First Financial Bancorp (FFBC) 2005 Q1 法說會逐字稿

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  • Operator

  • Good afternoon ladies and gentlemen, and welcome to Irwin Financial first quarter conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. Please not this conference is being recorded. I would now like to turn the call over to Mr. Greg Ehlinger, Senior Vice President and Chief Financial Officer. Mr. Ehlinger you may begin.

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • Thank you Ms. Sandra and welcome everybody. I'm joined today by Will Miller, our CEO and Jody Littrell, our Controller. And before we start our presentation, I want to remind you that there is important cautionary and forward-looking disclosures in our written press release in our 10-Q filing that apply to this conference call. You can find that on page 18 of the 10-Q, which we filed today with the SEC. Now, I'll turn over the Will, who will typically review the quarter for us.

  • Will Miller - Chairman & CEO

  • Thank you Greg. I would start by reiterating the key points we made in the press release. First, we entered the quarter with net income of $3.6 million or $0.13 per diluted share. That compares to $14.4 million or $0.48 per diluted share in the fourth quarter of 2004. This decline is largely attributable to a reduction in net income in mortgage banking. In a press release in early April we said we expected a small loss in the quarter. The change to a profit resulted from updated estimates of the performance of incentive servicing fee agreements at the home equity line of business. We value these incentive fees as derivatives under FAS 133. During our review of the valuation models at quarter-end, we made adjustments that had not been anticipated in the earlier earnings estimates. Second, we continue to face challenges in our mortgage banking segment with very narrow margins caused by competitive pressures created disappointing results on the production side of the business. Our correspondent in the wholesale channels were profitable in the first quarter. It was the drag of our old retailer systems, which were core mortgage origination profitability.

  • As announced earlier, we have taken steps to exit less profitable parts of our retail channel and it significantly reduced corporate overhead in order to return our production operations to profitability over time. Third, we face a very difficult environment this quarter for hedging our portfolio of servicing rights in the mortgage banking segment. The decline of interest rates early in the quarter caused us to reposition our hedges to protect against the severe consequences of further rate decline. The rate wise near the end of the quarter post our MSR values above the lower of cost or market cap imposed by GAAP, while our hedges continued to be marked-to-market, causing an accounting loss that does not reflect economic reality. Absent the lower of cost or market cap, our results would have been approximately $0.48 per share greater than what we reported or approximately $0.61 per share.

  • Finally we are pleased with the performance of our other three segments both in their loan growth and fundamental credit quality. One item is with special note because it's caused the result to change from the small loss as we told you on April 4th to a profit for the quarter. In our home equity segment, we have been helping offset the expense of building our portfolio with servicing retrained whole loan sales. The whole loan sales have been performed with securitising loans and contract with us to service the loan. We recognized the mortgage servicing asset at the time of sales. As part of the volume securitizations, they issue an incentive servicing agreement to us as master servicer in order to create a reward for us to do better than expected performance to our servicing activities. Once the pre-established return for the buyers has been met. The incentive servicing fee provides potential cash payment to us in the event that certain structured specific loan, credit, and servicing performance metrics are met. Included in the derivative gains or losses for the first quarter was a $10.5 million gain related to these incentive-servicing fee. Valuation of these fees is based upon actual cash receipt and the projected value of future cash flows, present value at March 31 using discount rates ranging from 30% to 40%. In total, we have $900 million in loans for which we hold such derivative contracts. Our accounting policy as required by FAS 133 is to recognize a derivate asset on a mark-to-market basis at such time that the credit and prepayment performance model we use indicate with adequate predictability that we are more likely than not to receive cash payments on the derivatives. We use assumptions to value the incentive servicing fees that we believe market participants would use to value similar assets. The change to a profit resulted from an updated estimate of the value of incentive servicing fee agreements at our home equity line paid during the closing profits.

  • Although our results in the first quarter were well below our long-term expectations, we continue to maintain a long-term focus to return early financials to the level of profitability we expect for ourselves and our shareholders. Our current expectation is that earnings in the remaining quarters of 2005 will return to amounts more consistent with our long-term record. However, given results in the first quarter, we do expect net income for the full year of 2005 will be below those recorded in 2004.

  • I'll now turn the call over to Greg for a review of the quarter in each segment.

