First Mortgage Reports Strong First-Quarter Results; Declining Interest Rates, Refocused Lending Strategies Help Boost Net Income

Business Wire, August 8, 1997

DIAMOND BAR, Calif.--(BUSINESS WIRE)--Aug. 8, 1997--First Mortgage Corp. (OTC:FMOR) Friday reported financial and operating gains for the company's first fiscal quarter ended June 30, 1997.

Net income in the first quarter jumped to $264,000, or $0.05 per share, compared with earnings of $117,000, or $0.02 per share, for the first quarter of fiscal year 1997. Revenues climbed by 11% to $4,437,000, from revenues of $3,987,000 for the year-ago quarter.

"We're especially pleased with these results given the competitive pressures and interest-rate volatility endemic to our industry," said Clement Ziroli, First Mortgage's chairman and CEO. "We're also encouraged by California's strengthening real estate market, which is evidenced by reduced foreclosure losses and delinquency rates that are currently among the lowest we've seen in many years."

Gains in Loan Portfolio and Servicing Income

Loan servicing income, representing loan servicing fees, late charges and other fees earned by the company for administering the loans in its service portfolio, rose 8.3% to $1.86 million during the quarter, up from $1.71 million for the same 1997 fiscal quarter. As of June 30, 1997, First Mortgage serviced $1.705 billion in loans, compared with $1.601 billion at June 30, 1996, a net gain of 6.5% after prepayments and scheduled amortization of mortgage loans.

The volume of new mortgage loans decreased slightly for the quarter to $86.8 million, vs. $92.1 million in the year-ago quarter. In addition, loan origination revenue declined by approximately 3.7% to $704,000 from the June 1996 quarter.

Despite intense price competition, a decrease of nearly 50 basis points in long-term mortgage interest rates during the quarter resulted in a gain on sale of mortgage loans of $1.34 million for the quarter, an increase of 46.6% over the same period last year.

Interest income, which reflects the interest received on mortgage loans held for sale, decreased to $537,000 for the quarter from $627,000 for the comparable prior-year quarter. This decrease was due primarily to the lower average interest rate on mortgage loans and a smaller mortgage inventory carried by the company during the quarter ended June 30, 1997.

Total expenses for the quarter increased by 5.2% to $3.98 million from the three months ended June 30, 1996. The company attributed the increase to the opening of new retail branches and the hiring of new personnel to staff these offices during the quarter. General and administrative expenses for the period increased by $70,000, an increase of 4.0% over the June 1996 quarter.

The company attributed these higher expenses to expanding production operations during the quarter, partially offset by cost reduction measures taken over the past year.

New Loan Product

Ziroli cited three major factors that contributed to the company's solid first-quarter results and are expected to produce strong results through the remainder of the fiscal year.

First, "The company still faces intense competition from many directions, particularly for the standard conforming conventional mortgage loans so coveted by many of the major banks," he said.

"Our strategy, which has already produced positive results, will be to increasingly pursue the origination of FHA and VA loans, and to add home-equity loans in this portion of our loan mix, which match our expertise and offer much greater profit potential for the company.

"We recently introduced, for example, a second mortgage equity loan that will be originated through direct consumer mailing, telemarketing and our traditional retail branch operations. We intend to securitize and retain servicing on this increasingly popular new mortgage product."

New Commission Structure

Second, the company recently revamped much of its incentive compensation structure to emphasize loan profitability over volume. Said Ziroli, "Our incentive compensation structure now better reflects this important distinction."

Additional Retail Origination Offices

Third, the company continues to add retail origination offices in California and Arizona. According to Ziroli, "A key part of the company's long-term plan is to open retail origination offices in areas with demand that matches our strength in government insured and conventional non-conforming loans. We are positioned to take advantage of market niches that offer the greatest profitability."

Positive Outlook

Ziroli added: "Interest rate levels continue to remain favorable, which is helping to boost both volume and profits in the current quarter. If rates remain stable or decline, we expect to continue to realize financial gains in the remainder of fiscal year 1998."

This release contains certain forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially from these statements or current trends. Investors should refer to First Mortgage's 1997 10-K and 10-Q for the quarter ended June 30, 1997, for a fuller description of risk factors.

First Mortgage is a mortgage banking company that originates, purchases, sells and services first-deed-of-trust loans for owner occupied one- to four-family residences. The company operates through a network of offices in California, Washington and Arizona.