Magazine article American Banker

Strong Quarter Fails to Prop Up N. American's Stock

Magazine article American Banker

Strong Quarter Fails to Prop Up N. American's Stock

Article excerpt

North American Mortgage Co. appears to be rebounding from a downturn in loan production last year, but its stock price is taking a beating amid investors' worries about rising interest rates.

This week, the Santa Rosa, Calif.-based lender reported that a hefty increase in loan production boosted its first-quarter earnings to $7.5 million, up 32% from a year earlier. Yet its stock hit a 52-week low of $16.625 last Thursday.

"The mortgage market is a cyclical animal, and investors are looking at where the business is going rather than where the business is coming from," said Gareth Plank, a stock analyst at UBS Securities.

The worry is that interest rates on 30-year fixed-rate loans - which had climbed to an average of 7.74% for the week ending June 19, according to HSH Associates, Butler, N.J. - will continue their ascent, putting a damper on lending.

So far, however, North American hasn't been handicapped by the recent run-up in rates. The company's loan originations in the first quarter totaled $2.5 billion, up 118% from the comparable period a year earlier.

President and chief operating officer Terrance G. Hodel said in a quarterly conference call with stock analysts that loan production was helped by an improvement in the California housing market, where North American has a large presence.

Investors are concerned that profit margins and production might be down the rest of the year, Mr. Plank said.

North American also suffered a $2.4 million hedging loss, due to rising interest rates and a volatile bond market. …

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