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Warehouse Fraud Doesn't Dent Impac's 1st Qtr Performance

Impac Mortgage Holdings earned $0.76 per share on $46 million of net earnings in the first quarter, an increase of 43% in earnings per share compared to the first quarter of last year.

And that record performance came despite a $6 million loss due to fraudulent advances made from a warehouse line of credit. Impac said it has reviewed is procedures and controls to strengthen protections against warehouse credit fraud, but CEO Joseph Tomkinson said warehouse lending remains a profitable component of the company's business.

"We remain committed to this business," he said during a conference call with investors and analysts. He said the fraud was perpetrated by a single warehouse credit customer and involved a $12.6 million line of credit, about $6.6 million of which the company expects to recover.

But few analysts seemed concerned by that blemish on the company's quarterly results. Most were impressed by the fact that despite an industrywide decline in mortgage lending volume, Impac increased its originations in the first quarter from the fourth quarter.

The company's mortgage operations acquired and originated $3.5 billion of primarily alt-A mortgages, up from $3.1 billion in the fourth quarter and $1.8 billion in the first quarter of last year.

The company also said its asset portfolio, on which it earns spread income, increased to $13 billion from $10.7 billion at the end of last year.

Mr. Tomkinson urged investors not to be concerned about rising interest rates, saying that IMH has developed a business strategy that is designed to remain profitable in a rising rate environment.

"We are confident that our interest rate risk policies along with the growth and strategies we have put into place at our mortgage operations should result in our stated goal of providing consistent, reliable earnings and dividends to our stockholders," he said in a prepared statement.

In addition, the company reported a decline in nonperforming mortgage assets and net charge-offs.

As a result, analysts at Sandler O'Neill raised their price target by $3.50 to $26, which assumes that IMH will be trading at about seven times estimated 2005 earnings per share.

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