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • Thank you Will. Reflecting the results in our first mortgage segment, net revenues declined on both a sequential quarter basis and compared to a year earlier reflecting a combination of lower loan production, reduced gains in the secondary market, and reduced net recovery of mortgage servicing impairment. Our consolidated loan and lease portfolio totaled $3.5 billion as of March 31, which was a 1% increase from the end of 2004. Will noted the good core loan growth we had. The portfolios of our two commercial segments increased $75 million or 11% on an annualized basis during the quarter. And although our second mortgage loan portfolio declined $37 million due to run-off and whole loan sales, our loans held for sale in the first and second mortgage segments increased 18% from the end of 2004. Deposits were up 11% from the end of the year to $3.8 billion. We have seen average core deposits, which rose at a modest 5% annualized rate during the quarter, increased $458 million or 26% during the last year. We had $504 million or $17.67 per share in common shareholders' equity at quarter end; it's largely unchanged from year-end. At quarter end, our Tier 1 leverage ratio and total risk-based capital ratios were 12% and 15% respectively, compared to 11.6% and 15.9% at the end of the year. The decline in risk-based capital ratio was principally the result of loan growth in excess of capital growth. Consolidated nonperforming assets, including other real estate owned of $13 million, were $41 million or 75 basis points of total assets, down from $45 million or 86 basis points of total assets at year-end. Our on-balance sheet allowance for loan and lease losses totaled $45 million, $1 million from the year end, and the ratio of on-balance sheet allowance for loan and lease losses to nonperforming loans and leases increased to 163% at quarter end compared to 132% at December 31. This is principally as the result of one commercial banking credit, which moved from nonperforming to other real estate owned.

  • Our consolidated loan and lease provision totaled $3 million, up $1 million from the fourth quarter and it compared favorably to charge-offs, which totaled $2 million, down $4 million from the fourth quarter. In general, despite rising delinquencies in our commercial portfolios, all of which we believe are manageable, we are pleased with our recent credit performance.

  • I'll now turn to some detail by segment starting by supplementing Will's comments on mortgage banking. Irwin mortgage reported a loss of $9.6 million compared to earnings of $9.7 million a year earlier. As Will noted, these results reflects servicing hedge costs in excess of servicing impairment recovery of $15 million compared with a net recovery of $10 million in the year earlier period. We have a further discussion of our past and current MSR hedging in the 10-Q, but I would note that to this point in the second quarter, servicing hedge is performing in line with our expectations. We recorded $1 million of revenues related to a book sale of $1 billion in servicing assets, a $7 million sequential quarter decline. This servicing sale was done in March to lower our servicing portfolio rate risk. To further reduce our mortgage servicing right valuation risk, we intend to make selective service and sales throughout the year. We originated $2.8 billion in mortgage loans - first mortgage loans in the quarter, recording net origination fee and gains on sales of $25 million compared with originations of $3.5 billion and gains of $34 million in secondary market gains during the fourth quarter.

  • We continued to see significantly reduced secondary market margins.

  • Our commercial banking segment's revenues were largely unchanged from the fourth quarter. Net income of $5.5 million with a $1.3 million decline reflecting increased personnel expenses related to new office expansions in Sacramento and in Southern California. Deposits continued to grow this quarter and outpaced loan growth by over $200 million. Net interest margin was 3.75% down from 3.81% in the fourth quarter reflecting slow deployment of these deposits into loans. We anticipate stronger loan growth in the second quarter, and with that growth, we believe, both net interest income and margin will expand. We will however, be patient with the deposit growth and accept lower returns in the short run rather than

  • inappropriately priced loan growth. Credit quality remains strong, our 30-day and greater delinquencies did increase to 66 basis points at March 31 and was attributable to three commercial credits each of which we believe to have minimal loss exposure. During the quarter, net charge-offs were only 7 basis points on an annualized basis.

  • Our home equity lending business continues to see improving credit quality. It earned $6.9 million up from $6.4 million in the fourth quarter. Loan originations rose to $430 million in the first quarter up 28% from the fourth quarter. We sold $322 million of loans during the quarter for a net gain on sale of $8 million, and as Will noted, we recorded $10.5 million of other revenues during the quarter related to increased valuations of our incentive servicing fee derivatives. We carried the incentive rights at $13.7 million on the $900 million of loans we serviced for third parties under these agreements and we discount these derivatives between 30% and 40%.

