FirstFed Financial Corp. in Santa Monica, Calif., is warning investors that it expects to report losing $65 million to $75 million in the first quarter, or $4.50 to $5.50 per share, as chargeoffs mount in its portfolio of option adjustable-rate mortgages.
The $7 billion-asset parent of First Federal Bank of California has not released its first-quarter results but said in preliminary guidance Friday that it expects to take a loss provision of $140 million to $160 million.
It said it expects chargeoffs of about $28 million, up from $9.2 million in the previous quarter. FirstFed charged off just $628,000 in the first quarter of 2007, when it earned $32.4 million.
"The bank's decision to substantially increase its estimate of losses on single-family loans is based on both the continuing decline in California real estate prices during the first quarter of 2008 [and] the bank's analysis of the rate of delinquency on borrowers whose loan payments reset late in 2007 and in the first quarter of 2008," FirstFed said in a press release Friday.
FirstFed makes option ARM loans throughout California, and its nonperformers have spiked as property values sank and rates adjusted. Roughly 72% of its delinquent and nonaccrual loans were originated in 2005. Nonperforming assets have increased to 6.2% of assets, up from 2.79% at Dec. 31.
Though the news was grim, investors apparently had expected worse; the shares spiked 8.7% Friday, to close at $15.97.
Still, the stock price has been hammered since FirstFed disclosed in its fourth-quarter results that chargeoffs and nonperformers were on the rise. The shares are trading at roughly 75% below their 52-week high.
About 72% of FirstFed's loans single-family mortgages. The company said it modified terms on $122 million worth of loans that were nearing their reset dates but that it "expects that many of the loans affected by payment resets will go through the foreclosure process."
It said it does not expect any "significant delinquency or collectibility issues" in its multifamily and commercial real estate loan portfolios.
FirstFed said it would remain well capitalized. Regulators consider a capital ratio of 5% and a risk-based capital ratio of 10% to be well capitalized, it said, and it predicts ratios of 10% and 19.5%, respectively.
