office
was opened during the third quarter of 2008 in addition to the three branches
that opened during the second quarter of 2008 and the one branch opened during
the first quarter of 2008. One additional retail branch is
expected to open later in 2008.
Telemarketing
deposits decreased by $32.1 million and $71.2 million during the third quarter
and the first nine months of 2008. These are normally large deposits from
pension plans, managed trusts, and other financial institutions. The level of
these deposits fluctuates based on the attractiveness of our rates
compared to returns available to investors on alternative investments.
Telemarketing deposits comprised 2% of total deposits at both September 30, 2008
and September 30, 2007.
The Bank
also accepts internet deposits by posting our rates on internet rate
boards. Internet deposits increased by $757 thousand during the third quarter of
2008, but decreased by $3.1 million during the first nine months of 2008.
Internet deposits comprised 1% of total deposits at both September 30, 2008 and
September 30, 2007.
Brokered
deposits increased by $745.8 million and $422.3 million during the third quarter
and the first nine months of 2008. As a result, brokered deposits increased to
29% of total deposits at September 30, 2008 from 26% at September 30, 2007. The
Bank may solicit brokered funds without special regulatory approval because the
Bank has sufficient capital to be deemed “well-capitalized” under the standards
established by the OTS.
Total
borrowings decreased by $256.0 million during the third quarter of 2008 due to a
$370.0 million decrease in borrowings under reverse repurchase agreements and a
$114.0 million increase in FHLB advances. Total borrowings increased by $109.0
million during the first nine months of 2008 due primarily to a net increase of
$229.0 million in FHLB advances and a $120.0 million decrease in borrowings
under reverse repurchase agreements. The Bank's credit availability with the
FHLB allows the Bank to borrow up to 45% of total assets as computed
for regulatory purposes. At September 30, 2008, the Bank's unused
borrowing capacity at the FHLB was $626.7 million.
Internal
sources of funds include amortized principal payments that can vary based upon
the borrower’s option to adjust their loan payment amounts, as well as
prepayments. The level of prepayment activity fluctuates based upon the
availability of loans with lower interest rates and lower monthly
payments. Since many lenders have tightened their credit standards during
2008 making it more difficult for borrowers to refinance their homes,
prepayments have decreased.. Loan prepayments and principal reductions totaled
$160.7 million and $780.8 during the third quarter and the first nine months of
2008, compared to $529.3 million and $2.1 billion during the third quarter and
the first nine months of 2007. Proceeds from the sale of loans to other
financial institutions are another internal source of funds. However, the Bank
sold only a few loans during the first nine months of 2008 due to the
unfavorable secondary market conditions that started in the second quarter of
2007. Since that time, the Bank has been focusing on originating loans for its
own portfolio.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
See
“Management’s Discussion and Analysis of Consolidated Balance Sheets and
Consolidated Statements of Income- Asset/Liability Management” on page 26 hereof
for quantitative and qualitative Disclosures about market risk.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Under SEC rules, the Company is
required to maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms. Within the 90-day period prior to the filing date of this report, the
Company carried out an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures. Our management, including
our Chief Executive Officer and Chief Financial Officer, supervised and
participated in the evaluation. Based on this evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that as of the evaluation
date, our disclosure controls and procedures the were effective in alerting
management to material information that may be required to be included in our
public filings. In designing and evaluating the disclosure controls and
procedures, management recognizes that any such controls and procedures can
provide only reasonable assurance as to the control objectives. Management is
required to apply its judgment in evaluating the cost-benefit relationship of
such controls and procedures.
Changes
in Internal Controls
There
were no significant changes in our internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation.
PART
II – OTHER INFORMATION
Item
6. Exhibits
(3(i))
|
Restated
Certificate of Incorporation filed as Exhibit 3.1 to Form 10-K for the
fiscal year ended December 31, 1999 and incorporated by
reference.
|
(3(ii))
|
Amended
and Restated Bylaws filed as Exhibit 3(ii) to Form 8-K filed June 27, 2008
and incorporated by
reference.
|
(4.1)
|
Second
Amended and Restated Rights Agreement dated as of October 23, 2008, filed
as Exhibit 4.1 to Form 8-A/A, dated October 28, 2008 and
incorporated
by
reference.
|
(10.1)
|
Amended
and Restated Supplemental Executive Retirement Plan dated October
23, 2008 filed as Exhibit 10.1 to Form 8-K filed October 28,
2008
and incorporated
by reference.
|
(10.2)
|
Change
of Control Agreement effective September 26, 1996 filed as Exhibit 10.4 to
Form 10-Q for the Quarter ended September 30, 1996 and Amendment
filed
as
Exhibit 10.3 and 10.4 for change of control to Form 10-Q for the Quarter
ended June 30, 2001 and incorporated by
reference.
|
(10.3)
|
Non-employee
Directors Stock Incentive Plan filed as Exhibit 1 to Form S-8 dated
August
12,
1997 and Amendment filed as Exhibit 10.5 to Form 10-Q for the
Quarter
ended
June 30, 2001, and incorporated by
reference.
|
(10.4)
|
2007
Non-employee Directors Restricted Stock Plan filed as Appendix A to
Schedule 14A, Proxy Statement for the Annual Stockholders’ Meeting held
on
April
26, 2006
and
incorporated by reference.
|
(31.1)*
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
(31.2)*
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
(32.1)**
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
(32.2)**
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
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.
