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. There was a 30-cent loss per share, but a 15-cent gain will be realized next quarter when a servicing sale is recognized due to accounting regulations, Mr. Hodel said.

Its strategy of selling servicing rights shortly after origination boded well for North American in the first quarter.

"We recaptured the excess servicing we booked and the (originated mortgage servicing rights) we booked," Mr. Hodel said during the conference call. "We consistently achieved book prices for the stuff we sold."

In the first quarter, North American sold $2.4 billion of servicing rights for an average of 180 basis points. During the year-earlier period, it sold $1.2 billion of servicing for an average 108 basis points.

North American's practice of selling its loan servicing rights keeps its stock price lower than if the company held a servicing portfolio, stock analysts said.

"For a company with a small servicing portfolio, most earnings are from originations," said Steve Eisman, an analyst at Oppenheimer & Co., New York. Interest rates are too high to boost origination production.

"What happens in the market is that folks look at macro trends rather than looking at individual fundamentals of a company," Mr. Plank of UBS said. Investors are paying more attention to rates than to North American's fundamental strength. "Sometimes fundamentals flow counter to the value of a company stock," he said.

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