pr3q07ef.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


Date of Report (Date of earliest event reported): October 25, 2007


FIRSTFED FINANCIAL CORP.
(Exact name of registrant as specified in its charter)



Delaware                                           1-9566                                                      95-4087449
                                                                                   (State of Incorporation)                    (Commission File No.)                      (IRS Employer Identification No.)



  401 Wilshire Boulevard, Santa Monica, California,                                 90401-1490
                                                                                       (Address of principal executive offices)                                              (Zip Code)


Registrant's telephone number, including area code:       (310) 319-6000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




1





ITEM 2.02                      Results of Operations and Financial Condition.

On October 25, 2007, the registrant, FirstFed Financial Corp., issued a press release setting forth the Company’s third quarter 2007 earnings.  A copy of this press release is attached and incorporated herein as Exhibit 99.1.

ITEM 9.01Financial Statements and Exhibits.

 (d)           Exhibits:

Exhibit 99.1 - Press Release dated October 25, 2007, regarding results for the third quarter 2007.

S I G N A T U R E S

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


FIRSTFED FINANCIAL CORP.



Dated: October 25, 2007                                                                                                                                                      By:  /s/ Douglas J. Goddard
                                                                                                                                                                                                           Douglas J. Goddard
                                                                                                                                                                                                            Chief Financial Officer
  


2


 
FIRSTFED REPORTS RESULTS FOR THE THIRD QUARTER OF 2007

Santa Monica, California, October 25, 2007 -- FirstFed Financial Corp. (NYSE-FED), parent company of First Federal Bank of California, today announced net income of $23.0 million or $1.56 per diluted share of common stock for the third quarter of 2007 compared to net income of $29.1 million or $1.74 per diluted share for the second quarter of 2007 and $32.5 million or $1.93 per diluted share of common stock for the third quarter of 2006. The decrease in earnings is due to lower net interest income, losses on real estate operations, and higher operating costs.

Net interest income decreased by $7.5 million during the third quarter of 2007 compared to the second quarter of 2007 and $11.4 million compared to the third quarter of 2006. The decreases are primarily due to a decline in average interest-earning assets. Due to loan payoffs and decreased loan originations, average interest-earning assets decreased by 8% compared to the second quarter of 2007 and 28% compared to the third quarter of 2006. The interest rate spread decreased to 3.12% during the third quarter of 2007 from 3.16% during the second quarter of 2007. The yield on earning assets decreased by 9 basis points due to downward rate adjustments on adjustable rate loans while the cost of funds decreased by only 5 basis points during the same period. Compared to the same period in 2006, the interest rate spread increased by 44 basis points due to upward rate adjustments on adjustable rate loans while the cost of funds remained the same. Early payoff fees and late charges, which are included as part of the yield on loans, decreased to $3.7 million for the third quarter of 2007 from $6.1 million for the second quarter of 2007 and $7.4 million during the third quarter of 2006.

Net income for the first nine months of 2007 was $84.5 million or $5.25 per diluted share of common stock compared to $95.7 million or $5.68 per diluted share of common stock for the first nine months of 2006. The decrease in earnings is due primarily to lower net interest income, losses on real estate operations, higher operating costs and higher deposit insurance costs. Gain on the sale of loans increased during the first nine months of 2007 compared to the same period of the prior year. The $14.9 million decrease in net interest income was due to a 22% decrease in average interest-earning assets during the first nine months of 2007 compared to the same period of 2006 which was offset by a 44 basis point increase in the interest rate spread during the same period.

Gain on the sale of loans was $308 thousand and $4.7 million for the third quarter and first nine months of 2007 compared to gains of $1.8 million and $3.9 million for the third quarter and first nine months of 2006. The volume of loans sold totaled $75.3 million and $416.6 million during the third quarter and first nine months of 2007 compared to $134.5 million and $319.8 million during the third quarter and first nine months of 2006. Due to unfavorable secondary market conditions which made it difficult for the Bank to sell loans during the third quarter of 2007, $20.1 million in loans that were initially originated for sale were transferred to the held for investment portfolio as of September 30, 2007. Upon this transfer, a $337 thousand adjustment was recorded against gain on sale of loans for the third quarter of 2007.

