PSMH: Third Quarter Update

Zacks Small Cap Research

By Ann Heffron, CFA, CPA

PSM Holdings, Inc. (OTC BB:PSMH) posted a net loss of $1.4 million, or a loss of $0.05 per share, for the third fiscal quarter ending March 31, 2013. Results included a $0.5 million one-time charge to provide a reserve for notes receivable and employee advances. Excluding this item, the net loss was $0.9 million, or a loss per share of $0.03.

Click here to download a free copy of the PSMH research report: PSMH 6-24-13

Relative to the year-ago quarter, the net loss and loss per share were essentially flat at $1.4 million and $0.05, respectively. Revenues jumped 25% year over year to $4.4 million as loan production advanced 36% to $143 million, partly offset by a slide in the gross profit margin to 3.12% from 3.39% in the year-ago quarter. Total operating expenses increased 20% to $5.9 million, largely the result of higher compensations costs.

On a quarterly sequential basis, total revenues dropped 26% due to a 16% slide in loan production volume and a 42 basis-point decline in the gross profit margin, principally reflecting a larger contribution from lower margin lending markets. We note that the third quarter is usually the weakest of the year, and this year proved no exception.

Total operating expenses rose 2%, despite the decline in loan production as brokerage commissions rose due to increased competitive compensation pressures for the best loan officers.

The third quarter fell short of our expectation for break-even earnings and EPS, primarily reflecting lower-than-anticipated loan production and margins and related revenues.

We have reduced our estimates of net income and diluted EPS for 2013 and 2014. First, we have raised our brokerage commission expense estimate. Second, we have lowered our gross profit margin estimate by roughly 10 basis points in each year.

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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