Impac Mortgage Holdings Inc (IMPM)

[Joe Stocks]

From Lsigurd;
Impac Mortgage

As usual Impac’s GAAP numbers are a confluence of confusion. The headline number was better than the actual results because of changes to accretion of contingent expense that they incurred with the acquisition of CashCall.

The CashCall acquisition had contingent revenue payout and that payout expectation has decreased leading to lower accretion via GAAP. Ignoring accretion the operating income was around $8 million which was less than the first quarter.

The decline was mostly due to lower gain on sale margins, which had declined to 186 bps from 230 bps.

While origination volumes were up 8% sequentially (see below) I had been expecting better. The expansion of CashCall into more states was slower than I expected. In the second quarter CashCall was registered in 19 states. I actually had thought that number was 29.

q2volumesBy the third quarter CashCall is expected to be compliant in 40 states. And really that is the story here. Volume growth through expansion.

CashCall is a retail broker dealing primarily with money-purchase mortgages (mortgages to new home owners). Therefore Impac is not as dependent on refinancing volumes as some other originators.

While it was not a great quarter the company still earned 70c EPS. Its lower than my expectations but in absolute terms not a bad number. On the conference call they said that Q3 margins looked better than Q2, and while July production was only about $700mm, they expected better in August-September as the pipeline was large.

I made a mistake buying the stock at $20 on the expectation of a strong second quarter. But I think at $16 its reasonable given earnings power that should exceed $3+ EPS once CashCall is operating nationwide.

http://reminiscencesofastockblogger.com/2015/08/16/week-2015-maybe-its-just-a-bear-market/