Loan originations were $263.0 million and $702.8 million for the third quarter and first nine months of 2007 compared to $516.0 million and $1.8 billion in the third quarter and first nine months of 2006. Single family loans comprised 63% and 74% of loan originations during the third quarter and first nine months of 2007 compared with 87% of loan originations during both the third quarter and first nine months of 2006.  Loan originations during the third quarter of 2007 include $6.7 million in single family loans that were purchased from other investors. Multi-family and commercial real estate loans comprised 36% and 24% of loan originations during the third quarter and first nine months of 2007 compared with 11% of loan originations during both the third quarter and first nine months of 2006.

Loan payoffs and principal reductions totaled $539.8 million and $2.1 billion during the third quarter and the first nine months of 2007. This compares with $707.8 million and $2.0 billion during the third quarter and first nine months of 2006. Due to continued loan payoffs, decreased loan originations, and increased loan sales, the Company’s total assets decreased to $7.4 billion as of September 30, 2007 from $9.3 billion as of December 31, 2006 and $10.1 billion as of September 30, 2006.
 
Negative amortization, included in the balance of loans receivable, totaled $290.0 million at September 30, 2007 compared to $215.8 million at December 31, 2006 and $177.8 million at September 30, 2006. Negative amortization represents unpaid interest earned by the Bank that is added to the principal balance of the loan. Negative amortization increased by $22.5 million and $74.2 million during the third quarter and first nine months of 2007 compared to increases of $41.4 million and $115.2 million during the third quarter and first nine months of 2006. Negative amortization as a percentage of all single family loans in the Bank’s portfolio totaled 6.22% at the end of the third quarter of 2007 compared to 3.44% at December 31, 2006 and 2.59% at September 30, 2006.
 
The portfolio of single family loans with a one-year fixed monthly payment totaled $3.4 billion at September 30, 2007 compared to $4.6 billion at December 31, 2006 and $4.9 billion at September 30, 2006. The portfolio of single family loans with three-to-five year fixed monthly payments totaled $1.2 billion at September 30, 2007 compared to $1.8 billion at December 31, 2006 and $2.1 billion at September 30, 2006.

A $4.5 million loan loss provision was recorded during the third quarter of 2007 compared to a $3.1 million provision during the second quarter of 2007 and a $3.0 million provision during the third quarter of 2006. Net loan charge-offs totaled $3.2 million and $4.9 million during the third quarter and first nine months of 2007 compared to $17 thousand and $100 thousand during the third quarter and first nine months of 2006.

Loan charge-offs and non-performing assets have increased over the last year due to increased single family loan delinquencies and foreclosed single family loans in response to the weakened real estate market throughout California. The Bank’s non-performing assets to total assets ratio increased to 1.40% at September 30, 2007 from 0.21% at December 31, 2006 and 0.11% at September 30, 2006.
 
Real estate operations resulted in net losses of $2.1 million and $2.8 million for the third quarter and the first nine months of 2007. These results included write-downs of single family real estate owned which totaled $1.7 million for the third quarter and $1.8 million for the first nine months of 2007. For the third quarter and first nine months of 2006, real estate operations resulted in a net loss of $70 thousand and a net gain of $67 thousand, respectively.

Non-interest expense was $18.7 million and $59.9 million during the third quarter and first nine months of 2007 compared to $18.3 million and $57.7 million during the third quarter and first nine months of 2006.The increase in operating expenses during 2007 compared to 2006 was primarily due to increased compensation costs resulting from normal salary increases and added staff in the commercial banking group, higher deposit insurance costs, increased assessments by the Office of Thrift Supervision, and occupancy costs associated with new branch openings. Legal expense decreased due to the favorable outcome of a pending legal matter. As a result of the overall increase in expenses and the decrease in average total assets, the ratio of non-interest expense to average total assets increased to 0.99% and 0.97% during the third quarter and first nine months of 2007 compared to 0.72% and 0.74% during the third quarter and the first nine months of 2006.
 
