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FirstFed Sees Rise in Charge-Offs, Weakening Credit
By James Comtois
Due in part to increased charge-offs, FirstFed Financial Corp., parent company of First Federal Bank of California, saw a substantial loss in earnings in the fourth quarter and is seeing weakening credit.
FirstFed saw a net income of $8.4 million for the fourth quarter of 2007, compared to net income of $23 million for the third quarter of 2007 and $33.4 million for the fourth quarter of 2006. The large decline in fourth-quarter net earnings resulted from increased provisions for loan losses, higher occupancy costs and increased losses on real estate operations. Also, net interest income declined due to decreased interest-earning assets and lower interest rate spreads.
Net loan charge-offs totaled $9.2 million for the fourth quarter, compared to $90,000 for the fourth quarter of 2006. FirstFed's nonperforming assets to total assets ratio increased to 2.79% at Dec. 31, 2007 from 1.4% at Sept. 30, 2007 and 0.21% at Dec. 31, 2006 due primarily to increased single-family non-accrual loans.
The provision for loan losses increased to $21 million for the fourth quarter and $32.4 million for the year 2007 from $3 million and $12.4 million for the same periods of 2006. The increased provision was due to increases in foreclosed and delinquent single-family loans resulting from the downturn in the real estate market. Single-family non-accrual loans increased to $179.7 million at Dec. 31, 2007 from $18.5 million the same period the year prior. Single-family loans delinquent less than 90 days increased to $236.7 million as of Dec. 31 from $12.9 million as of Dec. 31, 2006.
Adjustable-rate mortgages that have reached their maximum allowable negative amortization, which now require an increased payment, are a contributing factor in the higher level of delinquent loans. During the fourth quarter, more than 1,800 borrowers, with loan balances of approximately $830 million, reached their maximum level of negative amortization and had a resulting increase in their required payment.
FirstFed estimates that another 2,400 loans totaling approximately $1.1 billion could hit their maximum allowable negative amortization during 2008.
Impaired loans increased to $23.5 million at Dec. 31 from $5.4 million as of Dec. 31, 2006 primarily due to an increase in single-family non-accrual loans greater than $1 million. At Dec. 31, impaired loans also include $1.8 million in modified single-family loans less than $1 million that were classified as troubled debt restructurings. At Dec. 31, 2006, modified single-family loans totaled $1.8 million.
Although modified, these loans were not considered to be troubled debt restructurings.
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