Posts tagged ‘correspondent lending’

Nov 19

Impac Mortgage: A Growth And Value Story

I wrote the following article on the weekend for SeekingAlpha publication. Hopefully it will be published on SeekingAlpha in the next few days.

Impac Mortgage Holdings (IMH) is a very simple thesis and so I am going to get straight to the point. Impac is a mortgage originator and real estate services provider that has been growing their origination business at an impressive rate. In addition to its two operating segments, the company has discontinued operations in run-off associated with its pre-2008 activities in mortgage lending and as the manager and residual holder of non-recourse trusts.

Impac earned $1.50 per share from mortgage originations and real estate services in the third quarter. The mortgage origination business pulled in earnings per share of $1.04, while real estate services business earned $0.46. Below are earnings for these two segments over the first three quarters of 2012.

In addition to these strong numbers, growth is expected to continue to be strong going forward. The company noted on the third quarter conference call that origination volumes in October were another 22% higher than the average monthly volume in Q3. Read more

Nov 2

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Summing up Earnings: Impac Mortgage, Rurban Financial, PremierWest Bancorp

In the next few posts I will summarize my thoughts on the quarterly earnings reports released so far for the companies I own. In this post I am going to look at Impac Mortgage, Rurban Financial, and PremierWest Bancorp. I will follow that up shortly with another post that looks at Radian Group, PVF Capital and Community Bankers Trust.

Impac Mortgage

In my post last week on Impac Mortgage, I noted the following concern:

In my opinion, the biggest short term risk is that the third quarter GAAP number disappoints. This could easily happen as a result of further charges to the repurchase reserve or mark to market changes to the trusts that overwhelm the profitability of the operating business. Given the run-up in the stock, a low GAAP number could cause some of the short term holders that haven’t looked closely at the businesses to run for the exits.

As it turned out my fear of a poor GAAP number was realized, but the strength of the underlying mortgage origination business was impossible to ignore, and the stock shot up higher anyways.

I was pleasantly surprised with the results. The mortgage origination segment outperformed even my most optimistic expectations. Lending volumes increased 33% quarter over quarter. Earnings from the segment increased an astonishing 100% quarter over quarter. Further, the company said on the conference call that October volumes were $290 million, which, if extrapolated for the entire quarter, would be another 22% quarter over quarter rise in the fourth quarter from the $709 million originated in Q3. Read more

Oct 22

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Impac Mortgage: Where the money comes from

When I first bought Impac Mortgage (back at the beginning of August) it was on the basis of GAAP earnings (which were 50 cents per share in the second quarter), and revenue growth from the mortgage origination business. Soon after, when I looked more closely into earnings, I determined that much of what was reported in GAAP was obscured by mark to market adjustments and a legacy business that is no longer operating. Fortunately if I ignored these effects, the resulting picture was even better than the one painted by GAAP.

So I left it alone and went on to other things.

To digress for a minute, this is my process. Once I feel like I have a clear answer on a stock, I don’t look too much further into the details. When I look at a stock I look hard, and I usually come up with a fairly accurate picture, but after I feel able to draw a conclusion, I don’t spend a lot more time quibbling over the details.

I don’t have time. I have time to look into maybe 2 stocks per week. If I spent week after week evaluating a single security, it is simply inefficient.

Does this lead to mistakes? Absolutely. Sometimes I miss a key aspect that changes the equation. But to mitigate mistakes I have learned to reevaluate when the market tells me I am wrong, and to act quickly when it turns out I am. And actually, this has been one advantage of starting this blog. There have been a couple of cases where readers have pointed out something that I have missed. And I’ve saved money as a result.

Given the amount of time I have to allocate to investing, this remains, in my opinion, my most efficient process. Study the business, figure out what the key drivers are and where problems are most likely to arise, evaluate those drivers and problems, make a decision and move on to the next one. Take another look if things start to go amiss.

With respect to Impac, as the stock moved up from $2.50 to $10, I wasn’t that concerned with getting a better grasp on the specifics of earnings. My initial analysis showed me the drivers, and they led me to conclude that the stock wasn’t even close to reflecting those drivers, and that was enough for me.

But now, with Impac hovering between $10 and $11, further analysis is warranted. My intent below is to understand how each of the businesses that Impac operates generates earnings, and to compare the earnings generation capacity to GAAP, hopefully eliminating some of the confusion introduced by GAAP. Read more