The Bank’s risk-based capital ratio was 21.44% at September 30, 2007 and its core and tangible capital ratios were 10.61%.

3
The Company repurchased 2,372,980 shares of its common stock at an average price of $44.56 during the third quarter of 2007. During the first nine months of 2007, shares repurchased totaled 3,140,934 at an average price of $48.48. During the month of August 2007, the Board of Directors authorized the expansion of the Company’s stock repurchase program to permit repurchase of an additional 2,850,000 shares. The shares eligible for repurchase totaled 1,181,145 shares as of October 24, 2007.

First Federal Bank of California operates 33 retail banking offices in Southern California. In keeping with the Bank’s retail branch expansion plan, one new retail branch was opened in March of 2007 and the Bank plans to open one additional branch during the remainder of 2007. The Bank operates 5 lending offices in Southern and Northern California.

This news release contains certain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Act of 1995. These forward-looking statements are subject to various factors, many of which are beyond the Company’s control, which could cause actual results to differ materially from such statements. Such factors include, but are not limited to, the general business environment, interest rate fluctuations that may affect operating margin, changes in laws and regulations affecting the Company’s business, the California real estate market, and competitive conditions in the business and geographic areas in which the Company conducts its business and regulatory actions. In addition, these forward-looking statements are subject to assumptions as to future business strategies and decisions that are subject to change. The Company makes no guarantees or promises regarding future results and assumes no responsibility to update such forward-looking statements.

Contact: Douglas Goddard, Executive Vice President
(310) 319-6014

KEY FINANCIAL RESULTS FOLLOW
4


FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
(Unaudited)

   
September  30,
2007
  
December 31,
2006
ASSETS
        
         
Cash and cash equivalents
$
114,557
$
151,090
Investment securities, available-for-sale (at fair value)
  
327,351
  
311,850
Mortgage-backed securities, available-for-sale (at fair value)
  
47,923
  
 57,197
Loans receivable, held-for-sale (fair value of $218 and $143,141)                                218    140,860 
Loans receivable, net of general allowance for loan losses of $116,224 and $109,768   6,632,392    8,376,592 
Accrued interest and dividends receivable
  
45,120
  
 54,812
Real estate owned
  
18,728
  
1,094
Office properties and equipment, net
  
16,295
  
16,569
Investment in Federal Home Loan Bank (FHLB) stock, at cost
  
76,751
  
118,979
Other assets
  
88,761
  
66,544
 
$
7,368,096
$
 9,295,587
         
LIABILITIES
        
         
Deposits
$
4,466,519
$
   5,889,881
FHLB advances
  
1,501,000
  
1,490,000
Securities sold under agreements to repurchase
  
520,000
  
978,448
Senior debentures
  
150,000
  
100,000
Accrued expenses and other liabilities
  
87,745
  
132,543
   
6,725,264
  
8,590,872
         
COMMITMENTS AND CONTINGENCIES
        
         
STOCKHOLDERS' EQUITY
        
Common stock, par value $.01 per share;
  authorized 100,000,000 shares;
  issued 23,966,227 and 23,842,934 shares;
  outstanding 13,636,997 and 16,648,338 shares
  
 
 
 
240
  
 
 
 
238
Additional paid-in capital
  
54,303
  
49,610
Retained earnings
  
856,993
  
772,537
Unreleased shares to employee stock ownership plan
  
(870)
  
(2,050)
Treasury stock, at cost, 10,329,230 and 7,194,596 shares
  
(266,040)
  
(113,776)
Accumulated other comprehensive loss, net of taxes
  
(1,794)
  
(1,844)
   
642,832
  
704,715
 
$
7,368,096
$
 9,295,587



5



FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
(Dollars in thousands, except per share data)
(Unaudited)
                 
