HE Servicing Sector Affects Revenue

Columbus, IN-Drops in home-equity loan processing revenune and related increases in provisions for loan losses have taken a toll on first-quarter earnings of various banks.

Irwin Financial Corp. here reported $94 million in losses for the first quarter, which reflect restructuring changes, including the sale of its home-equity servicing assets.

The $3.17 loss per share, the company said, derived principally from credit provisions and cost related to its strategic restructuring, which was smaller than the $104 million in pretax losses reported in the fourth quarter of 2008.

Fiserv Inc., Brookfield, Wis., reported $1.04 billion in revenue, compared to $1.31 billion in the first quarter of 2008, which reflects the disposition of a 51% interest in Fiserv's insurance operations in July 2008. Home-equity loan processing revenue decreased by $19 million in the first quarter of 2009 to $23 million, “due primarily to the significant downturn in the U.S. mortgage market,” the company said, negatively impacting internal revenue growth in the financial segment by 3%.

TriCo Bancshares, Chico, Calif., also reported a $1.16 million decrease or 28.8% in its quarter earnings, down from $4.04 million in the same quarter of 2008. TriCo attributed the decrease primarily to a $3.7 million or 90% increase in its provision for loan losses to a total of $7.8 million. Reasons included higher net loan charge-offs, increased nonperforming loans and downgrades such as a $2.61 million in charge-offs, up 27.7% compared to the $2.04 million of net charge-offs in the first quarter of 2008, “principally related to home-equity lines of credit and small business loans."

Differently from Fiserv and TriCo, which increased loan loss provisions as a way to deal with home-equity loss, Irwin is completing its exit form the market.

"We believe the home-equity sale is a very positive development for Irwin," Irwin Financial chairman and CEO, Will Miller, noted in a company release. Quarter results, he said, reflect the fact that Irwin completed another restructuring step following the bank's plan to refocus on small business and community banking with the sale of home-equity servicing.

Irwin said it started its restructuring two years ago with the sale of the conforming mortgage business, which has now been almost fully completed. According to Mr. Miller, the company has exited from the national mortgage, equipment leasing and home-equity segments - except for a liquidating portfolio of home-equity loans. "With the transactions in March we removed approximately $700 million of these home-equity loans and other assets," he said. "We increased our deposits in the first quarter and both of our banking subsidiaries remain adequately capitalized."

The home-equity segment incurred a pretax loss of $42 million during the first quarter, up from $18 million in the fourth quarter of 2008. The loss was affected negatively by a $21 million provision on an unsold portfolio and non-interest expense of $12 million. On March 31, Irwin said it sold mortgage servicing rights "and certain platform assets related to securitized home-equity loans to Green Tree Servicing LLC," thus revolving the aforementioned $700 million in home equity and related assets in addition to other collateralized debt. The transition of the servicing operations was completed on May 1, which Irwin said should allow the company to see significant declines in its non-interest expenses going forward.

HE Hurts Financial Firms

* Irwin Financial Corp., Columbus, Ind., $42 million loss.

* Fiserv Inc., Brookfield, Wis., $19 million less revenue.

* TriCo Bancshares, Chico, Calif., $2.61 million in charge-offs.

Next in News ►