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Decline In Mortgage Rates Results In Strong Refinance Activity

Armen Hareyan's picture

This morning Firstbank Corporation reported its 2009 first quarter results of $0.16 per share and said that sharply falling mortgage rates resulted in strong refinance activity which offset some of the losses from the real estate.

Residential mortgage refinance activity was the strongest area of our business in the first quarter, and we also found opportunities to refinance good commercial projects where the original lenders need to reduce their commitments. We know that we, like all banks, will have to absorb a special assessment by the FDIC that will be expensed in the second or third quarter of this year. In our case, if the special assessment is reduced to the 10 basis point level that is being discussed, the cost will be approximately $1.1 million.

Net income of $1,513,000 or $0.16 per share for the first quarter of 2009, compares to $2,150,000 or $0.29 per share for the quarter ended March 31, 2008 -- Gain on sale of mortgage in the first quarter of 2009 increases 100% from the first quarter of 2008 -- Increase in FDIC fees and collection expenses neutralize cost reduction efforts -- Balance sheet and loan growth muted by economic conditions and loan sales into the secondary market -- Preferred stock issuance increases total equity by 28.7% -- All affiliate banks continue to meet regulatory well-capitalized requirements.

Total assets of Firstbank Corporation at March 31, 2009, were $1.415 billion, an increase of 2.3% over the year-ago period. Total portfolio loans of $1.135 billion were 0.6% above the level at March 31, 2008, but declined from December 31, 2008. Although mortgage refinance activity is very strong in Firstbank's markets, this type of lending activity results in loans being financed in the secondary market rather than on the balance sheet of the company. While Firstbank has ample resources to increase loans on its balance sheet, demand for funding new ventures by quality borrowers remains weak due to uncertainty about the economy. Total deposits as of March 31, 2009, were $1.036 billion, compared to $1.012 billion at March 31, 2008, an increase of 2.4%.

Gain on sale of mortgages continued very strong in the first quarter of 2009, generating nearly five times the revenue generated in the fourth quarter of 2008, and more than twice the revenue compared to a fairly strong first quarter of 2008. Sharp declines in mortgage interest rates in December of 2008 and continuing into the first quarter of 2009 are resulting in very strong mortgage refinance activity. Increased losses on sale of other real estate and reduced valuations in deferred compensation plan assets (which are matched by reduced other expenses) offset some of the revenue benefits from the mortgage business. As a result, total non-interest income was 9% above the year-ago quarter.

Based on Firstbank press release.

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