  • Finally, during the quarter we had compensation expenses at the home equity segment of $4 million related to the mark-to-market of the remaining minority ownership position in the segment. We repurchased the last outstanding portion of that ownership interest in March and therefore have eliminated this mark-to-market item from the P&L for future quarters.

  • In our commercial finance line of business we had strong operating results. It earned $700,000 in the first quarter. This was however a $400,000 decline from the fourth quarter but this decline was largely attributable to a one-time increase in non-interest expenses related to our resolution of a contract dispute. Other aspects of the operation met our expectations for the quarter. Loan and lease fundings totaled $83 million in the first quarter compared to a $115 million in the fourth quarter. Our Loan and lease portfolio increased $19 million from December 31 and now totaled $644 million.

  • In summary, it was a tough quarter but due almost entirely to the first mortgage segment. The other segments largely performed as planned. Loan growth was good and credit quality continues to meet our expectations. Our challenges in mortgage banking are not complete but we have taken significant steps to reduce both expenses and our servicing risk profile to improve our position. Now Will, Jody, and I would like to open the call up to questions.

  • ?

  • Operator

  • (OPERATOR INSTRUCTIONS) David Konrad, KBW.

  • David Konrad

  • I had a couple of questions for you. One, just a follow up on the branches that were sold -- regarding that announcement, has that transaction been completed now, I think it was supposed to close in April. Could you give us an idea of the mortgage originations and the expenses associated with those branches that you are selling that occurred in the first quarter?

  • Will Miller - Chairman & CEO

  • Branch sales were completed. There were actually two transactions. We sold some branches that -- where the transaction closed in very late March

  • mortgage. And then we sold a second set announced at the same time to American Home mortgage and that closed in the first days of April. So those expenses, the majority of them did flow through in the first quarter. We noted in the press release about $1.2 million related to the branch sales. The majority of that was a combination of goodwill that we had on the books from the 1995 acquisition of many of our Western State branches and some

  • equipment. We did not have severance cost with regard to the majority of the staff in the branches, but we did have some severance cost related to headquarters staff in Indianapolis. And as you look forward into the second quarter, there will some modest additional severance expenses in the corporate staff in Indianapolis.

  • David Konrad

  • But I guess -- I am looking at -- if you had $2.8 billion of originations in the quarter, what part of those originations came from the production of these branches that were sold, effectively right at the end of the quarter? Trying to get a feel for the run rate of both originations and expenses excluding those branches as we look forward?

  • Will Miller - Chairman & CEO

  • Of the $2.8 billion that we did in the quarter, about $500 million of that came from retail. And we have shrunk our retail systems back down to a core group of about 20 branches, both of which are not located in the high cost jumbo laden markets of the West Coast. So on a run rate basis, you should see retail production in the second and third quarter as we redefine our channel strategy for retail and prior to beginning the expansion of retail again in the low hundreds of millions of dollars. In the first quarter, we lost money on the retail operation to the tune of a few million dollars looking at just that channel. It is important to note that the correspondent and the wholesale channel were both profitable in the first quarter.

  • David Konrad

  • So we should be looking at maybe like $2.4 billion. It is kind of the -- this quarter's adjustment for --

  • Will Miller - Chairman & CEO

  • If you hold everything else equal, that's a reasonable adjustment.

  • David Konrad

  • So expenses associated with this, it is sort of probably more like $2 million or so, excluding -- I mean, what were the expenses excluding the one-time charges of $1.2 million?

  • Will Miller - Chairman & CEO

  • David, I don't have these retail channel expenses broken out in that way.