   
Three months ended Sept. 30,
  
Nine months ended Sept. 30,
   
2007
  
2006
  
2007
  
2006
Interest and dividend income:
                
Interest on loans
$
134,090
$
175,265
$
445,923
$
508,767
Interest on mortgage-backed securities
  
636
  
736
  
2,026
  
2,159
Interest and dividends on investments
  
5,687
  
7,472
  
17,617
  
20,553
Total interest income
  
140,413
  
183,473
  
465,566
  
531,479
Interest expense:
                
Interest on deposits
  
50,606
  
63,489
  
165,724
  
153,429
Interest on borrowings
  
27,628
  
46,366
  
92,753
  
156,057
Total interest expense
  
78,234
  
109,855
  
258,477
  
309,486
                 
Net interest income
  
62,179
  
73,618
  
207,089
  
221,993
Provision for loan losses
  
4,500
  
3,000
  
11,400
  
9,400
Net interest income after provision for loan losses
  
57,679
  
70,618
  
195,689
  
212,593
                 
Other income:
                
Loan servicing and other fees
  
550
  
537
  
2,364
  
1,866
Banking service fees
  
1,663
  
1,583
  
5,035
  
4,783
Gain on sale of loans
  
308
  
1,767
  
4,746
  
3,850
Real estate operations, net
  
(2,077)
  
(70)
  
(2,821)
  
67
Other operating income
  
610
  
229
  
1,369
  
585
Total other income
  
1,054
  
4,046
  
10,693
  
11,151
                 
Non-interest expense:
                
Salaries and employee benefits
  
12,366
  
10,826
  
37,119
  
34,918
Occupancy
  
3,295
  
2,595
  
9,095
  
7,824
Advertising
  
194
  
164
  
636
  
963
Amortization of core deposit intangible
  
127
  
498
  
752
  
1,495
Federal deposit insurance
  
743
  
531
  
2,295
  
813
Data processing
  
535
  
559
  
1,738
  
1,762
OTS assessment
  
501
  
525
  
1,654
  
1,678
Legal
  
(1,352)
  
186
  
(359)
  
919
Other operating expense
  
2,253
  
2,459
  
6,964
  
7,303
Total non-interest expense
  
18,662
  
18,343
  
59,894
  
57,675
                 
Income before income taxes
  
40,071
  
56,321
  
146,488
  
166,069
Income taxes
  
17,070
  
23,859
  
62,032
  
70,354
Net income
$
23,001
$
32,462
$
84,456
$
95,715
                 
Net income
$
23,001
$
32,462
$
84,456
$
95,715
Other comprehensive income (loss), net of taxes
  
761
  
1,185
  
50
  
(491)
Comprehensive income
$
23,762
$
33,647
$
84,506
$
95,224
                 
Earnings per share:
                
Basic
$
1.58
$
1.96
$
5.32
$
5.78
Diluted
$
1.56
$
1.93
$
5.25
$
5.68
                 
Weighted average shares outstanding:
                
Basic
  
14,542,015
  
16,567,958
  
15,871,083
  
16,559,670
Diluted
  
14,698,626
  
16,853,849
  
16,080,335
  
16,865,595



6


FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY
KEY FINANCIAL RESULTS
 (Unaudited)

 
Quarter ended September 30,
   
2007
    
2006
  
 
(Dollars in thousands, except per share data)
End of period:
            
Total assets
$
7,368,096
  
$
10,075,159
  
Cash and securities
$
441,908
  
$
601,370
  
Mortgage-backed securities
$
47,923
  
$
61,670
  
Loans
$
6,632,610
  
$
9,159,171
  
Core deposit intangible asset
$
591
  
$
1,842
  
Deposits-retail and commercial
$
3,293,005
  
$
2,932,951
  
Deposits-wholesale
$
1,173,514
  
$
3,055,463
  
Borrowings
$
2,171,000
  
$
3,288,000
  
Stockholders' equity
$
642,832
  
$
670,423
  
Book value per share
$
47.14
  
$
40.19
  
Tangible book value per share
$
47.10
  
$
40.08
  
Stock price (period-end)
$
49.55
  
$
56.72
  
Total loan servicing portfolio
$
6,870,204
  
$
9,454,650
  
Loans serviced for others
$
66,904
  
$
169,483
  
% of adjustable mortgages
  
94.45
%
  
96.93
%
             
Other data:
            
