First Alliance Stock Hits New Low After 2nd-Quarter Report

First Alliance Corp.’s shares fell 27% to a record low Thursday after the company said its second-quarter earnings will fall short of analysts’ estimates.

The Irvine-based mortgage lender’s stock tumbled $3.63 to $9.81 a share, making it the third largest percentage loser in U.S. markets. Volume totaled 1.5 million shares, about 10 times the three-month daily average.

First Alliance said Wednesday that it will make 10% to 20% fewer loans directly to borrowers in the current quarter compared with the first quarter.

The company also said borrowers paid off loans faster than expected in the second quarter, lowering the value of its mortgage-servicing assets. Borrowers turned to other lenders to refinance loans as the company had trouble keeping employees on staff to retain borrowers, analysts said.

Analysts had been estimating that the company would post earnings of 49 cents a share, down slightly from 53 cents a share in the same quarter last year.

The company’s chief executive officer, Brian Chisick, said he expected the production drop to be only temporary, noting that Alliance opened four branches in the past 60 days and intends to buy more than 1 million of its shares during the remainder of this year.

Chisick said investors are overreacting. “We’ve had some information that hasn’t given investors a comfort level,” he added. “But we still expect to do close to the volume of business we anticipated.”

Analyst E. Reilly Tierney said, however, that First Alliance could have trouble attracting good personnel and keeping employees “if their reputation becomes sullied.”

First Alliance has been accused by the American Assn. of Retired Persons of engaging in unfair business practices in California. AARP filed a motion to join others in a lawsuit against First Alliance, seeking up to $50 million in restitution for customers of the lender.

First Alliance has denied the allegations, which include concealing loan costs, pressuring seniors to borrow more than they needed and levying fees as high as 20% of the loan value.

The employee retention problems have had more to do with competitors luring away employees with lucrative offers than with the lawsuit, said John Michel, vice president of finance.

The company is “making every effort to keep key employees, but we can’t blow out our compensation structure for one or two individuals,” he said.

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Alliance Stock Drops

First Alliance’s stock, which traded as high as $18 in January, fell to $9.81 on news that its second-quarter results would fall short of analysts’ estimates. Quarterly earnings trend, weekly closing stock prices and Thursday’s close:

Thursday’s close: $9.81

Quarterly Earnings (in millions)

Total revenue 1st qtr. 98: $23.35

Net income 1st qtr. 98: $7.26

Source: Bloomberg News