  • David Konrad

  • Okay. And then one more follow up question. You spoke briefly about your hedges performing pretty well thus far in the quarter, obviously what has been going on in the 10

  • -- if that holds out to the rest of the quarter, we maybe looking at an impairment on the MSR. So just wondering, do you think right know you have a pretty good offset with the gain from the hedge. And then just wondering, if you can give any guidance in the first part of the quarter if you were able to execute any MSR sales, given that the MSR valuations have probably come down, since then - I was just wondering in the first part of the year if you were able to execute the transaction little bit better MSR valuations?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • David, my comment about the hedge performance as we would expected in light of a pretty significant decline in rates since March 31 with this - 10 years down maybe 29 or 30 basis points reflects the fact that we - the issue that we have een talking about for last six months had to do with spread compression in a declining rate environment, and we have not seen that on the swap to mortgage basis. And so, in fact we have seen some widening, which is what we typically would expect to historically - we'd had. And so, when we set up our hedge in the beginning of the second quarter and I would point folks to the discussions of our hedge strategy with regard to mortgage servicing about page 52, 53 of the queue, a little bit more detail on how we are structuring them. We have set that up such that we do have the downward rate protection that we would typically have and as rates have come down, in stead of seeing compression between those rates we have expansion between the rates. So, you will see, if the clock were to stop today, you would see asset impairment, but you would see hedge gains in a way that's more comparable to what we have historically reported, and again we put some additional historical detail in the queue this quarter for folks to get a look at that. We have not done a servicing sale in addition to the normal flow sales that we do during the quarter. We have not executed another bulk sale, and we did a small bulk sale right at the end of the March, about `a billion two or three` in principal balance that took about $9 million of value off the balance sheet in terms of MSR risk. And that was done not for income or cash flow purposes, which are two of the three reasons that we cite typically for selling serving. It was done for the third reasons, which was a risk reduction strategy; we will continue to look for opportunities to do that. It is part of our ongoing strategy to reduce the amount of complication we have in MSRs, but we not done that yet in April. Though I should say that as we discussed before, we start servicing in two different fashions, we sold on a bulk basis, and we also sold on a flow basis and in the first quarter we sold a fair amount of mortgage servicing in the first quarter, that's under a contract that we still have and that contract currently goes through the third quarter and will continue to sell conventional product on a flow basis. In the first quarter about a 1.5 billion of product was sold kind of flow basis, so between the flow 1.5 billion and the bulk 1.3 billion, we sell it about $2.8 billion of servicing and comparing that to the production of $2.8 billion, we did achieve one of our goals with the combination of run off bulk and flow sales of reducing our risk.

  • Operator

  • John Roberts, Stifel Nicolaus.

  • John Roberts - Analyst

  • Good afternoon guys. Hi Greg, just a follow up on David's earlier question, I guess about the run rate in operating expenses at the mortgage bank. If the number for the quarter was about $41.4 million when you back out, is it fair to say, if you back out the $1.2 million that was somewhat I guess one-time in nature, does that kind of get you to a core number of about $40 million for the quarter? And then can we assume that it should be some percentage lower than that after the sale of the branches that remain faint during the quarter?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • That's directionally correct, but we have not broken out for you that the amount that you would back out and that's still an ongoing work for us as we know what the shrinkage of the branch number is, we are still working on the headquarters'

  • staff. But directionally, that's right we had $41 million of run rate in the quarter, clearly $1.2 million of that or so was a direct sale branch related piece. So, your run rate now is down to about $40 million, there will be a reduction of run rate beyond the $40 million due to the reduction of a branch level and headquarter level staff.

  • John Roberts - Analyst

  • The first quarter production of $2.8 billion, if we kind of, for a moment, I guess, forget that you are selling, I guess, what you sold in with the branches. With the current rate environment, do you kind of consider that a good run rate going forward, kind of considering where we are in the

  • market and so forth?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • John, maybe, can you rephrase that question for me?

  • John Roberts - Analyst

  • I guess, I was just wondering if the $2.8 billion in the first quarter, is there any special circumstances, I guess, surrounding that number of levelled production or do you think, I mean, all things being equal, was that a fairly clean level of production?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • The answer is yes. I am sorry. That wasn't a difficult question to understand at all, I just...

  • John Roberts - Analyst

  • Okay.

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • Yes, it is clean number. The difficult part is there is, obviously, a full quarter's worth of production there from the retail branches, and with David, we worked through some of those numbers, the retail production was about $500 million and something on the order of 60% to 80% of that to go away with the branch sales.

