Despite housing slump, weak GDP growth and competitors woes company did a rather good job this quarter.
In a worsening environment, Delta obtained satisfying results sticking to its disciplined business model of originating mainly (87% this quarter) fixed rate mortgage loans sporting low pre-payment and default rates in large part through their in-house cheap retail channel (for about 50% of their loans).
3rd quarter 2006 highlights:
- 3rd quarter net income: $0.33 per diluted share (+6.5% year over year),
- originated $2.9 bil. year-to-date (+6% year over year but 3% less sequantially),
- mortgage loans held for investment at the end of September 2006: $6 bil. ( $4 bil. at the end of September 2005) granting in the next 12 months about $87 mil. of pre-tax interest income,
- gain on sale margin on the $197 mil. loans sold on "whole-loan" basis: 1.8% ((1.4% Q3 05, 1.4% Q4 05, 1.1% Q1 06, 1.3% Q2 06),
- increased their weighted average coupon to 9.06% (20 basis points more quarter-over-quarter).
Though we are expecting a softening origination volume for next year we are sticking to our long term price target price of $14 since originating margins are above our assumptions and default rates is still under check thanks to Delta underwriting discipline.
The stock, which trades at 6.14 times estimated 2007 earnings, can be considered as cheap.
Updated stock quote: $9.51 (+5.5% compared to 9/14/06 close, -0.83% compared to yesterday close).
Disclosure: author does not have a position in the securities discussed in this article at the time of posting.
