PSMH: Back-to-Back Profitable Quarters - Analyst Blog

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PSMH: Back-to-Back Profitable Quarters

By Ann Heffron, CFA

PSM Holdings, Inc. (OTC BB: PSMH ) 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 profitability.

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 costs.

PSMH made several important announcements during the quarter.

  • 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: PSMH , PSMI

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