  • John Roberts - Analyst

  • Okay. I guess, just the next issue, I guess, I was just looking it was, I just had a question on the incentive agreement out there, is that something that is specific to Irwin or is that just something that is a industry standard that kind of goes along?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • John, it is our understanding that there are very few incentive servicing fee agreements in the market. There is probably several reasons for that, one of which is there are companies who do whole loan sales, but don't have the same servicing capabilities we do, and the ratings from Moody's and S&P and Fitch, which are ranged from above average to strong, so that when they are doing whole loan sales, the buyers don't necessarily want to retain what the seller, in this case us, to retain the servicing. In many cases, those buyers might be banks and they have their own servicing platform. So, I think that is one of the reasons. I think the second reason is some of the buyers don't subsequently securitize the loans and the incentive servicing fees come about there in the securitization process. But we were and continue to be hard pressed to find perfect market comps for the purposes of valuing the derivatives and have more than typically have relied upon models and internal models for the valuation of the derivatives.

  • John Roberts - Analyst

  • So, back to your comment there, you would not have created this derivative if your ultimate buyer of these loans did not securitize them themselves, is that correct?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • That's right. The timing of the receipt of the servicing fee is associated with the securitization transaction.

  • John Roberts - Analyst

  • So, when you look to sell these loans, do you typically look for people that are going to securitize them?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • We typically look for folks who value the servicing operations that Joslin Entertainments has built. So, if we can find the buyer who is willing to pay us for the investment that we have made in the servicing operation, that's a way we can leverage one of the capabilities we have. We would also look to a buyer to buy the whole loans for us on a service release basis, if their price was such that they were not willing to pay us for the servicing. But, yes, everything else being equal, we've got a wonderful servicing platform in San Ramone and while it does create a dynamic of having mark-to-market assets because of the accounting for the operations, it is strategically a good way of leveraging and expertise.

  • Will Miller - Chairman & CEO

  • John, the only thing I need to add is that the alternative to this arrangement is to sell a loan, servicing retained, and not having an incentive service fee because the idea of this originates from the fact that we think we can produce better credit quality than the buyers are willing to assume in their upfront price. So, we came up with this method of saying, well pay us when we prove it. And that's the intent of servicing fee. So, it is incremental economic value we otherwise would not get, unless we do the internal servicing key and then demonstrated the capacity of our servicing capability.

  • John Roberts - Analyst

  • Within the home equity business, Greg, I guess, since the minority interest has gone now, was the first quarter level of operating expenses, is that a kind of a good number to go off, if going forward?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • The first quarter operating expenses had a $4 million charge in its minority expenses. So, if you look at the $31 million, it was, obviously we're going to continue to invest in the operation and invest in the personnel and the infrastructure there. But, $31 million was elevated by $4 million of an expense that we don't expect to have going forward. Now, we will reach the replacing, what was originally a founders minority ownership interest that got mark-to-market that has been and will continue to be supplemented when - now that's not there with long-term incentive programs. But they shouldn't be anywhere near as material and not have the volatility that the original ownership interest had.

  • John Roberts - Analyst

  • And this is my final question, is this on the level of production at the home equity unit for the quarter, I mean it was pretty strong over $400 million do you think? Do you expect that sort of level will continue going forward or is that may be was that a little bit stronger than we should expect going forward?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • It's strong as our expectations were. Obviously, the market for second mortgage product is strong right now. But we se that, we've talked about it a lot in our Investor presentations with regard to our strategic focus and why we find the four segments that we are in, why we find those as attractive as we do. So, I think, long term has been very, very good, opportunities in the home equity market. They may be slightly elevated now due to the market conditions, but we think it's fairly sustainable level and we obviously, we'd hope to grow.

  • Operator

  • Fred Cummings, KeyBanc Capital.

  • Fred Cummings - Analyst

  • Greg, first just to follow up on these incentive-servicing fees, I know, in the 10-K you actually disclosed the cash component that was collected for the full year. Can you give us some sense of what the cash collections were in the first quarter or even better, what do you expect for all of 2005?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • In the first quarter, the collections on all six or seven transactions that we have in better residuals for, we're just slightly north of $300,000.

  • Operator

  • Mark Albert, Center Investments.