Employees (full-time equivalent)
  
606
    
596
  
Branches
  
33
    
32
  
             
Asset quality:
            
Real estate owned (foreclosed)
$
18,728
  
$
367
  
Non-accrual loans
$
84,218
  
$
10,755
  
Non-performing assets
$
102,946
  
$
11,122
  
Non-performing assets to total assets
  
1.40
%
  
0.11
%
General valuation allowance (GVA)
$
116,224
  
$
106,858
  
Allowance for impaired loans
  
-
    
-
  
Allowance for loan losses
$
116,224
  
$
106,858
  
Allowance for loan losses as a percentage 
   of gross loans receivable
  
 
1.73
 
%
  
                   1.16
 
%
Loans sold with recourse
$
45,457
  
$
54,456
  
Modified loans (not impaired)
$
1,090
  
$
1,904
  
Impaired loans, net
$
17,413
  
$
7,369
  
Allowance for impaired loans
$
-
  
$
-
  
             
Capital ratios:
            
Tangible capital ratio
  
10.61
%
  
7.47
%
Core capital ratio
  
10.61
    
7.47
  
Risk-based capital ratio
  
21.44
    
15.62
  
Net worth to assets ratio
  
8.72
    
6.63
  




7

FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY

KEY FINANCIAL RESULTS (continued)
(Unaudited)


   
Three months ended September 30,
  
Nine months ended September 30,
  
   
2007
  
2006
  
2007
  
2006
  
   
(Dollars in thousands)
  
                   
Selected ratios:
                  
    Expense ratios:
                  
Efficiency ratio
  
29.51
%
23.62
%
27.50
%
24.74
%
Expense to average assets ratio
  
0.99
  
0.72
  
0.97
  
0.74
  
    Return on average assets
  
1.22
  
1.26
  
1.37
  
1.24
  
    Return on average equity
  
13.46
  
20.20
  
16.07
  
20.72
  
                   
Yields earned and rates paid:
                  
Average yield on loans
  
 
7.93
 
%
 
7.47
 
%
 
7.97
 
%
 
7.06
 
%
Average yield on investment portfolio
  
5.55
  
5.15
  
5.49
  
5.01
  
    Average yield on all interest-earning
       assets
  
 
7.78
  
 
7.34
  
 
7.82
  
 
6.94
  
Average rate paid on deposits
  
4.34
  
4.32
  
4.42
  
3.90
  
Average rate paid on borrowings
  
5.39
  
5.22
  
5.38
  
4.76
  
    Average rate paid on all interest-bearing
       liabilities
  
 
4.66
  
 
4.66
  
 
4.73
  
 
4.29
  
    Interest rate spread
  
3.12
  
2.68
  
3.09
  
2.65
  
    Effective net spread
  
3.44
  
2.93
  
3.48
  
2.90
  
                   
Average balances:
                  
    
 
$
6,764,534
 
$
9,381,428
 
$
7,459,006
 
$
9,603,242
  
Average investments
  
455,903
  
587,147
  
477,189
  
597,117
  
Average interest-earning assets
  
7,220,437
  
9,968,575
  
7,936,195
  
10,200,359
  
Average deposits
  
4,627,267
  
5,833,795
  
5,010,165
  
5,256,443
  
Average borrowings
  
2,035,882
  
3,527,147
  
2,303,286
  
4,380,787
  
Average interest-bearing liabilities
  
6,663,149
  
9,360,942
  
7,313,451
  
9,637,230
  
        Excess of interest-earning assets over
           interest-bearing liabilities
$
557,288
  
$
  
607,633
  
$
  
622,744
  
$
  
563,129
  
                   
Loan originations and purchases
$
262,945
$
515,989
$
702,830
$
1,840,216
  



8