PSMH: Back-to-Back Profitable Quarters
By Ann Heffron, CFA
PSM Holdings, Inc. (OTC BB:
posted net earnings of $0.2 million, or $0.01 per diluted share,
for the second fiscal quarter ending December 31, 2012,
comparable to the level achieved in the fiscal first quarter
(ending September 30, 2012). Importantly, for the first time in
the Company's history, it has posted two back-to-back quarters of
Relative to the year-ago quarter, revenues surged 76% year
over year to $6.0 million as loan production advanced 91% to $171
million, partly offset by a slide in the gross profit margin to
3.54% from an unusually high 3.83% in the year-ago quarter. Total
operating expenses increased 45% to $5.9 million, largely the
result of higher compensations costs.
The second quarter matched our diluted EPS estimate of $0.01,
but net earnings were only about one-half the $0.4 million we had
expected. The $0.2 million shortfall included $0.1 million of
one-time expenses; so the actual shortfall was only $0.1 million,
largely reflecting higher performance-based compensation
PSMH made several important announcements during the
- On February 4, 2013, PSMH completed a private placement of
$5.7 million of 6% Series A and Series B convertible preferred
stock, each convertible into PSMH common stock at $0.40 per
share. The preferred shares can be converted into common stock
at any time by the preferred shareholder. However, PSMH can
force conversion only when its common stock price equals or
exceeds $2.50 for a period of 90 consecutive trading days with
a minimum average trading volume of 100,000 shares per day.
Full conversion of the preferred stock would result in the
issuance of 14,250,000 additional common shares, increasing
common stock outstanding by 48%. Concurrent with the issuance
of the preferred stock, the board of directors was reduced from
seven members to five members, with the Series A preferred
stockholders appointing two of the five board seats.
- On February 7, 2013, PSMH hired Kevin J. Gadawski at
$20,000 per month ($240,000 annually) to be its interim chief
operating officer and interim chief financial officer. We
expect this expense will be largely offset by cost cuts related
to certain consulting contracts.
- On February 7, 2013, PSMH entered into a two-year
independent contractor agreement at $15,000 per month ($180,000
per year) with LB Consulting LLC, under which LB Consulting has
agreed to provide advisory services in connection with capital
market strategies as the Company prepares to list its shares on
a major stock exchange and other projects mutually determined
by the parties.
PSM Holdings, Inc. is engaged in the businesses of mortgage
banking, in which PSMH both originates and funds mortgage loans
through its own warehouse lines of credit and currently accounts
for about 90% of closed loans, as well as mortgage brokerage, in
which PSMH originates mortgage loans funded by over 50
third-party lenders. PSMH immediately sells these loans to its
third-party lenders or into the secondary mortgage market. The
Company offers a full range of mortgage loan products, including
adjustable rate mortgages, fifteen, twenty, and thirty-year fixed
rate loans, and balloon loans with a variety of maturities, as
well as refinancing, construction loans, second mortgages, debt
consolidation, and home equity loans.
PSMH had total assets of $24.7 million at the 2012 fiscal
yearend on June 30, 2012, total revenues of $14.2 million for the
2012 fiscal year, and closed 2,920 mortgage loans, worth $393
million, during this period. Operations are carried out by
the Company's wholly owned subsidiary, PrimeSource Mortgage, Inc.
(PSMI). Through this subsidiary, PSMH operates and is licensed in
the following 15 states: Arkansas, Colorado, Florida,
Iowa, Montana, Missouri, Nebraska, New Jersey, New Mexico, New
York, Oklahoma, Oregon, Texas, Utah, and Washington.
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