  • Mark Albert - Analyst

  • I was just going through the 10-Q briefly as you were speaking and I saw that in the mortgage sector, you said that you expected the mortgage company to return to profitability in the second quarter. I just wondered, what trends you are seeing that gives you that confident?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • It's a combination of two factors. We think that the interest rate environment and the effect on our hedge in the hedge strategy we used in the first quarter was unusual and again

  • with some historic information's in our Q, it historically was unusual. That has the big piece of the profitability out of the mortgage bank obviously with a $15 million net impairment. The second piece goes to the issues that I discussed 15 minutes ago that the correspondent and the broker channels were profitable from a peer production standpoint during the quarter. The lack of profitability on the production side derived from the retail branch systems and we have shedded the retail branch system of those under producing offices through the sales and have reduced the expense level due to that.

  • Mark Albert - Analyst

  • And what about the gain on sale margins, can you talk about -?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • The sales margins were pretty down low, but we've seen several quarters where they've been at pretty depressed levels, we don't anticipate seeing them going anywhere.

  • Mark Albert - Analyst

  • Could you talk about the revenue, was March better than February or are you seeing any improvement in the income?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • We don't release that monthly operating data.

  • Mark Albert - Analyst

  • I know. I was just wondering, like anecdotally.

  • Will Miller - Chairman & CEO

  • Priscilla, do we have any more questions?

  • Operator

  • Fred Cummings, KeyBanc.

  • Fred Cummings - Analyst

  • Yes Greg, two quick questions. First, with respect to the trading gains in the home equity business, I noted that net charge-offs for the managed portfolio were down pretty sharply and I am surprised that you did not have a higher level of trading gains. Maybe you can speak to what your charge-off's assumptions are embedded in the evaluation of the IO?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • Fred, that is a good question and it reflects one of the difficulties of the forecasting on the IO. What this really relates to are trading gains that we took generally in the fourth quarter of last year, some in the third quarter. You may recall especially in the fourth quarter, we updated our loss model forecast and our recovery forecast. And so, what you are seeing in the loss numbers in the Q are a reflection of what we believed was in the pipeline as it were for charge-offs in the fourth quarter and what got put into the loss model. And the way that the FAS 140 works on that, as soon as we saw that and saw sufficient evidence in our models that we were comfortable with it, we put that into the trading gains in the fourth quarter. So, we had pretty meaningful trading gains, I think it was posted to $10 million, $9.5 million in the fourth quarter. When those realize -- when that model realizes those actual improvements in credit performance in the first quarter, it is frankly a non-event from a trading gain standpoint because trading gains, which as you know, were only $0.5 million. That simply reflects that what you saw in performance in the first quarter was close to what we predicted in the first quarter. So, the answer to your second question, what is in the model? Well, you can look at the table on page 40 of the Q and see what the performance was in the quarter, and that is a pretty good estimate of what is currently in the model.

  • Fred Cummings - Analyst

  • It looks like in the leasing business, the margin was down 10 basis points or so linked quarter. Can you speak to the dynamics behind that?

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • That is a combination of competitive conditions. I made the comment during our prepared remarks that we had significant deposit growth in advance of loan and lease growth, and made a comment about our willingness to be patient in the redeployment. We are seeing what we would think at the margins being not sustainable loan pricing both in the commercial banking and in the commercial finance segment. And so, that competitive condition has influenced the levels in commercial financing. So, obviously, we are not chasing every deal that we think is priced too aggressively. But obviously we are lowering and trying to find the right balance between production and not doing it too richly. The second one is an influence of product mix and changes within the mix of the portfolio that we originate in quarter from higher risk, higher coupon product into lower risk, lower coupon product.

  • Fred Cummings - Analyst

  • Okay, thank you.

  • Operator

  • [OPERATOR INSTRUCTIONS]

  • Will Miller - Chairman & CEO

  • Terrific. Everybody, thank you very much for your attention today and your good questions. We anticipate our second quarter earnings, which obviously everybody in the room hope to be much improved, will be released on July 29, and we'll do the same drill at the conference court at that point. Thank you.

  • Greg Ehlinger - Senior Vice President and Chief Financial Officer.

  • Thank you all.

  • Operator

  • Thank you, ladies and gentlemen. This concludes the Irwin Financial First Quarter Conference. You may all disconnect, and thank you for participating.