Date: November 10,
2008
|
|
|
By:
/s/ Douglas J.
Goddard
|
|
Douglas J.
Goddard
|
|
Chief Financial Officer and
|
|
Executive Vice President
|
Exhibit
31.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
I,
Babette E. Heimbuch, certify that:
(1)
|
I have reviewed this
quarterly report on Form 10-Q of FirstFed Financial
Corp.;
|
(2)
|
Based
on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|
(3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly
report;
|
(4)
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and
have:
|
(i)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material
information
relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the
period in which
this
quarterly report is being prepared;
and
|
(ii)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide
reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance
with generally accepted
accounting
principles; and
|
(iii)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure
controls
and procedures, as of the end of the period covered by this report based
on such evaluation; and
|
(iv)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s fourth fiscal
quarter that has materially
affected,
or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting;
and
|
(5)
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors:
|
(i)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
(ii)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting;
and
|
(6)
|
The
registrant’s other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
control over financial reporting or in other factors that could
significantly affect internal control over financial reporting subsequent
to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
|
Dated
this 10th day of November, 2008
|
By:
/s/ Babette E.
Heimbuch
|
|
Babette E. Heimbuch
|
|
Chief Executive Officer
|
Exhibit
31.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
I,
Douglas J. Goddard, certify that:
(1)
|
I have reviewed this
quarterly report on Form 10-Q of FirstFed Financial
Corp.;
|
(2)
|
Based
on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|
(3)
|
Based
on my knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly
report;
|
(4)
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and
have:
|
|
(i)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material
information
relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the
period in which
this
quarterly report is being prepared;
and
|
|
(ii)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide
reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance
with generally accepted
accounting
principles; and
|
|
(iii)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure
controls
and procedures, as of the end of the period covered by this report based
on such evaluation; and
|
|
(iv)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s fourth fiscal
quarter that has materially
affected,
or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting;
and
|
(5)
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors:
|
(i)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
(ii)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting; and
|
(6)
|
The
registrant’s other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
control over financial reporting or in other factors that could
significantly affect internal control over financial reporting subsequent
to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
|
Dated
this 10th day of November, 2008
|
By:
/s/ Douglas J.
Goddard
|
|
Douglas J. Goddard
|
|
Chief Financial Officer
|
Exhibit
32.1
CEO
CERTIFICATION
The
undersigned, as Chief Executive Officer hereby certifies, to the best of her
knowledge and belief, that:
|
(1)
|
the
Form 10-Q of FirstFed Financial Corp. (the "Company") for the quarterly
period ended September 30, 2008 (the "Report ") accompanying this
certification fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
and
|
|
(2)
|
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company
for such period.
|
|
FIRSTFED FINANCIAL
CORP.
|
|
Registrant
|
|
|
|
By:
/s/ Babette E.
Heimbuch
|
|
Babette E. Heimbuch
|
|
Chief Executive Officer
|
This
certification
is made solely for purposes of complying with the provisions of Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, and is
not
being
filed
for
purposes
of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to
be incorporated by reference into any filing of the Company,
whether
made before
or after the
date of hereof, regardless
of any general incorporation language into such filing.
Exhibit
32.2
CFO
CERTIFICATION
The
undersigned, as Chief Financial Officer hereby certifies, to the best of his
knowledge and belief, that:
|
(1)
|
the
Form 10-Q of FirstFed Financial Corp. (the "Company") for the quarterly
period ended September 30, 2008 (the "Report ") accompanying this
certification fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
and
|
|
(2)
|
the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company
for such period.
|
|
FIRSTFED FINANCIAL
CORP.
|
|
Registrant
|
Date: November 10,
2008
|
|
|
By:
/s/ Douglas J.
Goddard
|
|
Douglas J. Goddard
|
|
Chief Financial Officer and
|
|
Executive Vice President
|
This
certification is made solely for purposes of complying with the provisions of
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, and is
not being filed for
purposes
of Section
18 of the Securities Exchange Act of 1934, as amended, and is not to be
incorporated by reference into any filing of the Company, whether made before or
after the date of hereof, regardless of any general incorporation language into
such filing.
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